From the company’s point of view, public deposits are a major source of finance to meet the working capital needs. Due to the credit squeeze imposed by the Reserve Bank of India on bank loans to the corporate sector during 1970s – 1980s and also due to the recommendations of the Tandon Committee, restricting credit, many companies were not getting as much money in the 1980s as they used to get, in the past, from the banks. So, public deposits came handy as working capital fund for businesses. While to the depositor, the interest rate offered is higher than that offered by banks, the cost of deposits to the company is less than the cost of borrowings from bank. Moreover, the availability and volume of bank credit are restricted by consideration of margin, security offered, periodical submission of statements etc. The credit available to companies through public deposits is not Continue reading
Business Finance
Business Finance is that business activity which is concerned with the acquisition and conservation of capital funds in meeting financial needs and overall objectives of business enterprises.
Bank Rate or Discount Rate – Bank Rate Policy Defined
Bank Rate or Discount Rate is one of the earliest methods of general credit control developed by the Bank of England and it was considered an effective method till the outbreak of First World War. After the war, Bank of England developed other methods as it found the bank rate policy to be not so effective. The essence of discount rate policy that commercial banks approach the central bank whenever they are in need of financial accommodation. They get the necessary assistance by re-discounting the eligible bills and other securities. The Central bank would re-discount these instruments at a rate which directly determines the volume of funds which the commercial banks can get through this method of financial accommodation. A revision of this re-discounting rate by the central bank will necessitate the commercial banks to change their rate of discounting of eligible bills and securities. As a result the businessmen Continue reading