Monday, March 19, 2012

Project study on “CORPORATE FINANCE.”


PREFACE
The title of this study is “CORPORATE FINANCE.” Corporate finance is an area of finance dealing with financial decisions business enterprises make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize corporate value while managing the firm's financial risks. Although it is in principle different from managerial finance which studies the financial decisions of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms.
            This study shows that in current corporate world how a bank can is helpful in the growth of the industry especially for bank of India. In this study we explain that how can an entrepreneur starts a new business, expand the business, or invest in his business by taking loan from the various banks. In this report, we also explain the whole procedure of taking loan, its benefits, impact on business and loan limit according to various fields. With the loan facilities banks helps to corporate field for financing by various ways, which are also shows in this report. In terms of bank of India, we explain the whole credit policy of the bank in this study.   
Method, which used in this study, is exploratory and source of data collection is secondary data collections, which are collect by the internet, various types of newspapers, magazines and other books related to topic written by various author. This study will show the reasons of holding so many reserves by banks, how thy hold their fund and fulfill the various requirement of money when required. There are many limitation arise while study and prepare this research like other competitors of the bank in private and public sector, also interest rates, customers and reputation of the banks also affect the banks policies. Key elements, which consider in this study, are banks on which this study done, other competitors of  bank in private and public sector, customers, corporate world, old policies and its effect, sources of bank reserves etc. There are not so much data available on this topic, which is the other limitation of this report. At last it is concluded that banks are most useful sectors used in corporate field and these are work for the growth of the bank rapidly.
EXECUTIVE SUMMARY

This report shows the effect of banking sector in financing the corporate field. In the present corporate world, banks are very active element for financing them. Many industries and companies are totally depends on the banks activity which are done in favour of corporate world.
 
TITLE
The title of this report is “Corporate Finance.”

SCOPE OF THE STUDY

This study will be used in improvement of banks policies, besides that it helps in the study of interest rates, inflation rates, sources of bank and ways of money multiplier. With this, this study is also useful for the customers of the bank and various types of corporate sector for their rapid growth. This study will also useful for the MBA student who joins the bank as a trainee in the future.

OBJECTIVES OF THE STUDY

This study will show the various ways by which a bank can help the corporate world with this it is useful for the employees of the company and competitors banks in both public and private sector. It is helpful to public, government, banks and economical condition.

METHODOLOGY

Method, which used in this study, is exploratory type of research and source of data collection is secondary data collections, which are collect by the internet, various newspapers, magazines, and other books related to topic written by various authors.



SUMMARY OF FINDINGS AND RECOMMENDATION

From the study of this whole report, we find that there are many banks and other financial institutions in India in both public and private sectors all are work for the financing the corporate world also. It affects the growth of the corporate world, inflation rate of the country, interest rates; purchase policies, money multiplier etc. It is recommended that the objective function of the bank is to provide maximum and fair amount of finance to the corporate world like various types of small, medium, and large sector units, so the solution to the first-order condition is guaranteed to be a maximum of the objective function. Some banks are not listed on the stock exchange, so these are excluded from the sample in the estimation of the demand equation for reserves incorporating the share price and this are not in focus of the public and entrepreneur also.
            After presenting our examples, credit policies and interest rates policies of the bank of India we can find that it is one of the large scale bank in the public sector nationalize banks and it is recommend and conclude that this bank helps to the corporate world in large scale and try to improve its policies continuous according to the demand of the customers.

   















INDUSTRY PROFILE
          The first banks were probably the religious temples of the ancient world, and were probably established in the third millennium B.C. Banks probably predated the invention of money. Deposits initially consisted of grain and later other goods including cattle, agricultural implements, and eventually precious metals such as gold, in the form of easy-to-carry compressed plates. Temples and palaces were the safest places to store gold as they were constantly attended and well built. As sacred places, temples presented an extra deterrent to would-be thieves. There are extant records of loans from the 18th century BC in Babylon that were made by temple priests/monks to merchants.
            By the time of Hammurabi's Code, banking was well enough developed to justify the promulgation of laws governing banking operations. Ancient Greece holds further evidence of banking. Greek temples, as well as private and civic entities, conducted financial transactions such as loans, deposits, currency exchange, and validation of coinage. There is evidence too of credit, whereby in return for a payment from a client, a moneylender in one Greek port would write a credit note for the client who could "cash" the note in another city, saving the client the danger of carting coinage with him on his journey. Pythius, who operated as a merchant banker throughout Asia Minor at the beginning of the 5th century B.C., is the first individual banker of whom we have records. Many of the early bankers in Greek city-states were “metics” or foreign residents. Around 371 B.C., Passion, a slave, became the wealthiest and most famous Greek banker, gaining his freedom and Athenian citizenship in the process. The fourth century B.C. saw increased use of credit-based banking in the Mediterranean world. In Egypt, from early times, grain had been used as a form of money in addition to precious metals, and state granaries functioned as banks. When Egypt fell under the rule of a Greek dynasty, the Ptolemies (332-30 B.C.), the numerous scattered government granaries were transformed into a network of grain banks, centralized in Alexandria where the main accounts from all the state granary banks were recorded. This banking network functioned as a trade credit system in which payments were effected by transfer from one account to another without money passing. In the late third century B.C., the barren Aegean island of Delos, known for its magnificent harbor and famous temple of Apollo, became a prominent banking center. As in Egypt, real credit receipts replaced cash transactions and payments were made based on simple instructions with accounts kept for each client. With the defeat of its main rivals, Carthage and Corinth, by the Romans, the importance of Delos increased. Consequently, it was natural that the bank of Delos should become the model most closely imitated by the banks of Rome.
            Christ drives the Usurers out of the Temple, a woodcut by Lucas Cranach the Elder in Passionary of Christ and Antichrist.
            Banking during Roman times was not as we understand banking in modern times. During the Participate, the majority of banking activities were conducted by private individuals, and not by large banking corporations that exist today. Money lending not only allowed for those people who needed money to have access to it, but that through direct transference between bankers, the actual usage of currency was not needed because it could be done purely through financial intermediation. Large investments were conducted and financed by the federators (trans. financier), whilst those that worked professionally in the money business and were recognized as such were known by various names, such as argentarii (trans. banker), nummularii (trans. money changer), and coactores (trans. debt collector), but the vast majority of money-lenders in the Empire were private individuals, since anybody that had any additional capital and wished to lend it out, could easily do so.
The rate of interest on loans varied in the range of four percent to 12 percent, but when the interest rate was higher, it typically was not 15 or 16 percent, but 24 or 48 percent. The apparent absence of intermediary rates suggests that the Romans may have had difficulty calculating rates. They quoted them on a monthly basis, as in the loan described here, and the most common rates were multiples of twelve. Monthly rates tended to range from simple fractions to three or four percent, perhaps because lenders used Roman numerals.
            Columella advised people setting up vineyards to include the interest on borrowed money among their costs as a matter of course and clearly understood that investors need to think about the cost of invested funds, whether borrowed or not. His advice shows financial sophistication in addition to suggesting the presence of loans for productive purposes.
            Money lending during this period was largely a matter of private loans being advanced to people short of cash, whether persistently in debt or temporarily until the next harvest. For the most part exceedingly rich men who were prepared to take on a high risk if the profit looked good undertook it; interest rates were fixed privately and were almost entirely unrestricted by law. Thus, investment was always regarded as a matter of seeking personal profit, often on an exorbitant scale. Banking was of the small back-street variety, run by the urban lower-middle class of petty shopkeepers. By the 3rd century, acute currency problems in the Empire drove them into a state of decline.

Western banking history

            The Church officially prohibited usury, which reafirmed the view that it was a sin to charge interest on a money loan. The development of double entry bookkeeping would provide a powerful argument in favor of the legitimacy and integrity of a firm and its profits. While archival evidence suggests the emergence of bookkeeping practices during the course of the 13th century, the earliest extant evidence of full double-entry bookkeeping is the Farolfi ledger of 1299-1300. Giovanno Farolfi & Company were a firm of Florentine merchants whose head office was in Nîmes whose ledger shows that they also acted as moneylender to Archbishop of Arles, their most important customer. His patronage must also have shielded the Florentines from any trouble over the Church's official ban on usury, which in any case was not seriously enforced, provided the rate of interest was not extortionate; the Archbishop himself borrowed from the Farolfi at 15 per cent per annum.
            Banking in the modern sense of the word can be traced to medieval and early Renaissance Italy, to the rich cities in the north like Florence, Venice, and Genoa. The Bardi and Peruzzi families were dominated banking in 14th century Florence, stablishing branches in many other parts of Europe. Perhaps the most famous Italian bank was the Medici bank, set upby Giovanni Medici in 1397. Modern Western economic and financial history is usually traced back to the coffee houses of London.[citation needed] The London Royal Exchange was established in 1565. At that, time moneychangers were already called bankers, though the term "bank" usually referred to their offices, and did not carry the meaning it does today. There was also a hierarchical order among professionals; at the top were the bankers who did business with heads of state, next were the city exchanges, and at the bottom were the pawn shops or "Lombard"'s. Some European cities today have a Lombard street where the pawnshop was located.
            After the siege of Antwerp trade moved to Amsterdam. In 1609 the Amsterdamsche Wisselbank (Amsterdam Exchange Bank) was founded which made Amsterdam the financial center of the world until the Industrial Revolution.
            Banking offices were usually located near centers of trade, and in the late 17th century, the largest centers for commerce were the ports of Amsterdam, London, and Hamburg. Individuals could participate in the lucrative East India trade by purchasing bills of credit from these banks, but the price they received for commodities was dependent on the ships returning (which often didn't happen on time) and on the cargo they carried (which often wasn't according to plan). The commodities market was very volatile for this reason, and because of the many wars that led to cargo seizures and loss of ships.

Capitalism

            Around the time of Adam Smith (1776) there was a massive growth in the banking industry. Banks played a key role in moving from gold and silver based coinage to paper money, redeemable against the bank's holdings.
Within the new system of ownership and investment, the state's role as an economic factor changed substantially.
Global banking
            In the 1970s, a number of smaller crashes tied to the policies put in place following the depression, resulted in deregulation and privatization of government-owned enterprises in the 1980s, indicating that governments of industrial countries around the world found private-sector solutions to problems of economic growth and development preferable to state-operated, semi-socialist programs. This spurred a trend that was already prevalent in the business sector, large companies becoming global and dealing with customers, suppliers, manufacturing, and information centers all over the world.
            Global banking and capital market services proliferated during the 1980s and 1990s as a result of a great increase in demand from companies, governments, and financial institutions, but also because financial market conditions were buoyant and, on the whole, bullish. Interest rates in the United States declined from about 15% for two-year U.S. Treasury notes to about 5% during the 20-year period, and financial assets grew then at a rate approximately twice the rate of the world economy. Such growth rate would have been lower, in the last twenty years, were it not for the profound effects of the internationalization of financial markets especially U.S. Foreign investments, particularly from Japan, who not only provided the funds to corporations in the U.S., but also helped finance the federal government; thus, transforming the U.S. stock market by far into the largest in the world.
            Nevertheless, in recent years, the dominance of U.S. financial markets has been disappearing and there has been an increasing interest in foreign stocks. The extraordinary growth of foreign financial markets results from both large increases in the pool of savings in foreign countries, such as Japan, and, especially, the deregulation of foreign financial markets, which has enabled them to expand their activities. Thus, American corporations and banks have started seeking investment opportunities abroad, prompting the development in the U.S. of mutual funds specializing in trading in foreign stock markets.
            Such growing internationalization and opportunity in financial services has entirely changed the competitive landscape, as now many banks have demonstrated a preference for the “universal banking” model prevalent in Europe. Universal banks are free to engage in all forms of financial services, make investments in client companies, and function as much as possible as a “one-stop” supplier of both retail and wholesale financial services.
Many such possible alignments could be accomplished only by large acquisitions, and there were many of them. By the end of 2000, a year in which a record level of financial services transactions with a market value of $10.5 trillion occurred, the top ten banks commanded a market share of more than 80% and the top 5, 55%. Of the top ten banks ranked by market share, seven were large universal-type banks (three American and four European), and the remaining three were large U.S. investment banks who between them accounted for a 33% market share.
This growth and opportunity also led to an unexpected outcome: entrance into the market of other financial intermediaries: nonbanks. Large corporate players were beginning to find their way into the financial service community, offering competition to established banks. The main services offered included insurances, pension, mutual, money market and hedge funds, loans and credits and securities. Indeed, by the end of 2001 the market capitalization of the world’s 15 largest financial services providers included four nonbanks.
            In recent years, the process of financial innovation has advanced enormously increasing the importance and profitability of nonbank finance. Such profitability priory restricted to the nonbanking industry, has prompted the Office of the Comptroller of the Currency (OCC) to encourage banks to explore other financial instruments, diversifying banks' business as well as improving banking economic health. Hence, as the distinct financial instruments are being explored and adopted by the banking and nonbanking industries, the distinction between different financial institutions is gradually vanishing.

Major events in banking history

[edit] Oldest private banks

 

Oldest national banks

  • Bank of Sweden — The rise of the national banks, began operations in 1668
  • Bank of England — The evolution of modern central banking policies, established in 1694
  • Bank of America — The invention of centralized check and payment processing technology
  • Swiss banking
  • United States Banking
  • The Pennsylvania Land Bank, founded in 1723 and receiving the support of Benjamin Franklin who wrote "Modest Enquiry into the Nature and Necessity of a Paper Currency" in 1729.
  • Ziraat Bank (Turkey) — Founded in 1863 to finance farmers by providing agricultural loans.
  • Bulgarian National Bank — the central bank of the Republic of Bulgaria with its headquarters in Sofia, has been established in 25 January 1879 and is one of the oldest central banks in the world. The BNB is an independent institution responsible for issuing all banknotes and coins in the country, overseeing and regulating the banking sector and keeping the government's currency reserves.
  • Imperial Bank of Persia (Iran) Founded in 1888 and was merged in Tejarat Bank in 1979 — History of banking in the Middle-East








History of Banking in India

            Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors.
            For the past three decades, India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process.
            The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India.

            Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dial a pizza. Money have become the order of the day.
            The first bank in India, though conservative, was established in 1786. From 1786 until today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below:
  • Early phase from 1786 to 1969 of Indian Banks
  • Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms.
  • New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991.
To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase III.
Phase I
            The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840), and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders.
            In 1865, Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935.

            During the first phase, the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority.
            During those, day’s public has lesser confidence in the banks. As an aftermath, deposit mobilization was slow. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders.




Phase II
            Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country.
            Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19 July 1969, major process of nationalization was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country were nationalized.
            Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership.
            The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country:
  • 1949: Enactment of Banking Regulation Act.
  • 1955: Nationalization of State Bank of India.
  • 1959: Nationalization of SBI subsidiaries.
  • 1961: Insurance cover extended to deposits.
  • 1969: Nationalization of 14 major banks.
  • 1971: Creation of credit guarantee corporation.
  • 1975: Creation of regional rural banks.
  • 1980: Nationalization of seven banks with deposits over 200 crore.
            After the nationalization of banks, the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11,000%.Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions.

Phase III
            This phase has introduced many more products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name, which worked for the liberalization of banking practices.

The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced. The entire system became more convenient and swift. Time is given more importance than money.
            The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet convertible, and banks and their customers have limited foreign exchange exposure.









Nationalization of Banks in India

             
            The nationalization of banks in India took place in 1969 by Mrs. Indira Gandhi the then prime minister. It nationalized 14 banks then. These banks were mostly owned by businesspersons and even managed by them.

            Before the steps of nationalization of Indian banks, only State Bank of India (SBI) was nationalized. It took place in July 1955 under the SBI Act of 1955. Nationalization of Seven State Banks of India (formed subsidiary) took place on 19 July 1960.

            The State Bank of India is India's largest commercial bank and is ranked one of the top five banks worldwide. It serves 90 million customers through a network of 9,000 branches and it offers -- either directly or through subsidiaries -- a wide range of banking services.


            The second phase of nationalization of Indian banks took place in the year 1980. Seven more banks were nationalized with deposits over 200 crore. Until this year, approximately 80% of the banking segment in India was under Government ownership.

            After the nationalization of banks in India, the branches of the public sector banks rose to approximately 800% in deposits and advances took a huge jump by 11,000%.
  • 1955: Nationalization of State Bank of India.
  • 1959: Nationalization of SBI subsidiaries.
  • 1969: Nationalization of 14 major banks.
  • 1980: Nationalization of seven banks with deposits over 200 crores.

Scheduled Commercial Banks in India


zeroThe commercial banking structure in India consists of:
  • Scheduled Commercial Banks in India
  • Unscheduled Banks in India
            Scheduled Banks in India constitute those banks, which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act.

            As on 30th June, 1999, there were 300 scheduled banks in India having a total network of 64,918 branches. The scheduled commercial banks in India comprise of State bank of India and its associates (8), nationalized banks (19), foreign banks (45), private sector banks (32), co-operative banks and regional rural banks.

            "Scheduled banks in India" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank".

            "Non-scheduled bank in India" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank".

The following are the Scheduled Banks in India (Public Sector):

The following are the Scheduled Banks in India (Private Sector):

The following are the Scheduled Foreign Banks in India:



























COMPANY PROFILE


Bank of India
Type
Public (BSE: BOI)
Industry
Financial
Commercial banks
Founded
1906
Headquarters
Mumbai, India
Key people
Alok Kumar Misra (CMD)
Website
http://www.bankofindia.com/














Bank of India

            Bank of India was founded on September 7, 1906 by a group of eminent businesspersons from Mumbai. In July 1969, Bank of India was nationalized along with 13 other banks.
            Beginning with a paid-up capital of Rs.50 lakh and 50 employees, the Bank has made a rapid growth over the years. It has evolved into a mighty institution with a strong national presence and sizable international operations. In business volume, Bank of India occupies a premier position among the nationalized banks.
            Presently, Bank of India has 3101 branches in India spread over all states/ union territories including 141 specialized branches. These branches are controlled through 48 Zonal Offices. There are 29 branches/ offices (including three representative offices) abroad.
            The Bank came out with its maiden public issue in 1997 and follow on Qualified Institutions Placement in February 2008. . Total number of shareholders as on 30/09/2009 is 2,15,790.
            While firmly adhering to a policy of prudence and caution, the Bank has been in the forefront of introducing various innovative services and systems. Business has been conducted with the successful blend of traditional values and ethics and the most modern infrastructure. Bank of India has several firsts to its credit. The Bank has been the first among the nationalized banks to establish a fully computerized branch and ATM facility at the Mahalaxmi Branch at Mumbai way back in 1989. It pioneered the introduction of the Health Code System in 1982, for evaluating/ rating its credit portfolio. Bank of India was the first Indian Bank to open a branch outside the country, at London, in 1946, and the first to open a branch in Europe, Paris in 1974. The Bank has sizable presence abroad, with a network of 23 branches (including three representative offices) at key banking and financial centers viz. London, New York, Paris, Tokyo, Hong-Kong, and Singapore.
            The Bank is also a Founder Member of SWIFT in India. It pioneered the introduction of the Health Code System in 1982, for evaluating/ rating its credit portfolio. The Bank's association with the capital market goes back to 1921 when it entered into an agreement with the Bombay Stock Exchange (BSE) to manage the BSE Clearing House. It is an association that has blossomed into a joint venture with BSE, called the BOI Shareholding Ltd. to extend depository services to the stock broking community. The international business accounts for around 17.82% of Bank's total business.
            Bank of India (BOI) is a state-owned commercial bank with headquarters in Mumbai. Government-owned since nationalization in 1969, It is India's 4th largest bank, after SBI, PNB and Central Bank of India. It has 3216 branches, including 27 branches outside India. BoI is a founder member of SWIFT (Society for Worldwide Inter Bank Financial Telecommunications), which facilitates provision of cost-effective financial processing and communication services. The Bank completed its first one hundred years of operations on 7 September 2006.

 

Previous banks that used the name Bank of India

At least three banks having the name Bank of India had preceded the setting up of the present Bank of India.
  1. A person named Ramakishen Dutt set up the first Bank of India in Calcutta (now Kolkata) in 1828, but nothing more is known about this bank.
  2. The second Bank of India was incorporated in London in the year 1836 as an Anglo-Indian bank.
  3. The third bank named Bank of India was registered in Bombay (now Mumbai) in the year 1864.

The current bank

            The earlier holders of the Bank of India name had failed and were no longer in existence by the time a diverse group of Hindus, Muslims, Parsees, and Jews helped establish the present Bank of India in 1906. It was the first bank in India promoted by Indian interests to serve all the communities of India. At the time, banks in India were either owned by Europeans and served mainly the interests of the European merchant houses or by different communities and served the banking needs of their own community.
            The promoters incorporated the Bank of India on 7 September 1906 under Act VI of 1882, with an authorized capital of Rs. 1 crore divided into 100,000 shares each of Rs. 100. The promoters placed 55,000 shares privately, and issued 45,000 to the public by way of IPO on 3 October 1906; the bank commenced operations on 1 November 1906.
The lead promoter of the Bank of India was Sir Sassoon J. David (1849-1926). He was a member of the Sassoons, who in turn were part of a Bombay community of Baghdadi Jews, which was notable for its history of social service. Sir David was a prudent banker and remained the Chief Executive of the bank from its founding in 1906 until his death in 1926.
The first board of directors of the bank consisted of Sir Sassoon David, Sir Cowasjee Jehangir, J. Cowasjee Jehangir, Sir Frederick Leigh Croft, Ratanjee Dadabhoy Tata, Gordhandas Khattau, Lalubhai Samaldas, Khetsety Khiasey, Ramnarain Hurnundrai, Jenarrayen Hindoomull Dani, and Noordin Ebrahim Noordin.
  • 1906: BoI founded with Head Office in Bombay.
  • 1921: BoI entered into an agreement with the Bombay Stock Exchange to manage its clearinghouse.
  • 1946: BoI opened a branch in London, the first Indian bank to do so. This was also the first post-WWII overseas branch of any Indian bank.
  • 1950: BoI opened branches in Tokyo and Osaka.
  • 1951: BoI opened a branch in Singapore.
  • 1953: BoI opened a branch in Kenya and another in Uganda.
  • 1953 or 54: BoI opened a branch in Aden.
  • 1955: BoI opened a branch in Tanganyika.
  • 1960: BoI opened a branch in Hong Kong.
  • 1962: BoI opened a branch in Nigeria.
  • 1967: The Government of Tanzania nationalized BoI's operations in Tanzania and folded them into the government-owned National Commercial Bank, together with those of Bank of Baroda and several other foreign banks.
  • 1969: The Government of India nationalized the 14 top banks, including Bank of India. In the same year, the People's Democratic Republic of Yemen nationalized BoI's branch in Aden, and the Nigerian and Ugandan governments forced BoI to incorporate its branches in those countries.
  • 1970: National Bank of Southern Yemen incorporated BoI's branch in Yemen, together with those of all the other banks in the country; this is now National Bank of Yemen. BoI was the only Indian bank in the country.
  • 1972: BoI sold its Uganda operation to Bank of Baroda.
  • 1973: BoI opened a rep in Jakarta.
  • 1974: BoI opened a branch in Paris. This was the first branch of an Indian bank in Europe.
  • 1976: The Nigerian government acquired 60% of the shares in Bank of India (Nigeria).
  • 1978: BoI opened a branch in New York.
  • 1970s: BoI opened an agency in San Francisco.
  • 1980: Bank of India (Nigeria) Ltd, changed its name to Allied Bank of Nigeria.
  • 1986: BoI acquired Paravur Central Bank (Karur Central Bank or Parur Central Bank) in Kerala in a rescue.
  • 1987: BoI took over the three UK branches of Central Bank of India (CBI). CBI had been caught up in the Sethia fraud and default and the Reserve Bank of India required it to transfer its branches.
  • 2003: BoI opened a representative office in Shenzhen.
  • 2005: BoI opened a representative office in Vietnam.
  • 2006: BoI plans to upgrade the Shenzen and Vietnam representative offices to branches, and to open representative offices in Beijing, Doha, and Johannesburg. In addition, BoI plans to establish a branch in Antwerp and a subsidiary in Dar-es-Salaam, marking its return to Tanzania after 37 years.
  • 2007: BoI acquired 76 percent of Indonesia-based PT Bank Swadesi.
  • 2009: BoI opened its branch again in Tanzania mainland (Former Tanganyika territory).

CMD since nationalization

  • 1969-1970: Tribhovandas Damodardas Kansara
  • 1970-1975: J N Saxena
  • 1975-1977: C P Sah
  • 1977-1980: H C Sarkar
  • 1981-1984: N Vaghul
  • 1984-1986: T. Tiwari
  • 1987-1991: R. Srinivasan
  • 1992-1995: G. S. Dahotre
  • 1995-1997: G. Kathuria
  • 1997-1998: M G Bhire
  • 1998-2000: S Rajagopal
  • 2000-2003: K V Krishanamurthy
  • 2003-2005: M Venugopal
  • 2005-2007: M. Balachandran
  • 2007-2009:T.S.Narayanasami
  • 2009-  : Alok Kumar Mishra


















OBJECTIVE

The main objective of this study is to provide better information about the policies and norms of the bank to the corporate field. This study is also useful in the financing policies of the other competitors to the bank and employees of the company. Generally banks try to find out that which company needs finance for its growth and which financial institutions try to approach to it. This study also clears this type of the confusion of the bank.

Besides this result, this study is also helpful in those persons who want to analyze the credit policies and interest rates of the Bank of India. This report is also helpful for the banks also because of this study they can easily understood the credit policy and interest rates of the company and apply this on present scenario with their customers

This study will show the various ways by which a bank can help the corporate world with this it is useful for the employees of the company and competitors banks in both public and private sector. It is helpful to public, government, banks and economical condition.













SCOPE

This study will be used in improvement of banks policies, besides that it helps in the study of interest rates, inflation rates, sources of bank and ways of money multiplier. With this, this study is also useful for the customers of the bank and various types of corporate sector for their rapid growth. This study will also useful for the MBA student who joins the bank as a trainee in the future.

With this we can find out all that reason which affects the bank’s credit policy and interest rates by this we can work on those field which are help to improve the bank’s credit policy and interest rates policy. The studies investigated the liquidity effect using daily reserve data. The relationship between the equilibrium short-term interest rate and the reserve supply may be obtained by aggregating banks’ reserve demands. Our focus in this study was to examine what motivates individual banks to hold interest rates on a fix points. The elasticity’s based on the other specifications are calculated in a similar way. They are not reported here, since they follow the same pattern as that reported in the text. These elasticity estimates are available upon request from the author.

To check for robustness, we also used a more conservative definition of bank’s credit policies and interest rates. In this case, banks it is find that banks tries to improve the policies according to the demand an competition. Under this definition, the estimation results remained qualitatively unchanged.

At last, we can say that this repot is used in various types of fields.








PURPOSE

           
            The main purpose of this study to show the actual data about the facility provide to the corporate field. Banks provide financial facility to the corporate world for start new business, expand the business, or invest in the business. This report is also purposeful for the student who study on this title in future and for the employees, customers and competitors.

            This report is preparing after gain the whole knowledge of banking sector in 45 days whatever a person can gain. So this report is also purposeful for the trainee because he explain his whole experience in this report like in a bank a trainee will learn that how to prepare the check, maintain loan register, TDR and TDS registers, how to open a new account, how to fill up any form and how to call a phone call etc.

            So by the above explanation it is say that this study is very purposeful study in various field and provide relevant data for the future forecasting.
  















RESEARCH METHODOLOGY

Research design:
Research design specified methods and procedures for study. During this report, research would be done based on secondary data like internet, magazine, newspapers etc. there is no need to collect data from a sample survey. Data would be collect, analyze, and use sufficient and appropriate data for the report.

Data Collection:
This report was prepared after collecting data from the internet, magazine, newspapers, etc. and past data was arranged from the various studies conducted in last two years.

Primary Data:
There is no need of primary data in this report because it is secondary data type report.

Secondary Data:
Information regarding the project, secondary data was required. These data were collected from internet, magazine, newspapers, books etc., various past studies, and other sources of the company.

Research tools:
                                    Internet
                                    Journals
Newspapers
Books by various authors on the topic
Magazines

Analysis of data:
The real task was started, after the data was collected. The analysis of data required a number of closely related operations such as establishment of categories, the application of these categories to raw data through coding, tabulation, and then drawing statistical inference. The unwieldy data was condensed into a few manageable groups and tables for further analysis. Then classification of data into purposeful and usable category. Coding, editing and tabulation was done simultaneously a then analysis was based on computation of various percentages.

Duration of the Project

Duration of the project is the total time devoted to do the research from planning to collection and analyzing of data and reaching to conclusion and then preparing report on the research study. In this project, the total time allotted was 45 days. The distribution of days according to the work done is as follows:

Ø  First five days was for the searching of data collection sources.
Ø  Next ten days in making the blue print of the report.
Ø  Next five days to prepare the abstract or executive summary of report, how to do the study, which research type to be adopted, from where to collect the data and how much data to be collected.
Ø  Next ten days was the time of collection of data from books, journals, internet, newspaper, articles etc.
Ø  Next ten days was the time of analyzing the data, doing SWOT analysis, deriving important information from the data and finally reaching conclusion of report.
Ø  Last five days was devoted to preparation of report in a proper format.





Type of Research

Descriptive Research
Descriptive research is also known as statistical research, describes as data and characteristics about the population or phenomenon being studied. Descriptive research answers the questions who, what, where, when and how.
Although the data description is factual accurate and systematic, the research cannot describe what caused a situation. Thus, descriptive research cannot be used to create a casual relationship, where one variable affects another. In other words, descriptive research can be said to have a low requirement for internal validity.
The description is used for frequencies, averages and other statistical calculations. Often the best approach, prior to writing descriptive research, is to conduct a survey investigation. Qualitative research often has the aim of description and research may follow-up with examinations of why the observations exist and what the implications of the findings are.
In short, descriptive research deals with everything that can be counted and studied. However, there are always restrictions to that. Your research must have an impact to the lives of the people around you. For example, finding the most frequent disease that affects the children of a town. The reader of the research will know what to do to prevent that disease thus; more people will live a healthy life.
The main goal of this type of research is to describe the data and characteristics about what is being studied. The idea behind this type of research is to study frequencies, averages, and other statistical calculations. Although this research is highly accurate, it does not gather the causes behind a situation.
Descriptive research is mainly done when a researcher wants to gain a better understanding of a topic for example; a frozen ready meals company learns that there is a grown demand for fresh ready meals but does not know much about the area of fresh food and so has to carry out research in order to gain a better understanding. It is quantitative and uses surveys and the use of probability sampling.
Descriptive research is the exploration of the existing certain phenomena. The details of the facts would not be known. The persons know the existing phenomena’s facts.

DATA & ANALYSES


            As explain earlier that this report is prepared on the title “Corporate Finance.” Therefore, it should be explain first that what is corporate finance and how it is related to banking sector. Than it will be explain that how Bank of India’s credit policies related and helpful in the providing finance facility to the corporate field and other field.   
Corporate Finance
            Corporate finance is an area of finance dealing with financial decisions business enterprises make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize corporate value while managing the firm's financial risks. Although it is in principle different from managerial finance which studies the financial decisions of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms.
            The discipline can be divided into long-term and short-term decisions and techniques. Capital investment decisions are long-term choices about which projects receive investment, whether to finance that investment with equity or debt, and when or whether to pay dividends to shareholders. On the other hand, the short-term decisions can be grouped under the heading "Working capital management". This subject deals with the short-term balance of current assets and current liabilities; the focus here is on managing cash, inventories, and short-term borrowing and lending (such as the terms on credit extended to customers).
            The terms corporate, finance and corporate financier are also associated with investment banking. The typical role of an investment bank is to evaluate the company's financial needs and raise the appropriate type of capital that best fits those needs.
            Corporate finance is a broad heading encompassing accounting, commercial and investment banking, financial services, investment management, insurance, venture capital, and corporate development and strategic planning. If you enter one of these fields, your job will center around helping companies find money to run and develop their businesses, manage their assets, acquire other firms, and plan for their financial future. A person’s experience in corporate finance depends on the size and complexity of the company for which they work, but jobs are relatively stable and include many benefits, including high salaries, travel, and numerous networking opportunities.

Some terms use in the field of corporate finance is as follows:-
Now a brief explanation of the above points:-

 

Capital investment decisions

            Capital investment decisions are long-term corporate finance decisions relating to fixed assets and capital structure. Decisions are based on several inter-related criteria. Corporate management seeks to maximize the value of the firm by investing in projects which yield a positive net present value when valued using an appropriate discount rate.  These projects must also be financed appropriately. If no such opportunities exist, maximizing shareholder value dictates that management must return excess cash to shareholders (i.e., distribution via dividends). Capital investment decisions thus comprise an investment decision, a financing decision, and a dividend decision.

The investment decision

            Management must allocate limited resources between competing opportunities (projects) in a process known as capital budgeting. Making this capital allocation decision requires estimating the value of each opportunity or project, which is a function of the size, timing, and predictability of future cash flows.

Project valuation

            In general, each project's value will be estimated using a discounted cash flow (DCF) valuation, and the opportunity with the highest value, as measured by the resultant net present value (NPV) will be selected (applied to Corporate Finance by Joel Dean in 1951; see also Fisher separation theorem, John Burr Williams: theory). This requires estimating the size and timing of all of the incremental cash flows resulting from the project. Such future cash flows are then discounted to determine their present value (see Time value of money). These present values are then summed, and this sum net of the initial investment outlay is the NPV.
            The NPV is greatly affected by the discount rate. Thus, identifying the proper discount rate - often termed, the project "hurdle rate” - is critical to making an appropriate decision. The hurdle rate is the minimum acceptable return on an investment—i.e. the project appropriate discount rate. The hurdle rate should reflect the riskiness of the investment, typically measured by volatility of cash flows, and must take into account the financing mix. Managers use models such as the CAPM or the APT to estimate a discount rate appropriate for a particular project, and use the weighted average cost of capital (WACC) to reflect the financing mix selected. (A common error in choosing a discount rate for a project is to apply a WACC that applies to the entire firm. Such an approach may not be appropriate where the risk of a particular project differs markedly from that of the firm's existing portfolio of assets.)
            In conjunction with NPV, there are several other measures used as (secondary) selection criteria in corporate finance. These are visible from the DCF and include discounted payback period, IRR, Modified IRR, equivalent annuity, capital efficiency, and ROI. Alternatives (complements) to NPV include MVA / EVA (Stern Stewart & Co) and APV (Stewart Myers). See list of valuation topics.

Valuing flexibility

            In many cases, for example R&D projects, a project may open (or close) paths of action to the company, but this reality will not typically be captured in a strict NPV approach.[6] Management will therefore (sometimes) employ tools, which place an explicit value on these options. So, whereas in a DCF valuation the most likely or average or scenario specific cash flows are discounted, here the “flexible and staged nature” of the investment is modeled, and hence "all" potential payoffs are considered. The difference between the two valuations is the "value of flexibility" inherent in the project.
            The two most common tools are Decision Tree Analysis (DTA) [7] and Real options analysis (ROA); they may often be used interchangeably:
  • DTA values flexibility by incorporating possible events (or states) and consequent management decisions. (For example, a company would build a factory given that demand for its product exceeded a certain level during the pilot-phase, and outsource production otherwise. In turn, given further demand, it would similarly expand the factory, and maintain it otherwise. In a DCF model, by contrast, there is no "branching" - each scenario must be modeled separately.) In the decision tree, each management decision in response to an "event" generates a "branch" or "path" which the company could follow; the probabilities of each event are determined or specified by management. Once the tree is constructed: (1) "all" possible events and their resultant paths are visible to management; (2) given this “knowledge” of the events that could follow, and assuming rational decision making, management chooses the actions corresponding to the highest value path probability weighted; (3) this path is then taken as representative of project value. See Decision theory: Choice under uncertainty.

Quantifying uncertainty

            Given the uncertainty inherent in project forecasting and valuation, [9] analysts will wish to assess the sensitivity of project NPV to the various inputs (i.e. assumptions) to the DCF model. In a typical sensitivity analysis, the analyst will vary one key factor while holding all other inputs constant, ceteris paribus. The sensitivity of NPV to a change in that factor is then observed, and is calculated as a "slope": ΔNPV / Δ factor. For example, the analyst will determine NPV at various growth rates in annual revenue as specified (usually at set increments, e.g. -10%, -5%, 0%, 5 %....), and then determine the sensitivity using this formula. Often, several variables may be of interest, and their various combinations produce a "value-surface" (or even a "value-space"), where NPV is then a function of several variables. See also Stress testing.
            Using a related technique, analysts also run scenario-based forecasts of NPV. Here, a scenario comprises a particular outcome for economy-wide, "global" factors (demand for the product, exchange rates, and commodity prices, etc...) as well as for company-specific factors (unit costs, etc...). As an example, the analyst may specify various revenue growth scenarios (e.g. 5% for "Worst Case", 10% for "Likely Case" and 25% for "Best Case"), where all key inputs are adjusted so as to be consistent with the growth assumptions, and calculate the NPV for each. Note that for scenario-based analysis, the various combinations of inputs must be internally consistent, whereas for the sensitivity approach these need not be so. An application of this methodology is to determine an "unbiased" NPV, where management determines a (subjective) probability for each scenario – the NPV for the project is then the probability-weighted average of the various scenarios.
            A further advancement is to construct stochastic or probabilistic financial models – as opposed to the traditional static and deterministic models as above. For this purpose, the most common method is to use Monte Carlo simulation to analyze the project’s NPV. This method was introduced to finance by David B. Hertz in 1964, although has only recently become common: today analysts are even able to run simulations in spreadsheet based DCF models, typically using an add-in, such as Crystal Ball. Here, the cash flow components that are (heavily) impacted by uncertainty are simulated, mathematically reflecting their "random characteristics". In contrast to the scenario approach above, the simulation produces several thousand random but possible outcomes, or "trials"; see Monte Carlo Simulation versus “What If” Scenarios. The output is then a histogram of project NPV, and the average NPV of the potential investment – as well as its volatility and other sensitivities – is then observed. This histogram provides information not visible from the static DCF: for example, it allows for an estimate of the probability that a project has a net present value greater than zero (or any other value).
            Continuing the above example: instead of assigning three discrete values to revenue growth, and to the other relevant variables, the analyst would assign an appropriate probability distribution to each variable (commonly triangular or beta), and, where possible, specify the observed or supposed correlation between the variables. These distributions would then be "sampled" repeatedly - incorporating this correlation - to generate several thousand scenarios, with corresponding valuations, which are then used to generate the NPV histogram. The resultant statistics (average NPV and standard deviation of NPV) will be a more accurate mirror of the project's "randomness" than the variance observed under the scenario based approach. (These are often used as estimates of the underlying "spot price" and volatility for the real option valuation as above; see Real options analysis: Model inputs.)

The financing decision

            Achieving the goals of corporate finance requires that any corporate investment be financed appropriately. As above, since both hurdle rate and cash flows (and hence the riskiness of the firm) will be affected, the financing mix can affect the valuation. Management must therefore identify the "optimal mix" of financing—the capital structures those results in maximum value. (See Balance sheet, WACC, Fisher separation theorem; but see also the Modigliani-Miller theorem.)
            The sources of financing will, generically, comprise some combination of debt and equity financing. Financing a project through debt results in a liability or obligation that must be serviced, thus entailing cash flow implications independent of the project's degree of success. Equity financing is less risky with respect to cash flow commitments, but results in a dilution of ownership, control, and earnings. The cost of equity is also typically higher than the cost of debt (see CAPM and WACC), and so equity financing may result in an increased hurdle rate which may offset any reduction in cash flow risk.
            Management must also attempt to match the financing mix to the asset being financed as closely as possible, in terms of both timing and cash flows.
            One of the main theories of how firms make their financing decisions is the Pecking Order Theory, which suggests that firms avoid external financing while they have internal financing available and avoid new equity financing while they can engage in new debt financing at reasonably low interest rates. Another major theory is the Trade-Off Theory in which firms are assumed to trade-off the tax benefits of debt with the bankruptcy costs of debt when making their decisions. An emerging area in finance theory is right-financing whereby investment banks and corporations can enhance investment return and company value over time by determining the right investment objectives, policy framework, institutional structure, source of financing (debt or equity) and expenditure framework within a given economy and under given market conditions. One last theory about this decision is the Market timing hypothesis, which states that firms look for the cheaper type of financing regardless of their current levels of internal resources, debt, and equity.

The dividend decision

            Whether to issue dividends,[12] and what amount, is calculated mainly on the basis of the company's inappropriate profit and its earning prospects for the coming year. If there are no NPV positive opportunities, i.e. projects where returns exceed the hurdle rate, then management must return excess cash to investors. These free cash flows comprise cash remaining after all business expenses have been met.
            This is the general case, however there are exceptions. For example, investors in a "Growth stock,” expect that the company will, almost by definition, retain earnings so as to fund growth internally. In other cases, even though an opportunity is currently NPV negative, management may consider “investment flexibility” / potential payoffs and decide to retain cash flows; see above and Real options.
            Management must also decide on the form of the dividend distribution, generally as cash dividends or via a share buyback. Various factors may be taken into consideration: where shareholders must pay tax on dividends, firms may elect to retain earnings or to perform a stock buyback, in both cases increasing the value of shares outstanding. Alternatively, some companies will pay "dividends" from stock rather than in cash; see corporate action. Today, it is generally accepted that dividend policy is value neutral (see Modigliani-Miller theorem).

Working capital management

            Decisions relating to working capital and short-term financing are referred to as working capital management. These involve managing the relationship between a firm's short-term assets and its short-term liabilities.
            As above, the goal of Corporate Finance is the maximization of firm value. In the context of long term, capital investment decisions, firm value is enhanced through appropriately selecting and funding NPV positive investments. These investments, in turn, have implications in terms of cash flow and cost of capital.
            The goal of Working capital management is therefore to ensure that the firm is able to operate, and that it has sufficient cash flow to service long term debt, and to satisfy both maturing short-term debt and upcoming operational expenses. In so doing, firm value is enhanced when, and if, the return on capital exceeds the cost of capital; See Economic value added (EVA).

Decision criteria

            Working capital is the amount of capital, which is readily available to an organization. That is, working capital is the difference between resources in cash or readily convertible into cash (Current Assets), and cash requirements (Current Liabilities). As a result, the decisions relating to working capital are always current, i.e. short term, decisions.
            In addition to time horizon, working capital decisions differ from capital investment decisions in terms of discounting and profitability considerations; they are also "reversible" to some extent. (Considerations as to Risk appetite and return targets remain identical, although some constraints - such as those imposed by loan covenants - may be more relevant here).
            Working capital management decisions are therefore not taken on the same basis as long term decisions, and working capital management applies different criteria in decision making: the main considerations are (1) cash flow / liquidity and (2) profitability / return on capital (of which cash flow is probably the more important).
  • The most widely used measure of cash flow is the net operating cycle, or cash conversion cycle. This represents the time difference between cash payment for raw materials and cash collection for sales. The cash conversion cycle indicates the firm's ability to convert its resources into cash. Because this number effectively corresponds to the time that the firm's cash is tied up in operations and unavailable for other activities, management generally aims at a low net count. (Another measure is gross operating cycle which is the same as net operating cycle except that it does not take into account the creditors deferral period.)
  • In this context, the most useful measure of profitability is Return on capital (ROC). The result is shown as a percentage, determined by dividing relevant income for the 12 months by capital employed; Return on equity (ROE) shows this result for the firm's shareholders. As above, firm value is enhanced when, and if, the return on capital, exceeds the cost of capital. ROC measures are therefore useful as a management tool, in that they link short-term policy with long-term decision-making.

Management of working capital

            Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital [14]. These policies aim at managing the current assets (generally cash and cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns are acceptable.
  • Cash management. Identify the cash balance, which allows the business to meet day-to-day expenses, but reduces cash holding costs.
  • Debtor’s management. Identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa); see Discounts and allowances.
  • Short-term financing. Identify the appropriate source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring".

Financial risk management

            Risk management is the process of measuring risk and then developing and implementing strategies to manage that risk. Financial risk management focuses on risks that can be managed ("hedged") using traded financial instruments (typically changes in commodity prices, interest rates, foreign exchange rates and stock prices). Financial risk management will also play an important role in cash management.
            This area is related to corporate finance in two ways. Firstly, firm exposure to business risk is a direct result of previous Investment and Financing decisions. Secondly, both disciplines share the goal of enhancing, or preserving, firm value. All large corporations have risk management teams, and small firms practice informal, if not formal, risk management. A fundamental debate on the value of “Risk Management” and shareholder value questions a shareholder's desire to optimize risk versus taking exposure to pure risk. The debate links value of risk management in a market to the cost of bankruptcy in that market.
            Derivatives are the instruments most commonly used in financial risk management. Because unique derivative contracts tend to be costly to create and monitor, the most cost-effective financial risk management methods usually involve derivatives that trade on well-established financial markets or exchanges. These standard derivative instruments include options, futures contracts, forward contracts, and swaps. More customized and second generation derivatives known as exotics trade over the counter aka OTC.

Relationship with other areas in finance

Investment banking

            Use of the term “corporate finance” varies considerably across the world. In the United States, it is used, as above, to describe activities, decisions, and techniques that deal with many aspects of a company’s finances and capital. In the United Kingdom and Commonwealth countries, the terms “corporate finance” and “corporate financier” tend to be associated with investment banking - i.e. with transactions in which capital is raised for the corporation.

Personal and public finance

            Corporate finance utilizes tools from almost all areas of finance. Some of the tools developed by and for corporations have broad application to entities other than corporations, for example, to partnerships, sole proprietorships, not-for-profit organizations, governments, mutual funds, and personal wealth management. However, in other cases their application is very limited outside of the corporate finance arena. Because corporations deal in quantities of money much greater than individuals do, the analysis has developed into a discipline of its own. It can be differentiated from personal finance and public finance.

Related professional qualifications

Qualifications related to the field include:
  • Finance qualifications:
o    Degrees: Masters degree in Finance (MSF), Master of Financial Economics
o    Certifications: Chartered Financial Analyst (CFA), Corporate Finance Qualification (CF), Certified International Investment Analyst (CIIA), Association of Corporate Treasurers (ACT), Certified Market Analyst (CMA/FAD) Dual Designation, Master Financial Manager (MFM), Master of Finance & Control (MFC), Certified Treasury Professional (CTP), Association for Financial Professionals, Certified Merger & Acquisition Advisor (CM&AA)
  • Business qualifications:
o    Degrees: Master of Business Administration (MBA), Master of Management (MM), Master of Science in Management (MSM), Master of Commerce (M Comm), Doctor of Business Administration (DBA)
o    Certification: Certified Business Manager (CBM), Certified MBA (CMBA)
o    Qualified accountant: Chartered Accountant (ACA, CA), Certified Public Accountant (CPA), Chartered Certified Accountant(ACCA), Chartered Management Accountant (CIMA)
o    Non-statutory qualifications: Chartered Cost Accountant (CCA Designation from AAFM), Certified Management Accountant (CMA)














Now credit policy of the Bank of India is as follow:-


CREDIT POLICY OF BANK OF INDIA


MISSION-  To provide superior, proactive, banking service to niche markets globally, while providing cost effective responsive service to others in our role as a development bank & in so doing meet the requirements of our stakeholder.

VISION- To become the bank of choice for corporate, medium business and up market retail customers and development banking for small business, mass market & rural market.

CREDIT PRIORITIES CONCURRENTLY RESULTEDGYH
o   Maintenance of assets quality.
o   Maintaining growth & reasonable risk adjusted returns on credit exposures.
o   Retaining/improving our market share.
o   Thrust on priority sector lending with focus on direct agriculture credit retail advances SME segment & export credit.
COVERAGE
            This policy would govern all credit and credit related exposures, fund based as well as non fund based. These would include short term, medium term and long term fund based facilities as also letter of credit, guarantees, acceptances etc. exposures in the foreign exchange market and exposures in financial derivatives when these are introduce in the Indian market. It would also be applicable to the banks investment in commercial paper. The main features of the policy would also apply to financial lease facilities factoring and forfeiting that may be granted by the bank. Further investment in equity shares, which are included by the Reserve Bank of India for ascertaining the total credit exposure of the bank to a particulars customer, would also come under the preview of the relevant aspect of policy to the extent they are applicable. The investment policy of the bank is framed separately. Similarly, a separate policy is framed for SME segment. 
            The main principle underlying the credit policy would be applicable to the exposure undertaken in domestic offices of the bank. It encompasses all type of customers for various segment including retail loans. However, separate operational guidelines on retail sector product have been brought out by the bank.
           
            The policy will encompass exposure to all types of customers such as individuals, H.U.F’s, proprietorship firms, partnership, trust and societies association of person, companies registered under the Indian co. act undertakings owned by the government & others.

CLIENTELE
           
            Lending to poorest of the poor under DRI lending, other priority sector, lending individual, partnership firms, associates of person, corporate, trust, large business houses and groups, undertaking owned by central/state government etc.
Bank considers lending to retail sectors as very important in order to increase the customer base and diversify the portfolio. Emphasis on retail advances such as personal loans, education loans, housing loans, mortgage loans etc. is expected to result not only in better interest spread but is also expected to improve the overall quality of credit. Increasing of customer base will benefit the bank in cross selling of other products. Separate operational guidelines on retail sector product have been brought out by the bank.

MARKETING

            Bank should accept the new system of marketing credit by an exclusive team trained. This shall be initially put in place in metropolitan city & larger town depending on our experience, extended to other places. It is proposed to cover the top 50/100 locations (cities, towns etc.) which account for about 80% of bank business. Further separate teams may be chosen for marketing corporate products & retail products. The function of marketing tem will continue till abstention & provision of adequate data, providing indicative inputs on interest rates, charges securities, submission of proposals etc. the processing & monitoring function will be assumed by the branch which will acquiring the business, bank has established marketing teams at selected centers for marketing of various products including retail credit & SMEs.

CREDIT DELIVERS THROUGH BANK BRANCHES
Ø  C&P branches.
Ø  Housing & personal finance branches.
Ø  SME branches.
Ø  Agri-hitech branches.
Ø  Main branches in cities/town.
Ø  Corporate banking branches.

SEGMENTING APPROACH TO LENDING
                        The entire credit is identifying into five strategic business units headed by separate general managers for giving focused attention viz.

v  Large corporate credit ( Rs. 25 cr. & above)
v  Mid-corporate credit (Rs. 5 cr. To Rs. 25 cr.)
v  SME credit (up to Rs. 5 cr.)
v  Retail credit.
v  Agriculture credit.

CREDIT DELIVERY

TYPES OF FACILITIES

            Terms loan, demand loan, overdrafts, cash credit, WCDL, advances against bills (both DP/DA) with/without L.C., channel credit, invoice discounting/financing, discounting of further cash flows/rent receivables & line of credit L/C.S, guarantees, acceptances facilities CPs, cash management services.

MODES OF DELIVERY OF CREDIT FACILITIES
o   Sole banking arrangements.
o   Multiple banking.
o   Consortium lending.
o   Symbolization.

CREDIT TRUST

PRIORITY SECTOR LENDING

SOME PRIORITY SECTOR LENDING AS FOLLOWS:-
ü  The priority sector target of 40% of net bank credit.
ü  Exposure to agriculture not less than 18% of net bank credit & direct finance to agriculture should not be less than 13.5% of net bank credit.
ü  Exposure to weaker section not less than 10% of net bank credit.
ü  Export credit target of 12% of net bank credit.
ü  Housing loan targets set by RBI from time to time, presently 3% of the incremental deposits of the previous years.
ü  Lending under government sponsored schemes and schemes formulated by KVIC, SIDBI etc.
            To ensure that the lead established by the bank in this area is maintained and to continuously garner viable business under this head, with minimum additional burden on staff cost, the following areas are identified as thrust area.

            Maintain/achieve target down for financing agriculture under special agricultural credit plan by increasing our finance for production as well as investment credit viz. irrigation, land, development, farm mechanization allied activities, post harvest management processing and other direct advances under agriculture crop loan, loan for farm mechanization, dairying, cold storage units.

            Under priority sector finance we may give thrust for housing, rural infrastructure, construction of godawns/cold storage units, tie up with corporate, advance against warehouse receipts.

            We may generally consider attending short-term finance while considering medium term loans to farmers & vise-a-vise to maintain continued customer relationship.

            We may encourage issue of kisan credit cards to enable quicker dispensation of credit, whilst strengthening our short-term loan portfolio to agriculture and allied activities and ensuring timely availability of adequate credit for investment purpose.

            Branches having potential for development of specific thrust area/activities may be identified to achieve specified target/objectives.

            Innovative/area based schemes, contract-farming schemes, may be developed to give thrust to improve agricultural lending.

            We may involve micro finance institutions & NGOs to cover large no of SHGs from weaker section more particularly women from sc/st communities, tenant farmers, shares croppers’ oral lessees etc.

            Focus on low risk short duration exposures.

            Focus on established and well run co-operative societies, NGOs, corporate who may offers us secured, big ticket financing on project falling under priority sector lending.

            To proactively canvass tie-up business through various government bodies like agricultural marketing board, housing board etc. in respects of any projects tie-ups undertaken by them like dairy, poultry, housing etc.

            To tie-up with NBFCs in respect of RTO finances.

            To focus on SHGs for financing specified areas like weaker section.

LENDING IN ADDITION TO PRIORITIES

CREDIT PRIORITIES-
           
            Banks credit priorities would be also determined by the market realities which are-

Currently price driven wherein the corporate have shed their traditional alignment with the bankers merely due to past connections. The present trends, being price driven, is on short duration loans ranging between 90-365 days. 

Changed condition in money supply resulting in the availability of cheaper credit.

Multiple banks financing in place of consortium lending. The approach of the bank officials also needs to be molded towards quick credit appraisal on an independent basis lending towards quick credit decisions.


Demand and aggressive competition in the retail segment & SME segment. In order to ensure better spread as well for spreading the risk and encasing opportunities for cross selling we need to accord thrust for retail lending and lending to SME.
Keeping in mind the above aspects, the following thrust areas are identified-

            Focus on major corporate clients to capture the price driven short duration loan i.e. between 90 days – 365 days. This will be aimed at ‘AA’ and above rated clients.

            Emphases will also be a personal & housing finance including L/C business. This segment historically has least delinquencies & offers better spread on interest as well as better spread of risk.


            Thrust will also be on post sale finance for both supplier and buyer including invoice discounting & services offering opportunities for fee based income like syndication.

            Increased thrust to SME due to risk dispersal & also in tune with national importance for economic development.


            In respect of corporate finance the present approach of corporate towards capital market needs throws up ample opportunities for financing mergers, acquisition, take over, IPO financing, ESOP funding etc. It is proposed to selectively enter these areas; additionally any new type of credit business with good potential not specifically mentioned in the policy may be considered at H.O. level.

LOW PRIORITY/NEGATIVE LIST
           
            Industry consuming/producing ozone depleting substances like chloroform carbon (CFC-11, CFC-12), CFC-113 carbon Tetrachloride, Methyl chloroform, Hellions-1211, 1301, 2402. The sectors in which they are generally used foam products, refrigerators and air-conditioners, aerosol products, cleaning applications fire extinguishers.

            Sugar industries in the co-operative sectors should not be financed except in the following cases:-

            Pledge of sugar with NOC from working capital banks wherever applicable.

            On lending for basal does finance to member farmers & for financing harvesting & transport contractors.

            For setting up co-generation plant & ethanol manufacturing plant after careful and satisfactory detailed TEV study by an experienced outside agency with the prior approval of the board.


TENURE OF CREDIT

SHORT TERM AND LONG TERM:-

Having regarded of the following reasons the bank would assume term exposures for reasonable maturity periods.

The longer the term of the credit, the greater, the uncertainty and the attendant risk.
The bank is essentially in the short-term market and is not expected to assume very long-term exposures.

Maturity period for industry           -10 yrs
Maturity period for agriculture       -15 yrs
Maturity period for infrastructure   -15 yrs
    
CREDIT ACQUISITION

CREDIT ORIGINATION:-
           
            It is proposed that we may accept either primary or secondary origination of credit, namely by direct acquisition or through takeover. Our policy in this regard is proposed as under.

Primary acquisition
Secondary acquisition
Takeover of accounts
Inter banking participation







ADMINISTRATIVE CLEARANCE

A particular industry is facing a downtrend/ industries for negative list.
Finer rates of interest concessions care are required to be offered.
Liquidity constraints.
Acceptable deviations from laid down standard.

CREDIT APPRAISAL

Appraisal of credit facilities would comprise two distinct segments:-
Appraising the acceptability of the customer.
Assessment of the customer’s needs.

The appraisal would be different in respect of:-
Personal loans for consumer durables, houses.
Loans to tiny business enterprises.
Loan to agriculturists.
Credit facilities to firms, corporate and other for business/ trade/ industry.

Background of proponent/ management.
Willful defaulter.

Commercial appraisal.
Technical appraisal.
Barges manufacturer                -                       Cold Storage
Diagnostic center                     -                       Educational Institutions
Film equipment purchase         -                       Film Making
Hospital project                       -                       Hotel Industry
Jewellery manufacturer           -                       Photo Processing 

Project involving construction activity only.
Purchase of electro medical equipment
Ship breaking.                                         
Traditional oil mills.                
Video equipment purchase.      
Water transport.
Tele serial making.
Tradition Rice Mills.
Vocational Institutes.

FINANCIAL APPRAISAL
Current ratio.
Total outside liabilities/equity ratio.
Profit before interest and tax/interest ratio.
Profit before tax/ Net sales ratio.
Inventory and receivables/ sales ratio.
DSCR if the borrower enjoys any term loan with any bank/F.I. if no TL is being consider by our bank.

Appraisal of PSU’s and Government, corporations.
Information to be obtained from borrowers.







ASSESSMENT OF WORKING CAPITAL LIMIT

Working capital limit up to Rs. 5 crore from the banking system.
Turnover method
For individuals
Tiny units
Agriculturists.

Working capital limit more than Rs. 5 crore from banking system.
Level of holding/MPBF
Cash budget method*
(* also used for certain seasonal activities and construction industry)

Temporary/Adhoc/Additional limits/over limits.
Bunching Of sales both inland and foreign.
 Sudden spurt in Orders.
Shortage of raw material/component from usual source; requiring additional stock to be held.
Shift in demand/sales pattern of purely temporary nature.
Cheque down a local/country cheque is under collection etc. but delayed beyond expected period.
Growth in business necessitating higher limits which are under consideration credit requirement during the intervening period.






CLASSIFICATION OF CURRENT ASSETS & CURRENT LIABILITIES

 Bills negotiated under L/Cs. As working capital requirements for same are assessed separately, receivables under L/Cs need not be included in current assets, similarly banks borrowings under bills purchased/ negotiated under L/Cs need not be included under current liabilities. They should be shown as contingent liabilities as additional information.

Cash margin of L/Cs and guarantees, cash/ term deposit with bank as margin for L/C & guarantees relating to working capital facilities to be included as current assets.


Investment: - All investments of temporary nature like fixed deposits with banks, CP, CD, ICDs shares and debentures are to be treated as other non-current assets.

ICDs taken: - These are to be treated as short-term borrowings from others under current liabilities.


Term loan installment: - Term loan installments/DPG installment falling due for payment during next 12 months may be included under current liabilities.






CERTAIN FINANCIAL RATIO

Debt Equity Ratio
    -    Tiny sector & SSI with working capital limit up to Rs. 5 crore   : -         4:1
    -    SSI units with working capital limit more than Rs. 5 crore/trade : -         3:1
    -    Medium scale                                                                             : -         2:1
    -    Large scale                                                                                             : -         1:1

Current Ratio
                       Acceptable level of Current Ratio is treated as minimum 1.33:1, which should be treated as benchmark.

Cash Flow Analysis
            Investment in subsidiary & sister concerns.

Commercial papers
Issue of NOC
Restoration of limits.

Working Capital Demand Loan
General period
Minimum period

Commitment Charged





EXPOSURE NORMS

RBI Norms:
Individual borrowers & group borrowers in India.
To specific industry or sectors.
Towards unsecured guarantees & unsecured advances.

Bank Exposure Should Not Exceed

To individual borrowers including public sectors undertakings 15% of bank’s capital funds (20% in case of exposure on a/c of infrastructure)

To group borrowers 40% in case of banks capital fund (50% in case of the additional 10% exposure is on account of infrastructure project i.e. power, telecommunication, roads & ports)


Board of Directors can approve additional exposure up to 5% of capital funds in case of single borrower & group of borrowers provide the borrower is willing to banks disclosure of their name in banks balance sheets.
     
  Exposure includes –

Credit exposure -   funded:                     100%
                      Non- funded:                     100%
The sanctioned limit & o/s whichever is higher are to be reckoned for arriving at exposure limit.
Investment – certain types of investment in companies & underwriting & similar commitments.


RBI EXEMPTIOS ON CEILINGS PRESCRIBED

Existing/additional credit facilities (including funding of interest & irregularities) granted to weak/ sick industrial units under rehabilitation packages.

Borrowers to who limits are allocated by the reserve bank for food credit.

Loans and advances granted against the security of banks own term deposits are to be excluded from the preview of the exposure ceiling.
       
Exposure towards unsecured guarantees and unsecured advances. 10%-30%
Exposure to leasing – hire purchase & factoring services.
Exposure to capital market.

BANK’S NORMS

The exposure ceiling to various categories of the borrowers would be advised annually

By the risk, management department based on the capital funds of the banks & the same has to be adhered to by branches.

The CMD and in his absence the Executive Director would be authorized to approve of limits in excess of the ceiling mentioned but within the ceiling prescribed by RBI.

Whenever a customer’s credit requirement exceeds 50% of the exposure ceiling or Rs. 100 crore whichever is higher, borrowed would be encouraged to scout for another bank/institution to share the credit facilities under multiple banking or consortium or syndication arrangements.

The ceiling that at least about exposure to public limited co. & PSU’s, the bank should not, as a matter of course, reaches the ceiling in much case.

The ceiling for units engaged in diamond industry in the loan corporate sector would be 150% of the ceilings mentioned above.

 The total contingent liabilities which would include letter of credit, bank guarantees, acceptance & similar other obligations, should not exceed 100% of the credit exposure on fund based facilities including loans, cash, credit, overdraft as also investment in equity/debt instrument such as commercial papers , debenture etc.


Industry Exposure 

          The maximum credit exposure to a particular industry should not exceed 20% of the total credit exposure of the bank. Within this overall ceiling the fortunes of industries accounting for the top 10 credit exposures (in value) of the bank may be examined annually and limit for the ensuing year set. As a general, the total bank’s total credit exposure to all the units in a particular industry should not exceed 25% of the total of the banking industry’s exposure in India to such industry. 

Term Exposure
           
            The aggregate of term loan exposure in the form of term loan exposure, deferred payment guarantees, term loan, letter of credit (between 3 and 5 years) non convertible debentures and other investment in corporate debt instrument (including redeemable preference share) should not exceed 40% of the total credit exposure of the bank.
            The bank would assume exposure with an initial maturity of 10 years and less for industry, trade, or business as also in the personal segment.

Region Wise Exposure Norms
           
          In regards to credit exposure in the various states/region of the country, no quantum ceiling is proposed to be fixed.

            If many acceptable viable credit proposals were available, preference will be given to proposals emanating from regions where our credit deposit ratio is low.


INDUSTRY NORMS

Lending to Infrastructure (Board meeting 28-10-99)

Infrastructure Covers
           
            Power, telecommunication, roads, highway, bridges, rail system, ports, airports, water supply, irrigation and sanitation and sewerage system, telecommunication, housing, industrial park or other public facility of a similar nature as may be notified by CBDT in the gazette from time to time.  

Infrastructure also covers

Construction relating to projects involving agro processing and supply of inputs to agriculture.
Construction of preservation and storage of processed agro products, perishable goods such as fruits, vegetables, and flowers including testing facilities for quarterly.
Construction of educational institution and hospitals.
Apart from our general policy for financing infrastructure projects we have sector specific policies within infrastructure as follows

Power projects: - Policy approved at boar meeting held on 18/04/1999, 12/07/1999 and 27/12/1999 and amendments that may be advised from time to time.

Telecom projects: - Policy approved at board meeting held on amendments that may be advised from time to time.

Other sector like steel, sugar, construction contractor etc. also has separate guidelines framed and revised from time to time.

LENDING TO NON-BANKING FINANCIAL CO. (NBFCs)

            Banks policy for financing of NBFCs was approved at board meeting held on 14/01/2000 and position with respect of financing to NBFCs was reported to board meeting held on 28/11/2000. Recently, the policy was reviewed in the board meeting held on 24/05/2005 and following delegation was approved.

DELEGATION

New additional limit for on lending to certain sectors which are accorded priority sector status.
General manager credit head office and above
New additional limit other than above
M.com
Review of limit at the same level with/without changes in terms and condition
Zonal manager and above
 
Software industry

            Banks has in placed a policy for financing software industry approved at board meeting held on 14/01/2000. We may continue to follow these guidelines.

Film industry

            We have in place a policy for financing film industry approved at board meeting held on 28/06/2000 and modified on 16/07/2001 and on 09/03/2002. We may continue to follow these guidelines in terms of these approvals; we may consider finance where the project cost does not exceed Rs. 20 crore maximum finance from the bank would be limited to Rs. 6 crore and film industry exposure to Rs. 50 crore.

CONSTRUCTION INDUSTRY

Segment

Builder/developer who are engaged in real estate/housing activity.

Construction contractor who execute various civil engineering construction activities on behalf of the project owners who are mainly government authorities/larger industrial units.
Working capital assessment
           
            The cash budget method may be adopted for assessing the working capital limit. The upper limit should be fixed at two months requirements of fund of the total cost of the contract and the maximum level of drawing be limited to the peak net cash deficit arrived on the basis of the consolidated cash flow chart.


Other general condition

            The debt equity ratio should not normally exceed 3:1 for the long term limit to net worth. The net worth for this purpose be taken as adjusted tangible net worth net of investment exceeding 10% and fixed assets unrelated to the core business. The adverse debt to adjusted net worth need not necessarily by a cause for rejection of a credit purpose.

The debt service coverage ratio (DSCR) should be at least 1.5.

The over all exposure comprising funded and non-funded limits (excluding performance guarantees) to the contracts should not to exceed nine times of the net owned funds (NOF) of the borrower.


Apart from above, the bank’s exposure should also confirm to the prudential exposure norms fixed by the RBI.

We may appoint a lender’s engineer in large projects where limit over Rs 100 crore has been sanctioned either as sole bankers or as consortium leader. The lender’s engineer is a person who would monitor the utilization of funds disbursed and find out requirements of funds over the life cycle of the projects. It is also to oversee the execution of works as per the plants and time schedule.

Export credit

Export credit is a priority area, where we have in place a system of assessment of the working capital requirement of exporters of two years i.e. for the current year and next year. While this may be continued in case of export gold cardholders, a separate scheme is formulated in tune with RBI guidelines, for assessment of working capital requirement for 3 years.
Trade credit

At present, the above methods of assessment are followed for assessment of the working capital requirements of traders including merchant exporters. The turnover method of assessment presupposes a turnover cycle of 3 months. This may not be applicable to traders where the cycle is of a much shorter period. In such cases, 20% of turnover need not be considered as the minimum to be sanctioned for working limits. The sanctioning authority may make a judicious estimate based on CMA forms submitted by the borrowers.

In the present scenario where mega departmental stores are being set up, zonal managers may consider the potential for financing such stores.

Lending against shares and debentures

We may continue with the policy approved in this regard at board meeting held on 06/06/2001. Whilst lending shares, it should be ensured that

The shares are not partly paid.
No advance is granted to partnership/proprietorship concern against the primary security of shares and debentures.
Banks aggregate capital market exposure restricted to the 40% of the net worth of the bank on a solo and consolidate basis, consolidate direct capital market exposure restricted to 20% of the bank consolidate net worth, the restriction may be relaxed to the extent required as per RBI guidelines.





Advance against government securities, postal certificates, postal term deposits, Vikas Patras, and SBI- resurgent India bonds.
                        
 Whilst lending against the above securities

Satisfy ourselves as to acceptability of the credit needs have the borrowers and end use of funds lent not been guided solely by availability of the securities.
 The procedure prescribed by the public debt office of the RBI, postal authorities etc. for lending against government securities, postal certificates etc. may be followed.
The margin and maximum quantum that may be guaranteed against these securities may be prescribed/modified by the CMD or in his absence the ED.

COLLETERAL AND MARGIN NORMS

MARGIN REQUIRMENTS
           
            Fund based limit
                                    In case of funded limit the amount of margin requirements may be decided taking into account the purpose of advance, size of limit, the nature of facility, the experience of the promoters, the risk perception. Generally, margin would be in the range of 15% to 50%.
           
            Non-funded limits
                                    In case of non-funded limit, we may generally consider a minimum margin of 20%. The sanctioning authority may consider lower margin taking into account the nature of the underlying transaction.




PRICING

FACTORS AFFECTING PRICING

Fund based facility:-
Cost of funds:-
                        Cost of fund to the bank would comprise interest cost of resources raised, cost of “reserve” requirements, and administrative cost and determined periodically.

Cost of capital (tier I & II) required to be maintained for that credit exposure:-
                        Cost of capital would be the average servicing cost minus the earnings if any, available by deploying the capital in totally risk-free revenues, such as gilt edged securities. This could be computed annually.

Risk premium:-
                        Risk premium would release to the perceived risk attached to the credit exposure, as computed in risk rating exercise. The higher risk (i.e. the lower the marks awarded) the higher would be the risk premium.

Non Fund based facility:-

The charges levied on non-fund based facilities will also be determined on the same pattern as fund-based facilities. i.e. cost of capital and risk premium, but there would be no cost of funds.

At present, no distinction is made as per the credit rating of the borrowers and compressing the same in two stages i.e. credit rating ‘AA’ & above and credit rating ‘A’ & below; in view of competitive conditions prevailing in the market need to increase our non-fund based income.                                                                                   

For customers requiring non-fund based facilities on “one off” basis, the risk rating could be determined on an ad-hoc basis as the sanctioning authority or any other authority permitted to do so, having regard to all attendant circumstances.

Charged levied (implicitly & explicitly) on certain non-fund based facilities such as foreign exchange rates (spot rate/forward rate) are usually based on the overall perception of the quality of the customers business and competitive condition in the market. 

RVIEW OF RELATIONSHIP

It is proposed to change the periodicity of review for selective borrowers as under

Prime AAA                              -                       Once in a year, short form review will be                                                                                permitted for a period not exceeding 6                                                                                    months.
AA & A                                   -                       Once in a year.
B & below                               -                       Once in 6 months.

However, the above amendments will be subject to –

In Prime and AAA borrowers, assessment can be done for a period of 2 years and validity of sanction conveyed accordingly. This will facilitate a short-term review after one year.

In case of consortium accounts, the consortium member accepting the method adopted.


Where sanction of limit is done for a longer period processing charges to be recover initially for one year. Upon review of credit rating, an annual date of review proportionate processing charges may be recovered for the remaining period.

Where review is done for 6 months, proportionate processing charges may be recovered for 6 months.


The financial information to be submitted by the borrowers should be as under

First quarter
Second quarter
Third quarter
Fourth quarter
Audited balance sheet as at end of previous year & last year’s sales performance. Other finanancial indicators if available.
Audited balance sheet as at end of previous year and last year audited/unaudited balance sheet.
Audited balance as at end of last year
Audited balance sheet as at end of last year & half-yearly result for the current year.


While undertaking review of the borrower account, reference should also be made for some important aspects listed below:-

Compliance of terms of earlier sanction.
 Out of order position of the account during the years.
Adhoc limits granted during the year and frequency there of
Any request for relaxation in the term of sanction already considered which might be pending for confirmation by appropriate authority.
Cheque returned unpaid-frequency of minimum/maximum amount thereof.
Any development of letter of credit/guarantees.
Any diversion of funds for unauthorized uses.
Statutory liability not paid or provided for
Any pending litigation against the borrowers.
 Compliance with audit observation.


STATURY AND OTHER RESTRICTION

Advance against banks own shares:-
            As per banking regulation act 1949 bank cannot grant loans and advances on the securities of its own shares.

Advance to bank’s directors:-
            Bank cannot enter into any commitment for granting any loan or advance to or behalf of-

Any of its directors.
Any firm in which any of its directors is interested as partner, hunger, employee, or guarantor.
Any company not being a subsidiary of the banking company or a company registered under section 25 of the company act 1956 (1 of 1956 or a government company) of which or the subsidiary or the holding company of which any of the directors of the banking company is a director, managing agent, manager, employee or guarantor or in which he holds substation interest.
Any individual in respect of whom any of its directors in a partner or guarantor.





Exemptions: - For the above purpose, the term loans and advances shall not include the following:-

Loan or advances against government securities life insurance policies or fixed deposits.

Loans or advances to the agricultural corporations limited.


Loans or advances made to any of directors in his capacity as an employee and on the same terms and condition as would have been applicable to him, as an employee of that banking company, if he had not became a director of the banking company.

Loans or advances as are by the bank immediately prior to his appointments as chairman managing directors/CEO, for the purpose of purchasing a car, personal computer, furniture or constructing/acquiring a house for his personal use and festival advance with the prior approval of the RBI and on such terms and conditions as may be stipulated by it.

Loans or advances as are granted by the bank to its whole time director for the purpose of purchasing furniture, personal computer or constructing/acquiring a house for his personal use and festival advances with the prior approval of the RBI and on such terms and condition as may be stipulated by it.

Call loans mad by banking company to one another.

Facilities like bills purchased/discounted (whether documentary or clean and sight and whether on D/A bases or D/P bases) Purchase of cheques, other non-fund based facilities like acceptance/co-acceptance of bills opening of L/Cs and issue of guarantees, purchase of debentures from third parties etc.
While extending non fund based facilities such as guarantees, L/Cs acceptance on behalf of directors and the companies/firms in which the directors are interested, it should be ensured that:-

Adequate and effective arrangements have been made to the satisfaction of the bank that the openers of L/Cs, accepters or guarantors out of their own resources, would meet the commitments.
The bank will not be called upon to grant any loan or advance to meet the liability consequent upon the invocation of guarantee.
No liability would devolve on the bank because of L/Cs acceptances. 

Restriction on holding shares in company

            In terms of section 19 (2) of the banking regulation act 1949, the banks should not hold shares in any company except as provided in sub-section (1) whether as pledge, mortgage or absolute owner, of an amount excluding 30% of the paid up share capital of that company or 30% of its own paid-up share capital and reserves, whichever is less.

            Further in terms of section 19 (3) of the banking regulation act 1949, the bank should not hold shares whether as pledge, mortgage or absolute owner, in any company in the management of which any managing director or manager of bank is in any manner concerned or interested.

Restriction on credit to companies for buy back of their securities
           
            The bank should not provide loans to company for buy back of shares/securities.

Granting loans and advances to relatives of directors

Unless sanctioned by the board of directors/management committee, bank should not grant loans and advances aggregating Rs. 25 lacks and above to-

Directors (including the chairman/managing director) of other banks⃰ -

Any firm in which any of the directors of other banks⃰ is interested as a partner or guarantor.

Any company in which any of the directors of other banks⃰ holds substantial interested or is interested as a directors or as a guarantor.

Unless sanctioned by the board of directors/management committee, banks should also grants loans and advances aggregating Rs. 25 lacks and above to-

Any relative of their own chairman/managing director or other directors.

Any relative of the chairman/managing directors or other directors of other banks⃰.


Any firm in which any of the relatives as mentioned in (a) and (b) above is interested as a partner or guarantor, and

Any company in which any of the relatives as mentioned in (a) and (b) above hold substantial interest or is interested as a director or as guarantor.


( ⃰ including directors of co-operative banks, directors of subsidiaries/trustees of mutual funds/venture capital fund)

            The proposals for credit facilities of an amount less than Rs. 25 lacks to these borrowers may be sanctioned by the appropriate authority in the financing bank under powers vested in such authority, but the matter should be reported to the board.

                          The chairperson / managing director or other director who is directly or indirectly concerned or interested in any proposed should disclose the nature of his interest to the board when any such proposal is discussed. He should not be present in the meeting unless the other directors for electing information require his presence and director so required to be present shall not vote on any such proposal.

                      The above norms relating to grant of loans & advances will equally apply to awarding of contracts.

Restrictions on grant of loans & advances to officers, the relative of same or officers of bank

            The term senior officer will refer to any officer in senior management level in grade IV & above. No officer of any committee comprising, inter alia, an officer as member, shall, while exercising powers of sanction of any credit facility sanctioned to senior officers of the financing bank should be reported to the board.

Loans and advances & award of contracts to relative of senior officer of the bank:

            Proposals for credit facilities to the relatives of senior officers of the bank sanctioned by the appropriate authority should be reported to the board a further, when an authority, other than the board to –sanctions credit facility –

Any firm in which any of the relative of any senior officer of the financing bank holds substantial interest, or is interest as a partner or guarantor.

Any company in which any of the relative of any senior officer of the financing bank holds substantial interest, or is interested as a director or as a guarantor.


          Such transaction should also be reported to the board.
           
            The above norms relating to grant of credit facility will equally apply to the awarding of contracts.

Application of guidelines in case of consortium arrangements:-
                                         
             In the case of consortium arrangements the above norms relating to grant of credit facilities to relative of senior officers of the bank will apply to the relatives of senior officers of all the participating banks.
            
            The scope of the term relative for above four paragraph will be as under:-
Spouse
Father
Mother (including step-mother)
Son (including step-son)
Son’s wife
Daughter (including step-daughter)
Daughter’s husband
Brother (including step-brother)
Brother’s wife
Sister (including step-sister)
Brother of spouse (including step-brother)
Sister of spouse (including step-sister)
                                                                                                                                   
            The term credit facility will not include loans and advances against-
Government securities
Life insurance policies
Fixed and other deposits
Temporary overdraft for small amount i.e. Rs. 25000/-
Casual purchase of cheques up to Rs.5000/- at a time.
           
            Credit facility will also not include loans and advances such as housing loans, car, advances, consumptions, loans etc. granted to an officer of the bank under any scheme applicable generally to officers.

             In case of directors, advances against stock & share are also to be excluded.

Restriction on grant on financial assistance to industries producing, consuming ozone depleting substances (ODS)

             No financial assistance should be extended to small/ medium scale units engaged in manufacturing of the aerosol units of cfc.

Restriction on advances against sensitive commodities under selective credit control (SCC):-
            Commodities are covered under stipulation of SCC:-

Buffer stocks & unreleased stocks of sugar with sugar mills representing –
Levy sugar &
Free Sale sugar

Advances against F.D.R.(fixed depository receipts) issued by other banks. 
             
             As the bank with whom fixed deposits are kept have general lien on the same as also to prevent lending against fare term deposit receipts, loans & advances should not be made against term deposits of other banks because of revised RBI guidelines.

Loans against certificates of deposits (CDs):-
               We may not grant loans against CDs.


Issue of bank guarantees in favor of financial institutions (F.I.):-
              
            RBI has since permitted banks to issue guarantees favoring F.I.s & other banks for enabling their borrower clients to raise additional financiers, subject to certain guidelines.   

INTEREST RATES
           
            Interest rate depends upon nature, quantum, limit and tenure of the loan limit. It is decided as follows:-

Housing loan                                                   ─                                             8% to 10%
Education loan                                     ─                                             9% to 11%
Auto loan (two-wheeler and four-wheeler)      ─                                             9% to 11%
Business loan                                                   ─                                             12% to 15 %

PROCEDURE FOR LOAN
For approving loan, a bank has to follows following steps:-

First customer has to fill up a proposal form for loan in which he has to give full detail about the loan for he wants.

Than bank check out all the steps of proposal and according to the reality banks fix the loan limit which ever the customer deserve on the basis of his property, salary etc.

Than a rating sheet filled by the customer by which bank decide that they should give the loan or not.

After find the above procedure positive the loan sanction to the customer properly.
FORMAT OF A PROPOSAL FORM

PROPOSAL FOR………….LOAN

Prop no. ………
Date …………..
Applicants name………………………………………..
Worth Rs. …………………… as on …………………basis of worth …………………..
Name of guarantor ………………………………………
Purpose of loan ………………………………………….
Amount of proposed expenditure………………………..
Loan amount requested ………………………………….
Margin if any Rs. …………………..        ……………%

Eligibility loan
                                    Marks obtained as per rating sheet…………………….
                                    Gross monthly income…………………………………
                                    Net monthly income ……………………………………
                                    Maximum eligible loan amount Rs. ……………………
                                    (As per the scheme)

Fixation of loan amount
                                    Amount proposed for sanction ………………………….
                                    EMI at sanction amount …………………………………
                                    Net take loan pay after EMI to gross income i.e. ………..  

Security proposed
Principle security …………………………………………
Collateral security ………………………………………...

(Full detail such as nature, description, value and mode of creation of charge to be given)

Repayment terms …………………………………………………………………..equated monthly installment of……………………….Rs…………………each commencing from……………………after disbursement.

Rate of interest …………………….% over/below BPLR
minimum …………………..% per annum with
monthly Rs. ………………..

Documents to be obtained
                                                ………………………………………………………..
                                                ………………………………………………………..
                                                ………………………………………………………..
                                                ………………………………………………………..

Contents and recommends

………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
 








                            


Terms which are used in rating sheet for loan procedure:-

Age
Length of service
Residence/ownership of residence
Family composition/dependents
Ownership of car/phone/credit card
Net additional income from spouse/family member if any
Deposit position/potential
  Existing borrowing arrangements
Whether salary deduction available

            Customer has to gain at least 30 marks out of 50 marks based on above rating points according to the credit policy of the Bank of India.






 


   







CONCLUSION























RECOMMENDATIONS























LIMITATION






















BIBLIOGRAPHY



Cohen, Edward: Athenian Economy and Society: A Banking Perspective (Princeton, NJ: Princeton University Press, 1992) ISBN 0-691-03609-8
Working Capital Management, Studyfinance.com; Working Capital Management, treasury.govt.nz
Investment Decisions and Capital Budgeting, Prof. Campbell R. Harvey, The Investment Decision of the Corporation, Prof. Don M. Chance
Corporate Finance: First Principles, Aswath Damodaran, New York University's Stern School of Business
www.giuseppefelloni.it
www.independent.co.uk

  









   











              






















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