INSTITUTIONAL BORROWINGS

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INSTITUTIONAL BORROWINGS:

INSTITUTIONAL BORROWINGS Aparna H IMK KOLLAM

INTRODUCTION:

INTRODUCTION Finance is the life blood of business. The goal of a business firm is to produce and distribute goods and services to the society in which it exists. Achieving this goal requires the performance of such business functions as production, distribution etc. All of these activities require funds. A business firm must arrange sufficient amount of funds for its various requirements, otherwise its survival and growth will be in danger.

TERM LOAN:

TERM LOAN A term loan is a business loan with a maturity of more than 5 years Term loans are retired by systematic repayments. Rupee term loan is available on financial institutions and banks for setting up new projects as well as for expansion, modernization, or rehabilitation of the existing units.

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The duration of such loan varies from 5 to 10 years. Project costing up to Rs 500lakhs are eligible for refinance from IDBI and financed by the state level financial institutions in the participation with commercial banks. Individually, term loan to any single project up to Rs 90lakhs by SFC and 150lakhs by SIDC are possible.

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Project cost over Rs 500lakhs are considered for financing by All India financial institutions. All projects whether in the nature of new expansion, diversification, modernization, or rehabilitation with a capital cost up to Rs 5 crores can be financed by IFCI and ICICI

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All projects with a cost of over Rs 5 crores are individually or jointly financed by financed by IDBI, ICICI or IFCI. The institutions which provide term loan are classified into 3 major categories: Commercial Bank Development Bank Investment Institutions

COMMERCIAL BANKS:

COMMERCIAL BANKS Commercial Banks constitue a vital segment of the Indian Financial System. They are the major supplier of working capital finance to business entreprise. They also provide financial assistance of long-term nature in different ways .

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Commercial Bank assist business entreprise by granting long term loans, subscribing to share and débenture of corporate enterprise and under writing security issues of these enterprises They also help corporate enterprises in raising long term fund from the capital market through merchant banking activity

COMMERCIAL BANKS:

COMMERCIAL BANKS Commercial bank grant medium to long term loans for financing of new industrial projects as well as for expansion, diversification and modernization of existing industrial units.

DEVELOPMENT BANK:

DEVELOPMENT BANK Development banks are the institutions which supply capital, knowledge and enterprise for business Economic growth and just distribution of its benefits is the primary concern of development banks while assisting business enterprise Development banks accelerate the pace of industrialization in India.

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These institutions are the all India development banks such as IDBI,ICICI and IRBI which cater to the needs of industry. SIDBI functions as the principle financing institutions for the small scale sector. NABARD cater to the needs of agricultural and rural development

DEVELOPMENT BANK:

DEVELOPMENT BANK SFC and SIDC set up by different State governments also provide long-term finance to industries. These special financial institutions assist industrial units in the following two way Direct assistance Indirect assistance

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DIRECTOR ASSISTANCE This is in the form of loan in rupees or foreign currency. These loans are granted for periods ranging from 5 to 15 years for meeting fixed capital requirements as well as permanent working capital requirements.

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INDIRECT ASSISTANCE This may be in the form of : Direct purchase of shares and debentures of companies. Underwriting of these issues. Providing guarantee for loan raised in India or abroad. Providing guarantee for deferred payments by importers of capital goods. Many of these institutions provide financial, managerial, and technical consultancy to organizations engaged in trade and industry.

INVESTMENT INSTITUTIONS :

INVESTMENT INSTITUTIONS Investment institutions include financial institutions such as LIC, GIC, UTI and Mutual Funds. These institutions collect investments from individual investors in the form of premium. The fund so collected is invested in various financial assets such as debentures shares etc of the business.

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These investment institutions subscribe to new issues of debentures shares etc and underwrite such issues. Thus investment institutions enable the channelization of private savings into productive investment. The Non Banking Finance Companies (NBFC) may also be included in the investment institutions.

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NBFC mobilize the savings of the people by accepting deposit from the public. They lend these investments to the business enterprise to meet their long term fund requirements They may also invest in the debentures and shares of corporate business enterprise Thus NBFC’s are a source of long term fund for business.

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