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CORPORATE FINANCE

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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.
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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. The title of this report is Corporate Finance.

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.

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.

In this report method, which used in this study, is descriptive 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.









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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.



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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.


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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), nummular
(trans. money changer), and cofactors (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.
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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 Nimes 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,
establishing branches in many
Other parts of Europe. Perhaps the most famous Italian bank was the Medici bank,
set up by Giovanni Medici in 1397. Modern Western economic and financial history is
usually traced back to the coffee houses of London. 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.

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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.

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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.


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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 worlds 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.



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Major events in banking history
Florentine banking The Medici and Pettis among others.
Knights Templar- earliest Euro wide /Mideast banking 1100-1300.
Banknotes Introduction of paper money.
1602 - First joint-stock company, the Dutch East India Company founded.
1720 - The South Sea Bubble and John Law's Mississippi Scheme, which
caused a European financial crisis and forced many bankers out of business.
1781 - The Bank of North America was found by the Continental Congress.
1800 - Rothschild family founds Euro wide banking.
1930-33 in the wake of the Wall Street Crash of 1929, 9,000 banks close, wiping
out a third of the money supply in the United States.
1986 - The "Big Bang" (deregulation of London financial markets) served as a
catalyst to reaffirm London's position as a global centre of world banking.
2008 - Washington Mutual collapses. It was the largest bank failure in history.
Oldest private banks
Monte dei Paschi di Siena 1472present, the oldest surviving bank in the world.
Founded in 1472 by the Magistrate of the city-state of Siena, Italy.
Rolo Banca founded 1473 - now part of Unicredit Group of Italy
C. Hoare & Co founded 1672
Barclays, which was founded by John Freame and Thomas Gould in 1690
[19]
and
renamed to Barclays by Freame's son-in-law, James Barclay, in 1736
Rothschild family 1700present
Wegelin & Co. Private Bankers 1741present, the oldest Swiss bank, founded in
1741 in St. Gallen, third largest private bank in Switzerland
Hope & Co., founded in 1762
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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








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History of Banking in India

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.

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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, days 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.




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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.
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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.








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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.
Central Bank of India
Bank of Maharashtra
Dena Bank
Punjab National Bank
Syndicate Bank
Canara Bank
Indian Bank
Indian Overseas Bank
Bank of Baroda
Union Bank
Allahabad Bank
United Bank of India
UCO Bank
Bank of India

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.
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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

The 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.



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"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):
State Bank of India
State Bank of Bikaner and Jaipur
State Bank of Hyderabad
State Bank of Indore
State Bank of Mysore
State Bank of Saurashtra
State Bank of Travancore
Andhra Bank
Allahabad Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
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Corporation Bank
Dena Bank
Indian Overseas Bank
Indian Bank
Oriental Bank of Commerce
Punjab National Bank
Punjab and Sind Bank
Syndicate Bank
Union Bank of India
United Bank of India
UCO Bank
Vijaya Bank



The following are the Scheduled Banks in India (Private Sector):
ING Vysya Bank Ltd
Axis Bank Ltd
Indusind Bank Ltd
ICICI Bank Ltd
South Indian Bank
HDFC Bank Ltd
Centurion Bank Ltd
Bank of Punjab Ltd
IDBI Bank Ltd
Jammu & Kashmir Bank Ltd.



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The following are the Scheduled Foreign Banks in India:
American Express Bank Ltd.
ANZ Grid lays Bank Plc.
Bank of America NT & SA
Bank of Tokyo Ltd.
Banquc Nationale de Paris
Barclays Bank Plc
Citi Bank N.C.
Deutsche Bank A.G.
Hongkong and Shanghai Banking Corporation
Standard Chartered Bank.
The Chase Manhattan Bank Ltd.
Dresdner Bank AG.

















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COMPANY PROFILE


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 lakhs 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.
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/
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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.
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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 Ramakrishna 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.


CORPORATE FINANCE

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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 Jahangir, J. Cowasjee Jahangir, 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.
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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 Shenzhen 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).



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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 Krishnamurthy
2003-2005: M Venugopal
2005-2007: M. Balachandran
2007-2009:T.S.Narayanasami
2009- : Alok Kumar Mishra








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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.












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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 banks credit policy and
interest rates by this we can work on those field which are help to improve the banks
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 elasticitys 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 banks
credit policies and interest rates. In this case, banks it is find that banks tries to improve
the policies according to the demand and competition. Under this definition, the
estimation results remained qualitatively unchanged.

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







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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.















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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:

The data for the study will be collected by using secondary sources. 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







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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:

First five days was for the searching of data collection sources.
Next ten days in making the blue print of the report.
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.
Next ten days was the time of collection of data from books, journals,
internet, newspaper, articles etc.
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.
Last five days was devoted to preparation of report in a proper format.



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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.







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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 phenomenas
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 Indias 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.
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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 persons 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:-
1 Capital investment decisions
o 1.1 The investment decision
1.1.1 Project valuation
1.1.2 Valuing flexibility
1.1.3 Quantifying uncertainty
o 1.2 The financing decision
o 1.3 The dividend decision
2 Working capital management
o 2.1 Decision criteria
o 2.2 Management of working capital
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3 Financial risk management
4 Relationship with other areas in finance
o 4.1 Investment banking
o 4.2 Personal and public finance
5 Related professional qualifications
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.
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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
investmenti.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.
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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. 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;
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(3) this path is then taken as representative of project value. See Decision
theory: Choice under uncertainty.
ROA is usually used when the value of a project is contingent on the value of
some other asset or underlying variable. (For example, the viability of a mining
project is contingent on the price of gold; if the price is too low, management will
abandon the mining rights, if sufficiently high, management will develop the ore
body. Again, a DCF valuation would capture only one of these outcomes.) Here:
(1) using financial option theory as a framework, the decision to be taken is
identified as corresponding to either a call option or a put option;
(2) An appropriate valuation technique is then employed - usually a variant on
the Binomial options model or a bespoke simulation model, while Black Schools
type formulae are used less often; see Contingent claim valuation.
(3) The "true" value of the project is then the NPV of the "most likely" scenario
plus the option value.

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": NPV / 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.
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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
projects 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.
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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 financingthe capital
structures those results in maximum value. (See Balance sheet, WACC, Fisher
separation theorem; but see also the Modigliani-Miller theorem.)



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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.
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The dividend decision
Whether to issue dividends, 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.

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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).



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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
(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.







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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.
Inventory management. Identify the level of inventory which allows for
uninterrupted production but reduces the investment in raw materials - and
minimizes reordering costs - and hence increases cash flow; see Supply chain
management; Just In Time (JIT); Economic order quantity (EOQ); Economic
production quantity (EPQ).
Debtors 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".



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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.
CORPORATE FINANCE

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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 companys 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

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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 Com),
Doctor of Business Administration (DBA)
o Certification: Certified Business Manager (CBM), Certified MBA (CMBA)
Accountancy qualifications:
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.


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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.




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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.Fs, 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.






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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
C&P branches.
Housing & personal finance branches.
SME branches.
Agri-hitech branches.
Main branches in cities/town.
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.





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







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CREDIT TRUST

PRIORITY SECTOR LENDING

SOME PRIORITY SECTOR LENDING AS FOLLOWS:-
- The priority sector target of 40% of net bank credit.
- 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.
- Exposure to weaker section not less than 10% of net bank credit.
- Export credit target of 12% of net bank credit.
- Housing loan targets set by RBI from time to time, presently 3% of the
incremental deposits of the previous years.
- 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 go dawns/cold storage units, tie up with corporate, advance against
warehouse receipts.



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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.


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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.




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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.







CORPORATE FINANCE

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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






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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 customers needs.

The appraisal would be different in respect of:-
A. Personal loans for consumer durables, houses.
B. Loans to tiny business enterprises.
C. Loan to agriculturists.
D. 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



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- 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

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


Appraisal of PSUs 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.
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Working capital limit more than Rs. 5 crore from banking system.
1. Level of holding/MPBF
2. 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

1. 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.

2. 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.

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3. 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.

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

5. 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.


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Working Capital Demand Loan
General period
Minimum period

Commitment Charged




EXPOSURE NORMS

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

Bank Exposure Should Not Exceed

i. To individual borrowers including public sectors undertakings 15% of banks
capital funds (20% in case of exposure on a/c of infrastructure)

ii. 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)


iii. 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.




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Exposure includes

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


RBI EXEMPTIOS ON CEILINGS PRESCRIBED

a. Existing/additional credit facilities (including funding of interest & irregularities)
granted to weak/ sick industrial units under rehabilitation packages.
b. Borrowers to who limits are allocated by the reserve bank for food credit.
c. 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.

BANKS 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.
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Whenever a customers 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. & PSUs, 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 banks total credit
exposure to all the units in a particular industry should not exceed 25% of the total of
the banking industrys 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.

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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.

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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


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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.

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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 banks exposure should also confirm to the prudential
exposure norms fixed by the RBI.
We may appoint a lenders engineer in large projects where limit over Rs 100
crore has been sanctioned either as sole bankers or as consortium leader. The
lenders 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.



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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.



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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.




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PRICING

FACTORS AFFECTING PRICING

Fund based facility:-
a. 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.

b. 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.

c. 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:-

a. 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.


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b. 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.
c. 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.
d. 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.


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- 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
years 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:-

a) Compliance of terms of earlier sanction.
b) Out of order position of the account during the years.
c) Adhoc limits granted during the year and frequency there of
d) Any request for relaxation in the term of sanction already considered which might
be pending for confirmation by appropriate authority.
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e) Cheque returned unpaid-frequency of minimum/maximum amount thereof.
f) Any development of letter of credit/guarantees.
g) Any diversion of funds for unauthorized uses.
h) Statutory liability not paid or provided for
i) Any pending litigation against the borrowers.
j) 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 banks directors:-
Bank cannot enter into any commitment for granting any loan or advance to or
behalf of-
I. Any of its directors.
II. Any firm in which any of its directors is interested as partner, hunger, employee,
or guarantor.
III. 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.
IV. Any individual in respect of whom any of its directors in a partner or guarantor.



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Exemptions: - For the above purpose, the term loans and advances shall not include
the following:-
a. Loan or advances against government securities life insurance policies or fixed
deposits.
b. Loans or advances to the agricultural corporations limited.
c. 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.
d. 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.
e. 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.
f. Call loans mad by banking company to one another.
g. 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:-


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* 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 banks -


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

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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)

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Son (including step-son)
Sons wife
Daughter (including step-daughter)
Daughters husband
Brother (including step-brother)
Brothers 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.



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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.








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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:-

O 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.

O 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.

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

O After find the above procedure positive the loan sanction to the customer
properly.




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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. ..




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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.Rseach commencing
fromafter disbursement.

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

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

Contents and recommends








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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.


















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CONCLUSION

First of all the brief description of the corporate finance showed that what is corporate
finance and how it related to the banking sector. The main motive is the preparation of
this report is the role of the bank of India, in the field of corporate world to provide
financing facilities.

We also discussed the importance of paying interest on loan, which are taken by
the customers like various companies and persons for various purposes. For explaining
the loan procedure clearly it is described that how can we take loan from the banks for
various purpose. It is also described in this study that in what manner the credit policies
of the bank of India, affect the corporate finance. For better result banks tries to improve
their credit policies continuously. The credit policies and interest rates of the bank of
India, we can conclude that bank of India is one of the important bank in India for the
continuous development of the corporate world and the whole country.











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RECOMMENDATIONS

As the explain earlier that banks are very important elements in the development of
corporate world. They help in terms of finance tax benefits, money savings etc
.
1. It can be shown that the objective function of the bank is to provide proper
finance facilities to the business whenever they required.
2. It is recommended to the banks especially to the bank of India that they should
prepare a fair research with real data use of questionnaire. By this research they
faced the real situation of the corporate world and other field where they work.\
3. It is also 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.
4. Banks should liberal their policies in some extent where it arise difficulties to
customers.
5. The study of the loan procedure it is confirm that banks approve the loan to the
customers based on their capabilities.
6. The studies of 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 provide loan and
other financial policies.
7. It can be shown that the objective function of the bank is a concave function of
reserves, so the solution to the first-order condition is guaranteed to be a
maximum of the objective function.
8. The elasticitys are calculated by multiplying the adjustment factor by the original
parameter estimates.


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LIMITATION

Limitations are the limiting lines that restrict the work in some way or other. In this
research study some limiting factors, some of them are as under:

The most important constraint in this study was data collection as Secondary
data was selected for study. Secondary data means data that are already
available i.e. they refer to the data which have already been collected and
analyzed by someone else.

Time period was one of the main factors as only one month was allotted and the
topic covered in research has a wide scope. So, it was not possible to cover it in
a short span of time.

The data collected in research work was secondary data, so, this puts a question
mark on the reliability of this data, which a very important factor of this study as
conclusion has been derived from this secondary data only

.
The facts and findings of the data cannot be accepted as accurate to some
extent as firstly, secondary data was collected. Secondly, for doing descriptive
research time needed to be more, because in short period you cannot cover
each point accurately.








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BIBLIOGRAPHY

Journals

BANK CREDIT POLICY issued by the BANK OF INDIA.

Cohen, Edward: Athenian Economy and Society:

Working capital management

"Karnataka / Mysore News : ICICI Bank returns tractor to farmers mother". The
Hindu..

Books

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

Website:-

www.bankofindia.org

www.giuseppefelloni.it

www.independent.co.uk

www.wikipedia.org

www.hindu.com

www.indiatime.com

studyfinance.com



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