Resource planning in a Development bank

Presented By: Kartike Kittu Laveena Nishith satyaveer

 In their bid to surmount this problem .Need of resource planning in development bank  Development banks in India at both national and state level have been operating under a considerable financial strain .in view of their burgeoning financial needs .resource planning must precede the mobilisation of resource .the management has to take decision on the quantum of funds and the pattern of funds requirement.as also the new responsibilities entrusted to them.  The former is reflected in capitalisation and latter in the capital structure .In resource planning . . particularly in recent year .

 Faulty resource planning may entail the problem of inadequacy or redundance of capital.  While determining the different forms of financing in the total capitalisation .the management can utilise resources to the optimum level and avoid wastage and thus reduce the cost of operation and improve profitability.the management has to ensure that it pays the minimum cost and incur the least risk. . The success of development bank hinges in a great measure on how carefully and prudently resource planning has been done.  By making precise estimates of current and forthcoming funds requirement and choosing an appropriate capital structure .

3)The planning exercise involves the matching of cash inflows and cash outflows A development bank has to draw a cash flow statement showing incoming and outgoing cash. 2) After identifying the objective of the institution .  The basic objective of development bank is to provide long term financial support to industrial enterprise with a view to accelerating the pace of industrialisation and correcting regional imbalances in the country. .Planning fund requirement for a development bank 1)The planning of funds requirement should be done in the light of the principal objectives of the bank .the management should determine the purpose for which it would need funds.

the institution would need funds to repay the loan it has taken and to service these loans. 5) 6) . Apart from the requirement for the disbursal of assistance .4) In forecasting the funds requirement of a newly set up development bank of management should estimates the requirement of funds for disbursal on the basis of the observed pattern of disbursal in the past few years and the time lag between sanction and commitment and disbursal. A institution engaged in guaranteeing deferred payment and in underwriting activity will have to make projection of the funds required for this purpose.

9) It would also receive funds by the redemption of debenture it holds .Since the newly organised institution would not receive loan repayment . 8) Where the development bank has been existence for several year . 10) The gap between the total requirement and the internal resources will then indicate the quantum of resources that the development bank will have to raise from external sources. 7) .it would receive loan repayment and would have a certain net cash generation.On the basis of agreed repayment schedules .it can estimates the funds that will be flowing consequent upon the repayments.the total funds required for the above stated purpose will be the aggregate funds that the bank has to raise in advance to ensure its smooth operation.

the management can reduce its resources requirement because resources will flow back to the development bank in the smaller number of years. Grant of assistance in the form of marketable securities:Resource constraint can to some extent be minimised if the financial institution decides to invest in the debenture of corporate enterprise instead of providing them loan. 2) .Methods of reducing resource requirement 1) Shortening of repayment period:-By shortening the Development Bank of a repayment of loan .

.so that project not ensure adequate return are weeded out.3) Convertibility option:-If the convertibility clause is inserted in the loan agreement .the financial institution may after some year convert the loan into equity shares .This will enable it to share in the prosperity of the concern and make capital gains on the investment by liquidating a portion of its holding when the price rules high in the stock market.adequate attention has to be paid for the proper deployment of resources . 4) Proper deployment of resources:-In the country like our where capital and foreign exchange resources are scare .

PLANNING CAPITAL STRUCTURE  CAPITAL STRUCTURE refers to the combination of debt and equity in overall capital . Means what types of funds should a Development Bank seek to meet its financial needs? and in what proportion these funds raised? .  In development bank management must decide about the composition of capitalization.

 The main source of funds in Development Bank are:(1) Equity capital (2) Long term interest free loan from Government subordinate to share capital (3) Free reserve created out of business earning (4) Borrowings carrying interest from the Government/ Central bank. (5) Borrowings from markets by way of bonds (6) Sale of investment (7) Refinance of loan (8) Public deposit .

 Broadly. . and protects the institution against liquidation.  However. there may be two fundamental patterns of capital structure in a Development Bank (1) Financing of capital requirement inclusively by equity (2) Financing of capital requirement by equity and bonds An adequate equity based is an important in Development Bank as it serves as guaranty funds to creditors against losses . because it is a relatively dearer source of financing. an exclusively dependence on equity capital for the purpose of financial needs may not be considered financially good.

As it may be risky to the firm .  So. . As debt offers the cheapest source of financing and it does not disturb the voting of the share holders but financial institution does not increases debt frequently. the management make an appropriate mix of the debt equity ratio .

A decision on the debt equity mix must therefore be taken within the imposed limit.) Restriction imposed on creditors :-A loan agreement contains restrictions on the amount of the total borrowings that a Development Bank bank can make. . ‡ 2. the management must take due note of it.FACTORS INFLUENCING PATTERN OF CAPITAL STRUCTURE OF A DEVELOPMENT BANK ‡ 1.) Restriction Imposed By Article Of Association:In many Development Bank . the Article Of Association plans limit on the banks borrowings.

. should receive due consideration in deicing the pattern of capital structure of a Development Bank ‡ 4.‡ 3.) Access Of Development Bank To Capital Market:Management of development bank has easy access to the different sources of capital market.) Capital Structure Norms Of World Bank :The norms governing debt equity structure which have been laid down by the world bank.

5) 6) 7) 8) 9) Scope of business of Development Banks Age of Development Bank Stability of Earning Reserves Policy Government Support .Cont..

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