ffirapt*r
INTRODUCTION
Finance is the lifehload of business coneefl1 because it is interlinked with all activities
performed by the business corisern. In a human body if blood circulation is not proper,
body function will stop. Similarly, if the finanw r,at being properly arranged, the business
system will stop. Arrangement of the required finance to each department of business
concern is highly a complex one and it needs carefu1 decision. Quantum of filanee rnay be
depending upon the nature and sitnation of the business concerrr. But, the requirement of
the finance maybe broadly classified iri.to two parts:
Long-term Financial Requirements or Fixed Capital Requirement
Financial requirement of the business differs from firm to firm and the nat*re of the
requirements on the basis of terms or period of financial requirement, it may be long ter:a
and short-term financial requirements.
Long-term financial requirement m€ans the finance needed to acquire land andbuilding
for business cafrcerrl, purchase of plant and machinety and other fixed ezpenditure. Longterm financ.ial requirement is also called as fixed capital requirements- Fixed capital is the
capital, which is used to purchase the fixed assets of the firms such as land and truilding,
furniture ald fittings, plant and macHrcery, etc. llence, it is also called a capital expenditure.
Short-term Financial Requirements or Working Capital Requirement
Apart from the caprtaT expenditure of the firus, the firms should need certain expenditure
like procurement of raw materials, pa;rment of wages, day-to-day expenditures, etc. Ttris
kind of expenditure is to rreet with the help of short-term financial requirements which
will meet the opetational expenditure of the firms. Short-term financial requirements are
popularly known as working capitai.
Financial Managemefit
SOURCES OF FINANCE
Sources of finance mean the ways for mobilizing various terms of finance to the industrial
concern. Sources of fi.nance state that, how the €ompanies are msbilizing finance for their
requirements. The companies belong to the existing or the new which need sum amount
of finance to meet the long-term and short-term requirements such as purchasing of fixed
assets, construcdon of office building purchase of raw materials aad day-to-day expelrses.
Sources of finance may be classified under various categories according to the
following important heads:
1. Based on the Period
Sources of Finance ruaybe classified under various categories based on the period.
Long-term sourscs: Finance ru,aybe mobilized by loug-term or short-term. When
the filance mobilized with large amouat and the repayable oyer the period will
be more tJlan five yeats, it may be cansidered as long-tefin sou{ces- Share capital,
issue of debenture, long-term loars frcm financial ir:stitutions aad ccmmercial
banks come under this kind of source of finance. Long-term source of finalce
needs to meet ti.e capital expenfiture of the firms xrch as purchase of fixed assets,
land and buildings, etc.
Loa$-ter:m soilrses of finance include:
r Equity Shares
r
o
o
.
Preference Shares
Debenture
Lon$-term Loans
Fixed Deposits
Skort-teru sorrrses: Apart from the long-term aource of fi.nance, firms can
generate finance with the help of short-term sollrces like loans and advarces from
cornmercial banks, raoneylenders, etc. Short-term aource of firance neeils to meet
the operational expenditure of the business concern.
Short-ter:n source of fitance indrrde:
e Bank Credit
r Customer Advances
o Ttade Credit
. Factoring
r Public Deposits
. Money Market Instruments
2.
Based on Owaership
Sources of Finance nraybe classifred under various categories based on the period:
Sources of
Financing
27
An owrrership source of financ€ include
.
.
o
Shares capital, earnings
Retained earnings
r
r
r
Bonds
Surplus and Profits
Borrowed calrital include
r Debenture
3.
4.
Ptrblic deposits
toans from Bank and Fiaancial Tnstitutions.
Based on Sources of Generatiou
Sources of Finance rr.ay be classified into various categories based on the period.
Internal source of fraance ineludes
r Retained earnilgs
. Depreciation funds
r Surplus
Exterral sourc,es of firrance may be iaclude
r .Share capital
r Debenture
r Public deposits
. Loans from Banks and Financial institutions
Based iu Mode of Finance
Security finance may be include
o
o
Shares capital
Debenture
Retaired earnings may include
. Retained earnings
r I)epreciation funds
Loan finance may inslude
. Long-term loans from Financial Institutions
. Short-term loals frorn Commercial banks.
The above classificatiofls are based on ttre nature and how tle firance is mobilized
from various sources. But the above sources of finar.ce cartbe divided into three major
classifications:
r Securify Fiaance
r Internal Fiaance
r Loans Finance
28
SECURITY FINANCE
If the fi.nance is mobilized tlrough issue of securities suc,h as shares and debenture, it is
ca11ed as sectrity frnance. It is also calied as corporate securities. This type of finance
plays a major role in the fie1d of deciding the capital structure of the comparry.
Characters of Securitlr Finance
Security finance consists of the following important characters:
1. Long-term sollrces of finance.
2. lt lE also called as corporate securities.
3. Secudty finance includes both shares and debentures.
4. It plays a anajot role in deciding the capitai structure of the company.
5. Repayment of finance is very limited.
6, It is a major parl of the company's total capitalization.
Types of Security Finance
Security finance mayhe diviiled into two major
t5ryes:
1. Ownership securities or capital stoek.
2. Creditorship sesurities or debt capital.
Ownership Securities
The owrrership securities also called as capital stock, is commoaly called as shares. Shares
are the most Universal mettrod of raising finance for the business concern. Ownership
capital consists of the foliowing ffies of securities.
o
.
.
e
Equity
Shares
Preference Shares
No par stock
Deferred Shares
EQUITY SHARES
Equity Shares also known as ordiaary shares, which mearls, other than prefereace shares.
Equity shareholders are the real owners of the coflpary. Ttey have a cortrol over the
ft*rLagemer,;tof the eompany- Equity shareholders are eligible to get dividend if the company
earns profit. Equrty share capital canaot be redeemed during the lifetiae of the company.
The liability of the equity shareholders is the value of unpaid value of skares.
Features of Equity Shares
Equity shares consist of the following imporlant features:
1. Maturity of the shares: Equity shares have permaaent
has no maturity period.
nature of capital, which
It cannot be redeemed. duriag the lifetime of the company.
Z" Residual claim on ineome: Equity shareholders have the right to giet income
left after paytrrg ftxed, rate of dividead. to preference
3.
4.
5.
6.
7.
sh.areholder. The earnings
or the income availahle to the shareholders is equal tc tle profit after tax misus
preference dividend.
Residual claims orr assets: ff the company wound up, the ardinary or equity
shareholders have the right to get the claims ou assets. These rights are only
available to the equity shareholders.
Right to control: Equity shareholders are the real owners of the company.
Hence, they have power to control th€ management of the company and-they
have power to take any decision regarding the business operation.
Voting rigfuts: Equity shareholders have voting rights in the meeting of tke
company with the help of votiag right power; they can clnarrge or remorre any
decision of the business corrcerfl. Equity shareholders only have voting rights
in the colupany meetiag and also they can nominate proxy to participate and vote
in the meeting instead of the shareholder
Pre-emptive right Equity shareholder pre-emptive rights. The pre-ercptive right
is the legal right of tle existing shareholders. It is attested by the company in the
first opportunity to purchase additioaal equity shares in proporbion to their
current holding capacily.
Liinited liability: Equity shareholders are hardxg caiy limited liability to fhe
value of shares they have purchased. If the shareholders are having fu1ly paid
up shares, they have no 1iabi1i4z. For example: If the shareholder purchased 100
shares with the face value of Rs. 10 each. He paid only Rs. 900. His liability is
only Rs. 100.
Total number of shares 100
Face value of shares Rs. 10
Total value of shares 100 x 10 : 1,000
Paid up value of shares
900
Unpaid valueAiability
100
Liabilify of the shareholders is only ,rrpl-idorlrre of the share [that is Rs. 100).
Advantages of Equity Shares
Equity shares ate tlre most common and universally used shares to mobilize finance for
the company. It consists of the followiag advaatages.
1. Perrranent sources of fin*rcc: Equity share capital is belonging to longi-term
permanent nature of sources of fi:rance, hence, it car. be used for long-term or
fixed capital requirement of the business coflcefll2. Voting rigfits: Equity shareholders are the real owners of the compalry who have
voting rights. This lype of advantage is available only ta the equity shareholders.
3. No ftxed diyidend: Equity shares do not create any obligation to pay a fixed
rate of dividend. If the campany earns profiq equity shareholders are eligible for
F in a nci al
30
4.
5.
lL4 a
n a ge m e nt
profit, they arc eligible to get dividend otherwisg ard tkey eannot claim arry
dividend from the eompany.
Less ccst of capital: Cost of capital is the major factor, r,rhich affects the value
of the sompany. If the cafrpany warlts to inctease the value of the caryany,
they lrave to use more share capltai because, it eonsists of less cost sf capital (K")
while corrpared to other sources of finance.
Retained earnings: When the company have roore share capital, it will be
suitable for retained earnings which is the less cost sources of fiaance while
campared. to other sources of finarrca
Disadvantages of Equity Shares
1.
Irredeemable: Equity shares cannot he redeemed during the lifetime of the
It is the most dangierous thing of oyer capital:u:atian.
Obstacles in managieuerrt: Equrty shareholder calr put obstacles in management
business concertl.
2.
by manipulation and crrganizing themselves. Becaus€, they have posrer to contrast
any decision which are agair:st the wealth of the shareholders.
3.
4.
5.
Leads to speculation: Equity shares dealiugs in share market lead to secularism
during prosperolls periods.
rirrrited income to investor: The Investors who desire to invest in safe securities
with a fixed income have no attraction for egnity shares.
No trading on equity:When the company raises capital or:ly with the heip of
equlty, the compaay cannot take the advantage of trading on equity.
PREFERENCE SHARES
Tlee parts of corporate securities are called as preference shares. It is the shates, which
have preferential right to get dividend and get back the initial investment at the time of
winding up of the company. Prefereoce shareholders are eligible to get fixed rate of dividend
and they do not have votingirights.
Preference shares may tre classified into the following major t5rpes:
1.
2.
Cumulative preference shar,es: Cumulative preference shares have rig;ht to claim
fividends for those years which have no profits. If the company is unable to ear"n
profit in alry orle or mors years, C.P Shares are unable to get any dividend but
they have right to get the comparative dividend for the previous years if fhe
cofrt)any earned profit.
Non-cumulative preference sLares: Non-cumulative prefersrce shares have no
right to enjoy the above benefits. They are eligible to get only dividend if the
coupany earns profit during the years. Otherwise, they cannot claim any dividend.
Sources of Financing
3.
Redeenalole prefereree shares; When, the preference shares have a fixed
maturity period it becomes redeemable preference shares. It can be rcdeem&le
during the lifetime of the comparly. The Comparry Act has provided certain restrictioas
on the return of tke redeemable preference
shares.
lrredeemable Preference Shares
Irredeemabl e preferer,ce shares can be redeemed orly when the company gaes for liquidator.
There is no fixed maturity period for such kind of preference shares.
Participating Preference Shares
Participating preference sharesholders have rigfirt to participate extra profrts after distributing
the equity shareholders.
Non-Participating Preference Shares
Non-participating preference sharesholders are not ba,irg aay right ta partidpate extra
profits after distributing to the equity shareholders. Fixed rate of dividend is payable to
the type of shareholders.
Convertible Preference Shares
Convertible preference sharesholders have right to conrrert their holding into equity shares
after a specific period. The articles of association must authorize the right of conversion.
Non-convertible Preference Shares
There shares, cannot be converted into equity shares from preference shares.
Features of Preference Shares
The following are the important features of the preference shares:
1. Maturity period: Norrnal11, preference shares have no fixed maturity period
except in the case of redeemable preference shares. Prefetence shares can be
redeemable on11, 21 the time
of
tl-re cornpaflv liquidation.
2. Residual claims on income: Preferential
sharesholders have a residual claim
ot.r
income. Fixecl rate of dir.idend is payable to the preference shareholdets.
3. Residual claims on assets: The first preference is given to the pleference
shareholders at the time of liquiclation. If any extra Assets are available tjrat
should he distributed to equity shareholder.
4. Control of Management: Preference shareholcler does not have any voting
rights. Helrce, they cannot have control over the mana$ement of the company.
Advantages of Preference Shares
Preference shares have the follorving important advantages.
1. Fixed dividend: The dividend rate is fixed in the case of preference shares.
It is cal1ec1 as fixed income securitv because it provides a constant rate of income
to the investors.
32
Financial hlanagement
2. Cumulative dividends:
3.
Preference shares have ansther advanta€e rn,hic} is
called cumulative dividends. If the company cloes not earn any profit in any
previotrs years, it can be cumulative with future period dividend.
Redemption: Preference Shares can he redeemable afLer a specific period except
in the case of irredeemable pref'erence shares- There is a fixed maiurity period
for repayment of the initial investrnent.
4. Partieipation:
Participative preference sharesholders can participate in ihe surplus
profit atter distribution to rhe equiq' shareholders.
5. Convertibility: Convertibilitv prefer-ence shares can be conrzerted into equity
shares rvhen the articles of assoc,iation provide such convelsion.
Disadvantages of Preference Shares
1. Expensive sources of finance:
Preference shares have high experrsive source
of finance nhile compared to equirv shares.
Z. No voting right: Generaliy preference sharesholders do not have any vcting
3.
4.
5.
rights. Hence they cannot have the control over the managemeflt of the company.
Fixed dividend only: Preference shares can get only fixed rate of ciir,.idend. The-v
may not enjoSz uore profits of the c.ompany
Permanent burden: Cumulatir,'e pref'erence shares become a pexmalrent burden
so far as the payment of dividend is concerned. Because the companv must pay
the dividend for ttrre unprofitable periods a1so.
Taxation: In the taxation point of viern, preference shares diviclend is not a
deductible expense while calculatrrig tax. But, intelest is a deductible exper:se.
Hence, it has disadvantage orr the tax deduction poir:rt of vieqr
DEFERRED SHARES
Deferred shares also ca11ed as founder shares because these shares were normally issued to
founders. Tte shareholders have a preferential right to get dividend befare the preference
shares and equity shares. According to Companies Act 1956 no public limited coilpany or
which is a subsidiary of a public company can issue deferred shares.
T'hese shares were issued to the founder at sma1l deaomination
management by the virlue of their voting rights.
to control over the
NO PAR SHARES
it is said to be no par shares. The company
issues this kind of sharss which is divided iato a number of specific shares witlout any
specific denomination. The value of shares can be measured by dividing the real net worth
lMhen the shares are haviag no face valug
of the company with the total rumber of shares.
\hlue of no- per share-
:
IJreleal networth
Toklno.of shares
Sorrrces of Financing
CREDITORSHIP SECURITIES
Creditorship Securities also lcnown as debt finance which means the finaace is mobilized
from the creditors. Debenture and Bonds are the two major parts of the Creditorship
Securities.
Debentures
A Debenture is a document issued by the company. It is a certificate issued by fhe company
under its seal acknowledging a debl.
According to the Companies Act 1956, "debentare includes debenture stock, bonds
and any other securities of a company whether constituting a charge of the assets of tke
company or not."
Types of Debentures
Debentures may be divided into the foliowing major
1.
t5ryes:
IJnsecured debetfures: {Jnsecured debentures are not given any securilr on
assets of the company. It is also called simple or naked debentures. This type
of debentures are treaded as unsecured sreditors at the time of winding up of the
compafly.
2.
3.
4.
5.
6.
Secured debentures: Sefilred debentures are given security ou assets of the
cofrparty. It is also called as mofrgaged debentures because these debentures are
given agailrst any mortgage of the assets of the company.
Redeemahle debentures: These debentures are to be redeemed on the expiry
of a certain period. The interest is paid periodically and the initial investment is
returned after the fixed maturity period.
Irredeemable debentures: These kind of debentures caanot be redeematrle
during the life time of the business corcerfl.
Convertible deberrtures; Convertible debeatnres ate the debentrrres whose holders
have the option to get them converted wholly or partly into shares. These
debeatures are usually converted into equity shares. Conversion of the debentures
may be:
Noa-coavsrtible debentures
Fully canvertible debentures
Par$y convertible debenfirres
Other t5ryes: Debeahres can also be classified into the following t;ryes. Some
of the commcll tygres of tlle debeafirres are as follows:
1. Collateral Debenture
2. GuaranteedDeberture
3. First Debenture
4. Zeto Coupon Bond
5. Zera hterest Bond/Debenture
Financial Management
34
Features of Debentures
1. Maturity period: Debentures consist of long-term fixed maturity period" Normally,
del:entures consist of 10-20 years matrrity period and are repayable with the
principle investrnent at the end of the maturity period.
2. Residual claims in income: Debenture holders are eligible to get frxsd rate af
interest at every end of the accoullting! period. Debenture holders bave pn<trily
of claim in income of the company over equit;r and preference shareholders.
3. Residual clafurs or asset: Debenfiffe holders have priority of claims on Assets
of the company over equity and prefera:ce shareholders. Ttre Debenture holders
way tnve either specific change on the Assets or floating change of the assets
of the company. Specific change of Debenture holders are treated as secured
creditors and floating change of Debenture holders are treated, as unsecured
creditors.
4. No voting rigft.ts: Debenture holders are considered as creditors of the compairyHence they have no voting rights. Debenture holders cannot have the control
over the pertotmance of the business concern.
5. Fixed rate of irterest: Debentures vield fixed rate of interest ti11 the maturitv
period. Hence the business will not affect the yield of the debenture.
Advantages of Debenture
Debenture is one of the major parts of the long-term sources of finance which of consists
the following important advantages:
1. Lon$-teru solrrces: Debenture is one of the loag-term sources of filance to the
company- Normally the maturity period is longer than the othgr sources of finance.
Fixed
2rate of interest Fixed rate of interest is payable to debenture holders,
hence it is most suitable of tle companies earn higfter profrt. Generally, the rate
of interest is lower than the other sources of lor:g-term, fttatce.
3. Trade on equity; A company can trade on equity by mixing debentures in its
capital stmcture and theretry increase its earning per share. When the company
appiy the trade on eqJLty concept, cost of capital will reduce and value of the
coapany will increase
4. Ineome tax deduetion: Interest payable to debentures can tre deducted from the
total profit of tke compa11y. SCI it hehs to reduce the tax trurden of the company.
5. Protection: Various provisions of the debenture trust deed and the guidelines
issued by the SEB1 protect the interest of debenture holders.
Disadvantages of Debenture
Debenture finance consists of the following major disadvantages;
1. Fixed rate of interest: Debenture
coasists of fixed rate of iuterest payable to
securities. Even though the company is unable to earn profit, they have to pay
the fixed rate of interest to debenture holders, hence, it is not suitable to those
coffipany earnings which fluctuate considerably.
Sources of
Financing
35
2. No voting rigftts: Debenture h,:lders
3.
do not have any voting rights. Hence, they
caflnot have the control over the managetnellt of the compal1y.
Creditors of the eompany: Debenture holders are *rerely creditors and nr:t the
owners of the company. The-v do not have any claim in the surplus profits of
the company.
4. HigL risk: Every additional issue of debentures becomes more risky and costly
ol account of higher expectation of debenture holders. This enhanced financial
risk increases the cost of equity capital and the cost of raising finance through
debentures which is also high because of high starrp du(y.
5. Restrictions of further issues: T'he company canilot raise further finarce
through debentures as the debentures are undet the part of securitv of the assets
already mortgaged to debenture holders.
INTERNAL FINANCE
A company can mobilize finance throu$h external and internal sources. A neu, coxlpany
rnay not rajse inter:ra1 soutces of flnance and the3. can raise finance only external sources
such as shares, debentures and loans but an existing company can raise both internal ancl
external sources of finance for their financial requir-ements. trnternal finance is also one of
the important sources of finance and it consists of cost of capital rnhile compared to other
sources of finance.
Internai source of finance may he
A. Dcpreciation Funds
B.
broadlSz classified
into nvo categories:
Reraiticd earnings
Depreciation Funds
Depreciation funds are the major part of internal sources of finance, r,vhich is used to meet
the working capital requirements of the business conce n. Deprec ation means decrease in
the value of asset due to wear and tear, lapse of time, obsolescence, exhaustion and accident.
Generally depreciation is changed against fixed assets of the compally at fixed rate for
eyery year. The purpose of depreciation is rep'lacement of the asse[s after the expited
period. It is one kind of provision of fund. u'hich is needed to reduce the tax burderr and
overall profitabili6, of the company.
Retained Earnings
Retained earnings are another method of internal sources of finance. Actually is not a
method of raising finance, J:ut it is cal1ed as accumulatir:n of profits by a company fbr its
expansion and diversification activities.
Retained earnings are called under different names such as; self finance, inter finance,
plugging
ancl
back of profits. Accorcling tr:r the Companies ,tct 1956 certain percentage, as
prescribed by the central governnent (not exceeding 10926J of the net profits after tax of a
35
Fiiancial Management
fiaancial yearhave to be compulsorily traasferred to reserveby a comFanybefore declaring
dividends for the year.
Under the retained earrrings sources of frnancg a part of the total profits is transferred
to various reserves such as $eneral reserve, replacement fund, reserve for repairs and
renewals, reserve funds and seerete reserves, eta
Advantages of Retained Earnings
Retained earnings consist of the following important advantagies:
1. Useful for e4lmr.sien aad diversification: Retained earaiags are mcst usefi:l
to expansion and diversification of *re business activities.
2. Economical sources of ffnans€: Retained earnings are one of the least costly
sources of finance since it does not involye any floatatton cost as in the case of
raising of funds by issuing different types of securities.
3. No fixed obligation: If the companies use equity finance lhey have to pay
dividend and if the ccmpanies use debt finance, they have to pay interest. But
if the compatly uses retained earni:rgs as solrces of finance, they need not pay
any fixed obligation regarding the payment of dividend or interesl
4. Flexible sources; Retained earnings a1low the financial structure to remain
completely flexible. The company need not raise loals for further requirements,
if it has retained earningg.
5. krsrease the share value: When the company uses tle retained earnings as the
sources of finnngs for their financial requiremerrts, the cost of capital is very cheaper
than tha other sources of finance; Hence the value of the share will iacrease.
g. Avoid excessive tax: Retained earnings provide oppottunities for evasion of
excessive tax in a €ompany when it has small number of shareholders.
7. Irrcrease earrirrg capacity: Retained earnings consist of least cost of capital and
also it is most suitable to those companies which go for diversification arrd expansionDisadvantages of Retained Earnings
Retained earnings also have certain disadvantages:
1.
2.
3.
Misuses: The management by manipulating the value of the shares in the stock
market can misuse the retailed earnings.
Leads to monopolies: Excessive use of retained earrings leads to monopolistic
attitude of the caffipany.
Over capitelizs{6113 Retained earnings lead to over capitalization,because if the
company uses more and more rctained, earnings, it leads to insufficient source
of fi.nance.
4.
Tax evasioru Retained earnings lead to tax evasion" Since, the company reduces
tax burden fhrough the retaiaed earnings.
Sources of Fhancina
5.
37
Dissatisfaction: If the catrLparly uses retaiaed earnings as sources of finaace, the
shareholder can't get raore dividends. So, the shareholder does rot like to use
the retained earnings as sourcs of finance in all situations.
LOAN FINANCING
Loan financing is the importaat mode of finance raised. by the comparly. Loan finance may
be divided into two !ryes:
(uJ Long-Term
(b)
'
Sources
Short-Term Sources
Loan finance can be raised through the following itrFortant institutiores.
Specialist Institutions
Commercial Banks
Domestic
Frnance
Currency
Fig. 3.1 Loan Financing
Financial lnstitutions
'With the effect of the industrial revaluation,
the government established nation wide and
state wise financial industries to provide long-term financial assistaace to industrial concerns
in the country. Financial institutions play a key role in the fie1d of irdustriai development
and they are meeting the financial requirements of the trusirless concern. IFCI, ICICI, IDBI,
SFC, EXIM Bark, ECGC are the famous financial institutio::s irr the country.
Commercial Banks
Commercial Banks normally provide short-tetm finance which is repayable within a year.
The major finance of commercial banks is as follows:
Shart-term advance: Commercial banks provide adva*ce to their customers with or
without securities. It is one of the most corrmoll a1ld -id"1y used short-tern sources of
financg which are needed to meet the working capital requirement of the company.
It is a cheap so.$rce af {tta*ce, which is in the form of pledge, mortgagg hypothecation
and trills discounted and rediscounted.
38
Financial Management
Short-term Loans
Commercial banks also provide loans to the business carrcerr, to meet the short-term
financial requirements. When abartkmakes ,n advaoce in lu:np sum against soae securit;r
it is termed as 1oan. Loan may be irr the following form:
(")
(b)
Cash credit: A cash credit is an arrangement by which a bank allcws his customer
to borrow molley up to certain limit against the security of the commodity.
Overdraft: Overdraft is an arrangement with a bank try which a srrrent account
holder is allowed to withdraw more than tle bala:rce to his credit up to a certain
limit without any securities.
Development Banks
Developmentbanks were established mairrly for the purpose of prouotion and development
the industrial sector iu tke coar;rtry. Presently, large number of development banks are
functioningwithmultidimensional actiyities. Developmentbanks are also called as financial
institutions or statutory firancial institutiors or statutory non-baaking institutions.
Development baaks provide two imporlant types of finance:
(u) Direct Finance
(b) Indirect Finance/Refinance
Some of the important development banks are discussed
in Chapter
11.
PresentJy the commercial banks are providing all kinds of financia1 seryices including
development-banking services. And also nowadays developmeat banks and specialisted
firraneial institutioas are providing all kinds of firralcial services including commercial
banking services. Diversified and $obal finaacial seryices are unavoidable to the preseat
day econorrics. Heacg we can classify the finaucial iastitutions only by the strucfl:re and
set up and not by t}le services provided try them-
MODEL SUESTIONS
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2.
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8.
Explain tie various souices of financing.
What is meant by seanrity financinf
lVhat is debt finaucing?
Critically exansiae &e advantages and disadvaotages of equiSr
Discuss the features of equify shares.
What are the merits of tke &eterced shares?
E4pdin the merits and demerits of preference shares?
List out tke t5ryes of debentures.
shares.