Corporate Finance Strategies Quiz

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Questions and Answers

What are some key strategies included in a credit policy that affect lending decisions?

Key strategies include risk assessment, customer creditworthiness evaluation, and compliance with regulatory requirements.

How do financial covenants play a role in monitoring borrower performance?

Financial covenants set specific financial metrics that borrowers must maintain, enabling lenders to monitor financial health and mitigate risks.

What is the significance of cash flow management in project appraisal?

Cash flow management ensures that the project has adequate liquidity to meet its obligations and achieve long-term viability.

What factors should be considered when assessing loan agreements?

Factors include interest rates, repayment terms, collateral requirements, and any associated fees. Signup and view all the answers

What are the common restrictions that might be included in lending policies?

Common restrictions include limits on loan amounts, prohibitions on certain types of investments, and requirements for collateral. Signup and view all the answers

Describe the importance of a fair practices code (FPC) for lenders.

The FPC ensures transparency and fairness in lending practices, protecting both lenders and borrowers from unethical practices. Signup and view all the answers

How does off-balance sheet exposure impact a financial institution's risk profile?

Off-balance sheet exposure can obscure the true financial health of a bank, potentially increasing risk if not monitored properly. Signup and view all the answers

What is the role of the credit delivery process in the overall credit policy?

The credit delivery process facilitates the effective distribution of loans, ensuring timely access to funds for eligible borrowers. Signup and view all the answers

What is the purpose of the Appraisal of Credit Proposals in transaction management?

To evaluate borrowers' creditworthiness and financial viability before issuing loans. Signup and view all the answers

Define the term 'Drawing Power' in the context of credit management.

Drawing Power refers to the amount a borrower can withdraw from their sanctioned credit limit based on the value of their collateral. Signup and view all the answers

What are Financial Benchmark Parameters, and why are they important?

Financial Benchmark Parameters are standards used to evaluate a project’s financial health and viability. Signup and view all the answers

Explain the significance of Liquidity and Current Ratio norms in credit policy.

They are indicators of a borrower's short-term financial health and ability to meet obligations. Signup and view all the answers

What is involved in the project appraisal process according to the guidelines?

It includes assessing the project's feasibility, risk, cost, and expected returns before allocating funding. Signup and view all the answers

Describe the Loan System for Delivery of Bank Credit (LSDBC).

The LSDBC is a mechanism that facilitates the efficient disbursement of loans to borrowers based on their specific needs. Signup and view all the answers

What restrictions apply to lending based on statutory regulations?

Statutory restrictions may include limits on lending amounts and borrower eligibility criteria. Signup and view all the answers

How do banks assess compliance with sanction terms and conditions?

Banks regularly monitor borrower activities and financial health to ensure adherence to loan agreements. Signup and view all the answers

What is the importance of time norms for the disposal of loan applications?

Time norms ensure that loan applications are processed efficiently and clients receive timely approvals. Signup and view all the answers

What should a bank consider when sanctioning fresh credit facilities under OTS?

The bank should evaluate the borrower’s history, current financial situation, and the terms of settlement. Signup and view all the answers

What is the main purpose of the Amended Technology Upgradation Funds Scheme (ATUFS)?

To provide financial assistance for technology upgrades in manufacturing industries. Signup and view all the answers

Define Bills Discounting in the context of corporate finance.

Bills Discounting is a financial transaction where a business sells its accounts receivable to a bank at a discount for immediate cash. Signup and view all the answers

What is the importance of the Short Term Corporate Loan (STCL) Scheme?

STCL provides companies with necessary funds for meeting short-term financial needs and working capital requirements. Signup and view all the answers

Explain the concept of Consortium Advances.

Consortium Advances involve multiple lenders collaborating to provide a single loan to a borrower for larger financing needs. Signup and view all the answers

What role do Inter Bank Participation Certificates (IBPC) play in the banking sector?

IBPCs allow banks to share risk and liquidity by participating in loans and advances together. Signup and view all the answers

What is meant by 'Digital Lending Framework'?

It refers to a regulatory structure that governs the process of lending through digital platforms. Signup and view all the answers

How does cash flow management influence loan repayment capacity?

Effective cash flow management ensures that a company maintains sufficient liquidity to meet its debt obligations. Signup and view all the answers

What is the function of the relationship management phase in credit processing?

It involves establishing and nurturing relationships with clients to facilitate smoother credit transactions and better understanding of their needs. Signup and view all the answers

What is the significance of the Guidelines on Default Loss Guarantee (DLG) in Digital Lending?

DLG guidelines provide a framework for mitigating losses in case of borrower defaults, enhancing lender confidence. Signup and view all the answers

Describe the role of Multiple Banking Arrangements (MBA) in corporate financing.

MBA allows a company to tap funds from multiple banks, spreading financial risk while ensuring larger funding. Signup and view all the answers

Study Notes

Policy and Strategies

Amended Technology Upgradation Funds Scheme (ATUFS): A scheme that provides financial assistance to industries for modernizing their technology.
Bills Discounting: A financial product where banks purchase bills of exchange from exporters at a discount, providing immediate cash flow.
- Bills Discounted Under LC (BULC): Deals with discounting bills of exchange issued under Letters of Credit (LC).
Short Term Corporate Loan (STCL) Scheme: A scheme that provides short-term loans to corporations for working capital needs.
Corporate Loan Scheme: A scheme offering loans to companies for various purposes, including expansion and modernization.
Loans/ Advances to Subsidiaries: Banks may offer loans to subsidiaries of a company based on their individual creditworthiness.
Consortium advances: Multiple banks can provide joint loans to large borrowers, sharing risks and resources.
Multiple Banking Arrangements (MBA): Enables a borrower to access credit from multiple banks through a lead bank.
Joint Lending Arrangement (JLA): Two or more banks jointly sanction and manage credit facilities.
Time Frame for NOC/ Pari Passu Letters: The period for issuing necessary documents for consortium/MBA arrangements.
Loan Syndication: Several banks participate in providing large loans to borrowers.
Financing Indian Companies for Overseas Acquisitions: A scheme supporting Indian companies acquiring stakes in foreign companies.
Policy on Foreign Currency Loans (FCLs): Guidelines for granting foreign currency loans, including:
- Foreign Currency Loans to Residents (FCLR)
- Granting FCLRs for Liquidating Rupee Loans: Allows for the conversion of existing Rupee term loans into foreign currency.
- Granting FCLRs to Non-Banking Financial Companies (NBFCs)
Secured Overdraft: A credit facility where the borrower can withdraw funds beyond their account balance, secured against assets.
Net Means: A financial calculation used for determining a borrower's net worth.
Lending to Infrastructure Investment Trusts (InvITs): Providing credit facilities to InvITs, entities investing in infrastructure projects.
Inter Bank Participation Certificate (IBPC): A certificate issued by a participant bank to another bank for a portion of a loan.
Co-lending of Loans by Banks & NBFCs to Priority Sector: Banks and NBFCs can jointly provide loans to priority sectors (like agriculture) for financial inclusion.
Digital Lending Framework: A framework that outlines principles and practices for digital lending.
Guidelines on Digital Lending: Guidelines for digital lending practices, ensuring transparency and responsible lending.
Guidelines on Default Loss Guarantee (DLG) in Digital Lending: Rules governing the use of DLGs in digital lending to mitigate default risks.
Partial Credit Enhancement to Corporate Bonds and Bonds Issued by NBFCs and HFCs: A policy encouraging credit enhancement measures for corporate and NBFC bonds.

Operational Processes and Systems

Relationship Management Phase:
- Credit Initiation: The initial stage where a borrower applies for credit.
- Segregation of Relationship and Appraisal Functions: Separating the relationship management and credit appraisal processes.
- Submission of Credit Proposals: Defining the process for submitting loan proposals by branches, based on their sanctioning powers.
- Large Corporate Branches (LCBs)
- Mid Corporate Branches (MCBs)
- Branches Under Circle Office Sanctioning Power
- MSME Branch Proposals
- Processing of Proposals for Enhancement/Reduction of Limits: Procedures for adjusting existing credit limits.
- Participation in Bids/ Quoting of Rates: Guidelines for banks participating in bids for projects involving credit facilities.
Transaction Management Phase:
- Appraisal of Credit Proposals: Assessing borrower's financial situation and creditworthiness.
- Assessment – Working Capital: Evaluating working capital needs and providing adequate funding.
- Lending on the Guarantee Issued by Other Banks/FIs: Procedures for offering credit based on guarantees from other financial institutions.
Liquidity and Current Ratio Norms: Setting standards for borrowers' liquidity and current ratios, indicating their ability to meet short-term obligations.
Compliance to Sanction Terms and Conditions: Ensuring borrowers adhere to the terms and conditions of their loans.
Fixation of Time Schedules for Working Capital Limits: Setting time frames for sanctioning working capital limits.
Loan System for Delivery of Bank Credit (LSDBC): A framework for the efficient disbursement and management of bank loans.
Computation of Drawing Power: Determining a borrower's maximum permissible credit limit.
Term Loans & DPGs/ Bills Co-acceptance for Capital Goods: Guidelines for term loans and DPGs (Deferred Payment Guarantees) used for acquiring capital goods.
- Term Loans to Infrastructure Projects: Specific guidelines for term loans to infrastructure projects.
- General Guidelines for Medium and Long Term Loans: Comprehensive guidelines for medium and long-term lending.
- Guidelines for Project Appraisal: Steps involved in evaluating the viability and feasibility of projects.
- Financial/ Project Benchmark Parameters: Financial and project performance indicators for different industries.
- Sectoral Policy Guidelines: Guidelines tailored to specific sectors (e.g., Power).
- Prudential Guidelines for Lending to State-Owned Power Entities: Specific rules for providing credit to power companies owned by the state.
- Financial/ Project Benchmark Parameters for Various Industries: Financial parameters for evaluating companies in different sectors.
Takeover of Borrowal Accounts from Other Banks/Financial Institutions: Procedure for taking over existing loan accounts from other lenders.
Direct Obtention of Bank Statement: Allowing borrowers to directly obtain their bank statements for loan management.
Sanctioning of Fresh Credit Facilities to Borrowers with Settled Dues: Policies for granting new loans to borrowers who have previously settled their debts with the bank.
Fresh Facilities to Borrowers with Concessions/Compromise Settlements: Guidelines for providing new credit facilities to borrowers who have previously benefited from concessions or compromise settlements.

Restrictions for Lending

Statutory Restrictions: Legal constraints on lending practices, imposed by regulations and laws.
Regulatory Restrictions: Restrictions imposed by regulatory bodies like the Reserve Bank of India (RBI).
Policy Guidelines on Deviations/Exceptions: Guidelines outlining circumstances where deviations from standard lending policies may be allowed.

Credit Delivery

Time Norms for Disposal of Loan Applications: Setting time limits for processing loan applications.
Process for Monitoring Proposals at Regional Office/Circle Office/Head Office: Procedures for monitoring loan proposals at different levels of the bank's hierarchy.

General Matters

Guidelines for Sanctioning Combined Credit Limits for Export and Domestic Operations: Rules for allocating credit limits that combine domestic and export business needs.

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Description

Test your knowledge on various corporate finance strategies including the Amended Technology Upgradation Funds Scheme (ATUFS), bills discounting, and corporate loan schemes. This quiz covers important financial products and arrangements that facilitate capital flow and operational efficiency for businesses.