Funded & Non Funded Bank Facilities

                                                             

When bank provides credit facility with funds (real cash), it is called funded; while Non-funded are like guarantees and documentary credits (where bank does not give any cash but take risk of the companies and charge commission)

Funded Facilities

1. Working Capital Loans – they are generally of short duration (< 1 year). The duration may be longer if the working capital gestation period is longer.
2. Overdraft Facility - revolving loans against current account are called overdrafts or ODs which are unsecured in nature. The borrower can overdraw funds beyond available balance upto an agreed limit. Interest is payable only on the money used for the duration of withdrawal compounded daily. 
3. Cash Credit (CC) Facility – A bank assesses the average value of inventory & receivables of a business. Based on these assets as security, a bank issues 60-70% of asset value as limit on cash credit facility. Just like an OD, borrower can draw on this limit. The buffer of 30-40% which is kept by the bank is called Margin. The riskier the asset, the higher the margin. The interest on CC is usually linked to a benchmark rate & decided periodically. CC is secured in nature unlike OD which is unsecured in nature.
4. Working Capital Demand Loans (WCDL) – this is a short term revolving loan facility given for the working capital requirement of the company. A bank will quote a rate on WCDL depending on its current cost of funds to which the customer must agree.
5. Long term loans – banks provide these long term loans to finance expansions, buy real estate or machinery.

Non-Funded Facilities

Trade Finance

• Intermediaries – banks can act as intermediaries for documents & funds flow in international transactions as transfer through banks is more secure.
• Letter of credit – it is also called Documentary Credit (DC). The bank lends its guarantee of payment to the buyer. The bank also guarantees payment to the seller provided he ships the goods & complies with the terms of agreement. Here seller takes credit risk on the bank instead of buyer. The importer gets credit from the bank & doesn’t have to make advance payment.
• Open account or credit – this means that payment is made on an agreed upon future date. This is very risky for a seller unless he has very strong relationship with the buyer or the buyer has excellent credit rating. There are no guarantees & collecting payment often becomes a tedious affair.

Facility Structure

This is where the bank structures the loan i.e. decides the various loan parameters. It comes after credit evaluation is completed.

Credit Monitoring

Bank should ensure that the collateral is intact & also the proper end-use of funds. It should also inspect the inventory to determine that the working capital requirement is realistic & the company has adequate insurance cover to guard against any unforeseen events that might affect the bank.

A typical monitoring report will also have an ageing analysis to specify whether any loans or interest payments are overdue and for how long. It classifies the loans on the basis of maturity. Such reports are generated by the core banking solution in a bank.

Bank Guarantees

Through a Bank Guarantee, the bank guarantees the performance of a contract or the non-happening of an event such as an event of default to the beneficiary. Bank guarantees can be financial or performance in nature.

Performance guarantee is given when the guarantor or issuing bank guarantees the ability of the applicant to perform a contract to the beneficiary’s satisfaction. Financial guarantees are used to secure a financial commitment such as a loan, security deposit etc.

7 ways to say ‘No’ at work

NO! It is probably one of the shortest word in English and yet the most difficult one to say. Saying No can get you into trouble at times or make the other person angry.

However, accepting every other task or offer may prove to be a bane for you. So, here, we get you a few tips on how to say ‘No’ graciously.

1. Be adamant

Your colleague will be permitted a leave from work only if she completes her target on time. She approaches you for help. If you’re unwilling to take on her task, stick to your decision. Be firm.

Don’t provide her with long explanations. Say a ‘No’ politely.

2. Suggest an alternative

If you feel that you won’t be able to complete a task effectively, don’t take it. Refuse smoothly.
However, you can suggest someone else who you feel would be apt for the task. This way you would not only get off the burden from your shoulders but also help the other person.

3. Take time to respond

If a client wants to meet you over a cup of coffee and you wish to avoid him/her (may be because they eat your head talking), the simplest and the best option is to respond to the request after a sufficient time. So, if you answer the request after say, a week, he/she will get an idea about your ignorance and take it as a No.

4. Your status- Unavailable

Put your status as Busy or Unavailable or Offline while you’re on the chat. Put your phone on the answering machine or better, switch it off. And, all this is just to avoid and refuse that one persons’ request.

5. Say a gentle ‘No’

Your fellow employee wants you to help him in a project. But, looking at your workload, priorities and busy weekends, you surely cannot help him. Rather than saying a blunt No, tell him, “I would have loved to help you with this but trust me, I have a very busy week and I need to meet my deadline which is this week’s end. Sadly, it’s a no.” In short, decline but politely.

6. Portray the ‘I am occupied’ image

It is the ending of the month and everyone at the office is busy working. And you expect your friends at the workplace to ask you for help. So, why not keep your office desk loaded with files and keep yourself busy on the phone? This would certainly give out a ‘too busy with work’ or ‘totally engaged’ impression to people.

7. Postpone

“I am busy for two weeks because of a deal that needs to be finalized. Do you mind if I get back to you on this assignment of yours after that?” Postpone the task you have been requested to

perform, if you are busy. If the other person is accommodating, he/she will understand your
problem and get back to you when you’re free.

So, next time, if you’re busy or unwilling or have any other reason to refuse to the additional
work (which doesn’t even belong to you and you won’t get credit for that too!), you can happily
and politely say a NO.

The Honda Cog Advertisement

Honda’s “Cog” commercial was an instant classic when it aired in Britain in 2003. Filmed to market the European Accord, the intricate ad involves no trick photography. There is one moment of computer-enhanced graphics, seen when the muffler rolls across the screen at roughly the one-minute mark. However, CGI is used in this instance only because of both the running time of the commercial and the distance the entire ad would need to reach its conclusion; the ad agency, Wieden & Kennedy, couldn’t find a studio large enough to accommodate the length of the ad, so the same space was used twice. Splitting the commercial into two one-minute pieces greatly increased the odds of an error-free take


The Amazing Work

One moment seems to defy gravity: at roughly the 25-second mark, three wheels roll uphill. Again, the effect was managed without the use of computer graphics. Rather, each wheel contained a counterweight that, when displaced, forced the wheel to roll forward in an effort to correct itself. A simple solution, but as this commercial shows, simple can be beautiful. As Garrison Keillor says at the end of the ad, “Isn’t it nice when things work?”

The Making of the the Video

Letter of Credit

A letter of credit is a promise to pay. Banks issue letters of credit as a way to ensure sellers that they will get paid as long as they do what they've agreed to do.

Terms in LC

·        Abbreviations for 'letter of credit' include L/C, LC, and LOC

·         Applicant - the buyer in a transaction

·         Beneficiary - the seller or ultimate recipient of funds

·         Issuing bank - the bank that promises to pay

·         Advising bank - helps the beneficiary use the letter of credit

Process of LC

A seller only gets paid after performing specific actions that the buyer and seller agree to.

For example, the seller may have to deliver merchandise to a shipyard in order to satisfy requirements for the letter of credit. Once the merchandise is delivered, the seller receives documentation proving that he made delivery. The letter of credit now must be paid even if something happens to the merchandise. If a crane falls on the merchandise or the ship sinks, it's not the seller's problem.

To pay on a letter of credit, banks simply review documents proving that a seller performed his required actions. They do not worry about the quality of goods or other items that may be important to the buyer and seller.

Repo and Reverse Repo

Repo (Repurchase) rate is the rate at which the Central Bank of a country lends shot-term money to the banks against securities. When the repo rate increases borrowing from Central bank becomes more expensive.  Therefore, we can say that in case,  Central Bank wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate.

Reverse Repo rate is the rate at which banks park their short-term excess liquidity with the Central Bank.  The banks use this tool when they feel that they are stuck with excess funds and are not able to invest anywhere for reasonable returns.     An increase in the reverse repo rate  means that the Central Bank  is ready to borrow money from the banks at a higher rate  of interest. As a result, banks would prefer to keep more and more surplus funds with Central Bank.

Forensic Accounting (FA)

Simply put, forensic accounting is accounting that is suitable for legal review, offering the highest level of assurance, and including the now generally accepted connotation of having been arrived at in a scientific fashion. Forensic accountants, also referred to as forensic auditors or investigative auditors, often have to give expert evidence at the eventual trial.

External Auditors find out the deliberate misstatements only but the Forensic Accountants find out the misstatements deliberately. External auditors look at the numbers but the forensic auditors look beyond the numbers.

Forensic accountant takes a more proactive, skeptical approach in examining the books of Accounting. They make no assumption of management integrity (if they can assume so then there is no need for their appointment) show less concerns for the arithmetical accuracy have nothing to do with the Accounting or Assurance standards but are keen in exposing any possibility of fraud.

Foreign Direct Investment (FII)

An investment made by a company or entity based in one country, into a company or entity based in another country. Foreign investment refers to the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor.

The foreign direct investor may acquire voting power of an enterprise in an economy through any of the following methods:

•           by incorporating a wholly owned subsidiary or company

•           by acquiring shares in an associated enterprise

•           through a merger or an acquisition of an unrelated enterprise

•           participating in an equity joint venture with another investor or enterprise

Environment Audit

An assessment of the extent to which an organization is observing practices that seek to minimize harm to the environment. Environmental auditing started developing at the beginning of 70s of the past century in the United States of America and in the Western Europe. In that period the developed countries were adopting the environmental legislation in order to reduce the harmful consequences of the companies' actions that had affected the environment.

Independent third party assessment of the current status of an organization's compliance with local environmental laws and regulations.

Cloud Computing

Cloud computing refers to the delivery of computing and storage capacity as a service to a heterogeneous community of end-recipients. Cloud computing is simply a set of pooled computing resources and services delivered over the web. When you diagram the relationships between all the elements it resembles a cloud.

Cloud computing is using the internet to access someone else's software running on Someone else's hardware in someone else's data center. It is a style of computing in which IT-related capabilities are provided “as a service”, allowing users to access technology-enabled services from the Internet ("in the cloud") without knowledge of, expertise with, or control over the technology infrastructure that supports them. An emerging computing paradigm where data and services reside in massively scalable data centers and can be ubiquitously accessed from any connected devices over the internet. Cloud computing environments support grid computing by quickly providing physical and virtual servers on which the grid applications can run.

Book Building

When companies are on the look out to raise money for their business operations, they use various means for the same. Two of the most popular means to raise money are Initial Public Offer (IPO) and Follow on Public Offer (FPO). 

During the IPO or FPO, the company offers its shares to the public either at fixed price or offers a price range, so that the investors can decide on the right price. The method of offering shares by providing a price range is called as book building method

Book building is actually a price discovery method. In this method, the company doesn't fix up a particular price for the shares, but instead gives a price range, e.g. USDs 80-100. When bidding for the shares, investors have to decide at which price they would like to bid for the shares, for e.g. USD 80, USD 90 or USD 100. They can bid for the shares at any price within this range.

Based on the demand and supply of the shares, the final price is fixed. The lowest price (USD 80) is known as the floor price and the highest price (USD 100) is known as cap price.

The price at which the shares are allotted is known as cut off price

Mutual Fund

A mutual fund is a type of professionally-managed collective investment scheme that pools money from many investors to purchase securities and Invest in capital Market. By investing in mutual fund the investor became a part of owner of assets of mutual fund.
Features
-Pooling of Resources
-Professional management
Net Assets Value of Mutual Fund (NAV)
The NAV of MF is the amount of which the unit holder would receive if the mutual fund were wound up today.
 Return to this investors-owner, emanate from the interplay of two elements (i) NAV and (ii) Cost of mutual fund. NAV will be calculated every trading day.

Capital Market

Capital Market is market for financial assets which have long and indefinite maturity.Both the stock and bond markets are parts of the capital markets.

Unlike money market instruments the capital market instruments become mature for the period above one year.

Capital market provides long term debt and equity finance for the government and the corporate sector. 

Capital market can be classified into primary and secondary markets. The primary market is a market for new shares, where as in the secondary market the existing securities are traded.

A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year

Money Market

The money market is nowadays a component of the financial markets for assets involved in short-term borrowing, lending, buying and selling with original maturities of one year or less.

The money market is better known as a place for large institutions and government to manage their short-term cash needs. However, individual investors have access to the market through a variety of different securities.
One of the main differences between the money market and the stock market is that most money market securities trade in very high denominations. This limits access for the individual investor.

Capital Budgeting

Capital Budgeting (or investment appraisal) is the planning process used to determine whether an organization's long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing. It is budget for major capital, or investment, expenditures.


Oftentimes, a prospective project's lifetime cash inflows and outflows are assessed in order to determine whether the returns generated meet a sufficient target benchmark.

Popular methods of capital budgeting include net present value (NPV), internal rate of return (IRR), discounted cash flow (DCF) and payback period.

Adjusted NPV

Adjusted NPV is the NPV of project after considering the effect of financing. Two adjustment are relavant here  (a) Issue cost
(b) Tax shield on interest on debt
In other words The Net Present Value (NPV) of a project if financed solely by equity plus the Present Value (PV) of any financing benefits (the additional effects of debt).

 Adjusted Present Value (APV) is the net present value of a project if financed solely by ownership equity plus the present value of all the benefits of financing.
Steps in computation:
Step 1: Compute NPV on assumption that the project fully financed by equity.(Discount at cost of equity)
Step 2: Compute issue cost( It is already in today's value no need to discount)
Step 3: Compute tax saved on interest payable
Step 4: Compute PV of Tax Saved (at pretax cost of debt)
Step 5:ANPV=Base case NPV-Issue cost+PV of Tax Shield (Step1-Step 2+Step 4)

Profitability Index

Profitability Index is the measure of productivity of money means how much do we get for every single unit of money we spend.This is crucial when money is in short supply
Profitability index (PI), also known as profit investment ratio (PIR) and value investment ratio (VIR), is the ratio of payoff to investment of a proposed project

PI is the ratio of present value of Inflow to present value of outflow with cost of capital being used as the discount rate.
Steps in computation:
Step1: Compute Present Value (PV) of Inflow
Step2: Compute PV of Outflow
Step3: PVI / PVO (Step1 / Step2)

If the index is greater than one the project will be selected
Between two project one with higher PI will be selected

Penny Stocks

Penny Stocks are low-priced stocks. There is no formal definition. Stocks that sell for less than $5 or their net tangible assets are less than 2 million dollars are considered as penny stocks. In India stocks under a price of Rs 50 are penny stocks.

The appeal of penny stocks comes from its low price as also investor’s psychology. Investors tend to think that a stock quoting Rs 10 rising to 20 is more possible than a stock quoting Rs 2700 growing to Rs 5400. If the fortune of the penny stock company turns around there is plentiful of opportunity to see share price appreciation. Penny stocks are popular among speculators.

Escrow Account

An escrow account is a designated account, the funds of which can be utilized only for a specified purpose. In other words, the bankers to the issue keep the funds in the escrow account on behalf of the prospective buyers. These funds are not available to the company till the issue is completed and allocation is made.

Primary Market

Stock Market generally divided into two segments
Primary market and Secondary market.

The primary market is the market in which investors have the first opportunity to buy a newly issued security.The primary market is not a physical place, it is merely refers to a situation where the action is not among investors inter-se but is between a company and the investors.Eg. Initial Public Offer (IPO), it includes right issue.
When a company needs an extremely large capital to run its business operations it cannot fund it all by itself.Hence it needs shareholders, which can be achieved only through primary market.

Excel Tip- Highlight the Row

Using the following code we can able to highlight the row where the cursor is available without affecting the data
Copy the code -Right click Tab Name > View code and paste the code there on the VBE window.