Koustubh Chavan KPTCL

A STUDY ON DEBT MANAGEMENT OF KPTCL
CHAPTER 1
INTRODUCTION
FINANCE
Business concern needs the finance to meet their requirements in the economic world. Any
kind of business activity depends on the finance. In general, the “finance” is understood as
provision of funds as and when needed. Finance is the essential requirement of every
organization.
Finance is the life blood of business activity. It is required for every business unit, be it a
small or medium and large scale industry. Every business enterprise has to raise the funds to
start their business activity. The entire business activities are directly related with making
profit. Required everywhere: all activity, be it production, marketing, human resources
development, purchases and even research and development, depend on the adequate and
timely availability of finance both for commencement and their smooth continuation to
completion.
The funds are available in the economy from different sources viz., primary market,
secondary market, money market and personal funds. All these sources are exploited through
the issue of long term and short financial instruments.
The need of finance starts with the setting up of business. Its growth and expansion require
more funds. The funds have to be raised from sources. The sources have to be selected
keeping in relation to the implementations, in particular, risk attached. Rising of money,
alone, is not important. Terms and conditions while raising money are more important.
Its utilization is rather more important. If funds are utilized properly, repayment would be
possible and easier, too. Care has to be exercised to match the inflow and outflow of funds.
Needless to say, profitability of any firm is dependent on its cost as well as its efficient
utilization.
MEANING OF FINANCE
ACHARYA BANGLORE B SCHOOL Page 1

Finance may be defined as the art and science of managing money. It includes financial
service and financial instruments. Finance also is referred as the provision of money at the
time when it is needed. Finance function is the procurement of funds and their effective
utilization in business concerns.
The concept of finance includes capital, funds, money, and amount. But each word is having
unique meaning. Studying and understanding the concept of finance become an important
part of the business concern.
DEFINITION OF FINANCE:
According to Oxford dictionary, the word ‘finance’ connotes ‘management of money’.

Webster’s Ninth New Collegiate Dictionary defines finance as “the Science on study of the
management of funds’ and the management of fund as the system that includes the circulation
of money, the granting of credit, the making of investments, and the provision of banking
facilities.
IMPORTANCE OF FINANCE:
It takes money to make money, so the proverbial saying goes. Businesses have to consider
their finances for so many purposes, ranging from survival in bad times to bolstering the next
success in good ones. How you finance your business can affect your ability to employ staff,
purchase goods, acquire licenses, expand and develop. While finances are not necessarily as
important as vision and great product, they are crucial to making the good stuff happen.
❖ Starting Capital
Every new venture needs seed money. Entrepreneurs only have dreams and ideas until they
have some capital to put their ideas in motion. Whether it’s a product or service, you will
need a way to create and deliver it – as well as enough money and time to lay the groundwork
of selling and establishing important relationships. Most business owners face the critical
choice between debt and equity financing. A small business loan leaves you free to own and
have absolute control over your company while it also leaves you lasting financial

obligations. Equity gives you cash, but you have to share the success. The critical decision in
your financing will determine how your business will work from that point onward.
❖ Debt Ratios
Finances are about more than money in your hand. While most businesses have some amount
of debt – especially in the beginning stages – too much debt compared with revenues and
assets can leave you are with more problems than making your loan payments. Vendors and
suppliers often run credits checks and may limit what you can buy on credit or keep tight
payment terms. Debt ratios can affect your ability to attract investors including venture
capital firms and to acquire or lease commercial space.
❖ Business Cycles
No matter how well your business is doing, you have to prepare for rainy days and even
storms. Business and economic cycles bring dark clouds one cannot predict. That is why
smart businesses create financial plans for downturns. Cash savings, good credit, smart
investments, and favourable supply and real estate arrangements can help a business stay
afloat or even maintain momentum when the business climate is unfavourable.
❖ Growth
Success can bring a business to a difficult crossroads. Sometimes to take on more business
and attain greater success, a company needs significant financial investment to acquire new
capital, staff or inventory. When business managers this juncture, they have to wade through
their financial options, which may involve infusions of equity capitals – perhaps from venture
capitalists. Every situation is different, but smart managers consider the cost of success and
their options for obtaining growth financing.
❖ Payroll
Nothing spells imminent death like a company being unable to make payroll. Even the
organization gets, the larger the labour cost. Above all, companies have to ensure they have
enough cash on hand to make payroll for at least two payroll cycles ahead if not more.
Financial planning to ensure your payroll accounts are in strong shape are essential to the
integrity and longevity of your company.

BUSINESS FINANCE:
“Business finance is that business activity which is concerned with the acquisition and
conversion of capital funds. In meeting financial needs overall objectives of business
enterprises”. Financial function of a business may define as the procurement of funds and
their effective utilization
FINANCIAL MANAGEMENT:
In every organization, where funds are involved sound financial management is necessary. As
Collins Brooks has remarked “Bad production management and bad sales management have
stain in hundreds, but faulty financial management has slain in thousands”. A business
finance of financial management is a managerial activity, which is concerned with the
anticipation of financial needs acquiring financial resources allocating funds within the
business. Administrating the allocated funds and accounting and reporting to management
over financial matters.
INTRODUCTION TO DEBT
Debt is an amount of money borrowed by one party from another. Debt is used by many
corporations and individuals as a method of making large purchases that they could not afford
under normal circumstances. A debt arrangement gives the borrowing party permission to
Borrow money under the condition that it is to be paid back at a later date, usually with
interest.
The most common forms of debt are loans, including mortgages and auto loans, and credit
card debt Under the terms of a loan, the borrower is required to repay the balance of the loan
by a certain date, typically several years in the future. The terms of the loan also stipulate the
amount of interest that the borrower is required to pay annually, expressed as a percentage of
the loan amount. Interest is used as a way to ensure that the lender is compensated for taking
on the risk of the loan while also encouraging the borrower to repay the loan quickly in order
to limit his total interest expense.

Credit card debt operates in the same way as a loan, except that the borrowed amount
changes over time according to the borrower's need, up to a predetermined limit, and has a
rolling, 0r open-ended, repayment date.
Corporate Debt
In addition to loans and credit card debt, companies that need to borrow funds have other
debt options. Bonds and commercial paper are common types of corporate debt that are not
available to individuals.
Bonds are a type of debt instrument that allows a company to generate funds by selling the
promise of repayment to investors. Both individuals and institutional investment ﬁrms can
purchase bonds, which typically carry a set interest, or coupon, rate. Bondholders are
promised repayment of the face value of the bond at a certain date in the future, called the
maturity date, in addition to the promise of regular interest payments throughout the
intervening years. Bonds work just like loans, except the company is the borrower, and the
investors are the lenders, or creditors.
Bad Debt
In corporate finance, there is a lot of attention paid to the amount of debt a company has. A
company that has a large amount of debt may not be able to make its interest payments if
sales drop, putting the business in danger of bankruptcy. Conversely, a company that uses no
debt may be missing out on important expansion opportunities.
Different industries use debt differently, so the “right’ amount of debt varies from business to
business. When assessing the financial standing of a give company, therefore, various metrics
are used to determine if the level of debt, or leverage, the company uses to fund operations is
within a healthy range.
Secured Debt
Secured debt is debt backed or secured by collateral to reduce the risk associated with
lending, such as a mortgage. If the borrower defaults on repayment, the bank seizes the
house, sells it and uses the proceeds to pay back the debt. Assets backing debtor a debt
instrument are considered security, which is why unsecured debt is considered a riskier
investment.

There are two primary ways a company can raise capital: debt and equity. Equity is
ownership and implies a promise of future earnings, but if the company falters, the investor
may lose her principal. Lured by the prospect of better growth opportunities, investors in
equity have the implicit backing of the company but no real claim on company assets. Indeed,
equity holders get paid last in case of bankruptcy. Debt, on the other hand, implies a promise
of repayment and has a higher degree of seniority in the case of bankruptcy
Debt Instrument
A debt instrument is a paper or electronic obligation that enables the issuing party to raise
funds by promising to repay a lender in accordance with terms of a contract. Types of debt
instruments include notes, bonds, debentures, certificates, mortgages, leases or other
agreements between a lender and a borrower. These instruments provide a way for market
participants to easily transfer the ownership of debt obligations from one party to another.
A debt instrument is legally enforceable evidence of a financial debt and the promise of
timely repayment of the principal, plus any interest. The importance of a debt instrument is
twofold. First, it makes the repayment of debt legally enforceable. Second, it increases the
transferability of the obligation, giving it increased liquidity and giving creditors a means of
trading these obligations on the market. Without debt instruments acting as a means of
facilitating trading, debt would only be an obligation from one party to another. However,
when a debt instrument is used as a trading means, debt obligations can be moved from one
party to another quickly and efficiently.
Debt instruments can be either long-term obligations or short-term obligations. Short-term

debt instruments, both personal and corporate, come in the form of obligations expected to be
repaid within one calendar year. Long-term debt instruments are obligations due in one year
or more, normally repaid through periodic instalment payment.
TERMS OF DEBT
Interest

Interest is the fee charged by the creditor to the debtor. Interest is generally calculated as a percentage
of the principal sum per year, which percentage is known as an interest rate, and is generally paid
periodically at intervals, such as monthly or semi-annually.
Many conventions on how interest is calculated exist — see day count convention for some while a
standard convention is the annual percentage rate (APR), widely used and required by regulation in
the United States and United Kingdom, though there are different forms of APR.
Interest rates may be fixed or floating. In floating-rate structures, the rate of interest that the borrower
pays during each time period is tied to a benchmark such as LIBOR or, in the case of inflation-
indexed bonds, inflation.
For some loans, the amount actually loaned to the debtor is less than the principal sum to be repaid.
This may be because upfront fees or points are charged, or because the loan has been structured to be
sharia-compliant. The additional principal due at the end of the term has the same economic effect as
a higher interest rate.
Repayment
There are three main ways repayment may be structured: the entire principal balance may be
due at the maturity of the loan; the entire principal balance may be amortized over the term of
the loan; or the loan may partially amortize during its term, with the remaining principal due
as a "balloon payment" at maturity. Amortization structures are common In mortgages and
credit cards.
Collateral and recourse
A debt obligation is considered secured if creditors have recourse to specific collateral.

Collateral may include claims on tax receipts (in the case of a government), specific assets (in
the case of a company) or a home (in the case of a consumer). Unsecured debt comprises
financial obligations for which creditors do not have recourse to the assets of the borrower to
satisfy their claims.
Debt Management
Debt management refers to an unofficial agreement with unsecured creditors for repayment
of debts over a specific time period, generally extending the amount of time over which the
debt will be paid back. Under debt management, the creditors are offered a Statement of

Affairs (SOA). Through this, disposable income, as estimated by the debt management

company, will be proffered to the creditors and they will decide on whether to agree to it or
not.
Once agreed upon, you are supposed to pay regular instalments to the debt management
company. These instalments are then distributed amongst your creditors thus making it easier
for you to repay your debts. The basic aim of debt management is, therefore, to help you clear
your debts at a compact level over a fixed time period thus helping you make a new start with
your finances.
Any strategy that helps a debtor to repay or otherwise handle their debt better.
Debt management may involveworking with creditors to restructure debt or helping the debto
r manage payments more effectively.
USES OF DEBT MANAGMENT
 When the organization is facing a short term cash flow problem and believe that their
financial position will change in the near future
 If the company is not able or do not want to take out any additional loans or use their
equity in their home
 When they want to do away with the pressure from creditors
 And also to pay off all their debts but are struggling with their present repayment
schedule
Pros and Cons of Debt Management
PROS
 Debt management is flexible. This implies that with changing circumstances, the
employed plan for debt management can be altered accordingly.

 Debt management reflects your responsible attitude towards your debts which might
be looked upon favourably by the prospective creditors.
 There are no contracts with the debt management company thus enabling you walk
away and make alternative arrangements at any point where you are not satisfied with
the services.
CONS
 If not otherwise negotiated, the interest payments will accumulate thus leaving you
with a huge sum at the end of your repayment period.
 The terms of your credit agreements with the creditors are violated.
 You might find it expensive to obtain credit in future.
TYPES OF BORROWERS
Individuals
Common types of debt owed by individuals and households include mortgage loans, car
loans, and credit card debt. For individuals, debt is a means of using anticipated income and
future purchasing power in the present before it has actually been earned. Commonly, people
in industrialized nations use consumer debt to purchase houses, cars and other things too
expensive to buy with cash on hand.
People are more likely to spend more and get into debt when they use credit cards vs. cash for
buying products and services. This is primarily because of the transparency effect and
consumer’s “pain of paying.” The transparency effect refers to the fact that the further you
are from cash (as in a credit card or another form of payment), the less transparent it is and
the less you remember how much you spent. The less transparent or further away from cash,
the form of payment employed is, the less an individual feels the “pain of paying” and thus is
likely to spend more. Furthermore, the differing physical appearance/form that credit cards
have from cash may cause them to be viewed as “monopoly” money vs. real money, luring
individuals to spend more money than they would if they only had cash available.
GOVERNMENT

Government issue debt to pay for ongoing expenses as well as major capital projects.
Government debt may be issued by sovereign states as well as by local governments,
sometimes known as municipalities.
The overall level of indebtedness by a government is typically shown as a ratio of debt-to-

GDP. This ratio helps to assess the speed of changes in government indebtedness and the and
the size of the debt due.
DEBT MARKETS
Loans versus bonds
Bonds are debt securities, tradable on a bond market. A country's regulatory structure
determines what qualifies as a security. For example, in North America, each security is
uniquely identified by a CUSIP for trading and settlement purposes. In contrast, loans are not
securities and do not have CUSIPs (or the equivalent). Loans may be sold or acquired in
certain circumstances, as when a bank syndicates a loan.
Loans can be turned into securities through the securitization process. In a securitization, a
company sells a pool of assets to a securitization trust, and the securitization trust finances its
purchase of the assets by selling securities to the market. For example, a trust may own a pool
of home mortgages, and be financed by residential mortgage-backed securities. In this case,
the asset-backed trust is a debt issuer of residential mortgage-backed securities.
Role of central banks
Central banks, such as the U.S. Federal Reserve System, play a key role in the debt markets.
Debt is normally denominated in a particular currency, and so changes in the valuation of that
currency can change the effective size of the debt. This can happen due to inflation or

deflation, so it can happen even though the borrower and the lender are usingthe same
currency.
Debt Financing
A business can finance its operations either through equity or debt. Equity is cash paid into
the business by investors; the business owner is usually one of these investors; investors
receive a share of the company, in effect a percentage of it proportional to total investment
paid in. The share or stock may appreciate in value in proportion to the increase in the
business's net worth—or it may evaporate to nothing at all if the business fails. Investors put
cash into a company in the hope of stock appreciation and the yield of dividends which the
business may (but need not) pay to the investor; dividends are a portion of the net profits of
the business; if the business does not realize a profit, it cannot pay a dividend. The investor
can get his or her investment back only by selling the share to someone else. In a privately
held company, investors have less "liquidity" because the shares are not traded on the open
market and a purchaser may be difficult to find. This is one reason why successful and
rapidly growing small businesses are under pressure by stockholders to "go public" and thus
to create an easy way for investors to cash out.
Debt financing, by contrast, is cash borrowed from a lender at a fixed rate of interest and with
a predetermined maturity date. The principal must be paid back in full by the maturity date,
but periodic repayments of principal may be part of the loan arrangement. Debt may take the
form of a loan or the sale of bonds; the form itself does not change the principle of the
transaction: the lender retains a right to the money lent and may demand it back under
conditions specified in the borrowing arrangement.
Lending to a company is thus at least in theory more safe, but the amount the lender can
realize in return is fixed to the principal and to the interest charged. Investment is more risky,
but if the company is very successful, the upward potential for the investor may be very
attractive; the downside is total loss of the investment.
DEBT/EQUITY RATIO
The character of a company's financing is expressed by its debt to equity ratio. Lenders like
to see a low debt/equity ratio; it means that much more of the company's fortunes are based
on investments, which in turn means that investors have a high level of confidence in the

company. If the debt/equity ratio is high, it means that the business has borrowed a lot of
money on a small base of investments. It is then said that the business is highly lever-aged—
which in turn means that lenders are more exposed to potential problems than investors.
These relationships ultimately highlight a certain ambiguity in the relations between lenders
and investors: their aims are in conflict but also in mutual support. Investors like to use a
small investment and leverage it into a lot of activity by borrowing; lenders like to lend a
small amount secured by a large investment. In usual business practice these motivations
result in a negotiated equilibrium which shifts this way and that based on market forces and
performance.
CASH FLOW TO DEBT RATIO
The cash flow of a company in relation to its debt serves lenders as another way to measure
whether or not to provide debt financing to a business. A company's profitability, as
measured on its books, may be better or worse than its cash generation. In calculating cash
flow, only actual cash coming in and going out in a given period is used to calculate net cash
available for servicing debt.
The sales of a company for a given period, for example, may be considerably higher than its
cash receipts; the reason for this may simply be that the company's customers may paying
late or may have favorable "stretched out" payment arrangements. Similarly, the costs of a
company, as recorded on its books, may be lower than its actual cash payments in a period;
the company, for instance, may be prepaying insurance for The next six months this month;
it's books will only show one sixth of that payment as cost but six times as much going out as
cash. For these reasons, a company may be profitable based on its books but may be short on
cash at any given time. Lenders therefore like to look at the amount of cash available to
service the current portions of any new debt. If this amount is minimally 1.25 times the debt
service required, the business is at least in the ballpark to receive a loan. The higher this ratio,
the more inclined the lender will be to lend.
SOURCES OF DEBT FINANCING
Small businesses can obtain debt financing from a number of different sources. Private
sources of debt financing include friends and relatives, banks, credit unions, consumer

finance companies, commercial finance companies, trade credit, insurance companies, factor
companies, end leasing companies. Public sources of debt financing include a number of loan
programs provided by the state and federal governments to support small businesses.
Private Sources
Many entrepreneurs begin their enterprises by borrowing money from friends and relatives.
Such individuals are more likely to provide flexible terms of repayment than banks or other
lenders and may be more willing to invest in an unproven business idea, based upon their
personal knowledge and relationship with the entrepreneur. A potential disadvantage is that
friends and relatives may try to become involved in the management of the business.
Business owners who wish to avoid such complications must use the same formal
arrangements with relatives and friends as with more distant business associates.
Banks are the most obvious sources of borrowed funds. Commercial banks usually have more
experience in making business loans than do regular savings banks. Credit unions are another
common source of business loans; these financial institutions are intended to aid the members
of a group—such as employees of a company or members of a labour union—they often
provide funds more readily and under more favourable terms than banks. However, the size
of the loan available may be relatively small.
Finance companies generally charge higher interest rates than banks and credit unions. Most
loans obtained through finance companies are secured by a specific asset as collateral—and
the lender can seize the asset if the small business defaults on the loan. Consumer finance
companies make small loans against personal assets and provide an option for individuals
with poor credit ratings. Commercial finance companies provide small businesses with loans
for inventory and equipment purchases and are a good resource for manufacturing
enterprises. Insurance companies often make commercial loans as a way of reinvesting their
income. They usually provide payment terms and interest rates comparable to a commercial
bank but require a business to have more assets available as collateral.
Trade credit is another common form of debt financing. Whenever a supplier allows a small
business to delay payment on the products or services it purchases, the small business has
obtained trade credit from that supplier. Trade credit is readily available to most small
businesses, if not immediately then certainly after a few orders. But the payment terms may

differ between suppliers. A small business's customers may also be interested in offering a
form of trade credit—for example, by paying in advance for delivery of products they will
need on a future date—in order to establish a good relationship with a new supplier.
Factor companies help small businesses to free up cash on a timely basis by purchasing their
accounts receivable. Rather than waiting for customers to pay invoices, the small business
can receive payment for sales immediately. Factor companies can either provide recourse
financing, in which the small business is ultimately responsible if its customers do not pay,
and non-recourse financing, in which the factor company bears that risk. Although factor
companies can be a useful source of funds for existing businesses, they are not an option for
startups that do not have accounts receivable. Leasing companies can also help small
businesses to free up cash by renting various types of equipment instead of making large
capital expenditures to purchase it. Equipment leases usually involve only a small monthly
payment, plus they may enable a small business to upgrade its equipment quickly and easily.
Entrepreneurs and owners of start-ups businesses must almost always resort to personal debt
in order to fund their enterprises. Some entrepreneurs choose to arrange their initial
investment in the business as a loan, with a specific repayment period and interest rate. The
entrepreneur then uses the proceeds of the business to repay himself or herself over time.
Other small business owners borrow the cash value of their personal life insurance policies to
provide funds for their business. These funds are usually available at a relatively low interest
rate. Mortgage loans can be risky: the home is used as collateral. Finally, some fledgling
business people use personal credit cards fund their businesses. Credit card companies charge
high interest rate, which increases the risk of piling up additional debt, but they can make
cash available quickly.
SOURCES OF LONG TERM DEBT
Corporate Bonds
A corporate bond is the most common form of long-term debt for public companies. Bonds
are issued to fund ongoing operations, pay for mergers and acquisitions or start investment
projects. Bonds typically carry semi-annual coupon payments and are issued at a discount.

For example, in 2014, Apple Inc. issued $3.5 billion in bonds maturing in eight and 12 years
with coupons ranging from 1.1% to 1.7%.
Term Loans
The term loan is another type of long-term debt, and it represents a loan from a bank for a
certain amount that must be repaid according to a specified schedule. Term loans usually
have floating interest rates that change with certain benchmarks, such as the federal funds
rate. Maturity of the term loan typically ranges between one to 10 years.
Paid-in-Kind Note
The paid-in-kind note is another form of long-term debt that allows the company to avoid
making any principal or interest payments to the lender until the maturity date. These
characteristics of the paid-in-kind note make them highly risky and expensive. The interest on
the paid-in-kind note typically accrues throughout the term of the note and is paid in full at
the maturity date.
Capital Leases
Another source of long-term debt on the company's balance sheet is capital leases. For
reporting purposes, generally accepted accounting principles, or GAAP, require companies to
capitalize leases under certain circumstances. The lease is considered capital if the life of the
lease is 75% or greater of the asset's useful life, the lease allows the company to purchase the
asset for a price less than its market value, the renter obtains ownership of the asset at the end
of the lease or the present value of the lease payments exceeds 90% of the market value of the
asset. By signing the capital lease, the company effectively assumes long-term debt to obtain
property for a long-term use.
Certain analysts argue that operating leases, which are leases not capitalized due to not
meeting any of the above four criteria, represent off-balance sheet obligations and should
also be included as part of the long-term debt.
Hybrid Instruments
Hybrid instruments have equity embedded in them. For instance, convertible bonds are an
example of a long-term debt that can be converted into the company's common stock at a

predetermined rate and during a specific time. Ordinarily, the convertible bond is valued as a
mixture of a straight bond and an option that allows its holder to buy the company's stock.
Equity Shares:
It represents the ownership capital of a firm. A public limited company may raise funds from
public or promoters as equity share capital by issuing ordinary equity shares.
Ordinary shareholders are those the owners of which receive their dividend and return of
capital after the payment to preference shareholders.
They undertake the risk of the company. They elect directors and have total control over the
management of the company. These shareholders are paid dividends only when there are
distributable profits. As equity shares are paid only on liquidation, this source has the
minimum risk.
Right Shares:
If an existing company wants to make a further issue of equity shares, the issue must first be
offered to the existing shareholders. The method of issuing shares is called right issue. The
existing shareholders have right to entitlement of further shares in proportion to their existing
shareholding.
For a shareholder who does not want to buy the right shares, his right of entitlement can be
sold to someone else. The price of right shares will be generally fixed above the nominal
value but below the market price of the shares.
Section 81 of the Companies Act, 1956, provides for the further issue of shares to be first offered to
the existing members of the company, such shares are known as ‘right shares’ and the right of the
members to be so offered is called the ‘right of pre-emption’.
Bonus Shares:
Sometimes a company may not be in a position to pay cash dividends in spite of adequate
profits because of the adverse effect on the working capital of the company. However, to

satisfy the equity shareholders, the company may issue shares—without payment being
required to— its existing equity shareholders.
These shares are known as bonus shares or capitalization of retained earnings. These shares
are issued out of accumulated or undistributed profits to shareholders. Bonus shares may also
be issued when a company wants to build up cash resources for expansion, or other purposes
like repayment of liability.
Preference Shares: These are shares which carry the following two rights:
(i) The right to receive dividend at a fixed rate before any dividend is paid on other shares.
(ii) The right to return of capital in the case of winding-up of company, before the capital of
the equity shareholders is returned.
Types of Preference Shares:
The various types of preference shares are:
(i) Cumulative Preference Shares:
The holders of these shares have the right to receive the arrears of dividend if for any year it
has not been paid because of insufficient profit.
(ii) Non-cumulative Preference Shares: The holders of these shares have the right to receive
dividend out of the profits of any year. In case profits are not available in a year, the
holders get nothing, nor can they claim unpaid dividends in subsequent years.
(iii) Participating Preference Shares: The holders of these shares are entitled to a fixed
preferential dividend and in addition, carry a right to participate in the surplus profits
along with equity shareholders after dividend at a certain rate has been paid to equity
shareholders.
Again, in the event of liquidation of the company, if after paying back both the preference
and equity shareholders, there is still any surplus left, then the participating preference
shareholders get additional shares in the surplus assets of the company.

(iv) Non-participating Preference Shares: These preference shares have no right to

participate in the surplus profits of the company on its liquidation. Such shareholders are
entitled to a fixed rate of dividend only.
(v) Convertible Preference Shares: These preference shares can be converted into equity
shares after a specified period of time. The conversion of such shares can be made as per
the provisions of the Articles of Association.
(vi) Non-convertible Preference Shares: Non-convertible preference shares are those shares
which cannot be converted into equity shares.
(vii) Redeemable Preference Shares: These preference shares are redeemed before liquidation
of the company as per terms of issue in accordance with the provisions of Articles of
Association.
(viii) Irredeemable Preference Shares:
These preference shares are not redeemed before liquidation of the company. Such shares are
not redeemed unless a company is liquidated. After the Commencement of Companies
(Amendment) Act, 1988, no company can issue irredeemable preference shares or preference
shares which are redeemable after the expiry of a period of ten years from the date of their
issue.
Debentures:
A debenture is a document of acknowledgement of a debt with a common seal of the

company. It contains the terms and conditions of loan, payment of interest, redemption of the
loan and the security offered (if any) by the company.
According to Section 2(12) of the Companies Act, 1956, debenture includes debenture stock,
bonds and any other securities of a company, whether constituting a charge on the assets of
the company or not.
Thus, a debenture has been defined as acknowledgement of debt, given under the common
seal of the company and containing a contract for the repayment of the principal sum at a
specified date and for the payment of interest at fixed rate/per cent until the principal sum is
repaid and it may or may not give the charge on the assets to the company as security of loan.

It is an instrument for raising long-term debt.
Debenture holders are the creditors of the company. They have no voting rights in the
company. Debenture may be issued by mortgaging any asset or without mortgaging the
asset, i.e., debentures may be secured or unsecured.
Interest on debenture is payable to debenture holders even when the company does not make
profit. The cost of debenture is very low as the interest payable on debentures is charged as
an expense before tax.
Types of Debentures:
Debentures may be classified as:
1. Bearer Debentures:
These debentures are transferable like negotiable instruments, by mere delivery. The holder
of such debenture receives the interest when it becomes due. The transfer of such debenture
is recorded in the register of the company.
2. Secured or Mortgage Debenture:

These debentures are secured by creating a charge on the assets of the company. The charge
may be fixed or floating. If a company fails to pay debentures interest in due time or repay
the principal amount, the debenture holders can recover their dues by selling the mortgaged
assets.
3. Loans from Financial Institutions:

In India specialised financial institutions provide long-term financial assistance to private and
public firms. Generally firms obtain long-term debt by raising term loans. Term loans, also
referred to as term finance; represent a source of debt finance which is repayable in less than
10 years.
Before giving a term loan to a company the financial institutions must be satisfied regarding
the technical, economical, commercial, financial and managerial viability of project for
which the loan is needed. Term loans are secured borrowings and a significant source of

finance for investment in the form of fixed assets and also in the form of working capital
needed for new project.
The following financial institutions provide long-term capital in India:

(i) All Nationalized Commercial Banks.
(ii) Development Banks which include.
(a) Industrial Development Bank of India
(b) Small Industries Development Bank of India
(c) Industrial Finance Corporation of India
(d) Industrial Credit and Investment Corporation of India
(e) Industrial Reconstruction Bank of India.
(iii) Government Financial Institutions which include.
(a) State Finance Corporation
(b) National Small Industries Corporation
(c) State Industrial Corporation
(d) State Small Industries Development Corporation.
(iv) Other investment institutes which include
(a) Life Insurance Corporation of India

(b) General Insurance Corporation of India
(c) Unit Trust of India.
Retained Earnings:
When a company retains a part of undistributed profits in the form of free reserves and the
same is utilized for further expansion and diversification programs, is known as ploughing
back of profit or retained earnings. These funds belong to the equity shareholders. It increases
the net worth of the business.
Although it is essentially a means of long-term financing for expansion and development of a

firm, and its availability depends upon a number of factors such as the rate of taxation, the
dividend policy of the firm, Government policy on payment of dividends by the corporate
sector, extent of profit earned and upon the firm’s appropriation policy etc.
SOURCES OF SHORT TERM DEBT
1. Trade Credit Trade credit refers to credit granted to manufactures and traders by the
suppliers of raw material, finished goods, components, etc. Usually business enterprises
buy supplies on a 30 to 90 days credit. This means that the goods are delivered but
payments are not made until the expiry of period of credit. This type of credit does not
make the funds available in cash but it facilitates purchases without making immediate
payment. This is quite a popular source of finance.
2. Bank Credit Commercial banks grant short-term finance to business firms which are
known as bank credit. When bank credit is granted, the borrower gets a right to draw the
amount of credit at one time or in installments as and when needed. Bank credit may be
granted by way of loans, cash credit, overdraft and discounted bills.
i)Loans When a certain amount is advanced by a bank repayable after a specified period, it is
known as bank loan. Such advance is credited to a separate loan account and the borrower
has to pay interest on the whole amount of loan irrespective of the amount of loan actually
drawn. Usually loans are granted against security of assets.

ii) Cash Credit it is an arrangement whereby banks allow the borrower to withdraw money up
to a specified limit. This limit is known as cash credit limit. Initially this limit is granted for
one year. This limit can be extended after review for another year. However, if the borrower
still desires to continue the limit, it must be renewed after three years. Rate of interest varies
depending upon the amount of limit. Banks ask for collateral security for the grant of cash
credit. In this arrangement, the borrower can draw, repay and again draw the amount within
the sanctioned limit. Interest is charged only on the amount actually withdrawn and not on the
amount of entire limit.
(iii) Overdraft When a bank allows its depositors or account holders to withdraw money in
excess of the balance in his account upto a specified limit, it is known as overdraft facility.
This limit is granted purely on the basis of credit-worthiness of the borrower. Banks
generally give the limit upto Rs.20,000. In this system, the borrower has to show a positive
balance in his account on the last friday of every month. Interest is charged only on the
overdrawn money. Rate of interest in case of overdraft is less than the rate charged under
cash credit.
(iv) Discounting of Bill Banks also advance money by discounting bills of exchange,
promissory notes and handiest. When these documents are presented before the bank for
discounting, banks credit the amount to customer’s account after deducting discount. The
amount of discount is equal to the amount of interest for the period of bill.
3. Customers’ Advances Sometimes businessmen insist on their customers to make some

advance payment. It is generally asked when the value of order is quite large or things
ordered are very costly. Customers' advance represents a part of the payment towards price
on the product (s) which will be delivered at a later date. Customers generally agree to make
advances when such goods are not easily available in the market or there is an urgent need of
goods. A firm can meet its short-term requirements with the help of customers' advances.
4. Instalment credit Instalment credit is now-a-days a popular source of finance for consumer
goods like television, refrigerators as well as for industrial goods. You might be aware of this
system. Only a small amount of money is paid at the time of delivery of such articles. The
balance is paid in a number of instalments. The supplier charges interest for extending credit.

The amount of interest is included while deciding on the amount of instalment. Another
comparable system is the hire purchase system under which the purchaser becomes owner of
the goods after the payment of last instalment. Sometimes commercial banks also grant
instalment credit if they have suitable arrangements with the suppliers.
5. Loans from Co-operative Banks Co-operative banks are a good source to procure short-
term finance. Such banks have been established at local, district and state levels. District
Cooperative Banks are the federation of primary credit societies. The State Cooperative Bank
finances and controls the District Cooperative Banks in the state. They are also governed by
Reserve Bank of India regulations. Some of these banks like the Vaish Co-operative Bank
was initially established as a co-operative society and later converted into a bank. These
banks grant loans for personal as well as business purposes. Membership is the primary
condition for securing loan. The functions of these banks are largely comparable to the
functions of commercial banks.
SOURCES OF FUNDS AT KPTCL

KPTCL has majorly three sources to get funds for its operations and they are:
o Equity capital from the state government

o Debt or loans from banks
o Project funds for any project undertaken for any private parties
o Transmission and wheeling charges by its five customers i.e the ESSCOM's
USAGE OF DEBT
 The use of funds is an explanation of how money received as loans or investment will
be spent.
 This is easily confused with Sources and Uses of Funds, which is another name for
one way of doing a cash flow. Many financial statements have Sources and Uses
included. Our cash flow model is actually a modified version of sources and uses of
funds.
 The uses of funds I assume you're referring to is required in a few plans, by a few
investors, and a few banks. Ironically, if you think about it, the use of funds is actually

already showing in a complete plan done with Business Plan , in the expenses and
cash flow tables.
The Sources and Uses of Funds Statement
 Uses of Funds: The money needed for various purposes for business startup, including
beginning quantities of supplies, equipment, and furniture needed, purchase of
building/land or costs of deposits for rent, and other startup costs.
 Sources of Funds: Where the money for all funding is going to come from. You will
probably have a mix of different funds for different parts of your plan. For example,
you may be contributing office furniture yourself, getting a loan for purchasing major
equipment, and getting a line of credit for working capital.
TECHNIQUES OF MANAGING DEBT AT KPTCL
 Many techniques have been suggested by economists to achieve the objectives of debt
management.
Below are few practical and important techniques:
1. Lowering the Interest Cost:
The most important objective of debt management is that the interest cost of the public debt
to the government should be low so that the burden of servicing the debt should be the
minimum to the taxpayers. The government repays the debt by raising
revenues from taxation.
The higher the cost of servicing the debt, the higher would be the level of taxation and the
greater the burden on taxpayers. The government should so work out the pattern of interest
rates that it conforms to the preference pattern of security holders. The lower the interest rates
on government securities, the smaller will be the transference of resources from the taxpayers
to bond holders.
In practice, most governments keep very low interest rates on short-term securities and
gradually increase the interest rates as the maturity period of the debt lengthens. This method

gives rise to wide spreads between the short-term and long-term interest rates. This induces
bond holders to switch over from short- term to long-term securities thereby increasing the
debt burden of the government and imposing a higher tax burden on the taxpayers.
II .Changing the Maturity Structure:
 One of the techniques of debt management is to change the maturity structure of the
debt as a device for economic stabilization. This is done by “swapping operations” by
the central bank. During boom period, the central bank sells more long-term
government securities in the open market and purchases a corresponding amount of
short-term government securities with the same amount of money. This lengthens the
average maturity structure of the existing public debt which tends to raise the interest
rate. Since long-term securities are not good substitute for money, they increase the
liquidity preference. As a result, the liquidity preference curve will shift to the left
from LM to LM;This raises the equilibrium interest rate from OR to OK, and reduces
the equilibrium income from OY to OY;, as shown in Fig. 4. The rise in the long-term
interest rate would curb private spending by reducing availability of credit.
 The value of outstanding assets of financial institutions is also reduced with the
increase in interest rate. They, therefore, tend to hold more liquid short-term
government securities. This is likely to cause a rise in the short- term interest rate.
 If the short-term interest rate rises slightly, financial institutions will tend to hold
more short-term government securities rather than cash. Thus reduction in the
availability of credit and holding of more short-term securities will have a tendency to
control a boom.
 On the other hand, debt management requires the shortening of the average maturity
structure of the outstanding public debt through the sale of short-term government
securities to replace them by purchasing long-term government securities during a
recession. This would tend to bring a sharp fall in the long-term interest rate
accompanied with a mild fall in the short- term interest rate. Since short-term
securities are a close substitute for money, the asset holders tend to substitute them for
money.

 This will reduce the liquidity preference and shift the LM curve to the right from LM
to LM) with a lower equilibrium level of interest rate OR» and a higher income level
OY>2, as shown in Fig. 4. Thus debt management requires the manipulation of the
term structure of the debt to bring about economic stability.
III. Advance Refunding:
Another method of lengthening the public debt is to advance refunding of securities. The
central bank offers the holders of a particular long-term government security, which still has
some years to mature, to exchange their securities for a new security with a longer maturity.
The new security carries a little higher yield and the holders of the old security do not realize
any capital loss or gain. This technique has the advantage over the other techniques described
above in that the central bank is not required to resort to open market operations for
managing the public debt.
DEBT RESTRUCTURING
Debt restructuring is a process that allows a private or public company, or a sovereign entity
facing cash flow problems and financial distress to reduce and renegotiate its delinquent
debts in order to improve or restore liquidity so that it can continue its operations.
Replacement of old debt by new debt when not under financial distress is called
"refinancing". Out-of-court restructurings, also known as workouts, are increasingly
becoming a global reality
A debt restructuring, which involves a reduction of debt and an extension of payment terms,
is usually a less expensive alternative to bankruptcy. The main costs associated with debt
restructuring are the time and effort negotiating with bankers, creditors, vendors, and tax
authorities.
Government Approval
• The burden of cleaning of KEB Balance sheet on Government was Rs.819.28
• Besides, as an one time measure, the outstanding dues of urban local bodies were
defrayed through a securitization program me

• A mechanism was also introduced to recover the local body dues on a monthly basis
Reconstitution of working group
• In May 2001 working groups were constituted and 1o Groups were formed:- *
Financial Restructuring
• Distribution configuration
• Revenue Improvement
• HRD and Change management
• Corporate Planning
• Commercialization
• Tariff Rationalization
• Technical Interface and Demand Supply Planning
• Social Assessment and Communication
• Asset Listing and Identification
MODES OF CREATING CHARGE BY BANKS
While lending money, the bank has to keep three principles in mind viz., liquidity, safety and
profitability. In order to minimise risks in advancing money, banks usually insist on good
security and would like to create a charge on the tangible assets of the borrower in favour of
the bank. When a charge is created, the bank gets certain rights on the tangible assets. In case
the borrower fails to repay the advance, the bank can recover its money by disposing of those
assets in the market. The important methods of creating a charge are: pledge, hypothecation,
mortgage and lien
Pledge
Section 172 of the Indian Contract Act defines pledge as “a bailment of goods as security for
payment of a debt or performance of a promise”. So, a pledge is a contract whereby a
borrower delivers his movable property to the lender as a security for the loan on the

understanding that the property pledged will be returned to the borrower on repayment of the
debt. The borrower who pledges the property is called the ‘pledged’ or ‘pawner’ and the
person with whom the property is pledged is known as ‘pledgee’ or ‘pawnee’. From the
above, you must have understood that delivery of goods and return of goods are the two
essential features of pledge. Delivery of goods may be either physical delivery or constructive
(symbolic) delivery. When the pledgee puts his own lock on the godown or when the keys of
the lock are handed over to the bank, it amounts to delivery of goods. Similarly, handing over
the duly endorsed documents of title to goods like railway receipt, bill of lading, etc., amount
to delivery of goods. While accepting a pledge as a charge, the bank should ensure that the
contract is in writing to minimise the misunderstanding of the terms. The contract should be
complete in all respects and should incorporate all the usual clauses of pledge. It is advisable
for the bank to get a declaration from the borrower to the effect the goods deposited with the
bank are left as a security for the advance. The bank should see that the borrower has a valid
title to the property pledged. The bank should ensure that the goods are kept safely in the go
down. It is desirable that the bank should ensure goods against theft, fire, riot, etc. You must
remember that when goods are pledged, only the possession over the goods is given and not
the ownership. The pledger or the borrower continues to be the owner of the property. If the
borrower fails to repay the loan in time, the bank has a right to file a suit against the borrower
for the recovery of the amount, and retain the goods as collateral security. But since this is a
lengthy process, the banks are given the right to sell the pledged goods and recover their
money. But before selling the goods, the bank must give a reasonable notice to the borrower
about his intention to sell the goods. If the proceeds of sale are less than the amount due, the
borrower is still liable to pay the balance. But if the proceeds of sale is in excess of the
amount due, the bank has to pay the surplus amount to the borrower. In case the goods are
sold without giving a reasonable notice to the borrower, the sale cannot be set aside, but the
bank will become liable to the borrower for damages. From the above, it must be clear to you
that for securing a charge on the property, the method of pledging is very simple and
therefore, it is very popular. It should also be noted that the right to retain the goods pledged
is applicable only in case of a particular debt for which the goods are pledged. The bank has
no right to retain the security, as security for other debts owned by the borrower.
Hypothecation Hypothecation is a mode of creating charge on goods or related document

surrender of

possession of goods. According to Prof. Herbert Hart, “Hypothecation is a legal transaction

whereby goods may be made available as security for a debt without transferring either the
property or the possession to the lender”. Hypothecation is resorted to such cases where
transfer of possession of the property from the borrower to the creditor is either impracticable
or inconvenient. For example, if the borrower wants to borrow on the security of motor
vehicle, which is being used as a taxi, it shall not be advisable to pledge the vehicle with the
bank, as it will deprive him of his livelihood. In the case of hypothecation, an equitable
charge is created on the goods for the amount of debt but the hypothecated goods actually
remain in the physical possession of the borrower. The borrower who hypothecates the goods
is known as ‘hypothecator’ and the lender is termed as ‘hypothecatee’. Generally,
hypothecation is done by the borrower by executing a document called a ‘letter of
hypothecation’ in favor of the lender. In this letter it is stated that the said goods or property
are at the order and disposition of the lender until the debt is cleared. It also empowers the
lender to sell the hypothecated property in the event of default or repayment by the borrower.
As the hypothecated goods remain in the possession of the borrower, there is considerable
scope for fraud. The same goods may be hypothecated with another person. It is a risky
method no doubt. That is why this facility is granted to parties of unquestionable integrity and
honesty. Even then the banker should obtain a declaration from the borrower to the effect that
the goods are not hypothecated earlier with some other lender and that the borrower has a
clear title to the property hypothecated. The bank should carry out regular inspection and
physical verification of the hypothecated goods.
Mortgage
When immovable property like land and building is offered as security for debt, a charge is
created thereon by means of a mortgage. A mortgage is the transfer of the interest in a
specific immovable property by one person to another for the purpose of securing an advance
of money. The transferor is called ‘mortgagor’ and the transferee is known as ‘mortgagee’.
The advance of money in respect of which the mortgage is effected is called the ‘mortgage
money’ and the instrument by which the mortgage is effected is called the ‘mortgage deed’.
In a mortgage, the possession of the property need not always be transferred to the
mortgagee. Usually, it remains with the mortgagor. Since the mortgagee gets the interest in
the property, he has a right to sell of the property and recover his loan. When the borrower
repays the amount of loan together with interest, the interest in the property is re-conveyed to

the mortgagor. While accepting a mortgage as a charge, the bank should ensure that the
borrower has a valid title to the property and this can be done by examining the original title
deeds. The bank must not part with the title deeds to the borrower when the mortgage is
pending. If the advance against mortgage is given to a joint stock company, then the charge
should be registered with the Registrar of Companies within 30 days of the creation of the
charge. The mortgaged property should be inspected periodically to ensure that it is in good
condition. If the property mortgaged is building, the bank should ensure that it is insured
against fire, riot etc. There are several forms of mortgage. They are (i) simple mortgage; (ii)
Usufructuary mortgage; (iii) English mortgage; (iv) Mortgage by conditional sale; (v)
Equitable mortgage or mortgage by deposit of title deeds and (vi) anomalous mortgage. LIEN
Lien is the right of a creditor to retain the properties belonging to the debtor until debt due to
him is repaid. Lien gives a person only a right to retain the possession of the goods and not
the power to sell unless such a right is expressly conferred by statute or by custom or by
usage. A banker’s lien is a general lien which is tantamount to an implied pledge. It confers
upon the banker the right to sell the securities after serving reasonable notice to the borrower
Kinds of Lien
A particular lien applies to one transaction or certain transactions only. e General lien gives a
right to a person to retain the goods not only in respect of a particular debt but also in respect
of the general balance due form the owner of the goods to the person exercising the right of
lien. It extends to all transactions. Negative Lien
Negative Lien: In case of negative lien. The possession of the security is with the debtor
himself, who promises not to create any charge over them until the loan is repaid. Banker’s
Lien
A banker’s lien is always a general lien. A banker has a right to exercise both kinds of lien. A
banker’s lien is treated as an implied pledge: It must be noted that a banker’s lien is generally
described as an implied pledge. It means that a lien not only gives a right to retain the goods

but also gives a right to sell the securities and goods of the customer after giving a reasonable
notice to him when the customer does not take any steps to clear his arrears.
CHAPTER – 2
RESEARCH DESIGN
“Research is the arrangement of conditions for collection and analysis of data in a manner
that aims to combine relevance of the research purpose with economy in procedure”. With
the help of research design, an investigator can conduct the study in an organized and
systematic manner, in guides the process of collecting. Analyzing DEBT is a process of
evaluating relationship between component parts of financial statements to obtain better
understanding of firm’s position and performance. It is the process of critically examining in
detail accounting information given in the financial statements.
2.1 TITLE OF THE STUDY:
The title of the study is “DEBT MANAGMENT” WITH SPECIAL REFERENCE TO

“KARNATAKA POWER TRANSMISSION CORPORATION LTD.”

DEBT
Debt is an amount of money borrowed by one party from another. Debt is used by many
corporations and individuals as a method of making large purchases that they could not afford
under normal circumstances. A debt arrangement gives the borrowing party permission to
borrow money under the condition that it is to be paid back at a later date, usually with
interest. The most common forms of debt are loans, including mortgages and auto loans, and
credit card debt. Under the terms of a loan, the borrower is required to repay the balance of
the loan by a certain date, typically several years in the future. The terms of the loan also
stipulate the amount of interest that the borrower is required to pay annually, expressed as a
percentage of the loan amount. Interest is used as a way to ensure that the lender is
compensated for taking on the risk of the loan while also encouraging the borrower to repay
the loan quickly in order to limit his total interest expense.
2.2 STATEMENT OF PROBLEM
This study is an in-depth analysis of how the debt is managed by the KPTCL organization. It
also helps in studying the various steps and statements that are prepared for estimating the
debt, forecasting the amount of collection and also the restructuring system. It also studies
about the various sources of capital used by KPTCL in order to take up effective collection.
Usually KPTCL has a policy of pay by go, here the customers pay and then use then avail the
services.
2.3 NEED OF THE STUDY:

Any company would like to know its position against its competitors. The ultimate
performance indicators of any company is the financial parameters because invariably all cost
efficiencies, activities and solvency position of the company will be reflected in the financial
mirror.
● To understand the volume of the profit and its reasonableness.
● To understand the movement of profit over a period of time.
● To know the reason for the variation in the profit.
● To know the present standing of the company.
2.4 SCOPE OF THE STUDY:
❖ The company in finding out the gray areas for improvement in performance.
❖ The company to understand its own position over a period of time.
❖ The study shows a clear picture of the investors and shareholders about the overall
performance of the concern.
❖ The management of the company can easily identify the causes of financial problems
if any.
❖ The results of the study may be helpful to the management of KPTCL in taking the
appropriate decision for better performance in future.
❖ The study aims to measure the growth of the KPTCL and to identify the financial
factors, which affects the performance of the industry.
2.5 OBJECTIVE OF THE STUDY:

 To study the concept of debt management at KPTCL
 To study the different sources of funds used by KPTCL and the various methods of a
debt collection
 To study the efficiency of debt management in KPTCL
 To study the overall benefits of the proper debt management
 To provide suggestions to the organisation

 To study the financial status of “KPTCL”.

 To summarize the observation of the study.
 To study the need for analysis of
2.6RESEARCH METHODOLOGY:
The information is collected from primary and secondary data such as books, internet and
visiting the company. The data so collected were analyzed and interpreted by calculating
percentage of FIVE years annual reports.
2.7 SOURCES OF DATA:
Data was collected based on two sources:
● PRIMARY DATA
● SECONDARY DATA
2.7.1 PRIMARY DATA:

The tools used for primary data collection are purely based on interview schedule with the
accountant and staff of concerned department for collecting data of the company. This
enquiry was done in order to achieve and collect much information to make the project
more effective.
2.7.2 SECONDARY DATA:

✓ Information was collected from the company's official website.
✓ It’s data which is already been collected and analyzed by others.
✓ From the income statement account of the last five years of the KPTCL.
2.8 LIMITATION OF THE STUDY:
 The respondent company was reluctant to provide certain information on the ground
being it be classified.

 The findings arrived on our as applicable to “Karnataka Power Transmission

Corporation Limited” cannot be generalized.
 The period of study is restricted to analysis of 5 years annual reports.
 Analysis and interpretation are purely based on the figures represented on the annual
reports.
 The study would be based on information given by the company officials.
 This study is confined only to the debt management and its effectiveness at KPTCL
organization and hence overall study is not possible.
2.9 PLAN OF THE ANAYSIS:
Data collected was tabulated using comparative income statement & trend analysis. Based on
the analysis, inference was drawn and findings were enumerated and suggestions were made
based on the findings.
➢ Stratification of the data - 8 days.
➢ Tabulation of data sequencing and arranging the data logically in the line with the
objectives - 7 days.
➢ Graphical representation of tabulated data -15 days.
➢ Drawing conclusions from key findings in comparison with the objectives - 10
days.
2.10REFERENCE PERIOD:
For the purpose of conducting the study in “Karnataka power transmission Corporation
Limited”. The researcher had taken the past 5 years annual records to analyze the
performance of company starting from the year 2012-13 to 2016-17.
Annual reports, Report maintained by the enterprise, books, journals, periodical, etc.
CHAPTER SCHEME:
CHAPTER 1: INTRODUCTION
To start with performance in terms of profitability is a benchmark of any business enterprise.
This chapter includes the theoretical background of Financial Analysis, forms, steps, its
meaning and definitions and types of comparison, etc.
CHAPTER 2: RESEARCH DESIGN

✓ Statement of the problem.
✓ Objective of the study.
✓ Scope of the study.
✓ Limitations of the study.
✓ Methodology of the study.
✓ Research instruments.
✓ Operational definitions of the concept.
CHAPTER 3: PROFILE OF THE COMPANY/ ORGANISATION
Karnataka Power Transmission Corporation Limited (KPTCL) is mainly vested with the
functions of Transmission of power in the entire State of Karnataka and also Construction of
Stations & Transmission Lines and maintenance of Sub-Stations. This chapter contains the
historical background of (KPTCL).
CHAPTER 4: DATA ANALYSIS& INTERPRETATION
Analysis of data with required interpretation, the information obtained needs to reduce to
tables & graphs. Charts are to be measured based on the annual financial records of KPTCL.
Inferences are drawn from the following interpretation of the table and graphs.
CHAPTER 5: SUMMARY OF FINDINGS, SUGGESTIONS &

CONCLUSIONS.

It is to be noted that the recommendations are practical, acceptable and comprehensive. All
inferences drawn from each table becomes findings & conclusions for each objective to be
given.
BIBLIOGRAPHY AND ANNEXURE

This chapter deals with Bibliography and Annexure.
CHAPTER – 3
COMPANY PROFILE
Karnataka Power Transmission Corporation Limited (KPTCL) is a registered company under

the Companies Act, 1956, incorporated on 28th July 1999. KPTCL commenced its operations
on 1st August 1999 by continuing the Transmission and Distribution functions of the
erstwhile Karnataka Electricity Board. On unbundling, w.e.f 1st June 2002 KPTCL became a
Transmission company but continued to be involved in Bulk Power Purchase Activity. After
enactment of Electricity Act 2003 and w.e.f 10th June 2005, KPTCL is not involved in the

trading activity since the Act bars the transmission licensee from trading of electricity. Since
then, KPTCL is only a transmission entity wholly owned by the Government of Karnataka,
operating now with an authorized share capital of `. 3000 Crore.
KPTCL is headed by a chairman and managing director at corporate office. He is assisted

four functional directors. The board of KPTCL consists of a maximum of 24 directors.
Karnataka Power Transmission Corporation Limited is discharging its functions as

envisaged in Section 39 and 40 of Electricity Act-2003 and also responsible for grid
operation in the entire State of Karnataka.
KPTCL enables the ESCOMs to serve nearly 231 lakhs consumers of different categories
spread all over the State covering an area of 1.92 lakh square kilometers. To transmit power
in the State, KPTCL operates 1116 sub-stations with Transmission network of 35117 CKms
with voltages of 66 kV and above. To enable easier operation of the system, KPTCL has six
Transmission Zones; each headed by a Chief Engineer, sixteen Circles, each headed by a
Superintending Engineer, forty seven Divisions, each headed by an Executive Engineer.
Maintenance of lines, stations and construction of transmission system are being looked after
by the above officers.
There are 32 Transmission line and Sub-Station maintenance Divisions (TL&SS) in KPTCL
which are involved in the operation and maintenance of the transmission system in
Karnataka. Besides, there are 15 Transmission Works Division which takes care of
construction activities related to intra-state Transmission system across the State of
Karnataka.
Financial transactions in the zones are monitored by the controllers of Accounts in the
respective zones. All activities are audited by an internal audit group headed by Financial
Advisor, Internal Audit. All activities pertaining to regulations by KERC and all
correspondence to KERC are monitored by Financial Advisor, Regulatory Affairs. The main
source of revenue of KPTCL is transmission charge. The annual income of the company
through transmission tariff was ₹ 3086.33 Cores, during 2017-18 as per Audited Accounts.
The total installed substation capacity of the State as on 31.3.2017 was 56462 MVA (2464
Transformers). The peak load met was 10242 MW on 24.02.2017 during the year 2017-18.

VISION, MISSION:
Mission Statement Of The Organisation-
The mission of Karnataka Power Transmission Corporation Limited (KPTCL) is to ensure

reliable quality power to its customers at competitive prices. The KPTCL is committed to
achieve this mission through:
 Encouraging Best practices in transmission & distribution.

 Ensuring high order maintenance of all its technical facilities.
 Emphasizing the best standards in customer service.
To be the best electricity utility in the country, the KPTCL pledges to optimize its human and
technical resources for the benefit of all its customers.
Vision Statement Of The Organisation-
The vision of Karnataka power Transmission Corporation Limited (KPTCL) is to ensure

reliable quality power to the customers at the competitive prices.
The KPTCL is committed to achieve this vision through ----
 To improve viability and customer standards in the past sector through reforms
package.
 To usher great transparency and accountability in the working of power utilities.
 To gear itself to be market driven and customer friendly.
 Changing environment as part of global movement.
HISTORY:
KARNATAKA POWER TRANSMISSION CO. LTD.
The Karnataka Power Transmission Corporation Limited, also known as KPTCL, is the

sole electricity transmission and distribution company in state of Karnataka. Its origin was in
Karnataka Electricity Board. Until 2002, the Karnataka Electricity Board (KEB) handled
electricity transmission and distribution across the state. It was then broken up, with
Karnataka Power Transmission Corporation Ltd (KPTCL) established to manage the
transmission business. This electricity transmission and distribution entity was corporatized
to provide efficient and reliable electric power supply to the people of Karnataka state.

Karnataka Power Transmission Corporation Limited is a registered company under the

Companies Act, 1956 was incorporated on 28-7-1999 and is a company wholly owned by the
Government of Karnataka with an authorised share capital of Rs. 2182.32 crores. KPTCL
was formed on 1-8-1999 by carving out the Transmission and Distribution functions of the
erstwhile Karnataka Electricity Board.
The various wings of KPTCL are as follows:
• Corporate Office at Kaveri Bhavan, Bangalore.
• Six Transmission zones, each zone are headed by a Chief Engineer.
• State Load Despatch Centre.
• SCADA (Supervisory Control and Data Acquisition).
✓ Business Type: Public Company.

✓ Industry: Power Transmission.

✓ Founded: 1999
✓ Area Served: Karnataka.
✓ Revenue: 2875.43 crore (2015-2016).
✓ Electricity Generation: 8842 MW
✓ Share Capital: 1455 crores.
3.1 TYPE OF INDUSTRY:
Karnataka Power Transmission Corporation Limited is mainly vested with the functions of
Transmission of power in the entire State of Karnataka and also Construction of Stations &
Transmission Lines and maintenance of 400/220/110/66 KV Sub-Stations. Many new lines
and Sub-Stations were added & existing stations were modified in the Transmission network.
It operates under a license issued by Karnataka Electricity Regulatory Commission.
HEADS OF THE COMPANY:
CHAIRMAN SRI. HD KUMARASWAMY
MANAGING DIRECTOR Dr. SELVAKUMAR S, IAS.
DIRECTOR
Dr. H. N GOPALAKRISHNA , IAS.
( Administration and human resource)
FINANCE (DIRECTOR) SMT. Dr. ADITI RAJA.
TRANSMISSION (DIRECTOR) SRI . SHIVAKUMAR.
TOP LEVEL ORGANISATION CHART

KPTCL’s PRODUCT (RENEWABLE WATCH)

Chairman & Board
Managing
Director
Director Director (Admin Director Director &

(Transmission) & HR) (finance) Company Secretary
CCE (P&C) FA (A&R)
DGM (Technical)
CCE (T&P) FA (RA)
CCE (TA&QC) FA
(KPTCL&ESCOMs)
CCE (Tr. zones) Pension &GT
DGM (Personnel)
CCE (SLDC)
CCE (RT& R&D)

Karnataka Power Transmission Corporation Limited (KPTCL); the state’s utility, has been
FA (IA)
modernising, upgrading and augmenting its network to support large-scale investments in
renewable energy. It is implementing several projects under the Green Energy Corridors
(GEC) initiative. Meanwhile, it is implementing a number of technology initiatives to ensure
that its network not only has high system availability, but also it meets the state’s energy
requirements adequately.
Another initiative taken up by KPTCL has been to update its design methodology for
transmission towers from the old design code IS-802 (1977) to IS-802 (1995). Towers based
on old design were capable of being thermally loaded only up to 75 OC and were based on
the older wind zones classification. With the change in standard, the tower’s conductor
temperature can be raised up to 85 OC, thus improving the power handling capacity of the
transmission line.

Existing Infrastructure and Performance:
In June 2002, KPTCL emerged as the sole transmission company in Karnataka. It is

responsible for power transmission in the state, as well as the construction and maintenance
of 33KV and above stations and lines. As of March 2018, the state-owned company owns
1,514 substations and 5 substations at the 400 KV level, 101 at 220KV, 413 at 110KV, 637 at
66KV and 358 at 33KV. KPTCL’s network comprises 36,124 ckt.km of transmission lines at
the 66KV and above voltage levels. Its network increased by 3 percent from 35,119 ckt.km in
the previous year. Of the current line length, about 31 percent is at the 220 KV level, 30
percent at 66KV, 29 percent at 110KV and 10 percent at the 400 KV level. The utility has
also made consistent efforts over the years to reduce its transmission losses, which declined
from 4.7 percent in 2006-07 to 3.22 percent in 2017-18. The Transco’s transmission system
availability stood at 99.6 percent in 2016-17.

GRID MAP OF KARNATAKA KPTCL

BACKGROUND OF THE ORGANISATION:
The erstwhile Mysore State had the enviable and glorious position of establishing the
first major hydro- electric generating station at Shivanasamudra as early as 1902 for
commercial operation. The art at that time was still in its infancy, even in the advanced
countries. The longest transmission line, at the highest voltage in the world, was constructed
to meet the power needs of mining operations at Kolar Gold Fields.
The generating capacity of the Shivanasamudra power house gradually increased to 42

MW in stages. To meet the increasing demand for power, the Shimsha generating station,
with an installed capacity of 17.2MW was commissioned in the year 1938. The power
demand was ever on the increase, for industries and rural electrification and additions to
generating became imperative. The 1st stage of 48MW and 2nd stage of 72 MW of the
Mahatma Gandhi Hydro-Electric Station were commissioned during 1948 and 1952,
respectively.
Subsequently, The Bhadra Project with an installed capacity of 33.2MW and the
Tungabhadra left bank power house, with an installed capacity of 27MW at Munirabad was
commissioned during 1964 and 1965 respectively.

The State Of Karnataka, with availability of cheap electric power and other
infrastructure facilities, was conducive for increased tempo of industrial activity. It became
necessary therefore to augment power generating capacity by harnessing the entire potential
of the Sharavathi valley. The first unit of 89.1MW was commissioned in 1964 and completed
in 1977.
The demand for power saw a phenomenal increase in the mid sixties and onwards with
the setting up of many public sector and private industries in the state. As power generation
in the state was entirely dependent on monsoon and was subject to its vagaries, the state
government set up a coal based power plant at Raichur. The present installed capacity of the
power plant at Raichur is 1260MWs.
To augment the energy resources of the state, the Kalinadi Project with an installed
capacity of 810MW at Nagjhari power house and 100MW at Supa Dam Power House, with
an energy potential of 4,112mkwh, were set up.
The transmission and distribution system in the state was under the control of the
Government of Karnataka (then Mysore) till the year 1957. In the year 1957. Karnataka
Electricity Board was formed and the private distribution companies were amalgamated with
Karnataka Electricity Board (KEB).
Till the year 1986, KEB was a profit making organisation. However, in the
subsequent years, like other State Electricity Board in the country, KEB also started incurring
losses, mainly due to the implementation of the Socio Economic policies of the government;
the performance of the power sector was affected.
To improve the performance of the power sector and in tune with the reforms initiated by
Government of India, the Government of Karnataka came out with a general policy proposing
fundamental and radical reforms in power sector. Accordingly a bill, namely Karnataka
Electricity Reforms Act was passed by the Karnataka legislature. The Reform act has
mandated major restructuring of the KEB and its corporation. As part of corporation the KEB
ceased to exist and the Karnataka Power Transmission Corporation Limited to look after
transmission and distribution in the state and VVNL (Visweshwaraiah Vidyuth Nigama
Limited) to look after the generating stations under the control of erstwhile KEB were
constituted from 01/08/1999.

2.5. FUNCTIONS OF ORGANISATIONS :
 To construct high voltage transmission lines and substation to carry electricity

transmission voltage include 400kv, 220kv, 110kv and 66kv.
 To maintain the lines and stations for efficient operation.
 To manage the load flows efficiently in the transmission network .
 To minimize transmission losses.
 To maintain the system availability more than 98%.
 To manage timely funding of various projects.
2.6 RESPONSIBILITIES :
 Transmission of electricity from generating stations to the distribution companies.

 Construction of new transmission lines required to evacuate power.
 Maintenance of transmission lines.
 Load dispatch, grid maintenance, system operation etc.,
 Bulk power purchase and bulk power supply through commercial agreements with
generating companies /distribution companies.
 Coordination with KERC, Escoms, Government departments and generating
companies.
 Independent handling of material and services procurements required for transmission
function.
2.7 CORPORATE SOCIAL RESPONSIBILITY (CSR)
a) Background of CSR:
Corporate Social Responsibility is a company’s sense of responsibility
towards the community and environment in which it operates. It is the continuing
commitment by business to behave ethically and contribute to economic
development of the society at large and building capacity for sustainable livelihoods.
The Corporation believes in conducting its business responsibly, fairly and in a most

transparent manner. It continually seeks ways to bring about an overall positive

impact on the society and environment where it operates and as a part of its social
objectives.
b) Objective:
This policy lays down guidelines to make CSR a key business process. The
policy aims at enhancing welfare measures of the society based on social and
environmental consequences of the corporation’s activities in India. This policy
specifies the projects and programmes that can be undertaken in terms of the
Schedule VII to the Companies Act, 2013. Policy brings out the plans and projects
proposed to be undertaken during the implementation years, specifies the modalities
of execution in the areas / sectors chosen and the implementation schedule. The
scope of the policy has been kept as wide as possible, so as to allow the Corporation
to respond to different situations and challenges appropriately and flexibly, subject to
the activities enumerated in Schedule VII of the Companies Act, 2013. However, no
contribution will be made for any activities undertaken outside India.
c) Terms Of Reference To CSR Committee:

Board of directors of KPTCL has constituted a Corporate Social Responsibility
(CSR) Committee of Directors with the following Terms of Reference:
 To formulate and recommend a CSR policy to the Board;
 To recommend amount of expenditure to be incurred on CSR activities;
 To monitor the CSR policy of the company from time to time;
 To institute a transparent monitoring mechanism for implementation of the
CSR projects / programs or activities undertaken by the company.
d) CSR Activities / Projects:

Schedule VII to the Companies Act, 2013 lists down the activities which may be
included by companies in their corporate social responsibility policies. The said
activities relate to;
 Eradicating extreme hunger and poverty
 Promotion of education
 Promoting gender equality and empowering women

 Reducing child morality and improving maternal health

 Combating human immunodeficiency virus, acquired immune deficiency
syndrome, malaria and other diseases
 Ensuring environmental sustainability
 Employment enhancing vocational skills
 Social business projects
 Contribution to The Prime Minister’s National Relief fund or any other fund
set up by The Central Government or The State Governments for socio-
economic development and relief and funds for the welfare of the Scheduled
Castes, The Schedule Tribes other backward classes, minorities and women
 Such other matters as may be prescribed.
e) CSR Amount:
The corporation shall ensure that it spends, in every financial year, at least 2% of
its average net profits made during the 3 immediately preceding financial years, in
pursuance of its Corporate Social Responsibility and subject to Section 135 of the
Companies Act, 2013 and rules made there under.
For the purpose of this policy, the first CSR spending financial year would be
2014-2015 and the net profit shall mean average of the annual net profits of the
financial year 2011-12, 2012-13 and 2013-14.
Net profits mentioned herein above means, net profit before tax as per the books
of accounts of the Corporation and shall not include profits arising from branches
outside India.
f) Spending Of CSR Amount:

The CSR committee will decide on the following with regard to spending of CSR
amount :
 Percentage of total amount to be used for funding various development
organizations and grass-root level organizations
 Tranches of disbursement
 Any surplus arising from CSR projects or programs or activities will not form
part of the business profits of the corporation

 Any income arising from the contribution received and surplus arising out of
the CSR activities will be used for CSR only.
 The committee shall recommend to contribute funds for building the CSR
capacities of personnel for the corporation, through which it may undertake
its CSR activities.
g) Dissemination Of Information:
DEPARTMENTAL PROFILE:
i. Planning Section:
Planning is the process of thinking about the activities required to achieve a
desired goal. It involves the creation and maintenance of a plan. Planning is one of the
most important project management and time.
 Strengthening of transaction lines and substations
 Arranging power supply to EHT consumer
 Interconnection approval for IPP. ex: wind and solar
 Network system study
 Approvals for new station and transmission
ii. Technical Section :

iii. Trending And Procurement :
Legal Section: Legal section within a business works to maintain and prevent any legal
issues that could arise. They play critical roles in reviewing and drafting contracts, employee
policies and handling court cases.
 The section deals with the cases arrive in High Court, Supreme Court and
Civil Court.
 This section will distribute the case to their panel advocates.
 The section deals with Technical Matter, Service Matter, Arbitration Cases
and Land Acquisition Cases.
 After disposal of cases the judgment will be communicated to consent sections
to take actions as per honorable courts order.

iv. Regulatory Affairs:

v. Finance And Accounting Section:
The part of an organization that manages its money. The business functions of a
finance department typically include planning, organizing, auditing, accounting and
controlling the company finances. The finance department also usually procedures the
company’s financial statements
 Sub-Sections:
 Accounting section: In this section all different types of accounts are prepared and
they also prepare financial statements.
 Advance section: This section will provide a advance to various section / reason like
employee house building, computer advance, motor cycle advance are provided.
 Pension section: This section duty is to calculate a pension value of A and B grade
employee. Pension amount is given when the employee will get retirement /death.
 Fund section: The function of this section is to collection of fund from different
resources and provide fund to payments of all different expenses of KPTCL.
 Revenue budget section: This sections main function is to preparation of budget with
a main objective of reducing the expenses and increases the revenue.
 Borrowing section: This section activity is to borrow the loans and paying the
interest for loan borrowed and repayment of loans.
 GST and taxation: Tax authorities are looking at the quality of companies tax
governance and strategies as they evaluate tax compliance risk. Investors the media
and the public are increasingly calling on companies to be more transparent and
show they are socially responsible in their policies and approaches to taxation.
 Establish and cash section: This section activities is to provide cash for employees
salary payment, telephone bill, stationary bill and all administration expenses are
monitored and maintained.
vi. Administration Section :
vii. Company Secretary Office: The company secretary is responsible for the efficient
administration of a company particularly with regard to ensuring compliance with
statutory and regulatory requirements and for ensuring that decisions of the Board of
Directors are implemented.
 Promotion, formation and incorporation of companies and matters related to
the company.

 Filling registering any document including forms, returns and applications by

and on behalf of the company as an authorized representative.
 Co-ordination board/ general meetings and follow-up actions thereof.
 Custodian of corporate records, statutory books and registers.
 Filling up of directors information like appointment, cease, retirement, and
death.
 They will put all important documents into a MCA portal
viii. TQ And QC Section:

ix. Relays and Transformation Section (RT):
The duties in this section:
 Furnishing the settings for primary, backup protection relays and relay co-
ordination
 Coordinating, regarding protection aspects with SRPC, SRLDC.
 Analysis of grid disturbances, EHV line tripping and remedial action to be
taken up.
 Monitoring of UFR load relief, Special Proton Scheme (SPS), islanding
schemes etc,.
 Monitoring of up-keeping of proton system by routine testing/ calibration
through RT circles and divisions.
 Coordinating for replacement of faulty relays CBs, capacitor bank’s etc,
through CE transmission zones.
 Monitoring of repairs to power transformers in KPTCL through transmission
zones.

Existing Regulatory Framework of IPS

CHAPTER 4
DATA ANALYSIS AND INTERPRETATION
SOURCES OF FUNDS AT KPTCL
KPTCL has majorly three sources to get funds for its operations and they are:
Equity capital from the state government Debt or loans from banks Project funds for any
project undertaken for any private parties
Transmission and wheeling charges by its five customers i.e the ESSCOM's
TABLE SHOWING SOURCES OF FUNDS (in lakhs)
SL.N PARTICULARS 2015 2016 2017 2018

O
1 Authorised Capital 300000 300000 300000 300000 300000
(previous year 300000)
Equity shares of Rs. 1000 each
2 Issued, subscribed and paid up 207532 207532 207532 218232
207532
(previous year 207532)
Equity share Rs.1000
ANALYSIS
From the above table it is very clearly understood that Authorised capital of KPTCL is Rs.
300000 lakhs and the Issued, subscribed and paid up capital is Rs. 207532 lakhs and 218232
for the year 2018.
The major source of share capital is Government of Karnataka and there is no need to pay
any dividends for the stakes held by the government
Though KPTCL is registered under the companies’ act of 1956 and recently amended act of
2013, it is a corporation or a company with minimum profit motive
But by the rule of the thumb no banks will lend loans, if there is no portion of capital invested
by the company.

But this organization had employees who drew salary, but cannot contribute to the capital
Hence the Government of Karnataka has the entire shareholding, as dividends it will collect
any income in excess of 3% from its profits from projects or income
So the excess of 3% will be the return on the investment by the government.
(in lakhs)
SL.NO PARTICULARS 2015 2016 2017 2018

SHARE HOLDERS FUND
1. SHARE CAPITAL 207532 207532 207532 218232
2 I.NON CURRENT LIABILITES 655449 632496 673683 782297
II. LONG TERM BORROWINGS 429552 420620 436517 461886
TOTAL 1085001 1053116 1110200 1244183
ANALYSIS
• The shareholders funds are amounting to Rs.207532 which is wholly held by the
Government of Karnataka for the years 2015 to 2017 and 218232 in the year 2018.
• The long term borrowings i.e from banks and other sources like the various financial
institutions amount upto Rs. 461886 for the year 2018 , Rs.436517 for
2017,Rs.420620 for the year 2016 and for the year 2015 it is Rs.429552.

3000000
2500000 TOTAL
2000000 1244183 II. LONG TERM

1085001 1053116 1110200 BORROWINGS
1500000
I.NON CURRENT
461886 LIABILITES
1000000 429552 420620 436517
655449 632496 673683 782297 SHARE CAPITAL

500000
207532 207532 207532 218232 SHARE HOLDERS FUND
0
1 2 3 4
• From the above graph it’s very clear that the share capital remains unchanged but the
borrowings have decreased the borrowings for 2016 Rs. 632496 when compared to
2015 to Rs.655449 , hence there is an decrease in borrowings.
• So this very clearly indicates that the borrowings have decreased.
NON CURRENT BOROWINGS
(in lakhs)
1 SECURED LOANS
TERM LOANS
a) from banks 428231 419634 435747 461436
b) from financial institutions 787220 629777 472333 314889
SUB TOTAL 1215451 1049411 908080 776325
2 UNSECURED LOANS
a) from others 534185 356443 297036 237628
TOTAL 1749636 1405854 1205116 1013953

ANALYSIS
• The above table is to show or depict the amount of long term borrowings i.e both
secured and unsecured loans from both banks and others
• Here others means the various financial institutions
• So the total amount of borrowings for the year 2015-16is Rs.1405854 , to break it up ,
secured loans for this particular year is Rs.1049411 and the amount of unsecured
loans is Rs.356443
• Now coming forward to the year 20117-18 the total amount of long term borrowings
is Rs. 1013953, to divide this into secured and unsecured loans is, Rs.776325 and
Rs.237628 respectively.
5000000
4500000
TOTAL
4000000
3500000 a) from others
3000000
UNSECURED LOANS
2500000
2000000 b) from financial
institutions
1500000
a) from banks
1000000
500000 TERM LOANS
0
1 2 3 4
• The above graph depicts that the secured loans have decreased from the year 2015-16
to 2017 and the unsecured loans have also decreased drastically for the year 2018.
• So the borrowings from both banks and other financial institutions whether secured or
unsecured has decreased .


DEBT MANAGMENT RATIO
(in lakhs)
SL
NO PARTICULAR
. S 2015 2016 2017 2018
1. Equity share
capital 207532 207532 218232 218232
2.
Debt 496878 420620 496820 520693

3.
Debt equity ratio 2.39:1 2.02:1 2.27:1 2.38:1
800000
700000
600000
500000
debt equity ratio
400000 debt
equity share capital
300000 PARTICULARS
200000
100000
0
1 2 3 4
ANALYSIS
• The debt management ratio is similar to any other organization at 2:1 ratio.
• The debt equity ratio of KPTCL for the year 2015 is 2.39:1, in the year 2016 is 2.02:1
and in the year 2017 it is 2.27:1 and in the year 2018 it is 2.38:1.
• It has maintained its debt equity ratio up to the benchmark or in level with the
standards of 2:1 so the its debt equity position is good .

USAGE OF FUNDS
The use of funds is an explanation of how money received as loans or investment will be
spent.
This is easily confused with Sources and Uses of Funds, which is another name for one way
of doing a cash flow. Many financial statements have Sources and Uses included. Our cash
flow model is actually a modified version of sources and uses of funds.
The uses of funds I assume you’re referring to is required in a few plans, by a few investors,
and a few banks. Ironically, if you think about it, the use of funds is actually already showing
in a complete plan done with Business Plan, in the expenses and cash flow tables. The
Sources and Uses of Funds Statement
1. Uses of Funds: The money needed for various purposes for business startup, including
beginning quantities of supplies, equipment, and furniture needed, purchase of
building/land or costs of deposits for rent, and other startup costs.
2. Sources of Funds: Where the money for all funding is going to come from. You will
probably have a mix of different funds for different parts of your plan. For example, you
may be contributing office furniture yourself, getting a loan for purchasing major
equipment, and getting a line of credit for working capital.
REVENUE FROM EXPENDITUTRE

(in lakhs)
1 REPAIRS AND MAINTANANCE 13731 15321 19190 21526
2 EMPLOYEE COST 75399 67662 68655 87366
3 ADMIN AND GENERAL EXPENSES 5857 7039 9118 10498
4 INTEREST AND FINANCE CHARGE 48667 44193 38225 36658
TOTAL 143654 134215 135188 156048

350000
300000 TOTAL
250000 INTEREST AND FINANCE

CHARGE
200000 ADMIN AND GENERAL

EXPENSES
150000
EMPLOYEE COST
100000
REPAIRS AND
MAINTANANCE
50000
PARTICULARS
0
1 2 3 4
ANALYSIS
• This table and graph is to show the usage of funds with respect to revenue expenses
• In the year 2015, the revenue expenses was rupees143654 lakhs, but it showed a
significant decrease in the coming year i.e in the year 2016 and 2017, it came down
to rupees 134215 because the costs like employee costs has decreased though general
administrative costs have increased a lot when compare to the previous year but there
is a significant change.
• Now in the year 2018 the amount has increased to rupees 156048, as the employee
cost, repairs and general costs have increased and this is a clear depiction of efficient
management and internal control so that the costs are controlled and the profitability
also will increase as the change is not that great when compared to the expected rates
for the following year.

LOANS
SL
NO PARTICULARS 2015 2016 2017 2018
Advance recoverable in cash or in kind or for value
to be received
1 Secured considered goods
Advances to staff - interest bearing 68400 43800 23434 10800
2 Unsecured considered goods

2704776
a) advance to staff interest free 3 36063753 24573104 23117983
b) amount recoverable from suppliers towards TDS
remitted by KPTCL 8644138 9349169 9164515 10055874
3576030
TOTAL 1 45456722 33761053 33184657
LOANS
100000000
90000000 TOTAL
80000000 b) amount recoverable
from suppliers towards
70000000 TDS remitted by KPTCL
60000000 a) advance to staff interest
50000000 free
Unsecured considered
40000000 goods
30000000 Secured considered goods
20000000
10000000
0
1 2 3 4

Current ratio
The current ratio is a liquidity and efficiency ratio that measures a firm’s ability to pay off its
short term liabilities with its current assets
Current ratio = Current assets

Current liabilities
SHOWING CURRENT RATIO
Particulars 2015 2016 2017 2018
current asset 61140 57354 107345 94792
current liability 95472 354158 253253 283181
current ratio 64.03972 16.19447 42.386467 33.473997
ANAYSIS
From the above table it shows that in the year 2015 it is 64.03 which has decreased to 16.19
in the next year that is 2016. In 2017 it has increased to 42.38 and in the current year it has
again decreased to 33.47.

450000
400000
350000
300000
250000 current ratio SHOWING
200000 current liability CURRENT
current asset
150000 particulars RATIO
100000
50000
0
1 2 3 4
INTREPRETATION
The above graph clearly shows that there is a fluctuation every year. Current ratio is very
much decreased in 2016. In 2017 it is increased and in 2018 it has again decreased. If a
current ratio is decreased means a company’s short term assets are not enough to meet its
current debt.
Quick ratio

Quick ratio is also known as acid test ratio is a type of liquidity ratio which measures the
ability of the company to use its near cash or quick assets to extinguish or retire its current
liabilities.
Quick
Particulars 2015 2016 2017 2018 ratio =
current
current assets-inventory 59124 50622 101175 88710 assets –
current liabilities 95472 354158 253253 283181
quick ratio 61.928105 14.29362 39.9501684 31.3262542
inventory*100
Current liabilities
Showing quick ratio

ANAYSIS
From the above table it specifies that in the year 2015 it is 61.9 it has very much decreased to
14.2 in the year 2016 and has increased to 39.9 and 31.3 in the years 2017 and 2018.
100%
90%
80%
70%
60%
quick ratio
50% current liabilites
current assets-inventory
40%
particulars
30%
20%
10%
0%
1 2 3 4

INTREPRETATION
The above graph is fluctuating every year. An increased quick ratio indicates that the
business can meet its current financial obligations with available quick funds on hand, if the
quick ratio is decreased that indicates company relies too much on inventory or other assets
to pays its short term liabilities.
CHAPTER 5
FINDINGS, SUGGESTIONS AND CONCLUSIONS
FINDINGS
This chapter contains the summary and findings from the balance sheets of the company for
4years. Succeeding the analysis, the following was found using the various data analysis
tools:
The management of Debt plays a vital role in running of a successful business. So, things
should go with a proper understanding for managing cash, receivables and inventory.
For this it has to improve in its management. This can help the company in raising its profit
level by making less investment in accounts receivables and stocks etc. This will ultimately
improve the efficiency of its operations.
• KPTCL has never defaulted either in repayment of loans or servicing debt. So that is
efficiency of the management in organising and allocation of funds. The company is
earning good profits.
• It is able to maintain a very good internal control and projection of funds required ,
hence the short term borrowings for the purpose of working capital is also reduced.
The organisation also maintains the standards of the debt equity ratio.
• The organisation has adopted the best way to reduce costs by way of debt swapping,
where high cost loans are swapped with low cost loans.
• The track record of the organisation is such that the banks are ready to offer the loans
at a very competitive rates.
• Vendors who take up contract of works for KPTCL, are also given advance to
overcome the hindrance of shortage of funds, and also timely payment is made as and
when the bills are issued.
• On the whole it has maintained a very good corporate image .

Annual Program of Works
 The annual capital budget should have a list of projects classified into three
categories;
o The Budgetary estimates required for settling claims of contractors of commissioned

works during the ensuing fiscal year
o The Budgetary estimates required for the capital works which will be under execution
during the ensuing fiscal year
o The Budgetary estimates required for taking up new capital works during the ensuing
fiscal year.
 KPTCL should consider Revenue and expenditure as well as borrowing constraints

together to determine Annual Program of Works. The budget or AP W should cover
all plan as well as non-plan or contingent works.
 The projects should be listed in order of priority in the APW.
 The annual capital budget for the ensuing fiscal year should be prepared and
submitted to the Commission along with the revised and updated Rolling Plan by 30 th
November every year
Investment Analysis:
All capital works should have techno-commercial analysis captured in the estimate or DPR.
The estimate/DPRs should be standardized and must contain justification of need, primary
and secondary objectives, evaluation of alternatives considered, technical reports, design
criteria, bill of material, item-wise estimated cost, Cost-Benefit Analysis, execution timelines,
and cash flow requirement etc.
KPTCL shall have such detailed estimates/DPRs for all the works of value equal to or above
Rupees 3 Crores. The same can be followed for lower value works at the discretion of the
KPYCL
Every estimate/DPR should have a validity period of not more than 1 year. If the capex work
is not taken up within that validity period, estimate/DPR should be revised for the techno-
commercial aspects and be re-submitted for internal approval.

SUGGESTIONS

i. The Utility shall adopt an objective driven approach for capex planning. They should
set clear long term, medium term and short term objectives and categorize capital
expenses based on the objectives that the schemes intend to achieve.
ii. The broad objectives that shall govern capital expenditure planning of KPTCL are:
a. Adequate power evacuation infrastructure
b. Catering to the load growth in distribution company area
c. Efficiency or system strengthening based investments
d. Addressing deteriorating assets and new technology investment
e. Policy and regulatory driven investment schemes
B. Perspective Planning Studies
iii. KPTCL should plan and execute capital expenditure schemes that ensure an efficient,
coordinated, secure, reliable and economical Transmission System for the Karnataka
Power Grid in order to satisfy the requirements of Demand and Generation in the State.
KPTCL shall plan their capex with a foresight on the long term objectives and future
growth potential of the state.
iv. Based on the objectives identified, KPTCL shall be responsible to prepare and submit a
Perspective Plan with a 10 year horizon, every five years, to KERC duly identifying the
required generation to cater to the Demand and Generation.
v. Additionally KPTCL shall carry out necessary System Studies to check the operation of
the existing system under normal or outage conditions, to see if the existing system is
capable of supplying planned additional loads, or to check and compare new alternatives
for system additions to supply new load or improve system performance. The details of
the studies should also be included in the Perspective Plan. The System Studies which
KPTCL may carry out are outlined below for identification of areas of investment in the
transmission system:
a. Load flow studies
b. Contingency Studies
c. Dynamic stability studies
d. Short Circuit Studies

e. Voltage Stability Studies
vi. Additionally KPTCL shall receive the Perspective Plan and Rolling Investment Plan of3
years from ESCOMs, which will include Load Forecasts undertaken by ESCOMs.
KPTCL will review the methodology and assumptions used by the Distribution
Licensees in making the load forecasts, in consultation with them. The resulting overall
forecast including the requirement of open access transactions envisaged will form the
basis of planning for expansion of Transmission System, which will be incorporated by
the KPTCL.
vii. While carrying out studies, the performance of assets should be assessed in light of
CEA’s Manual on Transmission Planning Criteria and Karnataka State Grid Code to
identify any bottlenecks in the system. Based on this assessment, capital works should
be planned to achieve system improvement.

Koustubh Chavan KPTCL

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A STUDY ON DEBT MANAGEMENT OF KPTCL

ACHARYA BANGLORE B SCHOOL Page 1

According to Oxford dictionary, the word ‘finance’ connotes ‘management of money’.

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Debt instruments can be either long-term obligations or short-term obligations. Short-term

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Collateral and recourse

A debt obligation is considered secured if creditors have recourse to specific collateral.

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Affairs (SOA). Through this, disposable income, as estimated by the debt management

USES OF DEBT MANAGMENT

 When they want to do away with the pressure from creditors

Pros and Cons of Debt Management

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The overall level of indebtedness by a government is typically shown as a ratio of debt-to-

Loans versus bonds

Role of central banks

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CASH FLOW TO DEBT RATIO

SOURCES OF DEBT FINANCING

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SOURCES OF LONG TERM DEBT

ACHARYA BANGLORE B SCHOOL Page 14

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Types of Preference Shares:

The various types of preference shares are:

(i) Cumulative Preference Shares:

ACHARYA BANGLORE B SCHOOL Page 17

(iv) Non-participating Preference Shares: These preference shares have no right to

A debenture is a document of acknowledgement of a debt with a common seal of the

ACHARYA BANGLORE B SCHOOL Page 18

It is an instrument for raising long-term debt.

2. Secured or Mortgage Debenture:

3. Loans from Financial Institutions:

ACHARYA BANGLORE B SCHOOL Page 19

The following financial institutions provide long-term capital in India:

(ii) Development Banks which include.

(a) Industrial Development Bank of India

(b) Small Industries Development Bank of India

(c) Industrial Finance Corporation of India

(d) Industrial Credit and Investment Corporation of India

(e) Industrial Reconstruction Bank of India.

(iii) Government Financial Institutions which include.

(a) State Finance Corporation

(b) National Small Industries Corporation

(c) State Industrial Corporation

(d) State Small Industries Development Corporation.

(iv) Other investment institutes which include

(a) Life Insurance Corporation of India

ACHARYA BANGLORE B SCHOOL Page 20

(b) General Insurance Corporation of India

(c) Unit Trust of India.

Although it is essentially a means of long-term financing for expansion and development of a

SOURCES OF SHORT TERM DEBT

ACHARYA BANGLORE B SCHOOL Page 21

3. Customers’ Advances Sometimes businessmen insist on their customers to make some