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Executive Summary

Considering the growing use of project finance, we undertook this project with an objective
of understanding the salient features of project finance. It is a method of financing very large
capital intensive projects, with long gestation period, where the lenders rely on the assets
created for the project as security and the cash flow generated by the project as source of
funds for repaying their dues.

As project financing is adopted by a majority of companies at least once in their lifetime, we

decided to study this concept in detail. Banks as well as non-banking financial companies
provide project financing.

Banks enjoy a major market share among the borrowers and the NBFC firms are lagging far
behind and will slowly loose their market share if adequate steps are not taken. Banks are
usually preferred over NBFC firms due to the security aspect and brand name. also the
documentation process is one such aspect which the borrowers find lengthy and tiresome in
both the banks and NBFC.


  
 




 




 
 




 




 
 
 
  

 


 



  



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 ðable of Contents

Introduction to project finance.

Origins of project finance

Project financing is generally sought for infrastructure related projects. Its linkages to the
economy are mutiple and complex, because it affects production and consumption directly,
creates negative and positive externalities, and involves large flow of expenditure.

Prior to World War I, private entrepreneurs built major infrastructure projects all over the
world. During the 19th century ambitious projects such as the suez canal and the ðrans-
Siberian Railway were constructed, financed and owned by private companies. However the
private sector entrepreneur disappeared after world War I and as colonial powers lost control,
new governments financed infrastructure projects through public sector borrowing. ðhe state
and the public utility organizations became the main clients in the commissioning of public
works, which were then paid for out of general taxation. After World War II, most
infrastructure projects in industrialized countries were built under the supervision of the state
and were funded from the respective budgetary resources of sovereign borrowings.

ðhis traditional approach of government in identifying needs, setting policy and procuring
infrastructure was by and large followed by developing countries, with the public finance
being supported by bond instruments or direct sovereign loans by such organizations as the
world Bank, the Asian Development Bank and the International Monetary Fund.

Development In the early 1980s

ðhe convergence of a number of factors by the early 1980s led to the search for
alternative ways to develop and finance infrastructure projects around the world.
ðhese factors include:

Continued population and economic growth meant that the need for additional
infrastructure- roads, power plants, and water-treatment plants-continued to
grow.

ðhe debt crisis meant that many countries had less borrowing capacity and

fewer budgetary resources to finance badly needed projects; compelling them to look to the
private sector for investors for projects which in the past would have been constructed and
operated in the public sector
 Major international contracting firms, which in the mid-1970s had been kept busy,
particularly in the oil rich Middle East, were, by the early 1980s, facing a significant
downturn in business and looking for creative ways to promote additional projects.
Competition for global markets among major equipment suppliers and operators
led them to become promoters of projects to enable them to sell their products
or services.

Outright privatization was not acceptable in some countries or appropriate in

some sectors for political or strategic reasons and governments were reluctant to
relinquish total control of what maybe regarded as state asset

During the 1980s, as a number of governments, as well as international lending institutions,

became increasingly interested in promoting the development for the private sector, and the
discipline imposed by its profit motive, to enhance the efficiency and productivity of what
had previously been considered public sector services. It is now increasingly recognized that
private sector can play a dynamic role in accelerating growth and development. Many
countries are encouraging direct private sector involvement and making strong efforts to
attract new money through new project financing techniques.

Such encouragement is not borne solely out of the need for additional financing, but it has
been recognized that the private sector involvement can bring with it the ability to implement
projects in a shorter time, the expectation of more efficient operation, better management and
higher technical capability and, in some cases, the introduction of an element of competition
into monopolistic structures.

However, the private sector, driven by commercial objectives, would not want to take up any
project whose returns are not consumerate with the risks. Infrastructure projects typically
have a long gestation period and returns are uncertain. What then are the incentives of private
capital providers to participate in infrastructure projects, which are fraught with huge risks?
Project finance provides satisfactory answers to these questions.

Definition of project finance

Project finance is typically defined as limited or non-recourse financing of a new project

through separate incorporation of vehicle or Project Company. Project financing involves
non-recourse financing of the development and construction of a particular project in which
the lender looks principally to the revenues expected to be generated by the project for the
repayment of its loan and to the assets of the project as collateral for its loan rather than to the
general credit of the project sponsor.

In other words the lenders finance the project looking at the creditworthiness of the project,
not the creditworthiness of the borrowing party. Project Financing discipline includes
understanding the rationale for project financing, how to prepare the financial plan, assess the
risk, design the financing mix, and raise the funds.

A knowledge base is required regarding the design of contractual arrangements to support

project financing; issues fior the host government legislative provisions, public/private
infrastructure partnerships, public/private financing structures; credit requirements of lenders,
and how to determine the projects borrowing capacity; how to prepare cash flow projections
and use them to measure expected rates of return; tax and accounting considerations; and
analytical techniques to validate the projects feasibility.

Comparison between corporate finance and project finance

ðraditional finance is corporate finance, where the primary source of repayment for investor
and creditors is the sponsoring company, backed by its entire balance sheet, not the project
alone. Although creditors will usually still seek to assure themselves of economic viability of
the project being financed so that it is not a drain on the corporate sponsors existing pool of
assets, an important influence on their credit decision is the overall strength of the sponsors
balance sheet, as well as their business reputation. If the project fails, lenders do not
necessarily suffer, as long as the company owning the project remains financially viable.

Corporate finance is often used for shorter, less capital-intensive projects that do not warrant
outside financing. ðhe company borrows funds to construct a new facility and guarantees to
repay the lenders from its available operating income and its base of assets. However private
companies avoid this option, as it strains their balance sheets and capacity, and limits their
potential participation in future projects. Project financing is different from traditional forms
of finance because the financier principally looks to the assets and revenue of the project in
order to secure and service the loan.
In project finance a team or consortium of private firms establishes a new project company to
build, own and operate a separate infrastructure project. ðhe new project company to build
own and operate a separate infrastructure project. ðhe new project company is capitalized
with equity contributions from each of the sponsors. In contrast to an ordinary borrowing
situation, in a project financing the financier usually has little or no recourse to the non-
project assets of the borrower or the sponsors of the project. ðhe project is not reflected in the
sponsors¶ balance sheets

Extent of recourse

Recourse refers to the right to claim a refund from another party, which has handled a bill at
an earlier stage. ðhe extent of recourse refers to the range of reliance on sponsors and other
project participants for enhancement to protect against certain projects risks. In project
financing there is limited or no recourse. Non-recourse project finance is an arrangement
under which investors and credit financing the project do not have any direct recourse to the
sponsors.

In other words, the lender is not permitted to request repayment from the parent company if
borrower fails to meet its payment obligation. Although creditors security will include the
assets being financed, lenders rely on the operating cash flow generated from those assets for
repayment.

When the project has assured cash flows in the form of a reliable off taker and well- allocated
construction and operating risks, the lenders are comfortable with non- recourse financing.
Lenders prefer limited recourse when the project has significantly higher risks. Limited
recourse project finance permits creditors and investors some recourse to the sponsors.

ðhis frequently takes the form of a precompletion guarantee during a projects construction
period, or other assurance of some form of support for the project. In most developing market
projects and in other projects with significant construction risk, project finance is generally of
the limited recourse type

Merits and Demerits of project financing

 Project financing is continuously used as a financing method in capital-intensive industries
for projects requiring large investments of funds, such as the construction of power plants,
pipelines, transportation systems, mining facilities, industrial facilities and heavy
manufacturing plants. ðhe sponsors of such projects frequently are not sufficiently
creditworthy ot obtain tr5aditional financing or unwilling to take the risk and assume the debt
obligation associated with traditional financing. Project financing permits the risk associated
with such projects to be allocated among number of parties at levels acceptable to each party.
ðhe advantages of project financing are as follows:

1. Non recourse: the typical project financing involves a loan to enable the sponsor to construct a
project where the loan is completely ³Non-recourse´ to the s[sponsor i.e. the sponsor has no
obligation to make payments on the project loan if revenues generated by the project are
insufficient to cover the principle and interest payable on the loan. ðhis safeguards the assets
of sponsors. ðhe risks of new projects remain separate from the existing business.

2. Maximizes leverage: in project financing. ðhe sponsors typically seek to finance the cost of
development and construction of project on highly leverage basis. Frequently such costs are
financed using 80 to 100 percent debt. High leverage in an non recourse financing perp mits a
sponsor to put less in funds at risk, permits a sponsor to finance a project without diluting its
equity investment in the project and in certain circumstances, also may permit reduction in
cost of capital by substituting lower cost, tax deductible interest for higher cost, taxable return
on equity.

3. Off balance sheet treatment: depending upon the structure of project financing the project
sponsors may not be required to report any of the project debt on its balance sheet because
such debt is non recourse or of limited recourse to the sponsor. Off balance sheet treatment
can have the added practical benefit of helping the sponsor comply with convenient and
restrictions related to the

board. Borrowings funds contain in other indentures and credit agreements to

which the sponsor is a party.
Š. Maximizes tax benefits: project finance is generally structured to maximize tax benefit and to
assure that all available tax benefit are used by the sponsors or transferred to the extent
possible to another party through a partnership, lease or vehicle.

5. Diversifies risk: by allocating the risk and financing need of the projects among a group of
interested parties or sponsors, project financing makes it possible to undertake project that
would be too large or would pose too great a risk for one party ion its own.

Demerits

1. Complexity of risk allocation: project financing is complex transaction involving many

participants with diverse interest. If a project is to be successful risk must be allocated among
the participants in an economically efficient way. However, there is necessary tension
between the participants. For e.g between the lender and the sponsor regarding the degree of
recourse, between the sponsor and contractor regarding the nature of guarantees., etc which
may slow down the realization of the project.

2. Increase transaction cost: it involves higher transaction costs compared to other types of
transactions, because it requires an expensive and time- consuming due diligence conducted by
the lenders lawyer, the independent engineers etc., since the documentation is usually complex
and lengthy.

3. higher interest rates and fees: the interest rates and fees charged in project financing are higher
than on direct loan made to the project sponsor since the lender takes on more risk.

Š. lender supervision: in accordance with a higher risk taken in project financing the lender
imposes a greater supervion on the mangement and operation of the project to make sure that
the project success is not impaired. ðhe degree of lender supervision will usually result into
higher costs which will typically have to be borne by the sponsor.

Importance of project finance

Whether expanding manufacturing facilities, implementing new processing capabilities, or

leveraging existing assets in new markets, innovative financing is often at the core of long-
term projects to transform a company¶s operations. Akin to the underlying corporate
transformation, the challenge with innovative financial structures such as project finance is
that the investment is made upfront while the anticipated benefits of the initiative are realized
years later.

ðhere has been a rise in number of companies that need innovative financing to satisfy their
capital needs, in a significant number of instances they have viable goals but find that
traditional lenders are unable to understand their initiatives. And so the need emerged for
project finance.

Project financing is a specialized form of financing that may offer some cost advantages
when very large amounts of capital are involved It can be tricky to structure, and is usually
limited to projects where a good cash flow is anticipated. Project finance can be defined as:
financing of an industrial (or infrastructure) project with myriad capital

needs, usually based on non-recourse or limited recourse structures, where project debt and
equity (and potentially leases) used to finance the project are paid back from the cash flow
generated by the project, with the project's assets, rights and interests held as collateral. In
other words, it¶s an incredibly flexible and comprehensive financing solution that demands a
long-term lending approach not typical in today¶s market place.

Whether expanding manufacturing facilities, implementing new processing capabilities, or

leveraging existing assets in new markets, innovative financing is often at the core of long-
term projects to transform a company¶s operations. Akin to the underlying corporate
transformation, the challenge with innovative financial structures such as project finance is
that the investment is made upfront while the anticipated benefits of the initiative are realized
years later.

Infrastructure is the backbone of any economy and the key to achieving rapid sustainable rate
of economic development and competitive advantage. Realizing its importance governments
commit substantial portions of their resources for development of the infrastructure sector. As
more projects emerge getting them financed will continue to require a balance between equity
and debt. With infrastructure stocks and bonds being traded in the markets around the world,
the traditionalist face change. A country on the crest of change is India. Unlike many
developing countries India has developed judicial framework of trust laws, company laws
and contract laws necessary for project finance to flourish.

ðypes of Project Finance

Build operate transfer (BOð)
‡
Build own operate transfer (BOOð)
‡
Build own operate (BOO)
Build operate transfer

Build operate transfer is a project financing and operating approach that has found an
application in recent years primarily in the area of infrastructure privatization in the
developing countries. It enables direct private sector investment in large scale infrastructure
projects.

In BOð the private contractor constructs and operates the facility for a specified period. ðhe
public agency pays the contractor a fee, which may be a fixed sum, linked to output or, more
likely, a combination of the two. ðhe fee will cover the operators fixed and variable costs,
including recovery of the capital invested by the contractor. In this case, ownership of the
facility rests with the public agency.

ðhe theory of BOð is as follows:-

BUILD - A private company (or consortium)

agrees with a government to invest in a public infrastructure project. ðhe company then
secures their own financing to construct the project.

Operate ± ðhe private developer then operates, maintains, and manages the facility for a
agreed concession period and recoups their investment through charges or tolls.
ðransfer - After the concessionary period the company transfers ownership and
operation of the facility to the government or relevant state authority.
In a BOð arrangement, the private sector designs and builds the infrastructure, finances
its construction and operates and maintains it over a period, often as long as 20 or 30

years. ðhis period is referred to as the ³concession´ period. In short, under a BOð structure, a
government typically grants a concession to a project company under which the project
company has the right to build and operate a facility. ðhe project company borrows from the
lending institutions in order to finance the construction of the facility. ðhe loans are repaid
from ³tariffs´ paid by the government under the off take agreement during the life of the
concession. At the end of the concession period the facility is usually transferred back to the
government.

Advantages
ðhe Government gets the benefit of the private sector to mobilize finance and to use the
best management skills in the construction, operation and maintenance of the project.
ðhe private participation also ensures efficiency and quality by using the best
equipment.
BOð provides a mechanism and incentives for enterprises to
improve efficiency
through performance-based contracts and output-oriented targets
ðhe projects are conducted in a fully competitive bidding situation and are thus
completed at the lowest possible cost.
ðhe risks of the project are shared by the private sector
Disadvantages
ðhere is a profit element in the equity portion of the financing, which is higher than the
debt cost. ðhis is the price paid for passing of the risk to the private sector

It may take a long time and considerable up front expenses to prepare and close a BOð
financing deal as it involves multiple entities and requires a relatively complicated legal and
institutional framework. ðhere the BOð may not be suitable for small projects

It may take time to develop the necessary institutional capacity to ensure that the full benefits
of BOð are realized, such as development and enforcement of transparent and fair bidding
and evaluation procedures and the resolution of potential disputes during implementation.

Build Own Operate ðransfer (BOOð)

A BOOð funding model involves a single organization, or consortium (BOOð provider) who
designs, builds, funds, owns and operates the scheme for a defined period of time and then
transfers this ownership across to a agreed party. BOOð projects are a way for governments
to bundle together the design and construction, finance, operations and maintenance and
potentially marketing and customer interface aspects of a project and let these as a package to
a single private sector service provider. ðhe asset is transferred back to the government after
the concession period at little or no cost.

ðhe Components of BOOð.

B for build
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 Design

Manage project implementation

Carry out procurement

Finance

Construct

Own

Hold in interest under concession

Operates
Mange and operate facility
Carry out maintenance
Deliver products/services
Receive payment for product/ service
ðransfer
Hand over project in operating condition at the end of concession period
Advantages
‡
ðhe majority of construction and long term risk can be transferred onto the
BOOð provider.
‡
ðhe BOOð operator can claim depreciation on the facility constructed and
depreciation being a tax-deductible expense shareholder returns are maximized.
‡

Using an output based purchasing model, the tender process will encourage maximum
innovations allowing the most efficient designs to be explored for the scheme. ðhis process
may also be built into more traditional tendering processes.

Accountability for the asset design, construction and service delivery is very high given that
if the performance targets are not met, the operator stands to lose a portion of capital
expenditure, capital profit, operating expenditure and operating profit.

‡
Boot operators are experienced with management and operation of
infrastructure assets and bring these skills to scheme.
Corporate structuring issues and costs are minimal within a BOOð model, as project funding,
ownership and operation are the responsibility of the BOOð operator. ðhese costs will
however be built into the BOOð project pricing.

Disadvantages
‡

Boot is likely to result in higher cost of the product/ service for the end user. ðhis is a result
of the BOOð provider incurring the risks associated with 100 percnet financing of the scheme
and the acceptance of the ongoing maintenance liabilities.

‡
Users may have a negative reaction to private sector involvement in the scheme,
particularly if the private sector is an overseas owned company.
‡

Management and monitoring of the service level agreement with the BOOð operators can be
time consuming and resource hungry. Procedures need to be in place to allow users to assess
service performance and penalize the BOOð operator where necessary.

A rigorous selection process is required when selecting a boot partner. Users need to be
confident that the BOOð operator is financially secure and sufficiently committed to the
market prior to considering their bid.

Build Own Operate

In BOO, the concessionaire constructs the facility and then operates it on behalf of the public
agency. ðhe initial operating period {over which the capital cost will be recovered} is
defined. Legal title to the facility remains in the private sector, and there is no obligation for
the public sector to purchase the facility or take title. ðhe private sector partner owns the
project outright and retains the operating revenue risk and all of the surplus operating revenue
in perpetuity. As an alternative to transfer, a further operating contract {at a lower cost} may
be negotiated.

Design Build Finance Operate (DBFO):

Under this approach, the responsibilities fro designing, building, financing and operating are
bundled together and transferred to private sector partners. ðhey are also often supplemented
by public sector grants in the from of money or contributions in kind, such as right of way. In
certain cases, private partners may be required to make equity investments as well. DBFO
shifts a great deal of the responsibility for developing and operating to private sector partners,
the public agency sponsoring a project would retain full ownership over the project.

Others:
‡Build ðransfer Operate (BðO)
ðhe BðO model is similar to BOð model except that the transfer to the public owner takes
place at the time that construction is completed, rather than at the end of the franchise period.
ðhe concessionary builds and transfers a facility to the owner but exclusively operates the
facility on behalf of the owner by means of management contract.

Buy Build Operate (BBO)

A BBO is a form of asset sale that includes a rehabilitation or expansion of an existing

facility. ðhe government sells the asset to the private sector entity, which then makes the
improvements necessary to operate the facility in a profitable manner.

‡Lease Own Operate (LOO)

ðhis approach is similar to a BOO project but an existing asset is leased from the
government for a specified time. the asset may require refurbishment or expansion.
‡Build Lease ðransfer (BLð)
ðhe concessionaire builds a facility, lease out the operating portion of the contract, and
on completion of the contract, returns the facility to the owner.
‡Build Own Lease ðransfer (BOLð)

BOLð is a financing scheme in which the asset is owned by the asset provider and is

then leased to the public agency, during which the owner receives lease rentals. On
completion of the contract the asset is transferred to the public agency.

‡Build Lease Operate ðransfer (BLOð)

ðhe private sector designs finance and construct a new facility on public land under a
long term lease and operate the facility during the term of the lease. the private owner
transfers the new facility to the public sector at the end of the lease term.
‡Design Build (DB)

A DB is when the private partner provides both design and construction of a project to the
public agency. ðhis type of partnership can reduce time, save money, provide stronger
guarantees and allocate additional project risk to the private sector. It also reduces conflict by
having a single entity responsible to the public owner for the design and construction. ðhe
public sector partner owns the assets and has the responsibility for the operation and
maintenance.

‡Design Bid Build (DBB)

Design bid build is the traditional project delivery approach, which segregates design and
construction responsibilities by awarding them to an independent private engineer and a
separate private contractor. By doing so, design bid build separates the delivery process in to
the three liner phases: Design, Bid and Construction. ðhe public sector retains responsibility
for financing, operating and maintaining infrastructure procured using the traditional design
bid build approach.

‡Design Build Maintain (DBM)

A DBM is similar to a DB except the maintenance of the facility for the some period of time
becomes the responsibility of the private sector partner. ðhe benefits are similar to the DB
with maintenance risk being allocated to the private sector partner and the guarantee
expanded to include maintenance. ðhe public sector partner owns and operates the assets.

Design Build Operate (DBO)

A single contract is awarded for the design, construction and operation of a capital
improvement. ðitle to the facility remains with the public sector unless the project is a
design\build\operate\transfer or design\build\own\operate project. ðhe DBO method of
contracting is contrary to the separated and sequential approach ordinarily used in the United
States by both the public and private sectors. ðhis method involves one contract for design
with an architect or engineer, followed by a different contract with a builder for project
construction, followed by the owner's taking over the project and operating it.

A simple design build approach credits a single point of responsibility for design and
construction and can speed project completion by facilitating the overlap of the design and
construction phases of the project. On a public project, the operations phase is normally
handled by the public sector under a separate operations and maintenance agreement.
Combining all three phases in to a DBO approach maintains the continuity of private sector
involvement and can facilitate private sector financing of public projects supported by user
fees generated during the operations phase.

‡Lease Develop Operate (LDO) or Build Develop Operate (BDO)

Under these partnerships arrangements, the private party leases or buys an existing facility
from a public agency invests its own capital to renovate modernize, and expand the facility,
and then operates it under a contract with the public agency. A number of different types of
municipal transit facilities have been leased and developed under LDO and BDO
arrangements.

Project Finance Strategic Business Unit

A one-stop-shop of financial services for new projects as well as expansion, diversification

and modernization of existing projects in infrastructure and non -infrastructure sectors

Since its inception in 1995 the Project Finance SBU has built-up a strong reputation for it's
in-depth understanding of the infrastructure sector as well as non-infrastructure sector in
India and they have the ability to provide tailor made financial solutions to meet the growing
& diversified requirement for different levels of the project. ðhe recent transactions
undertaken by PF-SBU include a wide range of projects undertaken by the Indian Corporates.
Wide branch network ensuring ease of disbursement.

Expertise
‡

Being India's largest bank and with the rich experience gained over generation, SBI brings
considerable expertise in engineering financial packages that address complex financial
requirements.

‡
Project Finance SBU is well equipped to provide a bouquet of structured financial solutions
with the support of the largest ðreasury in India (i.e. SBI's), International Division of SBI and
SBI Capital Markets Limited

ðhe global presence as also the well spread domestic branch network of SBI ensures that the
delivery of your project specific financial needs are totally taken care of.

Lead role in many projects

‡
Allied roles such as security agent, monitoring/ðRA agent etc.
‡

Synergy with SBI caps (exchange of leads, joint attempt in bidding for projects, joint
syndication etc.). In a way, the two institutions are complimentary to each other.

We have in house expertise (in appraising projects) in infrastructure sector as well as non-
infrastructure sector. Some of the areas are as follows: Infrastructure sector:

Infrastructure sector:

Road & urban infrastructure

Power and utilities

Oil & gas, other natural resources

Ports and airports

ðelecommunications

Non-infrastructure sector:
Manufacturing: Cement, steel, mining, engineering, auto components, textiles,
Pulp & papers, chemical & pharmaceuticals «
Services: ðourism & hospitality, educational Institutions, health industry «
Expertise
‡
Rupee term loan
‡
Foreign currency term loan/convertible bonds/GDR/ADR
‡
Debt advisory service
‡
Loan syndication
‡
Loan underwriting
Deferred payment guarantee
‡
Other customized products i.e. receivables securitization, etc.
Services offered
Single window solution

Appetite for large value loans.

Proven ability to arrange/syndicate loans.

Competitive pricing.

Professional team
Dedicated group with sector expertise
Panel of legal and technical experts.
Procedural ease
Standardized information requirements
Credit appraisal/ delivery time period is minimized
2

ðhe infrastructure wing of PF SBU deals with projects wherein the project cost is more than
Rs 100 Crores. ðhe proposed share of SBI in the term loan is more than Rs.50 crores. In case
of projects in Road sector alone, the cut off will be project cost of Rs.50 crores and SBI ðerm
Loan Rs. 25 Crores, respectively.

ðhe commercial wing of PF SBU deals with projects wherein the minimum project
cost is Rs. 200 crores (Rs. 100 crores in respect of Services sector).
ðhe minimum proposed term commitment is of Rs. 50 crores from SBI

ICICI Bank is India's second-largest bank with total assets of Rs. 3,767.00 billion (US$ 96
billion) at December 31, 2007 and profit after tax of Rs. 30.08 billion for the nine months
ended December 31, 2007. ICICI Bank is second amongst all the companies listed on the
Indian stock exchanges in terms of free float market capitalization.
ðhe Bank has a network of about 955 branches and 3,687 AðMs in India and presence in 17
countries. ICICI Bank offers a wide range of banking products and financial services to
corporate and retail customers through a variety of delivery channels and through its
specialized subsidiaries and affiliates in the areas of investment banking, life and non-life
insurance, venture capital and asset management.

ðhe Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in
Unites States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International
Finance Centre and representative offices in United Arab Emirates, China, South Africa,
Bangladesh, ðhailand, Malaysia and Indonesia. Our UK subsidiary has established a branch
in Belgium.

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National
Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on
the New York Stock Exchange (NYSE).

At ICICI Bank, they offer corporates a wide range of products and services, the technologies
to leverage them anytime, anywhere and the expertise to customize them to client-specific
requirements.

From cash management to corporate finance, from forex to acquisition financing, we provide
you with end-to-end services for all your banking needs. ðhe result is an overall financial
solution for your company that helps you accomplish your objectives.

Corporate Services

‡ ICICI Bank can guide one through the universe of strategic alternatives - from identifying
potential merger or acquisition targets to realigning your business' capital structure.

‡ ICICI Bank has been the foremost arrangers of acquisition finance for cross border
transactions and is the preferred financer for acquisitions by Indian companies in overseas
markets.
 ‡ ðhe Bank has also developed Forex risk hedging products for clients after comprehensive
research of the risks a corporate body is exposed to, e.g., Interest Rate, Forex, Commodity,
Credit Risk, etc.

‡ ðhey offer you global services through our correspondent banking relationship with 950
foreign banks and maintain a NOSðRO account in 19 currencies to service you better and
have strong ties with our neighboring countries

‡ ICICI Bank is the leading collecting bankers to Public & Private Placement/ Mutual Funds/
Capital Gains Bonds issues. Besides, we have products specially designed for the

ðhey support international business by meeting working capital requirements of export and
import financing. ðhey also have a host of non-funded services for our clients


    


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ðransaction Banking

ðhe Bank delivers world class banking services to financial sector clients. ðheir current
roaming accounts empower you with 'Anytime, Anywhere Banking'. ðhey are designed for
customers convenience.

Our comprehensive collection and payment services span India's largest CMS network of
over Š,500 branches. ðhey provide correspondent banking tie-ups with foreign banks to assist
them in their India-related businesses.

Loan Syndication

ðhe FISG is responsible for syndication of loans to corporate clients. ðhey ensure the
participation of banks and financial institution for the syndication of loans. Some of the
products syndicated are

‡ Project Finance
‡ Corporate ðerm Loans
‡ Working Capital Loans
Acquisition Finance, etc.

Sell Down

ICICI Bank is a market leader in the securitization and asset sell-down market. From its
portfolio, the FISG offers different products to its clients in this segment. ðhe products are:

‡
Asset-Backed Securities (ABS).
‡
Mortgage-Backed Securities (MBS).
‡
Corporate Loan Sell-down.
‡
Direct Loan Assignment.
Buyouts
As a part of a risk-diversification and portfolio-churning strategy, ICICI Bank offers
buyouts of the assets of its financial sector clients.
Resources

ðhe Bank also raises resources, from clients, for internal use by issuing a gamut of products,
which run from Certificates of Deposit (CDs) to ðerm deposits to ðerm Loans

IDBI was set up under an Act of Parliament as a wholly-owned subsidiary of Reserve Bank
of India in July 196Š. In February 1976, the ownership of IDBI was transferred to
Government of India.

In January 1992, IDBI accessed domestic retail debt market for the first time with innovative
Deep Discount Bonds and registered path-breaking success. In December 1993, IDBI set up
IDBI Capital Market Services Ltd. as a wholly-owned subsidiary to offer a broad range of
financial services, including Bond ðrading, Equity Broking, Client Asset Management and
Depository Services.
In September 199Š, in response to RBI's policy of opening up domestic banking sector to
private participation, IDBI in association with SIDBI set up IDBI Bank Ltd. ðoday, IDBI
Bank has a network of 161 branches, 369 AðMs, and 8 Extension Counters spread over 95
cities.

It provides an array of services like Personal banking

Deposits

Loans

Payments

Insurance

Cards

2Š hours banking

Institutional banking

Other products

Preferred banking

NRI Services

Corporate banking

Project Finance

Infrastructure finance

Advisory

Carbon credits Business

Working Capital

Cash Management Service

 ðrade Finance

ðax Payments

Derivates

V Cards

2Š hours banking

Institutional banking

Other products

Preferred banking

NRI Services

and IDBI entered into an understanding for strengthening the growth and competitiveness of
SMEs by providing better access to demand-oriented business development and financial
services.

Agri Business

Agriculture continues to be the largest and the most dominant sector in India, contributing 22
% to the country¶s GDP. It provides a source of employment and livelihood to over 60 % of
the population. Its linkages with industry are growing with increasing stress on food and agri
processing industry on account of changing demand patterns for processed food by
consumers. With this background Corporate India has started finding new opportunities in
Agriculture.

ðhe emergence of modern economic system has institutionalized agriculture sector on

business models. Agribusiness is a broad term that encompasses a number of businesses in
agriculture including food production, farming, agrochemicals, farm machinery,
warehousing, wholesale and distribution, and processing, marketing and sale of food
products.
ðhe bank has launched several products catering to the rural and agri community
SME Finance

IDBI has been actively engaged in providing a major thrust to financing of SMEs. With a
view to improving the credit delivery mechanism and shorten the ðurn Around ðime (ðAð),
IDBI has set up Centralized Loan Processing Cells (CLPCs) at major centers across the
country. ðo strengthen the credit delivery process, the CARð (Credit Appraisal & Rating
ðool) Module developed by Small Industries Development Bank of India (SIDBI), which
combines both rating and appraisal mechanism for loan proposals, was adopted by IDBI for
faster processing of loan proposals. Recently, a number of products have been rolled out for
the SME sector, which considerably expanded IDBI¶s offerings to its customers. Also, the
German ðechnical Co-operation

Project Finance Scheme

Under the Project Finance scheme IDBI provides finance to the corporates for projects. ðhe
Bank provides project finance in both rupee and foreign currencies for Greenfield projects as
also for expansion, diversification and modernization. IDBI follows the Global Best Practices
in project appraisal and monitoring and has a well- diversified industry portfolio. IDBI has
signed a Memorandum of Understanding (MoU) with LIC in December 2006 for undertaking
joint and take-out financing of long-gestation projects, including infrastructure projects

It has been a long and eventful journey of almost a century across 2Š countries. Starting in
1908 from a small building in Baroda to its new hi-rise and hi-tech Baroda Corporate Centre
in Mumbai is a saga of vision, enterprise, financial prudence and corporate governance.

It is a story scripted in corporate wisdom and social pride. It is a story crafted in private
capital, princely patronage and state ownership. It is a story of ordinary bankers and their
extraordinary contribution in the ascent of Bank of Baroda to the formidable heights of
corporate glory. It is a story that needs to be shared with all those millions of people -
customers, stakeholders, employees & the public at large - who in ample measure, have
contributed to the making of an institution.

Personal Banking Services

Bank of Baroda believes in the strength and integrity of relationships built with its customers
like you. With over 90 years of experience in the banking industry and a wide network of
over 2700 branches all over the country, we have always been active in extending financial
support and adapting to your changing needs

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ðheir countrywide branches offer you convenience and ease in operating your account
wherever you are. ðheir 2Š-hour AðMs enable you to withdraw cash, check your account
balance and request for a new chequebook even after banking hours.

Baroda Internet Banking / Baroda Mobile Banking, their latest Internet and Mobile banking
initiatives enable you to operate your account just as you would in any of our branches. You
can through the Internet check your balance, request for chequebooks and print account
details.

Choose from other various products and services, that they sincerely feel will put a
smile on your face; an investment we would like to bank on forever.

Business Operations

ðhe small and medium business enterprise is one of the fastest growing sectors in the
country. Bank of Baroda offers various products and services that meet the specific
requirements of such enterprises and help them grow
In addition to tailor-made products, you can depend on the strength of other nation- wide
network and facilities that will enable you to conduct your business smoothly, without
geographical constraints.

Be it Deposits, Loans & Advances, Collection Services, Working Capital Finance, ðerm
Finance, Non-Fund based Facilities, ðrade Finance, Merchant Banking or other such aspects of
banking, they have a solution to help your business run smoothly andefficiently.

Corporate Banking Services

As corporations grow they feel the need to expand and invest in new infrastructure.
External finance is one of the most important sources for funding expansion plans.

With services ranging from Working Capital Finance, Short ðerm Corporate Loans, Project
Finance to Cash Management and Merchant Banking, Bank of Baroda Corporate Banking
offers various options that help fund and enable corporations in their investment and
expansion plans. ðhese products also offer merchant banking and cash management
solutions.

ðheir global presence, large-scale operability, highly networked systems and local
market penetration allow our customers to reap financial benefits to the maximum.

Loans & Advances

For immediate financial need in times, Bank of Baroda has a host of loan options for a
corporate to choose from. ðhese enable smooth functioning without monitory hassles.
Project Finance

Bank of Baroda provides its customers with the option of a loan to take care of the needs of
an ongoing project, whether it is in Indian or foreign currency. ðhis facility is available for
project finance and also for project exports.

International Operations

Bank of Baroda started its overseas journey by opening its first branch way back in 1953 in
Mombassa, Kenya. Since then the Bank has come a long way in expanding its international
network to serve NRIs/PIOs and locals. ðoday it has transformed into India¶s International
Bank.
It has significant international presence with a network of 70 offices in 2Š countries including
Š5 branches of the Bank, 21 branches of its eight Subsidiaries and four Representative
Offices in Malaysia, China, ðhailand, & Australia. ðhe Bank also has one Joint Venture in
Zambia with 9 branches.

ðhe Bank has presence in world¶s major financial centers i.e. New York, London,
Dubai, Hong Kong, Brussels and Singapore.

ðhe"round the clock around the globe", Bank of Baroda is further in the process of
identifying/opening more overseas centers for increasing its global presence to serve its 29
million global customers in still better way.

ðhe Bank has recently upgraded its operations in Hong Kong on 2nd April 2007 and now
offers full banking service through its two branches at Central and ðsim Sha ðsui. It would
also be upgrading its operations to full banking service in China and through JV in Malaysia
shortly.

It is also in process of establishing offices in Canada, New Zealand, Qatar, Bahrain, Saudi
Arabia, Mozambique, Russia etc. Besides this, it has plans to extend its reach in existing
countries of operations in US and UAE.

ðreasury operations

In the changing economic environment of the country in particular and the globe in general,
Bank of Baroda was the premier public sector bank in India to set up a Specialized Integrated
ðreasury Branch (SIðB) in Mumbai and the integrated approach initiated by the Bank in its
treasury operations is now being emulated by other peer banks

Bank of Baroda has consciously adopted a focused approach towards improving

efficiency and profitability by successfully integrating the operations of different

financial markets, viz. Domestic Money, Investments, Foreign Exchange and
Derivatives and has made its mark as an important player in the market-place.
ðhe SIðB at Mumbai, equipped with the State-of-the-art technology, with modern
communication facilities, handles all types of financial transactions, both for managing its
resources and deployments and effective compliance of regulatory requirements.

Rural Operations

Rural India contributes a major chunk to the economy every year. ðo give this sector a
stronghold on finance and to enable economic independence, Bank of Baroda has special
offerings that extend credit facilities to small and marginal farmers, agricultural labourers and
cottage industry entrepreneurs.

With the objective of developing rural economy through promotion of agriculture, trade,
commerce, industry and extending credit facilities particularly to small and marginal farmers,
agricultural labourers and small entrepreneurs, Bank of Baroda, over the years, has reached
out to larger part of rural India. ðhey extend loans for agricultural activities and a host of
services for farmers well tuned to the rural market, and aim to make a Self Reliant Rural
India.

Axis Bank was the first of the new private banks to have begun operations in 199Š, after the
Government of India allowed new private banks to be established. ðhe Bank was promoted
jointly by the Administrator of the specified undertaking of the Unit ðrust of India (UðI - I),
Life Insurance Corporation of India (LIC) and General Insurance Corporation Ltd. and other
four PSU companies, i.e. National Insurance Company Ltd., ðhe New India Assurance
Company, ðhe Oriental Insurance Corporation and United Insurance Company Ltd.

ðhe Bank today is capitalized to the extent of Rs. 357.Š8 crore with the public holding
(other than promoters) at 57.03%.

ðhe Bank's Registered Office is at Ahmedabad and its Central Office is located at Mumbai.
Presently, the Bank has a very wide network of more than 608 branch offices and Extension
Counters. ðhe Bank has a network of over 2595 AðMs providing 2Š hrs a day banking
convenience to its customers. ðhis is one of the largest AðM networks in the country.

ðhe Bank has strengths in both retail and corporate banking and is committed to adopting the
best industry practices internationally in order to achieve excellence. It provides an array of
services like Personal Banking, Corporate Services, NRI services and Priority Banking.

In personal Banking it offers different accounts like EasyAccess Account Senior Citizen's
Account Prime Savings Account Women's Account Salary Power etc. . It also offers deposits
services like Fixed Deposit, Recurring Deposit, and ðax Saving Fixed Deposits. It provides
an array of loan services like Home Loan, Car Loan, Personal Loan, Study Loan, Mortgage
etc.

In Corporate Services it offers the option of different accounts like Normal Current Account
Business Advantage Account Current Account for Govt. Organizations Business Classic
Account Current Account for Banks Business Privilege Account ðrust/NGO Savings
Account, further it also offers Credit Facility like Structured Finance, Microfinance
Commodity Power, Microfinance project Finance. It also offers Capital Market Services in
the form of Debt Solutions Advisory Services Private Equity, Mergers & Acquisitions
Capital Market Funding ðrusteeship Services eDepository Services

It also provides Cash Management Services as in today's competitive market place,

effectively managing cash flow can make the difference between success and failure. Axis
Bank offers a wide range of collection and payment services to meet your complex cash
management needs. Payments received from your buyers and made to your suppliers are
efficiently processed to optimize your cash flow position and to ensure the effective
management of your business' operating funds
Bank of India was founded on 7th September, 1906 by a group of eminent businessmen from
Mumbai. ðhe Bank was under private ownership and control till July 1969 when it was
nationalized along with 13 other banks.

Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakhs and 50
employees, the Bank has made a rapid growth over the years and blossomed into a mighty
institution with a strong national presence and sizable international operations. In business
volume, the Bank occupies a premier position among the nationalized banks.

ðhe Bank has 26ŠŠ branches in India spread over all states/ union territories including 93
specialized branches. ðhese branches are controlled through Š8 Zonal Offices . ðhere are 2Š
branches/ offices (including three representative offices) abroad.

ðhe Bank came out with its maiden public issue in 1997. ðotal number of shareholders
as on 30/09/2006 is 2, 25,70Š.

While firmly adhering to a policy of prudence and caution, the Bank has been in the forefront
of introducing various innovative services and systems. Business has been conducted with the
successful blend of traditional values and ethics and the most modern infrastructure. ðhe
Bank has been the first among the nationalized banks to




 

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 *+,+

ðhe Bank is also a Founder Member of SWIFð in India. It pioneered the introduction
of the Health Code System in 1982, for evaluating/ rating its credit portfolio.

ðhe Bank's association with the capital market goes back to 1921 when it entered into an
agreement with the Bombay Stock Exchange (BSE) to manage the BSE Clearing House. It is
an association that has blossomed into a joint venture with BSE, called the BOI Shareholding
Ltd. to extend depository services to the stock broking community. Bank of India was the
first Indian Bank to open a branch outside the country, at London, in 19Š6, and also the first
to open a branch in Europe, Paris in 197Š. ðhe Bank has sizable presence abroad, with a
network of 23 branches (including three representative office) at key banking and financial
centres viz. London, Newyork,Paris,ðokyo,Hong-Kong,and Singapore. ðhe international
business accounts for around 20.10% of Bank's total business.

Apart from personal banking services it offers different products like Insurance
Products:
ðie-up for Life Insurance: ICICI Prudential Life Insurance Co Ltd.
ðie-up for General Insurance
Non-life) National Insurance Co Ltd.
(NICL)
Mutual Funds Products:

It also offers credit facility like Personal Loan, Bullion Banking, Kisan Credit Card,
Agriculture Loan, Bill Finance, Bank Guarantee, export Finance, Interest Rates, Channel
Credit etc. It also offers deposit services like Safe Deposit Vaults, fixed Deposits, ðerm
Deposits, ðax Saving Deposits etc. It also offers corporate services like Bonds, Loans, and
Project Finance Etc.

NBFC ± ðhe Future

OVER the last decade or so, the Reserve Bank of India has been blowing hot and cold about
non-banking finance companies (NBFCs). ðhe RBI reacted to a series of defaults and
misdemeanors by a few NBFCs, restricting their ability to take public deposits.

ðhis unfortunately led to a collapse of many NBFCs which depended on a continuous inflow
of deposits to meet redemption obligations. Subsequently, there seems to have been a better
realization of the role of NBFCs in financing the small-scale industry, particularly the
transport sector.

ðhe RBI in its latest monetary policy statement has cautioned that NBFCs should be
encouraged to exit from public deposits, in essence saying NBFCs should not take public
deposits. ðhis is, indeed, extraordinary. ðhe reasons given are that nowhere in the world are
private financial institutions allowed to accept public deposits.

ðhe fact is that non-bank finance institutions are active in other economies. ðhey accept
deposits in developed countries as well as in some developing countries, like Malaysia. ðhe
existence of thrift societies in the US and housing societies in the UK is well- known.
ðhrift and savings associations are almost omnipresent in the US. Credit unions of employees
are, in effect, self-help groups, present in every organization. So are housing societies in the
UK. ðhey perform a useful role in garnering public savings and

extending credit to those in need. ðhe same is the situation with non-bank finance companies
in Malaysia.

ðhe position in the US is that as against deposits of $Š,391 billion held by commercial banks,
thrift institutions and finance companies hold $1,2Š7 billion. ðhese non-banks as a whole
hold 28.Š per cent of the deposits of banks. In India, however, public deposits of NBFCs are
only 0.003 per cent of banks in India

Non-bank finance institutions in the US are even covered by deposit insurance even as they
are subject to supervision by a special office of thrift supervision. ðhese institutions handle a
substantial channel of local savings and transfer them as loans to deserving borrowers,
besides small and medium-scale industries, as well as housing needs. ðhese institutions are
also liberally allowed to access the capital market, where banks subscribe to bonds issued by
them.

ðhe situation in UK is broadly similar. Building Societies in the UK have a big share of
business compared to their analogues in India, which hold deposits amounting to 18 per cent
of total retail deposit balances.

ðhey also are entitled to receive compensation from the Financial Services Compensation
Scheme in the event of failure in the business of deposit-taking, among others. In Malaysia,
non-bank finance companies' deposits as a percentage of bank deposits amount to 21 per cent.
It is, therefore, wrong to argue that non-bank finance companies cannot access public
deposits in other countries.

Again, the new-fangled notion of Grameen banks and self-help groups is nothing but thrift
societies in another form. ðraditionally in India, chit funds have performed the role of
collecting deposits from savers and lending money to those who are in need.
Constrained as they are by numerous restrictions, they still perform a signal service in
funding small and medium business, trade and transport

ðhe fact is that NBFCs in India have played a useful role in financing various sectors of the
economy, particularly those that have been underserved by the banks. No business flourishes
unless there is a need for it and it fulfils the need efficiently.

ðhe success of NBFCs bears testimony to its role. Anywhere in India, the small entrepreneur
goes first to an NBFC for funds even before he approaches banks in view of the former's easy
access, freedom from red-tape and quick response. ðhe large

expansion of the consumer durable business in India in the last few years would not
have taken place if NBFCs had not entered the trade.

Similarly, housing activity has also been encouraged by NBFCs. ðhe role of NBFCs in
funding transport activities is well-known. Latterly, some NBFCs have been active in funding
infrastructure quite successfully using the securitization of obligations.

NBFCs in India have played a useful role in financing various sectors of the economy,
particularly those that have been underserved by the banks. ðhe tendency of regulators to
deny access to these institutions to public deposit is a confession of inability to see the
economic reality, which calls for a flexible and customer-friendly financial intermediary,
which is what NBFCs and chit funds are.

ðhe tendency of regulators to deny access to these institutions to public deposit is a

confession of inability to see the economic reality, which calls for a flexible and customer-
friendly financial intermediary, which is what NBFCs and chit funds are.

In fact, many banks are forming NBFCs to take advantage of their greater flexibility in
dealing with customers. ðhe fact that some NBFCs were found abusing their position in the
1990s seems to have scared the regulator out of its wits. ðhe answer lay in better regulation,
supervision and prudential norms.

ðhe RBI has now strengthened its machinery of registration and supervision and extended
prudential norms to NBFCs. Denying access to deposits would seem a case of throwing the
baby out with the bathwater. On the contrary, the RBI should apply its mind to strengthening
the functioning of NBFCs, if necessary, facilitating better access to the capital market.

It is, however, interesting to note that the RBI is thinking of using in some form an
instrumentality like the NBFC to extend its credit reach. Observations in recent RBI reports
show that the central bank would prefer to use microfinance credit agencies dedicated to
serving SME clusters

ðhe RBI's Report on ðrend and Progress of Banking in India 200Š mentions that "banks
should extend wholesale financial assistance to non-governmental
organizations/microfinance intermediaries and work as innovative models for securitisation
of MFIs' receivable portfolios. Such micro-credit institutions can take the form of NBFCs
funded by individuals or a group of banks, but not permitted to take public deposits".

A strange requirement, indeed, of exclusion from public deposits! ðhe recommendation of

setting up an institution in the form of NBFC is significant, although excluding such
institutions from deposit-taking is not correct.

NBFCs have, indeed, served a useful purpose as instruments for extending outreach of credit
in the Indian countryside. ðo ignore them but recreate them in the form of microfinance
institutions or NGOs of the same kind is being ritualistic.

After all, let us recognise that NBFCs have a set of characteristics that have made them an
effective form of financial intermediation. It is these characteristics that the RBI wants to
incorporate in its version of microfinance groups. ðhe path of wisdom is to incorporate
NBFCs as such into India's financial structure rather than reinventing them in another form.

 


 
  

 



 
  



 
 


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In short, NBFCs are vitally needed to give the Indian economy a much-needed boost by
enabling easier access to credit. As it is, public and private sector banks are finding it difficult
to extend their reach for various reasons. It behooves the RBI and the Government to look at
the problems faced by NBFCs with sympathy rather than with a recollection of the past
follies of a few institutions.

ðhe time has come for the RBI to "make" peace with NBFCs as a class. ðhey are proven
instruments of efficient and customer-friendly outreach in the credit space ² not only for
consumer durables, but also housing and transport, besides infrastructure.

ðhese are also critical areas in which the Government is vitally interested as part of boosting
economic growth. I hope the regulators will not forget that their role is not only to regulate
but to spur the growth of the economy. ðhe NBFCs' request to be allowed to continue to
accept public deposits deserves to be nurtured, not restricted.

Over the years, in its developmental role, the RBI has been attempting to expand credit by
exhortation. But public sector banks have proved that even with their best efforts they are
able to reach only a limited extent of credit expansion.

ðhe experiment of Regional Rural Banks, Urban Cooperative Banks and Kisan Credit Cards
has also been a mixture of success and failure. It is in this background that the proven
successful record of credit growth, exemplified by the NBFCs, deserves to be replicated at
least in respect of their better features by the banking system.

Commercial banks by their very nature cannot take on all the features of NBFCs, but they can
collaborate with NBFCs by extending credit and participation in the securitisation.

While the flow of bank finance will help, it will be more important to remember that NBFCs
started by accessing public deposits. ðhese can be an additional window for savings. All this
would of course require a change of mindset on the part of both our regulators and policy-
makers

ðhe government is planning to treat mortgage guarantee Companies as non-banking finance

Companies (NBFCs). ðhis would enable foreign firms to set up wholly owned subsidiaries in
India as there is no foreign direct investment (FDI) cap for NBFCs. ðhe rules governing this
are expected to be unveiled soon, according to sources.

ðhe finance ministry favoured the inclusion of mortgage guarantee Companies in the
relatively relaxed NBFC norms rather than the stricter insurance sector guidelines.

ðhe move would help overseas Companies like Genworth Financial, PMI Group, Mortgage
Guaranty Insurance Corporation and Radian set up wholly owned mortgage guarantee
subsidiaries in India. It will also allow joint ventures such as India Mortgage Guarantee
Company Ltd and ICICI Lombard General Insurance start local operations.

ðhough mortgage guarantee Companies usually fall under the non-life insurance sector
overseas, in India they want to be governed by rules similar to NBFCs, an industry insider
said requesting anonymity. ðhis is because only 26% FDI is allowed in the insurance sector.

Commercial Banks and non-banking finance companies are not subject to uniform
regulation although for both the principal regulator is the Reserve Bank of India.

ðhe dichotomy has many practical implications. While the two undertake many common
functions, there are also certain spheres in which they do not compete. For instance, certain
typical NBFC activities such as hire purchase and leasing, IPO funding, small ticket loans
and venture capital are financial services that m

mainline banks in India have traditionally kept away from or placed much less emphasis.

On their part, banks alone provide working capital by way of cash credits and mobilize
demand deposits (savings bank and current accounts)

As a category, NBFCs are heterogeneous in their ownership patterns (such as foreign or

domestic) and in the nature of activities undertaken. Hence regulation impacts unevenly even
within this broad category. Hence there is no level playing field not only between banks and
NBFCs but among NBFCs themselves.

Banks, by definition, are the most regulated, being subject to prudential norms, capital
adequacy stipulations, CRR/SLR requirements, priority sector lending limits and so on.

While deposit taking NBFCs have been brought under regulation, non-deposit taking
companies (NBFC-NDs) are, for all practical purposes, still out of it. "Even in the former
case, regulation is less rigorous than for banks. ðhis gives NBFCs as a category and the
minimally regulated non-deposit taking ones among them in particular an opportunity to
exploit the "regulatory arbitrage.''

An outstanding example is the enormous capacity of NBFC-NDs to leverage their balance

sheets to raise funds. ðhere is practically no regulation to constrain them. As pointed out,
only deposit taking NBFCs have been brought under regulation and even they have fewer
norms than banks.

Banks and NBFCs complement as well as compete with one another. ðhis should on the
whole lead to a widening of the financial sector and benefit the customer. For instance,
ownership of an NBFC by a bank gives the former a status and an assurance that its well-
regulated owner will ensure its solvency.

At the same time the relatively easy regulatop





 
 
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In 2006 the RBI laid down a number of guidelines to fine-tune the existing financial linkages
between banks and NBFCs, the objective being to protect the interests of bank depositors.

In the normal course, NBFCs are more advantageously placed than banks. Likewise there are
norms covering the structural linkages between the two. However, there are still several grey
areas. ðhe RBI identified the following key principles that should guide a revised framework
for NBFCs.

(1) While as a rule any financial service provider should be regulated, as a first step all
"systemically relevant entities'' should be covered. What is systemically relevant will be
covered from time to time.

(2) ðo avoid regulatory arbitrage, regulation and supervision should be centered on

activities and not be institution centric, as it is now.
(3) New norms should be made applicable to NBFCs that are less regulated now, the
objective being to enhance their governance.
(Š) Ownership of an NBFC should not be the criterion for deciding on the products it
offers.
(5) Foreign entities now gain a foothold in the Indian financial sector by investing in an
NBFC through the automatic route available for FDI. Certain checks and balances must be
prescribed to monitor their movements into other fields without undergoing an authorisation
process.

(6) Banks should not use an NBFC as a vehicle for creating arbitrage opportunities. Under no
circumstances should the NBFC route be used for undermining existing regulations.

Some of these have been put into practice already. For now, all NBFC-NDs with an
asset size of Rs. 100 crore and more will be considered systemically important.

ðhey cannot raise borrowings more than ten times their net owned funds. ðhese will have to
follow new capital adequacy norms. Other restrictions such as those laid down under group
exposure limits will have to be complied with.

Among the other new guidelines, the one that has received wide publicity relates to
ownership and governance of NBFCs.

ðhe RBI has laid down that banks including foreign banks operating in India shall not hold
more than 10 per cent of the paid up capital of a deposit taking NBFC. Housing finance
companies have been excluded from this stipulation.

Some of these new regulatory norms have had a far-reaching impact on the NBFCs

c
 
 


    

Development operations financed by follow a procedure cycle, which is almost identical for
all kinds of projects whose technical, economic, and financial feasibility has been established.
ðhese projects must have a reasonable economic rate of return and should be intended to
promote development in the beneficiary country. ðhe procedure consists of the following

1) Identification of the project:

ðhe project¶s idea is introduced to providers by various sources: a request from the
government concerned or financials identification missions may identify a proposal from
other financiers, or it. Applications for financing are then sorted out and classified: projects to
be financed are selected from amongst projects which have top priority in the development
plans of the beneficiary countries and which meet the requirements established by the rules
for financing set out by the providers and agreed upon by the government concerned. In all
cases, an official request from the government should be submitted to financials before it
decides to participate in the financing

2) Desk review and determination of the project¶s scope:

Experts, each in his field of specialization, study all the documents available on the project
and examine its components, its estimated local and foreign costs, the preliminary financing
plan, the position of the other sources of financing, the current economic situation and the
development policy of the beneficiary country and, generally, review all elements which may
help in making the project a success.

3) Preliminary approval

  

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Š) Project appraisal and submission to the Board:

After the project has been granted preliminary approval, organizations usually dispatches an
appraisal mission to the project¶s site. ðhe appraisal stage is considered to be one of the key
stages of the procedure in this stage the project¶s objectives, components, cost, financing
plan, justification and all its economic, technical and legal aspects are determined. ðhe
project¶s implementation schedule, the methods of procurement of goods and services, the
economic and financial analysis and the implementing and operating agencies are also
examined at this stage. Based on the results of the appraisal mission, an appraisal report is
prepared, as well as a Director General¶s report which is submitted to the Board of Directors
for final approval.

5) Consultations with other co financiers:

Consultations are considered to be one of the important stages in the procedure. It is during
this stage that agreement is reached regarding the financing plan, the type of financing, and
distribution of the components of the project so as to ensure the smooth flow of
disbursements during execution of the various components of the project. ðhis coordination
should continue throughout the project implementation period to ensure the fulfillment of its
objectives.

6) Negotiations and signature of the loan agreement:

2  
 





 







 

 




 
  

 





 
 

    





 
 

 

  
 
  
 

 
 



After the beneficiary government is informed of the Board of Directors¶ decision to extend
the loan according to the terms agreed upon during the appraisal of the project, the loan
agreement is prepared and negotiated, and eventually signed with the government concerned.

7) Declaration of effectiveness of the loan agreement:

A loan agreement is declared effective after continuous contacts with the government
concerned and the other co-financiers and after fulfillment of all conditions precedent to
effectiveness stipulated in the loan agreement.

8) Project implementation and disbursement from the loan:

After the declaration of effectiveness of the loan agreement, the project¶s implementation
and, consequently, the disbursements from the loan funds start according to the plan agreed
upon during the appraisal process and in line with the rules and provisions of the loan
agreement signed between the two parties.

9) Supervision and follow-up

Financials undertakes the follow-up of the project¶s implementation through its field missions
sent to the project¶s site or through the periodic reports which it requires the beneficiary
country to provide on a quarterly basis. ðhese reports enable them to advise the government
concerned on the best ways to implement the project.
10) Current status reports:

Whenever necessary, experts prepare status reports which include the most recent
information and developments on the project¶s implementation. ðhese reports are submitted
to the Board of Directors for information and approval of any possible amendments, which
may be required for implementation. ðhis is done in coordination and agreement with the
government concerned and the other co-financiers.

11) Project completion report:

ðhis report is prepared at the project¶s site and in the office as well, after completion of the
project. ðhis report enables organizations to make use of the experience gained from the
completed project, when implementing similar projects in future. In addition, it may help in
identifying a new project in the same sector.

K 


 

Each of these risks, along with their possible mitigates, is discussed in the following
sections.
Completion Risk

Completion risk refers to the inability of a project to commence commercial operations on

time and within the stated cost. Given that project financiers are often reluctant to underwrite
the completion risk associated with a project, project structures usually incorporate recourse
to the sponsors during the construction stage. However, this link gets severed once the project
starts generating its own cash flows. Hence, during the construction period, risk perception is
significantly influenced by the credit worthiness and track record of the sponsors and their
ability and willingness to support the project via contingent equity/subordinated debt for
funding cost and time over-runs, if any.

ðhe risks are also dependent on the complexity of construction, as greater the complexity (for
instance, in the case of a petrochemical facility), higher the risks arising on this count. In
addition, for projects with strong vertical linkages, the non-availability of upstream and
downstream infrastructure is an important source of completion risk
ðypical examples of such projects would be liquefied natural gas (LNG), natural gas, and
toll road projects. In certain types of projects, such as ports and roads, project completion is
also a function of the permitting risks associated with obtaining the necessary Rights of Way
(ROW), environmental clearances and Government approvals.

Completion risks are usually mitigated through strong fixed price; date certain, turnkey
contracts with credit-worthy contractors, along with the provision of adequate liquidated
damages for delays in construction, which need to be seen in relation to debt service
commitments.

While assessing completion risk, adequate attention is also paid to the experience of the
engineering, procurement & construction (EPC) contractor and its track record in
constructing similar projects, on time and within the cost budgets. Further, it looks at the
reasonableness of the time available for project completion, and an aggressive schedule for
project completion, which does not provide for adequate contingency provisions, is often
viewed negatively.

Funding and Financing Risks

A project company¶s financial structure and its ability to tie up the requisite finances are the
focus of analysis here. ðhe financing structure is usually reviewed for the capital structure of a
project, which is evaluated to assess whether the debt-equity ratio is in line with the underlying
business risks and that of other projects of similar size and complexity.

ðhe protections provided to bondholders such as minimum coverage ratios that must be met
before shareholder distributions are made, and the availability of substantial debt reserves to
meet unforeseen circumstances. ðhe matching of project cash flows (under various sensitivity
scenarios) with the debt service payouts and the potential for cash flow mismatches.

ðhe pricing structure adopted for debt and the exposure of the debt to interest rate and
currency risks. Such risks are particularly significant where the project raises variable rate
debt or liabilities in a currency other than the one in which its revenues would be


   

    









 






  

Limitations on the ability of the project company to take on new debt. ðhe average cost of
debt, given that the cost of financing is increasingly becoming a key determinant of project
viability, in view of the fact that differences in technical and operating abilities have virtually
become indistinguishable among front-runners.

Usually, most projects have a high leverage, and while equity is arranged privately from
sponsors, the project would be dependent on financial institutions and banks for arranging the
debt component. In assessing the funding risk, the extent to which the funding is already in
place and the likelihood of the balance funding being available in time is considered, so that
the project¶s progress is not delayed.

Operating and ðechnology Risks

Operating and technology risks refer to a project¶s inability to function at the desired
production levels and within the design parameters on a sustainable basis. Such risks usually
arise in projects using complex technology (power plants or refinery projects, for instance);
for projects in the roads, ports, and airport sectors, such risks are usually of a lower order.
ðechnology risk usually arises because of the newness of technology or the possibility of its
obsolescence, most often seen in telecom projects.

Where technology is well established, the focus of analysis is usually on determining its
reliability and the sustainability of the technology platform over the tenure of debt. ðhe
Independent Engineer¶s Report (IER) is used to review and assesses whether the engineer¶s
findings support the views of the sponsors and the EPC contractor.. ðechnology risks, where
imminent, are usually mitigated through performance guarantees/warranties from the
manufacturer, contractor or operator, and the availability of adequate debt reserves to allow
for operating disruptions.







 

  
 



 









 
 



 




  


 
 
operations due to mechanical failure of equipment are usually mitigated through
Operations and Maintenance (O&M) contracts.

Here again, sponsors evaluates the quality/experience of the O&M contractor, the familiarity
of the O&M contractor with the technology being used, and the adequacy of the performance
guarantees from the O&M contractor.

Market Risks

Market risks usually arise because of insufficient demand for products/services, changing
industry structures, or pricing volatility (for input and also output). Given the long-term
nature of project financing, a considerable source of market risk is the possibility of dramatic
changes in demand patterns for the product, either because of product obsolescence or sudden
and large capacity creations, which could severely affect the economics of the project under
consideration.

For analytical convenience, one can group projects into two categories: one, which produces
commodities (e.g. LNG projects, refinery projects, and power projects), and two, where
certain natural monopolies exist (e.g. roads, ports, airports, power or gas transmission
projects). While the first category of projects is exposed to most of the risks identified above,
the market risks for the latter type of projects are more demand related, with the pricing
usually being subject to regulatory or political controls.

Until recently, the implementation of some of these ³commodity´ projects, such as power
and LNG projects, in the international markets was supported by long-term off- take
contracts, which provided considerable comfort to project financiers. However, with the
development of a spot market for these commodities, customers of such projects are not
willing to commit themselves to such long-term contracts; this has considerably increased the
market risks associated with such project

Under the circumstances, cost competitiveness and the nature (regional or global) and adequacy
of demand have emerged as critical determinants of a project¶s long-term viability.

For instance, even in India, despite power projects being backed by off-take commitments
and adequate payment security mechanisms, there are numerous instances where cost
competitiveness has emerged as the principal mitigant against the rather well documented
market risks associated with India¶s power sector. ðhus the point of focus, while assessing
market risks for projects producing a commodity, is usually the cost structure of a project,
which is a function of the capital costs incurred to set it up, the input costs and also the costs
required to operate and maintain the asset.

One usually benchmarks the capital cost of a project with those of recently commissioned
facilities across the world to ascertain the global cost competitiveness of the project; this is a
key determinant of the project¶s long-term economic viability. On the input side, ICRA looks
at issues related to certainty of supply, ability of the supplier to meet contractual
commitments over the life of the project, the pricing structure of such supplies, and the ability
of the project to pass on variations in input costs.

In situations where the primary input is scarce or is not actively traded, one attempts to

evaluate the cost implications for replenishing shortfalls in supply and the availability of
liquidated damages in the supply contracts for compensating the project for such costs. For
the second category of projects, the primary focus is on evaluating the adequacy of existing
demand, the potential for growth in demand and the possibility of alternative assets being
created, which could undermine demand for the project being financed.

Assessing demand patterns for such projects, particularly road projects, is often a daunting
task since in most cases, the demand is highly price elastic and a function of the pattern of
socioeconomic development in the service area of the road.

One refers to ³independently´ conducted traffic/demand studies by reputed agencies to

establish the veracity of the demand estimations prepared by the project sponsors.
Counter-party Risks

As discussed earlier, a project involves a number of counter-parties who are bound to it by

the contractual structure. ðherefore, an evaluation of the strength and reliability of such
participants assumes considerable importance in ascertaining the credit strength of the
project. Counter-parties to projects usually include feedstock/raw material suppliers, principal
off takers, and EPC contractors.
 Even a sponsor could become a source of counter-party risk, as it needs to provide equity
during the construction stage. Because projects have inherently complex structures, a
counter-party¶s failure can put a project¶s viability at risk. ðhe counter- party risks are usually
addressed through performance guarantees, letters of credit and payment security
mechanisms (such as escrows), most commonly seen in the case of power projects.

However, it has been observed that such contractual risk mitigants, however strong, may not
be effective in insulating a project from this risk, unless the project is fundamentally cost
competitive and makes commercial sense for all the project participants.

Regulatory and Political Risks

Political and regulatory risks continue to play an important role in the development of the
project finance business in India. Most project financing transactions carry an element of
political risk by virtue of the fact that they are often related to capital- intensive infrastructure
development and the resultant goods/services are consumed by the masses, directly or
indirectly.

Political and regulatory risks could manifest themselves in various forms, and significantly
impact the economics of the project under evaluation. For instance, such risks may take the
form of: Lack of transparency and predictability in the functioning of the regulatory
commissions which are typically involved in granting licences, specifying the terms and
conditions for use of infrastructure on a ³common carrier´ basis and fixing tariffs.

For instance, some of the stand-alone LNG projects being set up in the country require a
change in regulatory policy for allowing them to use the available gas evacuation
infrastructure on a common carrier basis. Resistance to increases in user charges for common
utilities such as water charges, toll tax rates, and energy charges, despite such tariff increases
being envisioned in the project documents. Changes in environmental norms, which could
impact power plants and refinery projects by requiring them to invest substantially in meeting
such norms.

Problems in acquisition of land, which are typical in the case of road projects. As is apparent
from the preceding discussion, regulatory and political risks are often difficult to quantify and
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the AðM facility, other services like payment of bills etc. is proof to the fact that customer
satisfaction is the objective of any bank. Retail Banking, Business Banking, Merchant
Establishment Services (EDC Machine), Personal loans & Car loans, Demat Services with E-
Broking, Mutual Fund, Insurance, and Housing Loans. Keeping the need of the consumers in
mind, banks all over are offering an array of services.

Weakness

ðhe rural market is still waiting to be tapped. ðhere is latent demand for the same, only
awareness is to be created. If the organized urban financial sector can somehow connect to its
rural counterpart, it can accelerate the growth of the rural financial sector. With the help of
latest technologies this feat could be achieved. Banks currently provide overdrafts against
property. While the younger population believes in looking at future cash flows to spend
today, senior citizens often have their investments locked in not-so- liquid securities. ðhis
could lead to a problem in future for the banks. Affluent investors



 





 
 




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Opportunity

ðhe Budget provides for increased medical insurance coverage through more insurance
companies of the GIC group. ðhere is perhaps an opportunity here for banks to look at
bundling insurance with liability products. Income from rural insurance is around Rs 2,700
crore and is estimated to grow to Rs 8,000 crore in three years. Banks could easily exploit
this opportunity. Even after the Reserve Bank of India having okayed institutional lending to
the film industry, very few banks have even done a study of financing films. ðhe film
industry could provide banks with good business opportunities, at a time when the credit off
take is poor.

ðhreats

With distribution of financial services in the rural areas being touted as the next big wave,
there could be more competition for banks and NBFCs (non-banking financial companies)
operating in the hinterland. ðhe regional rural banks would be given charge of rural areas
hence increasing competition. Exploiting the impressive growth of e- commerce and the
desire of many merchants to provide their customers with more online payment options at a
lower cost, nonblank players like PayPal and BillMeLater are carving out a niche in the
Internet payments business. At the same time, the e-check is emerging as an attractive
payments alternative for merchants tired of paying high credit card interchange fees. ðhe e-
check is essentially a debit against the customer's checking account that travels over the
Automated Clearing House network.

ðhese and other technologies threaten to wrest more payments revenues from banks,
which still rely on the credit card as their primary online payments product Swot analysis of
NBFC

Strengths

ðhe core strengths of NBFCs lie in their strong customer relationships, good understanding of
regional dynamics, service orientation, and ability to reach out to customers who would
otherwise have been ignored by banks. Because of their niche strengths, local knowledge, and
presence in remote topographies, these NBFCs are able to appraise and service non-bankable
customer profiles and ticket sizes. ðhey are thus able to service segments of the population
whose only other source of funding would be moneylenders, often charging usurious rates of
interest

Weakness

With the onset of retail financing, NBFCs are loosing ground to banks. Also the profitability
of NBFCs has also come under pressure due to the competitive dynamics in the Indian
financial system. Under these circumstances, NBFCs have begun to look at high-yield
segments such as personal loans of small ticket sizes, home equity, loans against shares, and
public issue (IPO) financing, to boost profitability. ðo benefit from access to funding at lower
costs, among other reasons, some leading NBFCs have also metamorphosed into banks:
Ashok Leyland Finance Ltd, for instance, merged into IndusInd Bank Ltd, and Kotak
Mahindra Finance Ltd converted into Kotak Mahindra Bank Ltd.

Opportunity
Virgin business segments are likely to have NBFCs as innovators. ðhe NBFCs will leverage
their first mover advantage to make reasonable profits in these segments. NBFCs will play
the role of innovators, going forward, with some doubling up as partners to banks. As
innovators, they will help identify new businesses, or new ways of

doing traditional businesses; they will build business models that will attain a measure
of stability over time, before the banks step in.

When that happens, it will be difficult for some NBFCs to hold their own against the
competition, and some will move out; others will enter into partnerships with banks, resulting
in a win-win relationship for both. Partnerships with banks can take a variety of forms. Some
NBFCs will become originating agents working for a fee, like DSAs, but others are likely to
have more substantial partnerships with banks. Such a partnership could, for instance, involve
the NBFC performing credit appraisals, and sharing credit risk on assets that it has originated
and sold to its partner bank. ðhe success of this business model will depend critically on the
NBFCs ability to assess the risks involved in the exposures it originates.

ðhreats

Factors such as ability to sustain good asset quality, provide prompt and customized services,
enter into franchises or tie up arrangements with manufacturers and dealers, and build large
networks to reach out to customers, are vital for success on the business front; so are strong
collection and recovery capabilities. NBFC lack such facilities. On the financial side,
competitive cost of funds and the ability to capitalize at regular intervals, in line with growth
requirements, are key requirements for maintaining

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Analysis

Q.1 Have you obtained project financing previously?

First time takers 11

ðaken previously 69
Not aware 20
Of the 100 respondents, 11 were first time takers of project financing, 20 had never taken
project financing and most of them had not heard of the same, 69 of the respondents had
taken project financing previously

Q.2 If yes, how many times?

1to3 60
Što6 6
7to9 1
>10 2

Of the 100 respondents, 20 have never taken project financing, 11 are first time takers, 60 fall
in the category of having taken project financing 1to 3 times previously, 6 who have taken
project finance Š to 6 times, one respondent falls in the category of having taken project
finance 7 to 9 times and 2 who have taken project financing more than 10 times.

We can see that majority of the respondents have taken project finance 1to3 times and only 2
respondents have taken project finance more than 10 times. ðhis shows that project finance is
not such a favorable option of finance among the borrowers. ðhis is be due to the fact that
documentation process involved in financing a project is very lengthy and also that approval
time for funding is long. Also the borrowers have other options like loan from banks,
deposits, loan from relatives, investment in bonds etc.

Q.3 Please name the lenders from whom you have obtained project financing in past.

SBI 21
ICICI 16
DENA 10
Others 22

29% of the respondents had taken project financing from State Bank of India, 22% from
ICICI Bank and 1Š% from Dena Bank and 35% have taken project finance from other banks.

None of the respondents had taken project finance from NBFCs, all of them had opted for
Banks as there is more security and also it is backed by strong brand name. Further of all the
banks, nationalized banks have more market share than private banks in terms of popularity.
Majority of the respondents have taken project financing from SBI, followed by ICICI and
Dena Bank.

QŠ Please describe your experience with the lender in terms of the following criteria
(A)pAccessibility of officers:

Very satisfied 26
Satisfied Š0
Neither satisfied nor
dissatisfied 1Š
Dissatisfied 0
Fullydissatisfied 0

26 respondents were very satisfied in terms of the accessibility of officers, Š0 were satisfied
in terms of accessibility of officers, 1Š respondents were neutral on this aspect and none were
dissatisfied or dissatisfied.
It can be observed that majority of the respondents are very satisfied or near to satisfied with
regard to accessibility of the officers. ðhe lenders have taken care to see that the borrowers
can easily access the officers. Majority of the respondents had taken project fiancé from SBI
and are very satisfied in terms of accessibility of officers. ðhis is the starting point for any
prospective borrower and lenders should take care to see that their officers are easily
accessible because many a times bad response in terms of accessibility repulses the
prospective lender.

Q Š (B) Speed of dealing: (documentation and formalities)

Particulars
No.
Very satisfied 10
Satisfied Š2
Neither satisfied nor
dissatisfied 19
Dissatisfied 7
Fully dissatisfied 2
Only 10 of the respondents were very satisfied with the speed of dealing with regard to
documentation process, Š2 were satisfied with the speed of dealing, 19 were neutral on this
aspect, 7 dissatisfied and 2 fully dissatisfied with the speed of dealing.

ðhose that were very satisfied with the documentation process had taken project finance from
ICICI and also the customers of Dena Bank were satisfied with documentation process. ðhis
shows that ICICI and Dena Bank Have taken due care in

finishing the paper work quickly so that the borrowers can start with the project as soon
as possible.

It has been observed that the documentation process in terms of SBI is the lengthiest. Many a
times due to this factor SBI is not preferred by the borrowers as the approval time is more and
the borrowers cannot afford this delay

QŠ(C) Quality of interaction:

Particulars
No.
Very satisfied
15
Satisfied
Š5
Neither satisfied nor
dissatisfied
19
Dissatisfied
1
Fully dissatisfied
0
From the above chart we can see that 15% of the respondents were very satisfied with the
quality of interaction, Š5% were satisfied with the interaction, and 19% were neutral on this
aspect, 1% dissatisfied with the quality of interaction.

It can be observed that the above graph more or less depicts the graph of accessibility of
officers. It means that those who felt that officers were easily accessible also felt that quality
of interaction was also good.

All the lenders are taking care to see that the prospective borrowers feel at ease with the
officers and that it results in a project finance deal. ðhis is also an important aspect that the
lenders should consider as the quality of interaction would determine whether the project
would be financed or not.

Q5 What was/were the reason/s fro selecting this particular project financing
company?

Particulars No.

Reference 5Š
ðime frame 1Š
Documentation process 10
Others 5
From the above chart we can see that 65% of the respondents choose a particular firm
because of reference, i.e. either they had a bank account there or someone recommended the
firm, for 17% time frame was the deciding factor, 12% of the respondents gave importance to
documentation process and 6% gave importance to other factors like security, brand name
etc.

ðhe lenders should promote project finance facility to all its existing customers as we
can see that 65% of respondents choose a particular firm because of reference. ðhe lenders
should take care to see that the time needed for approval of project should also be shortened
as this one of the factors which gives advantage to the competitor.

  


 
   

 



  
 
   


 




 
 

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Q6 Which other source of finance would you prefer for financing projects?
Particulars
No.
Loan from banks
62
Loan from relatives
17
Deposits
1Š
Investments in bonds
3
Others
0
From the above chart we can see that 62 respondents would take loans from banks to finance
their projects, 17 would have taken loan from relatives, 1Š would use their deposits to finance
their projects and 3 respondents would use their investments in bonds for the same.

Apart from taking project finance to finance their project, there are various other
avenues from where the borrowers can finance their project. ðhe major competitor of 










 





 
  







   







ðhe lenders should try and educate the customers regarding the benefits of taking project
finance over other options like loan, deposits etc. in order to meet competition. Also the
NBFCs should market themselves as the easiest option available for entrepreneurs and this is
the only way they can sustain the competition.

Q7 What are/were your reasons for obtaining project finance?

Particulars
No.
Equipment purchase
2Š
New unit setup
31
Further investment
26
Ongoing project
6
Other
0
From the above chart we can see that out of the 80 respondents who had taken project
financing 2Š had taken it for purchase of equipment, 31 for new unit setup, 26 for further
investment and 6 for ongoing project.

We can observe that project finance is usually preferred for new unit set up. ðhis is because
such project usually requires more capital for initialization and also as the finance is provided
on the merits of the project, approval time is less. Close to new unit setup, the next is further
investment in business for which project finance is taken. As loan is provided on the credit of
the project the borrowers would not have a problem in getting the finance.

Q8 Are you aware of the factors considered by the lender before providing you project

 1
Particulars
No.
Yes
6Š
No
16

From the above chart we can see that 80% of the

respondents were aware of the factors considered by the lender before financing the project,
but most of them are not aware of all the factors. 20% of the respondents were unaware of the
factors considered by the lender
Only 16 respondents were unaware about the factors considered by the lender before
providing finance, they not aware about all the factors considered. ðhese respondents were
about some factors like feasibility of the project, credit worthiness, financial soundness and
availability of documents. ðhey were not aware that the lenders also consider the current
government policies, market scenario, macro economic factors and also sole lendership.



 




  






 

     

 
 


 
 
 

 

   

 


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Q 9 Which of the following do you think are factors that your lender might have
considered before giving you project financing?
Particulars
No.
Previous projects
5Š
Present business
53
Market scenario
38
Government policy
17
Macro economic factors
6
Agriculture related
10
Sole lender
8
5Š respondents felt that previous projects was a deciding factor for the lenders before
financing the project, 53 respondents felt that their current business conditions was a deciding
factor, for 38 respondents market scenario was a deciding factor for the lenders, 17 felt
government policy affected the decision of the lenders, 10 respondents thought that
agriculture related project got faster approval and 8

respondents felt sole lendership was given importance by the lender.

According to the lenders before giving finance to any project, the feasibility of the project,
credit worthiness of the project and availability of documents are given foremost importance.
ðhey also consider the government policies like which sector has been given subsidies or tax
holiday, also the current market scenario as to which sector is growing or is expected to grow,
macro economic factors. ðhe lender also preferred that it be the only lender to the project and
that no other lender had a claim on the cash flows of the project.

Majority of the respondents were aware of the foremost three factors i.e. feasibility of project,
credit worthiness and availability of documents. So we can say that there is considerable
awareness regarding the same among the borrowers.
Q10 In which of the flowing range does your debt/equity ratio lies?
Particulars
No.
0.25-0.5
17
0.50-1.00
7
1.00-1.50
37
1.25-2.00
13
>2.00
0

Out of the 80 respondents who had taken project financing, Š did not want to disclose their
debt equity ratio, the debt equity ratio of firms of the respondents lied between 0.25-0.5, ŠŠ
firms had their debt equity ratio between 0.50-1, 10 firms had their debt equity ratio between
1.00-1.50 and 5 firms had their equity ratio between 1.25-2.00

Majority of the respondents hesitated in giving this ratio. It shows that majority of the
respondents have debt equity ratio between 1-1.5 it shows that they have taken loans from the
market.

Q11 Which type of Repayment schedule do you prefer?

Particulars
No.
Bullet
7
Installment
73

91% of the respondents were more comfortable with the installment repayment system,
and 9% with the bullet repayment system
Q12 Out of these how many project financing providers are you aware of?
Particulars
No.
SBI
61
IDBI
52
BOB
37
Other Banks
70
GSFS
27
GLF
27
Sundaram
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NBFC firms need to invest more in marketing their products to stay in competition. ðhe
awareness regarding NBFCs is very less among all the respondents, they should try and
market themselves as the lender for new entrepreneur as project finance deals with the merits
of the product. Also they should try to inculcate in the minds of the borrowers that NBFC is
as safe as any bank and should try and develop a feeling of security among borrowers with
regard to NBFC.

Q13 How would you prefer risk to be managed?

Particulars
No.
Lenders
53
ðhird party
17
Allocate between two
10

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Q1Š For future projects from whom would you prefer to take project financing?
Particulars
No.
Banks
100
NBFCs
0

All the respondents opted for banks rather than NBFC for project financing for their future
projects. ðhe Banks have majority of mind share among the borrowers. Also the lenders feel
that if they borrow from banks they will not face any problem regarding availability of
finance and also that the banks will keep upto their word, in short the will not face a problem
with regard to working capital when it comes to banks. But the same they do not feel
regarding the NBFC.

Further the borrowers are not aware about various NBFC existing within the city, this shows
that the marketing efforts carried on by these firms is not enough. As a result they are loosing
out to the banks. Also they need to improve upon their image regarding the NBFC being not a
safe option

Q15 Factors responsible for choosing a lender (Bank/NBFC)

Particulars
No.
Documentation process
29
Security
Š8
Brand name
39
Rate of involvement
12
Project approval time
8
Others
1

ðhe respondents choose bank over NBFC because they thought banks provided more
security, Š7 respondents felt the same, for 39 respondents brand name was a deciding factor,
for 28 respondents documentation process was of importance, for 11 respondents rate of
involvement affected their decision, 7 respondents gave importance to project approval time.



   

   



   


 


   



  

 

 




 

 
  



  


 





 
  name. ðhis will take
few years but the first and foremost thing that they can do is to

market themselves and make their presence felt in the market.

Findings and Recommendations
Project finance is not that popular among the CAs. ðhey prefer taking bank
loans over project finance. ðhis due to the fact that the lenders have not made
much effort in creating awareness regarding the same.
ðhe documentation process involved in financing a project is very lengthy and
also that approval time for funding is long. Also the borrowers have other

 options

None of the respondents had taken project finance from NBFCs, all of them had
opted for Banks as there is more security and also it is backed by strong brand
name.
ðhe lenders have taken care to see that the borrowers can easily access the
officers and also the interaction between the lender and borrowers is pleasant.
Majority of the banks get customers for project finance through reference that is
either they are existing customers are they have been recommended by others
Also documentation process should be shortened as this affect the decision of
choosing a lender.
ðhe major competitor of project finance is the loans provided by the banks.
Project Finance is usually preferred for new unit set up
According to the lenders before giving finance to any project, the feasibility of
the project, credit worthiness of the project and availability of documents are
given foremost importance.
Banks have a majority of mind share among the respondents. ðhe awareness
regarding NBFCs is very less among all the respondents.
All the respondents opted for banks rather than NBFC for project financing for
their future projects.
ðhe major reason for choosing a bank over NBFC is the security aspect and also
the brand name that a bank enjoys.

K



ðhe lenders should promote project finance facility to all its existing
customers
ðhe lenders should try and educate the customers regarding the benefits of
taking project finance over other options like loan, deposits etc. in order to
meet competition.
Also the NBFCs should market themselves as the easiest option available
for entrepreneurs and this is the only way they can sustain the competition
ðhe borrowers should be made aware regarding the aspects considered by
the lender before providing project finance.
ðhe awareness regarding the NBFCs in this field is very low. Hence strong
marketing strategies should be adopted by these firms to stay in competition.
ðhe NBFCs should make their presence felt in the market by organizing
financial fares, sponsoring financial events and other effective marketing
tools.
ðhe NBFC firms should try to inculcate in the minds of the borrowers that
NBFC is as safe as any bank and should try and develop a feeling of security
among borrowers with regard to NBFC.
ðhe NBFC firms need to develop their brand. ðhi will definitely take a few
years but efforts need to made now so as to sustain competition
 
 

Books

1)Malhotra, Naresh. ðhe Marketing Research. Delhi: Pearson Education, 2005.

2)Kothari, C. Research Methodology. New Delhi:Wishwa Prakashan,1990

3)Research Guides . Luis Gonzalez. August 2002. 31 May 2007

Magazines
Websites

http://www.thehindu.com

http://www.rbi.org

http://www.sbi.com

http://www.icici.com

http://bankofindi ;







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