{"id":22126,"date":"2023-04-21T10:45:18","date_gmt":"2023-04-21T05:15:18","guid":{"rendered":"https:\/\/gstguntur.com\/?p=22126"},"modified":"2023-04-21T10:55:37","modified_gmt":"2023-04-21T05:25:37","slug":"debt-funding-indian-fund-based-government-debt-banking-finance","status":"publish","type":"post","link":"https:\/\/gstguntur.com\/debt-funding-indian-fund-based-government-debt-banking-finance\/","title":{"rendered":"Debt Funding-Indian Fund Based (Government Debt & Banking Finance) – CS Professional Study Material"},"content":{"rendered":"

Chapter 7 Debt Funding-Indian Fund Based – Corporate Funding and Listing in Stock Exchange ICSI Study Material<\/a> is designed strictly as per the latest syllabus and exam pattern.<\/p>\n

Debt Funding-Indian Fund Based – Corporate Funding & Listing in Stock Exchange Study Material<\/h2>\n

Question 1.
\nWrite a short note on the following:
\nBills re-discounting (Dec 2012, 3 marks)
\nAnswer:
\nBills Re-discounting: Bills Re-discounting means the re-discounting of trade bills, which have already been purchased by\/discounted with the bank by the customer. These trade bills arise out of supply of goods\/ services. Bill re-discounting is a money market instrument where the bank buys the bill (i.e. Bill of Exchange of Promissory Note) before it is due and credits the value of the bill after a discount- charge to the customer\u2019s account. Now, the bank which has discounted the bill may require getting it \u2018re-discounted\u2019 with some other bank to get the fund.<\/p>\n

Question 2.
\nWrite a note on Rupee Deemed Export Credit. (Dec 2020, 3 marks)
\nAnswer:
\nRupee Deemed Export Credit:<\/p>\n

1. A deemed export transaction is one in which goods are supplied to a project in India itself which are funded by International\/Multilateral agencies or where goods are supplied to units in SEZs or foreign shipping companies calling on Indian ports, supply of goods to foreign tourists etc.<\/p>\n

2. Such that the proceeds of such goods supplied will be paid in foreign currencies. Such transactions are treated as prima facie export transactions and enjoy incentives and other concessions given to normal export transactions.<\/p>\n

3. Pre-shipment and Post-shipment credit facilities granted to Rupee Deemed Export Credit transactions are similar to finance\/credit extended under Rupee Export credit Pro-shipment as well as Post-shipment as described herein.<\/p>\n

4. Although in deemed export transactions the date of supply to the projects \/SEZ units\/foreign tourists is taken as date of export.<\/p>\n

5. Also the value of the transaction will be based on Free on Rails (FOR) basis instead of usual Free on Board (FOB) basis, usually associated with export transactions.<\/p>\n

\"Debt<\/p>\n

Question 3.
\nDistinguish between the following
\nBill Discounting and Factoring (June 2019, 5 marks)
\nAnswer:
\nBill Discounting: Commercial bills are basically negotiable instruments accepted by buyers for goods or services obtained by them on credit. Such bills being bills of exchange can be kept upto the maturity date and encashed by the seller or may be endorsed to a third party in payment of dues owing to the latter. The most common practice is that the seller who gets the accepted bills of exchange discounts it with the Bank or financial institution or a bill discounting house and collects the money (less the interest charged for the discounting).<\/p>\n

Factoring: Factoring is a financial transaction wherein an entity sells its receivables to a third party called a factor\u2019, at discounted prices. Factoring is a financial option for the management of receivables. In simple definition it is the conversion of credit sales into cash. In factoring, a financial institution (factor) buys the accounts receivable of a company (Client) and pays up to 80% (rarely up to 90%) of the amount immediately on formation of agreement.<\/p>\n

Question 4.
\nDistinguish between the following:
\nBills Finance and Project Finance (Dec 2019, 5 marks)
\nAnswer:
\nBills Finance and Project Finance are two different methods of financing:<\/p>\n

Bills Finance:
\nBills finance is short term and self liquidating finance in nature. The bills can be classified as Demand Bills and Usance Bills. Demand Bill is purchased and Usance bill is discounted by the banks. The credits available to the seller against the bills drawn under Letter of Credit either on sight draft or usance draft are called bills negotiated by the banks.<\/p>\n

The advantage of bills finance is that the seller of goods (borrower) gets immediate money from the bank for the goods sold by him irrespective of whether it is a purchase, discount or negotiation by the bank. The Demand Bills\u2019 can be documentary or clean. Usually banks accept only documentary bills for purchase. However, clean bills from good parties also purchased by the banks.<\/p>\n

The \u2018Documentary Bills\u2019 may be drawn by a Seller of Goods (\u2018Drawer\u2019) on D\/P (Delivery against payment) or D\/A (Delivery against Acceptance) terms. In case of D\/P terms the documents of title to goods are delivered to the buyer of the goods (drawee) against payment of bill amount in case of D\/A bills, the documents to the title of goods are to be delivered to the drawee (Buyer) against acceptance of bills.<\/p>\n

Those types of bills are called Usance
\nBills\u2019 which means bills are maturing on a future date and payment will be made on due date. In case of \u2018Usance Bdls\u2019 bills become clean after it is delivered to drawee on acceptance. Therefore banks take into consideration the credit worthiness not only of the borrower but also of the drawee.<\/p>\n

Project Finance:
\nIt is the long-term financing of infrastructure and industrial projects based upon the projected cash flows of the project. Usually, a project financing structure involves a number of equity investors, known as \u2018sponsors\u2019, a \u2018syndicate\u2019 of banks or other lending institutions that provide loans to the operation.<\/p>\n

They are most commonly loans which are secured by the project assets and paki entirely from project cash flow, rather than from the general assets or creditworthiness of the project sponsors. The financing is typically secured by all of the project assets, including the revenue-producing contracts. Project lenders are given a lien on all of these assets and are able to assume control of a project if the project company has difficulties complying with the loan terms.<\/p>\n

Generally, a special purpose entity is created for each project, thereby shielding other assets owned by a project sponsor from the detrimental effects of a project failure. As a special purpose entity, the project company has no assets other than the project. Capital contribution commitments by the owners of the project company are sometimes necessary to ensure that the project is financially sound or to assure the lenders of the sponsors\u2019 commitment. Project finance is often more complicated than alternative financing methods. Traditionally, project financing has been most commonly used in the infrastructure industry.<\/p>\n

Question 5.
\nDifferentiate between Hire Purchase and Hypothecation. (Dec 2020, 5 marks)
\nAnswer:
\nHire Purchase:<\/p>\n