corporate finance subject

1. Indian Capital Market

2. Capital Market
 A market in which individuals and institutions trade financial
securities. Organizations/institutions in the public and private
sectors also often sell securities on the capital markets in
order to raise funds. Thus, this type of market is composed of
both the primary and secondary markets.
 Capital markets are financial markets for the buying and
selling of long-term debt- or equity-backed securities. These
markets channel the wealth of savers to those who can put it
to long-term productive use, such as companies or
governments making long-term investments.

3.  Capital Market is where trading in financial instruments is
conducted to raise capital.
 Three categories of participants:
 Issuer of securities: Borrowers or deficit savers who issue
securities to raise funds(corporate sector, central
government).
 Investors: Surplus savers who deploy savings by subscribing to
these securities(include retail investors, mutual funds).
 The Intermediaries: Agents who match the need of the users
and suppliers of funds.

4. Nature Of Capital Market
The nature of capital market is brought out by the
Following facts:
Its has two segments primary and secondary market.
It performs trade-off function.
It deals in long-term securities.
It helps in creating liquidity.
It creates dispersion in business ownership.
It helps in capital function.

5. Role and Function of Capital Market
 Capital Formation
 Avenue Provision of Investment
 Speed up Economic Growth and Development
 Mobilization of Savings
 Proper Regulation of Funds
 Service Provision
 Continuous Availability of Funds

6. Factors affect the Capital Market
 Economy of the Country
 Money Supply
 Interest Rate
 Corporate Results
 Global Capital Market Scenario
 Foreign Funds Inflow
 Strength/Weakness of the local currency

7. Types of Capital Market
CAPITALMARKET
PRIMARY
MARKET
SECONDARY
MARKET
PUBLI
C
ISSUE
RIGHT
ISSUE
BONUS
ISSUE
PRIVATE
PLACEMENT
STOCK MARKET

8. Primary Market
Primary Market:
It is that market in which shares, debentures and other
securities are sold for the first time for collecting long-term
capital.
This market is concerned with new issues. Therefore, the
primary market is also called NEW ISSUE MARKET (NIM).

9. Features of Primary Market:
 This is the market for new long term capital. The primary
market is the market where the securities are sold for the
first time. Therefore it is also called New Issue Market (NIM).
 In a primary issue, the securities are issued by the company
directly to investors.
 The company receives the money and issue new security
certificates to the investors.
 Primary issues are used by companies for the purpose of
setting up new business or for expanding or modernizing the
existing business.
 The new issue market does not include certain other sources
of new long term external finance, such as loans from
financial institutions.

10. Classification of Issues
ISSUES
RIGHT
PRIVATE
PLACEMENT
PUBLIC
INITIAL
PUBLIC
OFFERING
FURTHER
PUBLIC
OFFERING
FRESH
ISSUE
OFFER
FOR SALE
FRESH
ISSUE
OFFER FOR
SALE

11. Classification of Issue
Public Issue :
It involves raising of funds directly from the public and get
themselves listed on the stock exchange.
 In case of new companies ,the face value of the
securities is issue at par; and
In the case of existing companies, the face value of securities
are issued at premium.
Initial public offer (IPO): When an unlisted company makes
either a fresh issue of securities or offers its existing securities
for sale or both for the first time to the public, it is called an
IPO. This payes way for listing and trading of the issuer’s
securities in the Stock Exchanges.

12. Con…
 Further public offer (FPO): When an already listed company
makes either a fresh issue of securities to the public or an
offer for sale to the public, it is called a FPO.
 Right Issue:
Right issue is the method of raising additional finance from
existing members by offering securities to them on pro rate
bases. The rights offer should be kept open for a period of 60
days and should be announced within one month of the
closure of books.

13. Cont…
 Bonus Issue:
 Companies distribute profits to existing shareholders by way
of fully paid bonus share in lieu of dividend.
 These are issued in the ratio of existing shares held.
 The shareholders do not have to make any
additional payment for these shares.
 Private Placement:
Private Placement is an issue of shares by a company to a select
group of persons under the Section 81 of the companies act
1956. It is a faster way for a company to raise equity capital.

14. Secondary Market
 Secondary Market refers to a market where securities are
traded after being initially offered to the public in the primary
market and/or listed on the stock exchange.
 It is the trading avenue in which the already existing
securities are traded amongst investors.
 Banks facilitate secondary market transactions by opening
direct trading and demat accounts to individuals and
companies.

15. Cont.…
 The secondary market is that market in which the buying and
selling of the previously issued securities is done.
 The transactions of the secondary market are generally done
through the medium of stock exchange.
 The chief purpose of the secondary market is to create
liquidity in securities.
 Secondary market comprises of Equity market and Debt
market.

16. Financial instruments deals in secondary
market
 Equity Shares:
 An equity share is commonly referred to as an ordinary share.
 It is an form of fractional ownership in which a shareholder, as
a fractional owner, undertakes the entrepreneurial risk
associated with the business venture.
 Holders of the equity shares are members of the company
and have voting rights.
 Bonus Shares:
 These shares are issued by the companies to their
shareholders free of cost by capitalization of accumulated
reserves from the profit earned in the earlier years.

17. Cont.…
 Right shares:
 This refers to the issue of new securities
to the existing
shareholders, at a ratio to those shares already held.
 Dividends:
 A taxable payment declared by a company's board of
directors and given to its shareholders out of the company's
current or retained earnings, usually quarterly.
 Dividends are usually given as cash (cash dividend), but they
can also take the form of stock (stock dividend) or other
property.

18. Cont…
Preference shares:
 These shareholder do not have voting rights.
 Owners of these shares are entitled to a fixed dividend or a
dividend calculated at a fixed rate to be paid regularly before
any dividend can be paid in respect of equity shares.
 These shareholders also enjoy priority over the equity
shareholders in the payment of surplus.

19. The Securities and Exchange Board of India was enacted on April
12, 1992 in accordance with the provisions of the Securities and
Exchange Board of India Act, 1992
Headquarters Mumbai, Maharashtra
Ajay Tyagi, IAS, (Chairman) of SEBI

20. Role of SEBI in Indian Capital Market
Power to make rules for controlling stock exchange :
SEBI has power to make new rules for controlling stock exchange
in India. For example, SEBI fixed the time of trading 9 AM and 5
PM in stock market.
To provide license to dealers and brokers :
SEBI has power to provide license to dealers and brokers of
capital market. If SEBI sees that any financial product is of
capital nature, then SEBI can also control to that product and its
dealers.
To make new rules on carry - forward transactions :
Share trading transactions carry forward can not exceed 25% of
broker's total transactions.90 day limit for carry forward.

21. Cont.…
To audit the performance of stock market :
SEBI uses his powers to audit the performance of different Indian
stock exchange for bringing transparency in the working of stock
exchanges.
To Stop fraud in Capital Market :
SEBI has many powers for stopping fraud in capital market.
>It can ban on the trading of those brokers who are involved in
fraudulent and unfair trade practices relating to stock market.
>It can impose the penalties on capital market intermediaries if
they involve in insider trading.
To Control the Merge, Acquisition and Takeover the companies :
SEBI sees whether this merge or acquisition is for development of
business or to harm capital market.

22. Cont.…
To create relationship with ICAI(The Institute of Chartered
Accountants of India :
SEBI creates good relationship with ICAI for bringing more
transparency in the auditing work.
Introduction of derivative contracts on Volatility Index :
For reducing the risk of investors, SEBI has now been decided to
permit Stock Exchanges to introduce derivative contracts on
Volatility Index
To Require report of Portfolio Management Activities :
SEBI has also power to require report of portfolio management
to check the capital market performance.
To educate the investors :
Time to time, SEBI arranges scheduled workshops to educate the
investors.

25. Sources of Long Term Financing
1. Equity Shares
2. Preference Shares
3. Retaines earnings
4. Debentures or bonds
5. Loans form banks and financial
institutions
6. Venture capital financing
7. Lease financing

26. Equity shares
1. Which are not preference shares
2. Also called ordinary shares
and holders are real owners of the
company.
3. “A share is a share in the share capital of the
co.”
4. It can be issued at discount,
premium or at face value.

27. Features
1. No claim on income
2. No claim on assets
3. Right to control
4. Voting right
5. Pre-emptive right
6. Limited liability
7. Transfer of shares

28. Advantages
1. Source of fixed capital
2. No obligation for repayment
3. No charge on assets
4. Small nominal value such as Rs.10
5. Ideal for adventurous investors
6. Voting power
7. Right to new shares

29. Disadvantages
1. High risk
2. Due to pre-emptive right management of
the co. may be concentrated in few hands
3. No trading on equity

30. Preferance Shares
Enjoys preferential rights over equity shares in
- payment of dividend and
- repayment of capital

31. Features
1. Senior security compared to equity
shares
2. Dividend is not tax deductable
3. Fixed return
4. No voting right
5. No charge on assets
6. Flexible – redeemable and irredeemable
7. Sinking fund provision can be used

32. Types
1. Cummulative and non
cummulative
2. Participating and non participating
3. Redeemable and irredeemable
4. Convertable and non convertable

33. Advantages
1. Appeal to cautious investors – who seek
reasonable safety and return
2. No obligation for dividend
3. No interference in management
4. No charge on assets
5. Flexibility
6. Variety

34. Disadvantages
1. Fixed obligation
2. Limited appeal – not attractive to those who
wants higher return
3. Low return
4. No voting rights
5. Chances of redumption

36. Debentures
issued by a company under its seal as an
acknowledgement of debt.
Repayment is at winding up or maturity.
Reward is known as interest at fixed rate.
 A debenture is a certificate or document

37. Features
• Debentures represents borrowed capital
• Interest on debentures is payable on a fixed
rate
• Interest on debentures is an obligation to the
co.
• Debenture holders are creditors to the
company
• Debenture holders have no voting rights
• Debentures may involve a charge on assets of
the co.
• flexibility

38. Types of debentures
 Naked or simple and secured or mortgaged
 Redeemable and irredeemable
 Convertable and non convertable
 Registered and bearer debentures

39. Advantages
 No voting rights
 Fixed interest
 Debenture interest is an expense to the co.
 Can be redeemed
 Trading on equity is possible

40. Disadvantages
 Interest is an obligation to the company
 Creates a charge on company’s assets
 Common people can not buy debentures as
they are of high denominations

43. Rtained earnings
•All profits are not distributed to share holders
as dividend. A part of profit would be
reinvested in the business for growth and
expansion.
• The process of retaining profits year after year
and their utilization in the business is called
ploughing back of profit.
• It is economical method of financing – no cost

44. Necessity
 For replacing old assets
 For growth and expansion
 For redemtion of loans and debentures
 For contributing towards fixed
as well as working capital

45. Venture capital
 It is often used for growth and expansion of
new and young enterprises.
 Generally considered as high risky capital
 Venture capitalist will involve in
the management of the enterprise.
 They generally support to proven
technologies.

46. Features
 Equity participation
 Long term investment
 Participation in management

47. Process of venture financing
1. Deal origination – it is an active search for
financiers
2. Screening – initial evaluation of all
available venture capitalist
3. Risk analysis
4. Deal structuring – if both the parties are satisfied
they negotiate the terms of investment
5. Post investment activites – venturecapitalist
can act as an owner

48. Conditions of venture capital
According to Govt. of India
1. Total investment should not exceed 100
millions
2. New companies which incorporate some
significant improvement over the existing
one’s in India
3. Should have qualified professionals

49. Term loans
 A term loan is granted on the basis of a
formal agreement between the borrower and
the lending institution on the basis of an
asset as a security for a fixed period of time.
 In india commercial banks and specialized
financial institutions like IDBI (Industrial
Development Bank of India), ICICI, IFC, etc
are providing term loans.

50. Conditions of term loan lending
 An asset as a security
 Minimum working capital
 There will not be any additional debt
 Management should be effective

51. Lease financing
 A lease is a contract between a lessor ie
owner of the asset and the lessee, the user
of the asset.
 Owner gives the right to use the asset over
an agreed period of time for a consideration
called lease rental.
 Lessor is the legal owner and he can claim
the depreciation.

52. Types of lease
 Operating lease – short term cancellable lease are
called operating lease. Lessor is the responsible
person for insurance and maintenance.
 Financial lease – long term non-cancellable lease
is called financial lease. It is for the whole life period
of the asset. It will amortize the value of the asset
and therefore it is called capital or full pay out
lease.

53. Types of financial lease
1. Sale and lease back – the lessee sell an existing
asset to lessor and take back by lease agreement.
2. Leveraged lease – three parties involved –
lessor, lessee and a financier. Lessor meet 25%
of the cost of asset and balance by the financier.
3. Cross-boarder lease – also known as
international lease. Lessor and lessee situated in
two different countries. If the lessor, lessee and
manufacturer of asset are situated in three
countries, it is called foreign to foreign lease.

54. Advantages of lease financing

55. 1. Leasing provides 100% financing
 Lessee can avoid the payment for acquiring
asset and even if he has no suffient fund he
can acquire asset by paying lease rental. He
can use the fund for some other purposes.

56. 2. Leasing improves performance
 Lessee has to pay lease rental for the asset
which did not appeared in the balance sheet.
Naturally the performance of the lessee will
be improved.

57. 3. Leasing avoid cost of screening
 For a long term investment sreening of all
alternatives is an unavoidable part. But in
leasing it is the duty of the lessor and
therefore there is no such cost.

58. 4. Convenience and flexibility
 It is very cenvenient for lessee because
lessor will undertake all the requirements of
the asset.

59. 5. Maintenance and specialised service
 In leasing lessor will maintain the assets with
specialised services.

60. Limitations of leasing

61. 1. Costly option
 Leasing company is a financial intermediary
and he will charge heavy interest for lease
financing.

62. 2. Loss of tax
 Lessee can not claim depreciation in leasing
because he is not the actual owner.

63. 3. No ownership
 Leasing does not provide the advantages of
ownership to the user.

64. 4. Loss of residual value
 The leased asset has to be returned to the
lessor at the end of the lease period.

65. 5. Chances of double sales tax
 Depending on the prevailing sales tax laws in
various states, there are possibilities of
double sales tax, once at the time of sale and
again when the asset is leased out.

66. Merger and acquisition
 When two or more companies combined into one co. or one
or more companies may merge with another existing co.
 Two forms:
 Merger through absorption – combination of two or more
companies into an existing co. Except one all others will lose
their identity.
 Merger through consolidation – combination of two or
more companies into a new co. All companies legally
dissolved and a new entity is created.

75. Export finance

76. Export
• Export in simple words means selling goods
abroad. International market being a very
wide market, huge quantity of goods can be
sold in the form of exports.
• Export refers to outflow of goods and services
and inflow of foreign exchange.

77. Export Finance
•
•The exporter may require short term, medium term or
long term finance depending upon the types of goods to
be exported and the terms of statement offered to
overseas buyer.
•The short-term finance is required to meet “working
capital” needs. The working capital is used to meet
regular and recurring needs of a business firm. The
regular and recurring needs of a business firm refer to
purchase of raw material, payment of wages and
salaries, expenses like payment of rent, advertising etc.

78. • Export finance is short-term working capital finance
allowed to an exporter. Finance and credit are available
not only to help export production but also to sell to
overseas customers on credit.
• An exporter may avail financial assistance from
any bank, which considers the ensuing factors:
• Availability of the funds at the required time to the
exporter.
• Affordability of the cost of funds.
•
•

79. OBIECTIVES OF EXPORT FINANCE
• To cover commercial & Non-commercial or
political risks attendant on granting credit to a
foreign buyer.
• To cover natural risks like an earthquake, floods
etc.
• The exporter may also require “term finance”.
The term finance or term loans, which is required
for medium and long term financial needs such as
purchase of fixed assets and long term working
capital.

80. • APPRAISAL
• Appraisal means an approval of an export
credit proposal of an exporter. While
appraising an export credit proposal as a
commercial banker, obligation to the following
institutions or regulations needs to be
adhered to.

81. • Obligations to the RBI under the Exchange
Control Regulations are:
• Appraise to be the bank’s customer.
• Appraise should have the Exim code number
allotted by the Director General of Foreign
Trade.
• Party’s name should not appear under the
caution list of the RBI.

82. • Obligations to the Trade Control Authority under
the EXIM policy are:
• Appraise should have IEC number allotted by the
DGFT.
• Goods must be freely exportable i.e. not falling
under the negative list. If it falls under the
negative list, then a valid license should be there
which allows the goods to be exported.
• Country with whom the Appraise wants to trade
should not be

83. • The export finance is being classified into two
types viz.
• Pre-shipment finance.
• Post-shipment finance.

84. • PRE-SHIPMENT FINANCE
• MEANING:
• Pre-shipment is also referred as “packing
credit”. It is working capital finance provided
by commercial banks to the exporter prior to
shipment of goods. The finance required to
meet various expenses before shipment of
goods is

85. Definition for pre-shipment
• Financial assistance extended to the exporter
from the date of receipt of the export order
till the date of shipment is known as pre-
shipment credit. Such finance is extended to
an exporter for the purpose of procuring raw
materials, processing, packing, transporting,
warehousing of goods meant for exports.

86. •IMPORTANCE OF FINANCE AT PRE-SHIPMENT STAGE:
•To purchase raw material, and other inputs to manufacture goods.
•To assemble the goods in the case of merchant exporters.
•To store the goods in suitable warehouses till the goods are
shipped.
•To pay for packing, marking and labelling of goods.
•To pay for pre-shipment inspection charges.
•To import or purchase from the domestic market heavy machinery
and other capital goods to produce export goods.
•To pay for consultancy services.
•To pay for export documentation expenses.

87. FORMS OR METHODS OF PRE-SHIPMENT FINANCE:
• Cash Packing Credit Loan:
• In this type of credit, the bank normally grants packing
credit advantage initially on unsecured basis. Subsequently,
the bank may ask for security.
• Advance Against Hypothecation:
• Packing credit is given to process the goods for export. The
advance is given against security and the security remains
in the possession of the exporter. The exporter is required
to execute the hypothecation deed in favour of the bank.

88. • Advance Against Pledge:
• The bank provides packing credit against security. The
security remains in the possession of the bank. On
collection of export proceeds, the bank makes necessary
entries in the packing credit account of the exporter.
• Advance Against Red L/C:
• The Red L/C received from the importer authorizes the
local bank to grant advances to exporter to meet working
capital requirements relating to processing of goods for
exports. The issuing bank stands as a guarantor for packing
credit.

89. • Advance Against Back-To-Back L/C:
• The merchant exporter who is in possession of the original L/C may
request his bankers to issue Back-To-Back L/C against the security of
original L/C in favour of the sub-supplier. The sub-supplier thus gets
the Back-To-Bank L/C on the basis of which he can obtain packing
credit.
• Advance Against Exports Through Export Houses:
• Manufacturer, who exports through export houses or other
agencies can obtain packing credit, provided such manufacturer
submits an undertaking from the export houses that they have not
or will not avail of packing credit against the same transaction.

90. • Advance Against Duty Draw Back (DBK):
• DBK means refund of customs duties paid on the
import of raw materials, components, parts and
packing materials used in the export production. It also
includes a refund of central excise duties paid on
indigenous materials. Banks offer pre-shipment as well
as post-shipment advance against claims for DBK.
• Special Pre-Shipment Finance Schemes:
• Exim-Bank’s scheme for grant for Foreign Currency Pre-
Shipment Credit (FCPC) to exporters.
• Packing credit for Deemed exports.

91. SOME SCHEMES IN PRE-SHIPMENT
STAGE OF FINANCE
• . PACKING CREDIT
• SANCTION OF PACKING CREDIT ADVANCES:
• There are certain factors, which should be considered while sanctioning the
packing credit advances viz.
• Banks may relax norms for debt-equity ratio, margins etc but no compromise in
respect of viability of the proposal and integrity of the borrower.
• Satisfaction about the capacity of the execution of the orders within the stipulated
time and the management of the export business.
• Quantum of finance.
• Standing of credit opening bank if the exports are covered under letters of credit.
• Regulations, political and financial conditions of the buyer’s country.
•

92. • DISBURSEMENT OF PACKING CREDIT:
• After proper sanctioning of credit limits, the disbursing
branch should ensure:
• To inform ECGC the details of limit sanctioned in the
prescribed format within 30 days from the date of
sanction.
• To complete proper documentation and compliance of
the terms of sanction i.e. creation of mortgage etc.
• There should be an export order or a letter of credit
produced by the exporter on the basis of which
disbursements are normally allowed.

93. • In both the cases following particulars are to be
verified:
• Name of the Buyer.
• Commodity to be exported.
• Quantity.
• Value.
• Date of Shipment / Negotiation.
• Any other terms to be complied with.

94. FOREIGN CURRENCY PRE-SHIPMENT CREDIT (FCPC)
• The FCPC is available to exporting companies as well as commercial
banks for lending to the former.
• It is an additional window to rupee packing credit scheme &
available to cover both the domestic i.e. indigenous & imported
inputs. The exporter has two options to avail him of export finance.
• To avail him of pre-shipment credit in rupees & then the post
shipment credit either in rupees or in foreign currency
denominated credit or discounting /rediscounting of export bills.
• To avail of pre-shipment credit in foreign currency &
discounting/rediscounting of the export bills in foreign currency.

95. • 2.2 - POST-SHIPMENT FINANCE
• MEANING:
• Post shipment finance is provided to meet working capital
requirements after the actual shipment of goods. It bridges the
financial gap between the date of shipment and actual receipt of
payment from overseas buyer thereof. Whereas the finance
provided after shipment of goods is called post-shipment finance.
• DEFENITION:
• Credit facility extended to an exporter from the date of shipment of
goods till the realization of the export proceeds is called Post-
shipment Credit.

96. • IMPORTANCE OF FINANCE AT POST-SHIPMENT STAGE:
• To pay to agents/distributors and others for their services.
• To pay for publicity and advertising in the over seas markets.
• To pay for port authorities, customs and shipping agents charges.
• To pay towards export duty or tax, if any.
• To pay towards ECGC premium.
• To pay for freight and other shipping expenses.
• To pay towards marine insurance premium, under CIF contracts.
• To meet expenses in respect of after sale service.
• To pay towards such expenses regarding participation in exhibitions and
trade fairs in India and abroad.
• To pay for representatives abroad in connection with their stay board.

97. • FORMS/METHODS OF POST SHIPMENT FINANCE
• Export bills negotiated under L/C:
• The exporter can claim post-shipment finance by drawing bills or
drafts under L/C. The bank insists on necessary documents as
stated in the L/C. if all documents are in order, the bank negotiates
the bill and advance is granted to the exporter.
• Purchase of export bills drawn under confirmed contracts: The
banks may sanction advance against purchase or discount of export
bills drawn under confirmed contracts. If the L/C is not available as
security, the bank is totally dependent upon the credit worthiness
of the exporter.

98. • Advance against bills under collection: In this case, the
advance is granted against bills drawn under confirmed
export order L/C and which are sent for collection. They are
not purchased or discounted by the bank. However, this
form is not as popular as compared to advance purchase or
discounting of bills.
• Advance against claims of Duty Drawback (DBK): DBK
means refund of customs duties paid on the import of raw
materials, components, parts and packing materials used in
the export production. It also includes a refund of central
excise duties paid on indigenous materials. Banks offer pre-
shipment as well as post-shipment advance against claims
for DBK.

99. • Advance against goods sent on Consignment basis:
The bank may grant post-shipment finance against
goods sent on consignment basis.
• Advance against Undrawn Balance of Bills: There are
cases where bills are not drawn to the full invoice value
of gods. Certain amount is undrawn balance which is
due for payment after adjustments due to difference in
rates, weight, quality etc. banks offer advance against
such undrawn balances subject to a maximum of 5% of
the value of export and an undertaking is obtained to
surrender balance proceeds to the bank.

100. • Advance against Deemed Exports: Specified sales or supplies in India are
considered as exports and termed as “deemed exports”. It includes sales
to foreign tourists during their stay in India and supplies made in India to
IBRD/ IDA/ ADB aided projects. Credit is offered for a maximum of 30 days.
• Advance against Retention Money: In respect of certain export capital
goods and project exports, the importer retains a part of cost goods/
services towards guarantee of performance or completion of project.
Banks advance against retention money, which is payable within one year
from date of shipment.
• Advance against Deferred payments: In case of capital goods exports, the
exporter receives the amount from the importer in installments spread
over a period of time. The commercial bank together with EXIM bank do
offer advances at concessional rate of interest for 180 days.

101. • SOME SCHEMES UNDER OPERATION IN PRE-SHIPMENT
FINANCE
• DEFERRED CREDIT
• Meaning:
• Consumer goods are normally sold on short term credit,
normally for a period upto 180 days. However, there are
cases, especially, in the case of export of capital goods and
technological services; the credit period may extend
beyond 180 days. Such exports were longer credit terms
(beyond 180 days) is allowed by the exporter is called as
“deferred credit” or “deferred payment terms”.

102. •How the payment is received?
•The payment of goods sold on “deferred payment terms” is
received partly by way of advance or down payment, and the balance
being payable in installments spread over a period of time.
•Period of financial credit support:
•Financial institutions extend credit for goods sold on “deferred
payment terms” (subject to approval from RBI, if required). The credit
extended for financing such deferred payment exports is known as
Medium Term and Long Term Credit. The medium credit
facilities are provided by the commercial banks together with EXIM
Bank for a period upto 5 years. The long term credit is offered
normally between 5 yrs to 12 yrs, and it is provided by EXIM Bank.

103. • Amount of credit support:
• Any loan upto Rs.10crore for financing export of
capital goods on deferred payment terms is
sanctioned by the commercial bank which can
refinance itself from Exim bank. In case of
contracts above Rs.10 Lakhs but not more than
Rs50crore, the EXIM Bank has the authority to
decide whether export finance could be provided.
Contracts above Rs.50crore need the clearance
from the working group on Export Finance.

104. • FINANCE FOR RUPEE EXPENDITURE FOR PROJECT EXPORT
CONTRACTS (FREPEC)
• What is FREPEC Program?
• This program seeks to Finance Rupee Expenditure for
Project Export Contracts, incurred by Indian companies.
• What is the purpose of this Credit?
• To enable Indian project exporters to meet Rupee
expenditure incurred/required to be incurred for execution
of overseas project export contracts such as for
acquisition/purchase/acquisition of materials and
equipment, acquisition of personnel, payments to be made
in India to staff, sub-contractors, consultants and to meet
project related overheads in Indian Rupees.

105. • Who are eligible for Assistance under FREPEC Program?
Indian project exporters who are to execute project export
contracts overseas secure on cash payment terms or those funded
by multilateral agencies will be eligible. The purpose of the new
lending program is to give boost to project export efforts of
companies with good track record and sound financials.
• What is the quantum of credit extended under this program?
Up to 100% of the peak deficit as reflected in the Rupee cash flow
statement prepared for the project. Exim Bank will not normally
take up cases involving credit requirement below Rs. 50 lakhs.
Although, no maximum amount of credit is being proposed, while
approving overall credit limit, credit-worthiness of the exporter-
borrower would be taken into account. Where feasible, credit may
be extended in participation with sponsoring commercial banks.

106. • How are Disbursements made under this Program?
• Disbursements will made in Rupees through a bank account
of the borrower-company against documentary evidence of
expenditure incurred accompanied by a certificate of
Chartered Accountants.
• How is a FREPEC Loan to be extinguished?
• Repayment of credit would normally be out of project
receipts. Period of repayment would depend upon the
project cash flow statements, but will not exceed 4 (four)
years from the effective date of project export contract.
The liability of the borrower to repay the credit and pay
interest and other monies will be absolute and will not be
dependent upon actual realization of project bills.

107. • What is the security stipulated for FREPEC loan?
• Hypothecation of project receivables and project
movables.
• Optional: where available
• Personal Guarantees of Directors of the Company.
• Available collateral security.