VAT registration

Your business may be required to register for VAT if it meets certain criteria. It can also be beneficial for some businesses to register for VAT even if they are not required to.Kate Fisher of CJ Fisher & Co explains the circumstances under which your business should be VAT registered

When does a business need to be VAT registered?

A business must register to pay VAT when the value of its taxable supplies exceeds the registration threshold (79,000 per annum in 2013/14).

If my turnover is below the threshold, might it still be wise to be VAT registered?

Yes, if you make all or the overwhelming majority of your sales to VAT-registered businesses, because you will be able to reclaim VAT on any business expenses you incur. Voluntary registration is the term given to becoming VAT registered even though your turnover is below the registration threshold.

What does the registration process involve?

You will need to complete a VAT application form, which is available from HM Revenue & Customs (HMRC). This can be completed online or you can fill out a paper copy and send it back to HMRC. There is no charge for completing the form. Once registered, you will then have to complete quarterly VAT returns online - regardless of how you originally registered.

When do I need to register?

You need to register if at the end of any month, the value of your taxable supplies in the previous 12 months or less exceeds the registration threshold, or if at any time you expect the value of your taxable supplies in the next 30 days alone to exceed the registration threshold.

Currently, my turnover is too low, but if it looks like I'll exceed the threshold next year...
As Ive said, it can be beneficial if you make all or most of your sales to VAT-registered businesses, because you can reclaim VAT on any business expenses you incur.

If Ive only just gone over the threshold, but I won't exceed it next year, can I argue my case with HMRC?
If you can provide evidence and explain why the value of your taxable supplies will not go over the de-registration threshold (77,000 in 2013/14) in the next 12 months, you may not have to register. However, you still have to inform HMRC National Registration Service that you have reached the limit.

Can I reclaim VAT on business purchases before I registered?

Subject to certain conditions, you can reclaim any VAT you incurred before you registered. This would include VAT on goods you bought for your business within the past three years and which you have not yet sold; and VAT on any services you received not more than six months before your date of registration

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WHO HAS TO BE REGISTERED FOR VAT? Any dealer conducting a business or intending to conduct a business may apply to be registered for VAT. However all persons conducting a business must register for VAT from the date they commence business if they believe their taxable turnover will exceed a threshold of Rs.40 lakhs in 12 consecutive calendar months. All dealers must register for VAT if their taxable turnover exceeds Rs.10 lakhs for the preceding three consecutive calendar months. Regardless of their taxable turnover the following dealers must register for VAT at the commencement of their business: Every dealer importing goods in the course of business from outside the territory of India; Every person residing outside the State but carrying on business within the State; Every dealer registered or liable to be registered under the Central Sales Tax Act 1956, or any dealer making purchases or sales in the course of inter-state trade or commerce or dispatches any goods to a place outside the State otherwise than by way of sale; Every dealer liable to pay tax at Special rates specified in Schedule VI of the AP VAT Act 2005; Every commission agent, broker, del credere agent, auctioneer or any other mercantile agent by whatever name called, who carries on the business of buying, selling, supplying or distributing goods on behalf of his non-resident principal; Every person availing an industrial incentive in the form of a tax holiday or tax deferment; Every dealer executing any works contract exceeding Rs 5 lakhs for the State Govt. or a local authority and any dealer executing works contracts and opting to pay tax by way of composition.
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CAN I APPLY FOR VOLUNTARY REGISTRATION? Yes. However, your activities must constitute a business for VAT purposes and you will be required to meet the conditions laid down in the AP VAT Act 2005. WHEN DO I BECOME LIABLE TO REGISTER FOR VAT? If you are in business in the categories listed in the Answer to the Question 1 above, you must register prior to the commencement of your business. For other businesses, if you are commencing a business and expect your taxable turnover to exceed, in 12 consecutive calendar months Rs.40 lakhs you must register for VAT at the commencement of the business. If you intend to make inter-state purchases or sales or intend to dispatch goods outside the State other than by way of sale, then you must apply for VAT registration before applying for CST registration.

Other dealers have to consider their taxable turnover for the preceding 3 months and preceding 12 months. If during the past 3 months their taxable turnover exceeded Rs.10 lakhs, or exceeded Rs. 40 lakhs in the past 12 months, they must apply for VAT registration by the 15th of the following month. Illustration: If your taxable sales exceeded Rs.10 lakhs during the preceding 3 months ending August 2005 say on 25.08.2005, your liability to be registered as VAT dealer arises at the end of August 2005. The time to apply for VAT registration in this case is on or before 15.09.2005. You will be registered with effect from 01.10.2005.This is the date from which you are liable to charge and pay VAT. For the earlier period i.e., before 1.10.2005, you are liable for TOT.
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HOW DO I CALCULATE MY TAXABLE TURNOVER? Your taxable turnover is calculated on an ongoing basis. You should calculate at the end of each month the total value of taxable goods sold for the preceding three months. Where the total exceeds Rs.10 lakhs you are required to apply for VAT registration. You should also see whether your taxable turnover for the preceding twelve months exceeds Rs.40 lakhs. If it exceeds Rs.40 lakhs you are required to apply for VAT registration. WHAT FACTORS DO I HAVE TO CONSIDER IN DECIDING WHETHER TO APPLY FOR VOLUNTARY VAT REGISTRATION? In considering whether you should register voluntarily for VAT, you should ask yourself these questions: a. Do I make taxable sales to other VAT dealers ? If you are not registered for VAT you cannot issue tax invoices on which your customer VAT dealer can claim credit for the tax. Your customer will therefore have to charge a higher price for his sales if he cannot claim a credit for the VAT. In this case he might choose to trade with another VAT dealer and you would lose business. b. Do I trade, principally with non-VAT dealers/consumers ? In this case it is likely to be in your interest

not

to

register

for

VAT.

c. What are the obligations of VAT registration ? Once registered, you will have to account for output tax that is attributable to your taxable sales. You will also have to submit VAT returns monthly to the Commercial Taxes Department and keep proper books of accounts. If you decide to register voluntarily, the Law requires that you must remain registered for VAT for a period of 24 months regardless of your taxable turnover. d. Is my input tax credit likely to exceed the tax on the sales I make? In this case you will benefit from

VAT

registration.
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IF I WANT TO REGISTER VOLUNTARILY, CAN THE COMMERCIAL TAXES DEPARTMENT REFUSE TO REGISTER ME? Voluntary registration can be refused for one or more of the following reasons when an applicant: Has no taxable sales; Has no fixed place of business; Does not keep proper accounting records; Has not provided details of a bank account with any bank;

Has arrears outstanding under APGST Act 1957 or CST Act 1956 or AP VAT Act 2005; Is not able to establish his identity. Where the Commercial Taxes Department refuses an application for voluntary registration, the applicant has the right to raise an objection and to pursue the issue to a formal appeal. WHEN I REGISTER FOR VAT CAN I CLAIM A CREDIT FOR VAT I HAVE PAID ON MY GOODS IN STOCK AT THE TIME OF REGISTRATION ? Yes. However to obtain this credit you must comply with the following conditions: The goods, including capital goods must be on hand on the date of effective registration notified on your VAT Certificate of Registration. The goods must have been purchased within the three months preceding the date of effective registration. The goods must have been purchased from a VAT dealer and you must have an invoice (not a tax invoice) from a VAT dealer with his TIN on the invoice. You must take inventory within 7 days of the date of effective registration. YOU CANNOT CLAIM A CREDIT FOR TOT OR CST INCURRED BEFORE VAT REGISTRATION.
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HOW DO I REGISTER FOR VAT? 1 2 Click here to Download VAT 100 Fill up Form VAT 100: Important Guidelines a b c d e f g h i j 3 4 5 6 7 Sl. No. 1 to 5: Self explanatory Sl. No. 6: Indicate major business activities not exceeding 5 Sl.No.7: Indicate major commodities to be traded not exceeding 5 Sl. No. 8 and 9: Self explanatory Sl. No. 10: Use Form VAT 100A for giving address of additional place of business if needed Sl. No.11: Use Form VAT 100B for giving details of owners, Partners, Directors if needed Sl. No. 12 to 13: Self explanatory Sl. No. 14: Indicate likely date of first sale transaction Sl. No. 15 to 23: Self explanatory Sl. No. 24: Indicate here any other information which is not covered up to Sl. No. 23.

Click here to download VAT Form 100A if needed a. Sl. No. 1 to 3: Self explanatory Click here to download VAT Form 100B if needed a. Sl. No. 1 to 9 : Self Explanatory Paste Photo at assigned places Sign the applications Enclose following Documents a b Evidence of ownership over business premises or Self attested copy of Rent/lease agreement (Registered) if property is taken on Rent/lease. In case of unregistered agreement, you can pay Document Registration Fee at CTO office also through Challan. Self attested copy of latest Electricity Bill of Business premises in support of Electricity

connection to business premises. d e At least One Evidence of proof of residence of Sole Proprietor, Person responsible, Directors, Partners: Self attested. EPIC Card, Passport, Driving License, Bank Statement, Telephone Bill, Electricity Bill, Photo Identity Card issued by Government, Public Sector, Recognized Educational Institution, Public Ltd Company, Copy of Bye Laws of Company, Partnership Firm, Society, Trust if applicable, Bank Statement for proof of Bank Account Number Photo Copy of PAN card

f g h

HOW DO I REGISTER FOR CST? For getting registered under CST ACT prior registration under VAT is mandatory. The dealers who are registered under VAT can apply for CST registration in form CST A (Application for CST registration), which is obtainable from your Tax Office. The form to apply for Registration CST A is also available on the wesite of the CTD. You must fill in this form and submit it to the Tax Office. WHEN DO I START TO CHARGE VAT? You should start keeping VAT records and charging VAT to your customers from the date notified to you by the Commercial Taxes Department. This will be the date shown as the effective date of your registration on your Certificate of Registration. You will have to account for VAT from that date.
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Finance Human Resources

Forms of financial assistance from various funding institutions Financial institutions can be broadly classified into national financial institutions and state level

institutions. Some schemes of the national institutions are administered through the state level institutio Information Technology
Manufacturing Marketing Strategic Management

National financial institutions cater mostly to large and medium industries. Small-scale industries get assistance, largely from state level institutions. All India Institutions

Industrial Finance Corporation of India (IFCI) Industrial Credit and Investment Corporation of India (ICICI) Industrial Development Bank of India (IDBI) Life Insurance Corporation of India (LIC) General Insurance Corporation of India (GIC) Unit Trust of India (UTI) Industrial Investment Bank of India (IIBI) (formerly known as Industrial Reconstruction Ba India (IRBI)) The Export-Import Bank of India (EXIM Bank)

State level Institutions

State Financial Corporations (SFCs) State Industrial Development Corporations (SIDCs)

Forms of Assistance

The forms of assistance can be broadly classified into direct assistance and indirect assistance. The feature of direct assistance is that financial institutions provide funds directly to the project, wherea indirect assistance, the financial institutions provide guarantees on behalf of the promoter(s) of the project. Direct assistance Fund based assistance

In this kind of assistance, term loans are provided in both rupees and in foreign currency. Apart fro this, funds are provided by subscription to the equity shares of the company.

Rupee term loans

Rupee term loans are extended for site, construction, factory and other buildings; purchase of plan machinery, as well as, for technical know how, preliminary and pre-operative expenses, and margi money for working capital. Generally, the repayment period is five to fifteen years with an initial moratorium of six months.

Foreign currency term loans

Institutions provide term loans in foreign currency to fund the acquisition of fixed assets like plant machinery, as well as to acquire technical know how from foreign suppliers. Institutions generally a for a first charge on the assets financed by them, and on all other fixed assets of the borrower, to secure the loans.

Subscription to Equity Shares

This form of assistance is available to the project only when institutions are sure that the project is able to take any more debt, although the proposed venture is worthwhile. It is often a very small p the project cost.

Seed Capital Assistance

This form of assistance is provided by national financial institutions through the State Finance Corporations (SFCs) and the State Industrial Development Corporations (SIDCs). All borrowers hav submit their proposals, through their respective SFCs and SIDCs. This assistance carries interest as as one percent, and can be payable on easy terms, subject to the applicability of certain conditions

Risk capital assistance

Risk capital assistance is almost the same as seed capital assistance. It is offered by the IFCI throu society formed under the Society Registration Act. Loans under this scheme are generally interest f and range between Rs. 15-40 lakhs, depending on the number of the promoters and the cost of the project. Indirect Assistance

Deferred Payment Guarantee

Financial institutions provide this deferred credit facility to the equipment suppliers on behalf of the clients and charge guarantee commission to the client. Guarantee is provided for the purchase of b indigenous and imported equipment. Most scheduled banks and co-operative banks provide this fac

Guarantee for Foreign Currency Loans

This kind of guarantee is provided to the client as raised term loans from overseas market, directly Institutions stand guarantee to the borrower, who is yet to establish him in the overseas market or not have high credit standing.

Underwriting

Institutions usually underwrite the public issue of those clients, who have invested in the project co through term loans.

Bill Rediscounting Scheme

This scheme has been introduced by IDBI to help domestic producers and dealers of capital goods. Under this scheme, deferred payment facility is available for the purchase of machinery in all categ forms of businesses such as proprietary concerns, partnerships, private and public companies, cooperative societies and corporations.

Suppliers Line of Credit

This scheme has been floated by ICICI to enable domestic manufacturers and dealers increase thei sales by offering deferred credit to their buyers. This scheme is similar to the Bill Rediscounting Sch of IDBI.

Equipment Finance Scheme

This scheme has been offered by the two institutions- IDBI and IFCI. They provide assistance to ex units to acquire indigenous/imported equipment.
Introduction | Contents Feedback or Comments?

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Designed and Maintained by C & K Management Limited Copyright 2003 C & K Management Limited Forms of financial assistance from various funding institutions Financial institutions can be broadly classified into national financial institutions and state level institutions. Some schemes of the national institutions are administered through the state level institutions. National financial institutions cater mostly to large and medium industries. Small-scale industries get assistance, largely from state level institutions. All India Institutions

Industrial Finance Corporation of India (IFCI) Industrial Credit and Investment Corporation of India (ICICI) Industrial Development Bank of India (IDBI) Life Insurance Corporation of India (LIC) General Insurance Corporation of India (GIC)

Unit Trust of India (UTI) Industrial Investment Bank of India (IIBI) (formerly known as Industrial Reconstruction Bank of India (IRBI)) The Export-Import Bank of India (EXIM Bank)

State level Institutions

State Financial Corporations (SFCs) State Industrial Development Corporations (SIDCs)

Forms of Assistance The forms of assistance can be broadly classified into direct assistance and indirect assistance. The basic feature of direct assistance is that financial institutions provide funds directly to the project, whereas, in indirect assistance, the financial institutions provide guarantees on behalf of the promoter(s) of the project. Direct assistance Fund based assistance In this kind of assistance, term loans are provided in both rupees and in foreign currency. Apart from this, funds are provided by subscription to the equity shares of the company.

Rupee term loans

Rupee term loans are extended for site, construction, factory and other buildings; purchase of plant and machinery, as well as, for technical know how, preliminary and pre-operative expenses, and margin money for working capital. Generally, the repayment period is five to fifteen years with an initial moratorium of six months.

Foreign currency term loans

Institutions provide term loans in foreign currency to fund the acquisition of fixed assets like plant and machinery, as well as to acquire technical know how from foreign suppliers. Institutions generally ask for a first charge on the assets financed by them, and on all other fixed assets of the borrower, to secure the loans.

Subscription to Equity Shares

This form of assistance is available to the project only when institutions are sure that the project is not able to take any more debt, although the proposed venture is worthwhile. It is often a very small part of the project cost.

Seed Capital Assistance

This form of assistance is provided by national financial institutions through the State Finance Corporations (SFCs) and the State Industrial Development Corporations (SIDCs). All borrowers have to submit their proposals, through their respective SFCs and SIDCs. This assistance carries interest as low as one percent, and can be payable on easy terms, subject to the applicability of certain conditions.

Risk capital assistance

Risk capital assistance is almost the same as seed capital assistance. It is offered by the IFCI through a society formed under the Society Registration Act. Loans under this scheme are generally interest free and range between Rs. 15-40 lakhs, depending on the number of the promoters and the cost of the project.

Indirect Assistance

Deferred Payment Guarantee

Financial institutions provide this deferred credit facility to the equipment suppliers on behalf of their clients and charge guarantee commission to the client. Guarantee is provided for the purchase of both indigenous and imported equipment. Most scheduled banks and co-operative banks provide this facility.

Guarantee for Foreign Currency Loans

This kind of guarantee is provided to the client as raised term loans from overseas market, directly. Institutions stand guarantee to the borrower, who is yet to establish him in the overseas market or does not have high credit standing.

Underwriting

Institutions usually underwrite the public issue of those clients, who have invested in the project cost, through term loans.

Bill Rediscounting Scheme

This scheme has been introduced by IDBI to help domestic producers and dealers of capital goods. Under this scheme, deferred payment facility is available for the purchase of machinery in all categories forms of businesses such as proprietary concerns, partnerships, private and public companies, co-operative societies and corporations.

Suppliers Line of Credit

This scheme has been floated by ICICI to enable domestic manufacturers and dealers increase their sales by offering deferred credit to their buyers. This scheme is similar to the Bill Rediscounting Scheme of IDBI.

Equipment Finance Scheme

This scheme has been offered by the two institutions- IDBI and IFCI. They provide assistance to existing units to acquire indigenous/imported equipment.

Financial institution
From Wikipedia, the free encyclopedia

Finance

Financial markets[show]

Financial instruments[show]

Corporate finance[show]

Personal finance[show]

Public finance[show]

Banks and banking[show]

Financial regulation[show]

Standards[show]

Economic history[show]

V T E

In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the greatest important financial service provided by financial institutions is acting as financial intermediaries. Most financial institutions are regulated by thegovernment. Broadly speaking, there are three major types of financial institutions:[1][2] 1. Depositary Institutions : Deposit-taking institutions that accept and manage deposits and make loans, including banks, building societies, credit unions, trust companies, andmortgage loan companies 2. Contractual Institutions : Insurance companies and pension funds; and 3. Investment Institutions : Investment Banks, underwriters, brokerage firms. Some experts see a tendency of global homogenisation of financial institutions, which means that institutions tend to invest in similar areas and have similar investment strategies. The reason for this tendency sees economist Jayati Gosh in financial deregulation. Consequences might be that there will be no banks that serve specific target groups and e.g. small scale producers are left behind.[3]
Contents

[hide]

1 Function 2 Standard settlement instructions 3 Regulation 4 See also 5 References 6 External links

Function[edit]
Financial institutions provide service as intermediaries of financial markets. They are responsible for transferring funds from investors to companies in need of those funds. Financial institutions facilitate the flow of money through the economy.

Standard settlement instructions[edit]

Standard Settlement Instructions (SSIs) are the agreements between two financial institutions which fix the receiving agents of eachcounterparty in ordinary trades of some type. These agreements allow traders to make faster trades since time used to settle the receiving agents is conserved. Limiting the trader to an SSI also lowers the likelihood of a fraud.

Regulation[edit]
See also: Financial regulation Financial institutions in most countries operate in a heavily regulated environment as they are critical parts of countries' economies. Regulation structures differ in each country, but typically involve prudential regulation as well as consumer protection and market stability. Some countries have one consolidated agency that regulates all financial institutions while others have separate agencies for different types of institutions such as banks, insurance companies and brokers. Countries that have separate agencies include the United States, where the key governing bodies are the Federal Financial Institutions Examination Council (FFIEC), Office of the Comptroller of the Currency National Banks, Federal Deposit Insurance Corporation (FDIC) State "non-member" banks, National Credit Union Administration (NCUA) - Credit Unions, Federal Reserve (Fed) - "member" Banks,Office of Thrift Supervision - National Savings & Loan Association, State governments each often regulate and charter financial institutions.

Countries that have one consolidated financial regulator include: Norway with the Financial Supervisory Authority of Norway, Hong Kong with Hong Kong Monetary Authority and Russia with Central Bank of Russia. See also List of financial regulatory authorities by country.

See also[edit]

Bank Consumer Credit Act 1974 (UK law) Credit union Financial economics Fractional-reserve banking Full-reserve banking International financial institutions Non-bank financial institution Savings and loan association Society for Worldwide Interbank Financial Telecommunication

References[edit]
1. Jump up^ Siklos, Pierre (2001). Money, Banking, and Financial Institutions: Canada in the Global Environment. Toronto: McGraw-Hill Ryerson. p. 40. ISBN 0-07-087158-2. 2. Jump up^ Robert E. Wright and Vincenzo Quadrini. Money and Banking: Chapter 2 Section 5: Financial Intermediaries.[1] Accessed July 24, 2012 3. Jump up^ Jayati Gosh (January 2013). "Too much of the same". D+C Development and Cooperation/ dandc.eu.

External links[edit]

Council on Foreign Relations, IIGG Interactive Guide to Global Finance

Categories: Financial institutions Financial services

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Financial Instituions
Public Sector Private Sector Foreign Banks Background HOME PAGE

NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT (NABARD) NABARD, an apex development bank, was set up on the recommendations of CRAFICARD Committee on July 12, 1982 under NABARD Act 1981 with a capital of Rs.100 crore contributed by Central Govt. and RBI, with its main office in Mumbai, by merging the Agriculture Credit Deptt and Rural Planning and Credit Cell of RBI and took over the entire functions of Agriculture Refinance and Development Corporation (ARDC). NABARD is managed by Board of Directors consisting of Chairman, Managing Director other directors. NABARD raises funds through National Rural Credit - Long Term operations, National Rural Credit-Establishment fund, through bonds and debentures guaranteed by Central Govt, borrowing from RBI, Central Govt. or any other organisation approved by Central Govt and funds from external sources. It credit functions include providing credit to agriculture, small and village and cottage industries through banks by way of refinance facilities to commercial banks, RRBs, Coop Banks, Land Development Banks and other Financial Institutions like KVIC. Its developmental functions are co-ordination of various institutions, acting as agent of Govt. and RBI, providing training and research facilities. The regulatory functions include inspection of RRBs and Coop Banks, receipt of returns and making of recommendations for opening new branches. EXPORT IMPORT BANK OF INDIA It is apex institution for co-ordinating the working of institutions in India engaged in financing exports and import of goods and services. With initial authorized capital of Rs. 200 crore (increased to Rs.500 and then to Rs.2000 crore) Exim Bank was established on Jan 01, 1982 (and started functioning wef March 01, 1982) under Export Import Bank of India Act 1982, which took over the export finance activities of IDBI. It raises funds by way of bonds and debentures, borrowing from RBI or other institutions, raising foreign deposits.

It undertakes following kind of functions: -direct finance to exporter of goods. -direct finance to software exports and consultancy services. -finance for overseas joint ventures and turnkey construction project -finance for import and export of machinery and equipment on lease basis -finance for deferred payment facility -issue of guarantees -multi-currency financing facility to project exporters. -export bills re-discounting -refinance to commercial banks in India -guaranteeing the obligations.

SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI) SIDBI was established under SIDBI Act 1988 and commenced its operations wef April 02, 1990 with head quarters in Lucknow and branches all over the country, as a subsidiary of IDBI. It took over the IDBI business relating to small scale industries including National Equity Scheme and Small Inds Development fund. The objective of establishment of SIDBI, in particular, is to strengthen and broad-base the existing institutional arrangement to meet the requirement of SSI and tiny industries. Its functions include: -administration of SIDF and NEF for development and equity support to small and tiny industry. -providing working capital through single window scheme -providing refinance support to banks/development finance institutions. -undertaking direct financing of SSI units. -coordination of functions of various institutions engaged in finance to SSI and tiny units.

NATIONAL HOUSING BANK (NHB) NHB, the apex bank for Housing, was established on July 09, 1988 under NHB Act 1987, as a wholly owned subsidiary of RBI with head quarters in New Delhi. The bank was set up with the main purpose of setting up of an institution to operate as a principal agency to promote housing finance institutions and to provide financial and other support to these institutions. NHB can raise sources by issue of bonds and debentures, borrowing from RBI under short term loans and long term operations, borrowing from Central govt and other approved institutions. Its functions are: -promotion and development of housing finance institutions. -refinance to banks and other housing finance institutions for credit facilities granted by them for housing. -inspection of books of accounts of housing finance institutions -technical, administrative and advisory assistance to housing finance institutions. -providing underwriting and guarantee facilities to housing finance institutions. -arranging financing and resources for institutions engaged in housing facilities. -advising Central and other govt. in the matter of housing and housing finance. -collection and publication of information and data relating to housing finance. -maintaining control over corporate housing finance institutions. INDUSTRIAL INVESTMENT BANK OF INDIA (formerly IRBI) IIBI was initially set up as Industrial Reconstruction Corporation Limited during 1971 when it was renamed Indl Reconstruction bank of India wef Mar 20, 1985 under IRBI Act 1984 to take over

the function of IRC. During 1997 the bank was converted to a joint stock company by naming it Industrial Investment Bank of India. Its earlier functions were to provide finance for industrial rehabilitation and revival of sick industrial units by way of rationalisation, expansion, diversification and modernisation and also to coordinate the work of other institutions for this purpose. agricultural and rural requirements. INDUSTRIAL FINANCE CORPORATION OF INDIA Ltd (IFCI) IFCI was established under IFCI Act 1948 during July 1948 as Indias first development bank. The main objective for which IFCI was established, are to make medium and long term credit available to the industrial undertakings and to assist them in creation of industrial facilities. Its functions include: -direct financial support (by way of rupee term loans as well as foreign currency loans) to industrial units for undertaking new projects, expansion, modernisation, diversification etc. -subscription and underwriting of public issues of shares and debentures. -guaranteeing of foreign currency loans and also deferred payment guarantees. -merchant banking, leasing and equipment finance During 1994, IFCI was converted into a joint-stock company and came out with a public issue of shares. It is managed by a Board of Directors. It floated institutions such as TFCI, ICRA etc. INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA (ICICI) ICICI was set up during 1955 as a private company with a view to provide support to industry in India by way of rupee and foreign currency loans, particularly the private international investment and World Bank funds to assist the industry in the country in private sector. It functions include: -assistance to industrial undertakings for new projects, expansion, modernisation, diversification etc. in the shape of rupee loans or foreign currency loans. -subscription and underwriting of capital issues -guaranteeing the payment for credits. -merchant banking, equipment leasing and project counselling. It floated a number of institutions successfully which include credit rating agency CRISIL, ICICI Banking Corporation, SCICI (since merged with it) a Mutual Fund etc. During Sept 1998 it changed its name to ICICI Ltd. Of late, it has started providing working capital support to industrial undertakings. INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI) IDBI is the apex institution in the area of long term industrial finance. It was established under the IDBI Act 1964 as a wholly owned subsidiary of RBI and started functioning on July 01, 1964. Under Public Financial Institutions Laws (Amendment) Act 1976, it was delinked from RBI. IDBI is engaged in direct financing of the industrial activities as well as in re-finance and re-discounting of bills against finance made available by commercial banks under their various schemes. The objectives of this institution are to create a principal institution for long term finance, to coordinate the institutions working in this field for planned development of industrial sector, to provide technical and administrative support to the industries and to conduct research and development activities for the benefit of industrial sector. It raises funds by way of market borrowing by way of bonds and deposits, borrowing from Govt. and RBI, borrowing abroad in foreign currency and lines of credit. Its functions include:

-direct loans (rupee as well as foreign currency) to industrial undertakings as defined in the Act to finance their new projects, expansion, modernisation etc. -soft loans for various purposes including modernisation and under equipment finance scheme -underwriting and direct subscription to shares/debentures of the industrial companies. -sanction of foreign currency loans for import of equipment or capital goods. -short term working capital loans to the corporates for meeting their working capital requirements. -refinance to banks and other institutions against loans granted by them. Of late, with the reforms in the financial sector, IDBI has taken steps to re-shape its role from a development finance institution to a commercial institution. It has floated its own bank IDBI Bank as also a Mutual Fund. During the financial year 1999-2000 IDBIs total sanctions were Rs.28308 cr (19.2% increase), the total assets were Rs.72169 cr, net worth at Rs.9025 cr, capital adequacy ratio of 14.5%, DER 6.8:1 and PBT Rs.1027 cr (1301 cr previous years). To meet emerging challanges, it has been introducing new products, setting up Mergers & Acquistions Divn, increasing fee based business such as corporate advisory services, credit syndication, debenture-trushtee ship etc., setting up of IT sector subsidiary-IDBI Intech Ltd, venture capital fund, joint ventures and transfer of not less than 51% of IDBIs share capital in SIDBI to PSBs as a result of SIDBI (Amendment) Act 2000 effective from 27.03.2000.

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Credit analysis
From Wikipedia, the free encyclopedia

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Credit analysis is the method by which one calculates the creditworthiness of a business or organization. In other words, It is the evaluation of the ability of a company to honor its financial obligations. The audited financial statements of a large company might be analyzed when it issues or has issued bonds. Or, a bank may analyze the financial statements of a small business before making or renewing a commercial loan. The term refers to either case, whether the business is large or small. The objective of credit analysis is to look at both the borrower and the lending facility being proposed and to assign a risk rating. The risk rating is derived by estimating the probability of default by the borrower at a given

confidence level over the life of the facility, and by estimating the amount of loss that the lender would suffer in the event of default Credit analysis involves a wide variety of financial analysis techniques, including ratio and trend analysis as well as the creation of projections and a detailed analysis of cash flows. Credit analysis also includes an examination of collateral and other sources of repayment as well as credit history and management ability. Analysts attempt to predict the probability that a borrower will default on its debts, and also the severity of losses in the event of default. Credit spreadsthe difference in interest rates between theoretically "risk-free" investments such as U.S. treasuries or LIBOR and investments that carry some risk of default reflect credit analysis by financial market participants.[1] Before approving a commercial loan, a bank will look at all of these factors with the primary emphasis being the cash flow of the borrower. A typical measurement of repayment ability is the debt service coverage ratio. A credit analyst at a bank will measure the cash generated by a business (before interest expense and excluding depreciation and any other non-cash or extraordinary expenses). The debt service coverage ratio divides this cash flow amount by the debt service (both principal and interest payments on all loans) that will be required to be met. Commercial Bankers like to see debt service coverage of at least 120 percent. In other words, the debt service coverage ratio should be 1.2 or higher to show that an extra cushion exists and that the business can afford its debt requirements.
Contents
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1 Classic credit analysis 2 Credit scoring systems 3 Education and training 4 References

Classic credit analysis[edit]

Traditionally most banks have relied on subjective judgment to assess the credit risk of a corporate borrower. Essentially, bankers used information on various borrower characteristics such as character (reputation), capital (leverage), capacity (volatility of earnings), andcollateral in deciding whether or not to make a given loan. Developing this type of expert system is time-consuming and expensive. That is why, from time to time, banks have tried to clone their decision-making process. Even so, in the granting of credit to corporate customers, many banks continue to rely primarily on their traditional expert system for evaluating potential borrowers.

Credit scoring systems[edit]

In recent decades, a number of objective, quantitative systems for scoring credits have been developed. In univariate (one variable)accounting-based credit-scoring systems, the credit analyst compares various key accounting ratios of potential borrowers with industry or group norms and trends in these variables. Today, Standard & Poor's, Moody's, and Risk Management Association can all provide banks with industry ratios. The univariate approach enables an analyst starting an inquiry to determine whether a particular ratio for a potential borrower differs markedly from the norm for its industry. In reality, however, the unsatisfactory level of one ratio is frequently mitigated by the strength of some other measure. A firm, for example, may have a poor profitability ratio but an above-average liquidity ratio. One limitation of the univariate approach is the difficulty of making trade-offs between such weak and strong ratios. Of course, a good credit analyst can make these adjustments. However, some univariate measures such as the specific industry group, public versus private company, and region are categorical rather than ratio-level values. It is more difficult to make judgments about variables of this type. Although univariate models are still in use today in many banks, most academics and an increasing number of practitioners seem to disapprove of ratio analysis as a means of assessing the performance of a business enterprise. Many respected theorists downgrade the arbitrary rules of thumb (such as company ratio comparisons) that are widely used by practitioners and favor instead the application of more rigorous statistical techniques.

Education and training[edit]

Typical education credentials often require a bachelor degree in business, statistics, accounting (to include an emphasis in finance or economics). An MBA is not required however is increasingly being held or pursued by analysts, often to become more competitive for advancement opportunities. Commercial bankers also undergo intense credit training provided by their bank or a third-party company.

References[edit]
1. Jump up^ Michael Simkovic and Benjamin Kaminetzky, Leveraged Buyout Bankruptcies, the Problem of Hindsight Bias, and the Credit Default Swap Solution (August 29, 2010). Columbia Business Law Review, Vol. 2011, No. 1, p. 118, 2011
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Bond market

 Types of bonds by issuer Types of bonds by payout Bond valuation

Agency bond

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Fixed income

Corporate bond (Senior debt, Subordinated debt) Distressed debt Emerging market debt Government bond Municipal bond Accrual bond Auction rate security Callable bond Commercial paper Convertible bond Exchangeable bond Extendible bond Fixed rate bond Floating rate note High-yield debt Inflation-indexed bond Inverse floating rate note Perpetual bond Puttable bond Reverse convertible Zero-coupon bond Clean price Convexity Coupon Credit spread Current yield Dirty price Duration I-spread

 Securitized products
Bond options

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Definition of 'Credit Analysis'

A type of analysis an investor or bond portfolio manager performs on companies or other debt issuing entities encompassing the entity's ability to meet its debt obligations. The credit analysis seeks to identify the appropriate level of default risk associated with investing in that particular entity.

Investopedia explains 'Credit Analysis'

By identifying companies that are about to experience a change in debt rating, an investor or manager can speculate on that change and possibly make a profit. For example, assume a manager is considering buying junk bonds in a company, if the manager believes that the company's debt rating is about to improve, which is a signal of relatively lower default risk, then the manager can purchase the bond before the rating change takes place, and then sell the bond after the change in rating at a higher price.