Q1. NBFCs provide loans for short and medium term at a moderate rate of interest.

Refer
any two NBFCs and discuss the institutional services and products that are provided by
them.
Answer- NBFCs help fill the gaps in the availability of financial services that otherwise occur in
bank-dominated financial systems. The gaps are with regard to the product, customer and
geographical segments. They have been at the forefront of catering to the financial needs and
creating livelihood to unbanked masses in the rural and semi-urban areas.
NBFCs were operating traditionally in the following sectors:
Finance for purchase of used trucks, used passenger vehicles
Consumer durable loans
Personal loans
Funding to the SME sector, which do not have access to institutionalised funding
Earlier, these sectors were financed entirely by the unorganised moneylenders at extremely high
interest rates. For the past 10 years, NBFCs have rendered significant service by extending credit
to these sectors.

NBFCs, both at national and state levels, are functioning as development finance institutions.
They are primarily private sector institutions and provide a variety of services including
equipment leasing, hire purchase, loans and investments.
The RBI has defined NBFC as a company registered under the Companies Act, 1956 and is
engaged in the business of loans and advances, acquisition of
shares/stock/bonds/debentures/securities issued by Government or local authority or other
securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but
does not include any institution whose principal business is that of agriculture activity, industrial
activity, sale/purchase/construction of immovable property. A non-banking institution is a
company which has as its principal business the receiving of deposits, under any scheme of
arrangement or any other manner, or lending in any manner is also a non-banking financial
company (residuary non-banking company).
NBFCs are classified by the RBI on the basis of the kind of liabilities they access, the type of
activities they pursue and of their perceived systemic importance.
On the basis of liabilities, there are two categories of NBFCs. They are:
Category A companies (NBFCs holding and accepting public deposits or NBFCs-D)
Category B companies (NBFCs not having public deposits or NBFCsND)

NBFCs-D are subject to requirements of capital adequacy, liquid assets maintenance, exposure
norms (including restrictions on exposure to investments in land, building and unquoted shares),
Asset Liability Management discipline and reporting requirements.
NBFCs-ND are subject to minimal regulation as they are non-deposit taking bodies and are
considered as posing little threat to financial stability.
On the basis of activity, NBFCs are classified as follows:
Loan companies (LCs)
Investment companies (ICs)
Asset finance companies (AFCs)
Infrastructure finance companies (IFCs)
Systemically important core investment companies (CICs-ND-SI) (A new category of
CIC-ND-SI was created by the RBI in August 2010 for those companies with an asset
size of 100 crore and above that was only in the business of investment for the sole
purpose of holding stakes in group concerns, but not trading in these securities and
accepting public funds.)
NBFC - micro finance institution (NBFC-MFI)
NBFC - Factor (Forfaiting is a financial transaction whereby the business buys accounts
receivable from the third party, assumes credit risk of the account. Factoring is a financial
transaction whereby a business sells its account receivable to a third party.)

Q2. PPPs have great potential to provide infrastructural facilities and contribute towards
bridging the gap of demand and supply in infrastructure. Discuss in detail the role of PPP
projects in infrastructure.
Answer- A government service or private business venture which is funded and operated through
a partnership of government and one or more private sector units. These schemes are sometimes
referred to as PPP, P3 or P
3
PPP means an arrangement between a government or statutory entity or government-owned
entity on one side and a private sector entity on the other, for the provision of public assets
and/or related services for public benefit, through investments being made by and/or
management undertaken by the private sector entity for a specified time period, where there is a
substantial risk sharing with the private sector and the private sector receives performance-linked
payments that conform (or are benchmarked) to specified, pre-determined and measurable
performance standards.
(Source: http://pppinindia.com/pdf/ppp_definition_approach_paper.pdf.)
The private sector will participate in the development of infrastructural facilities in the country
by commercialising the same and recover its investment by collecting charges from the users of
the facility.
For example, toll roads, in which the private organisation constructs and maintains the roads by
collecting toll charges from users. PPPs have great potential to provide infrastructural facilities
and can contribute towards bridging the gap of demand and supply in the infrastructure. During
the last decade, progress has been made in the attraction of private players in the primary
infrastructure development in telecommunications, seaports and road sectors.
The concept of PPP is generally seen as one of the following models depending on the nature of
the project:
Build-Operate-Transfer (BOT)
Build-Operate-Own-Transfer (BOOT)
Build-Operate-Lease-Transfer (BOLT)
Rehabilitate-Operate-Transfer (ROT)
Design-Build-Finance-Operate-Transfer (DBFOT)
In the telecom sector, opening up the sector to PPP has led to massive investments and expansion
in supply and improvement in quality. This has also resulted in reduction in the cost of service,
easy availability of telecom facility especially in the urban sector.
One more example is the aviation sector, where the opening up has resulted in creation of new
capacities and greater choice for travellers.

Q3. NABARD is promoting the setting up of agricultural export zones in various states
with the help of local state government bodies. Discuss in detail the scheme of NABARD for
agriexports.
Answer- National Bank for Agricultural and Rural Development (NABARD) This is a
regulatory body for co-operative banks and regional rural banks. NABARD was established to
play a vital role in agricultural development with a mandate to arrange credit for the promotion
of agriculture, village and cottage industries.
Financing role
NABARD frames the required policies and procedures for the financial institutions in the rural
areas such as co-operative banks and Regional Rural Banks (RRBs). Essentially, NABARD acts
a refinancing agency for financial institutions by offering production and investment credit for
promoting agricultural and development activities in rural areas.
NABARD also carries out the credit plan preparation every year for all districts to make the
borrower identify the availability of funds through the credit system.
Direct credit
NABARD provides term loans directly to state governments and cooperative credit institutions.
The institution co-finances with commercial banks to instil confidence and directs flow of credit
to rural development projects that involve a large outlay and in sunrise sectors. NABARD
provides bulk lending facility to NGOs to fund projects in rural areas.
Refinancing
NABARD refinances term loans and short-term crop loans provided by RRBs, commercial
banks, State Co-operative Banks (SCBs), District Central Co-operative Banks and Primary
Agricultural Credit Societies. NABARD also refinances loans provided for rural housing
projects.
Development and promotional function
The development and promotional functions of NABARD are as follows:
Assists co-operative banks and RRBs in the development of an action plan.
Enters into MOU with state governments, RRBs and co-operative banks specifying their
respective obligations to improve their affairs in a stipulated timeframe.
Monitors the implementation of development action plans of RRBs and fulfilment of
obligations under MOU.
Provides financial assistance to RRBs as well as co-operative banks for the formation and
functioning of technical, monitoring and evaluations cells.
Provides training to the senior and middle-level executives of commercial banks, RRBs
and co-operative banks.
Creates awareness among the borrowers on ethics of repayment through farmers
clubs/Vikas Volunteer Vahini.
Provides the required financial support for the training institutes of cooperative banks.


Further, NABARD also provides financial support to co-operative banks for obtaining improved
management information systems and for developing human resources. Financial support is
extended for computerisation of the banks and their branches

I nstitutional and capacity building as well as training
NABARD provides organisation development intervention (ODI) through reputed training
institutes like Bankers Institute of Rural Development (BIRD), Lucknow, National Bank Staff
College, Lucknow, College of Agriculture Banking, Pune, etc.
It maintains expert staff to study all problems relating to agriculture and rural development and is
available for consultation to the central government, the Reserve Bank, the state governments
and the other institutions engaged in the field of rural development.
NABARD provides training in addition to propagating information regarding research
undertaken and promotional activities of techno-economic and other surveys in the field of rural
banking, agriculture and rural development.
The role of NABARD in training capacity building in client institutions, partner agencies and
other developmental agencies is important.

Q4. Commercial banks have been playing a major role in providing institutional banking
facilities. Prepare a report on any commercial banks services in the area of institutional
banking.
Answer- HDFC Bank
HDFC Bank offers a full range of client-focused corporate banking services to the Indian
companies which include working capital finance, trade and transactional services, handling of
foreign exchange transactions and CMS, to name a few. The structuring of its products has been
done by considering the risk profile of its clients and their specific needs. Based on its excellent
product delivery and its service levels which are comparable with that of the industry, HDFC
Bank has made significant inroads into the formal banking of a number of big Indian companies
which include multinational companies, domestic business houses and companies in the public
sector.
Besides funded services like Working Capital Finance, bill discounting and term loans, a
special product called the structured finance is provided by the bank.
Structured finance and syndication service
Keeping pace with the dynamic nature of financial markets, HDFC Bank has developed a
product that substitutes the traditional credit avenues available to the corporate clients. The bank
invests in commercial papers, preference shares and non-convertible debentures to suit specific
client requirements.
These products are structured for both long and short tenor with exit options at intervals for both
parties.
The Bank also offers the following services besides syndication services using its wide
relationship with the local and international banks:
Mutual funds
Multilateral development agencies
Venture capital funds
Private equity funds
Financial institutions
Some of their major institutional finance products are:
Export credit
Export credit facility is offered by the HDFC Bank by way of packing credit for pre-shipment
finance.
Post-shipment credit is offered mainly in the following manner:
Negotiation/payment/acceptance of export documents under LOC
Purchase discount of export documents
Advance against export bills sent on consignment or collection basis
HDFC Bank offers non-funded services like issuance of bank guarantees, LOCs and service of
collection of documents.
Their products include the usual RTGS/NEFT/Internet banking/foreign exchange desk and also
act as supply chain partner and have extended their hands also to agricultural finance which was
earlier handled only by the DFIs.
Supply chain finance
HDFC Bank provides supply chain finance solutions which enable their clients to automate the
supply chain management thus resulting in operational efficiency and gains. Their variety of
services and solutions help the supply chain sector in smooth transfer of funds, quicker delivery
of goods and processing cost reduction. All these are managed through their website or through
their eNet service.
Agricultural sector
HDFC Bank offers need-based agricultural loans of varying tenors to all creditworthy
agriculturalists engaged in farming of staple as well as cash crops, horticulture, plantations,
poultry, animal husbandry, dairy, seeds, warehousing, etc. and also transportation, processing
and storage activities. They also take care of the financial needs of the supplies of a wide range
of agricultural inputs like seeds, fertilisers, pesticides, micro nutrients and micro irrigation tools.


Q5. The primary role of the IMF is to promote stability of the international monetary
system and exchange rates. Discuss some of the projects assisted by IMF.
Answer- The primary role of the IMF is to promote stability of the international monetary
system and exchange rates, facilitate international payments that enable countries to transact with
one another. Article I of the Articles of Agreement sets out the main goals of the IMF. They are:
Promoting international monetary cooperation
Facilitating the expansion and balanced growth of international trade
Promoting exchange stability
Assisting in the establishment of a multilateral system of payments
Making resources available (with adequate safeguards) to members experiencing balance
of payments difficulties
To achieve these goals, the IMF provides financial assistance in the form of loans to help
member countries address balance-of-payments problems, stabilise their economies, and restore
sustainable economic growth. The IMF also carries out technical assistance and surveillance
activities that help strengthen underlying economic fundamentals of member countries and the
global financial systems at large.

Products offered by IMF
IMF provides the following facilities:
The main lending facilities are non concessional and carry market-based interest rates for
short to medium-term loans. These facilities are generally used by middle-income
member countries to boost foreign exchange reserves.
The IMF provides lines of credit to countries with a track record of strong economic
policies and performance to prevent or reduce the effects of an external shock and
reassure financial markets and investors.
The IMF also maintains concessional lending facilities that provide low and no interest
loans to low-income member countries. These facilities help protect developing countries
against the severe impact of the global financial crisis and events beyond their control,
such as trade shocks and natural disasters.
Any member country may borrow from the IMF. Governments will seek assistance from IMF
when they find themselves in an economic crisis, whether caused by poor macroeconomic
planning or a sudden shock to their economy. In FY-2011, the largest borrowers from IMF were
Greece, Portugal, and Ireland.
IMF Lending facilities
IMFs lending facilities include:
Stand-by agreements This is the most common non-concessional lending for 12 years
to countries with short-term balance of payments problems.
Flexible credit line This is a short-term non-concessional facility to countries with
strong financial track record to mitigate immediate crisis.
Precautionary credit line This is another non-concessional shortterm facility offered to
countries with sound financials for solving immediate BOP or other problems.
Extended fund facility This is a non-concessional long-term facility for (3+ years) used
to solve BOP problems and carry out major economic reforms. A programme supported
by an extended arrangement usually includes measures to improve the way capital
markets and institutions function, such as tax and financial sector reforms, privatisation
of public enterprises.
Extended credit facility This is a concessional assistance provided to low income
countries for a period of three years to solve BOP problems.
Standby credit facility This is a concessional assistance provided to low income
countries for a period of 12 years for a financial exigency.
The Rapid Financing I nstrument (RFI ) This provides rapid and low access financial
assistance to member countries facing an urgent balance of payments need, including
those arising from commodity price shocks, natural disasters, post-conflict situations and
emergencies.
Debt relief
In addition to concessional loans, some low-income countries are also eligible for debts to be
written off under two key initiatives. They are:
The Heavily Indebted Poor Countries (HIPC) Initiative, introduced in 1996 and enhanced
in 1999, whereby creditors provide debt relief, in a coordinated manner, with a view to
restoring debt sustainability
The Multilateral Debt Relief Initiative (MDRI), under which the IMF, the IDA of the
World Bank, and the African Development Fund (AfDF) cancelled 100% of their debt
claims on certain countries to help them advance toward the Millennium Development
Goals.
Surveillance and Technical Assistance
The IMF also carries out financial surveillance and provides technical assistance to help
countries keep their public finance in order. The IMF surveillance continually monitors national,
regional, and global financial developments. It provides policy advice to member countries to
help maintain stability and prevent crises in the international monetary system.
The IMF also offers technical assistance and training to help member countries to design and
implement effective financial policies. Advisory services include designing and revamping tax,
policy and administration, expenditure management, exchange-rate policies, banking and
financial system supervision And regulation.

Q6. Technology plays a dominant role in effectively managing the business of DFIs. Discuss
the role of technology in DFIs.
Answer- Globalisation and liberalisation witnessed a slew of information technology companies
in India, coming out with accounting software for banking institutions. Prominent among them
are Infosys Technologies and Tata Consultancy Services. International companies also opened
up their offices in India, thus contributing to the growth of information technology in India.
While commercial banks started implementing computerisation of their branches and offices,
Development Financial Institutions (DFIs) also began their technology adoption in their offices
and branches.
Similar to commercial banks, DFIs also embraced technology in order to achieve operational
efficiency. Technology adoption happened both within and outside. For example, the National
Bank for Agriculture and Rural Development (NABARD) ensured that institutions like Primary
Agricultural Societies (PACS) and co-operative banks are also computerised so that the benefit
of technology is reaped by institutions in the rural areas of the country. An investment bank
created a software application that would enable its customers to analyse the effect of interest
rate fluctuations in the market and their profitability. The adoption of technology by DFIs
enabled reduction in cost of intermediation similar to commercial banks. The intermediation cost
of scheduled commercial banks reduced drastically from 2.59% during 199192 to 1.71% in
201011 with the costincome ratio coming down from 55.3% in 19992000 to 45.21% in
201211 (Source: www.rbi.org.in). Though the business per employee, as well as the business
per branch increased by several times, banks could manage their business thanks to the advent
and adoption of technology. In spite of various factors having played a role in these changes, the
top ranking factor would be technology. Taking a cue from commercial banks, DFIs could
reduce their transaction cost and increase their outreach to customers using technology.
Organisations which provided application software, networking solutions, hardware support, etc.
turned their eyes on DFIs as these institutions are larger in size and support of technology is
inevitable for their sustenance.
For example, in 1986, Industrial Finance Corporation of India Ltd. (IFCI) computerised their
working in order to improve the productivity and in 1994 95, IFCI evolved a strategy to adopt
technology in all its streams with the support of satellite from National Informatics Centre,
NIC-NET. The service through satellite was extensively used to share information collected
from outside and within the organisation by creating database of information resource. (Source:
IFCI Annual Report, 199495)
NABARD ensured that PACS are computerised through the Common Accounting System (CAS)
and Management Information System (MIS). NABARD ensures that institutions lending to
agriculture in the cooperative structure are supervised. In order to facilitate effective supervision,
NABARD has evolved strategy for computerisation of institutions in the cooperative banks And
co-operative societies.