Project Management

Unit IV ,V

Source: Text Books, PMI, PMBOK, NPTEL and internet sources

WBS agency oriented
The agency WBS is the
Government – approved
WBS for program reporting
purposes and includes all
program elements (for
example, hardware,
software, services, data, or
facilities), which are the
contractor’s responsibility.

It includes the contractor’s

discretionary extension to
lower levels, in accordance
with the contract SOW
WBS Function oriented
• A process-oriented or function oriented WBS, defines the project
scope of work in terms of process steps -work phases, or functions
PEP-project execution plan
• It is a strategic plan prepared by owner for matching project
hardware and software with executing agencies
• It is written in the form of manual
• It however does not deal with operational details of building prokject
• It includes subplans such as
• Contracting plan
• Work packaging plan
• Organizing plan
• Systems and procedure plan
1. Contracting plan
owners identify agencies to share tasks and responsibilities
• The Contract Management plan must be prepared by the Contracting Authority
and agreed by contract signing.
• Facilitate development of Contracting Strategy and Contracting Plan.
• Develop an optimized Contract Breakdown Structure.
• Define the ideal contracting options and arrangements
• Development of contracting documents
2. Work package plan
• It is smallest division of work in the project. When entire project is
divided to subsystems, each subsystem into further divisions, leading to
smallest division, is called work package.
• Advantage: as it is smallest deliverable unit with design, procure and
implement individually, single person may be responsible to execute
without interference.
• Time and cost targets can be attached easily so that budgets are
estimated rightly. Contracts can be distributed with minimum T&C
• Better organization and management to ensure time performance.
• To identify workpackage, hardware method is used.
3.Organisation plan
This owner to coordinate various interfaces between agencies in
execution and involve in critical areas to assist agencies solve any issues.
It can be functional , matrix, task force or purely projectized
arrangement, which PM /owner has to choose based on type of project.
However there needs to be workpackages defined, based on which
structure should be selected.
It also includes man power forecast plan based on manhour
requirement.
If capital cost is =x, project cost =px, where p=required management
cost and if per manhour cost=c, then required management cost=pxc.
• 4.systems and procedure plan
• It includes following subsystems plan

a. Contracts management
b. configuration management
c. Communication management
d. Man management
e. Time management
f. Materials management
g. Cost management
h. Fund management

• Project procedure manual- It is prepared by interacting with all subsystems. A

subsystem identifies and writes up its procedures.
• Ex: procedure for purchase in plant
b. Configuration Management-Finalising physical configuration

Procedures include
1.Procedure for WBS and work package
2.Procedure for drawing numbering and control
3.Procedure for equipment numbering –quantities and control
4. Procedure for Design change control, vendor drawing control
5.Procedure for engineering process
6.Procedure for Quality assurance and inspection
7.technical audit procedure
• C. communications management
• Procedures related to communication-flow of information for self
control
• It includes
1.Procedure for correspondence & distribution of mail
2.Filing procedure
3.Reporting procedure
4.Meeting recording procedure
5.Data logging procedure
6.Presentation procedure
7.Suggestion schemes procedure
d.Man management-complex subsystem-ensure project is staffed well.
It includes
1.Man power requirement forecast
2.Recruitment procedure
3.Training and orientation procedure
4.Role analysis and goal setting procedure
5.Performance evaluation procedure
6.Counselling procedure
7.Delegationof authority procedures
8,staff mobilization , demobilization
e. Time management – done using tools –network diagram-for work
schedules
Includes
1. Procedures for schedules-resources
2. Procedures for progress measurement
3. Procedures for reviews
4.Procedures for revision of schedules
5. Procedures for feedback and reporting
6. Procedures for vendor bid , contract process schedules
7. Procedures for audit schedules-complete project-day to day
f. Materials management-ensure effective materials
Includes
1. Procedures for vendor listing
2. Procedures for P O
3. Procedures for quality and inspection of procured materials
4. Procedures for customs clearance of imports
5. Procedures for packing and despatch
6. Procedures for billing and payments
7. Procedures for insurance and claims
g. Cost management –ensure proper cashflows and avoid cost overruns
Includes
1. Procedures for cost estimations
2. Procedures for accumulation ,revisions
3. Procedures for manhour costs
4. Procedures for price evaluation
5. Procedures for expenditure control\
6. Procedures for engineering process costs control
7. Procedures for productivity audits( evaluate based on inflation,
market forces,others)
h. Fund management –ensure proper cashflows –for working capital-R
and NR
Includes
1. Procedures for expenditure budgets
2. Procedures for mobilisation of funds
3. Procedures for LC/site draft/ bank advances
4. Procedures for security deposits
5. Procedures for processing payment requests
6. Procedures for approval of additional funds
7. Procedures for expenditure audits

Note: ALL these are to be documented in procedure manaual

 Project control and monitoring

• Project control is the element of a project that keeps track of if activities

done on-time and within estimated budget
• Project control begins early in the project with planning , in progress and
ends late in the project with post-implementation review
• Each project should be assessed for the appropriate level of control
needed: too much control is too time consuming, too little control is
very risky.
• Control systems are needed for cost, risk, quality, communication, time,
change, procurement, and human resources.
Project Control System

• In addition, cost control should consider how important the projects are
with respect to financial statements
• Therefore project control system is feed back control systems that predict
what may happen and helps PM to model , take necessary decisions to
correct it.
• To ensure the accomplishment of strategic goals, The management has to
exercise control – either strategic, tactical or operational control.
• The purpose of control system is therefore to predict what may happen to
physical system and have feed back mechanism and take necessary action
to bring back physical system to equilibrium

•
• The control function is concerned with ensuring that the planning,
organising, staffing and leading functions result in the attainment of
organisational objectives.
• Control function acts as a tool that helps organisations measure and
compare their actual progress with their established plan.
• Control, therefore, can be viewed as the management action to adjust
operations of the organisation to its predetermined standards.
Project monitoring
• Monitoring and controlling consists of those processes performed to observe
project execution so that potential problems can be identified in a timely manner
and corrective action can be taken, when necessary, to control the execution of
the project.
• Monitoring includes: Measuring , reviewing, reporting
• Measuring the ongoing project activities
• Monitoring the project variables (cost, effort, scope, etc.) against the project
management plan and the project performance
• Identify corrective actions to address issues and risks properly
• Monitoring is the collection, recording, and reporting of project information that
is of importance to the project manager and other relevant stakeholders. Control
uses the monitored data and information to bring actual performance into
agreement with the plan
• The monitoring can be done through Tests and inspections and ensure the
availability of information required to exercise control over the project.
 Case study-Airport system
• With the emergence of low fare / cost airlines, air travel has become
quite common and affordable, globally. With the aviation companies
competing for customers and market share, the volume of passengers
has also gone up significantly.
• At the strategic level, the control is more focused upon aspects like
routes, code sharing, purchase or leasing of aircraft, merger and
acquisition etc. The tactical controls focus upon aspects like routing,
scheduling, punctuality, occupancy, turnaround time, retention of
crew, service quality and customer relationship management
• It is at the operational level where lot of things happen and hence
some things can go wrong. Among other operational control systems,
we have focussed upon the Departure Control Systems (DCS)
• .. This control system encompasses:
• Check-in
• Passenger identification
• Checked baggage
• Seat allocation
• Boarding passes
• standby passengers
• Boarding and gate security
• Denied boarding
• Load control
• Interline connections -Interoperability Various specific controls are
exercised at the airport, pre-check-in and pre-boarding.
 UNIT V

• Financing for Projects

• Capital structure, Menu of financing , Internal accruals, Equity capital,

Preference capital , Debentures (or bonds) , Methods of offering term
loans, Working capital advances, Miscellaneous sources, Raising
venture capital, Project financing structures, Financial closure,
Financial institutions, Summary
Introduction

• Source of Finance is the important component in Project life cycle.

• When finance mode is available, industrial activities can be initiated and
executed smoothly
• Finance helps to bear costs over runs and timely completion of
projects, so that better profitability is achieved.
• finance are made available for project which carry different conditions
such as terms and conditions, maturity,interest, repayment period.
• Things to consider in Finance

• 1.Modes of finance
• 2.lending policies and norms of finance institutions
• 3.divident policies
• 4.venture capitalists/funding agencies
• 5.international finance-exchange risk
• 6.corporate taxations
What is Capital Structure?
• A capital structure project is an activity undertaken that
requires financing through a combination of debt, equity and other
sources.
• capital structure is typically expressed as a debt-to-equity or debt-to-
capital ratio.
• Debt and equity capital are used to fund operations, capital
expenditures, acquisitions, and other investments.
• PM has decide whether to use debt or equity to finance operations,
and balance the two to find the optimal capital structure.
• Capital structure can be mix of long-term sources of funds, such as
debentures, long-term debt, preference share capital and equity
share capital including reserves and surpluses
• Medium term include -Non banking finance-Hire purchase,leasing etc
• short terms funds can be cash credits, OD,LC,
• Some projects use internal accruals, bonus shares
• International funds are Euro issues.
•
MENU OF FINANCE AND SOURCES OF
PROJECT
• Internal accruals
• Equity Capital
• Preference Capital
• Debentures
• term loans
• Foreign currency term loans
• credit, Bill rediscounting scheme, Suppliers line of credit
• Seed capital assistance Government subsidies
• Sales tax deferment and exemption
• Unsecured loans and deposits \
• Lease and hire purchase finance
• Public Deposit
• Bank Credit
• There are different ways in which a company may raise finances in the
primary market
• Public offering
• rights issue
• Private placement
• Preferential allotment
• Initial Public offering
• The first public offering of equity shares of a company, which is followed
by a listing of its shares on the stock market, is called the IPO
• Benefits Costs
access to a larger pool of capital Dilution
respectability Loss of flexibility
lower cost of capital Disclosures and accountability
Liquidity Periodic costs
• illustration of the dynamics between debt and equity from the view of investors and the firm.
•
Equity Capital and preference capital
• Equity
• This is the contribution made by the owners of business, the equity
shareholders, who enjoy the rewards and bear the risks of ownership.
• However, their liabilities are limited to their capital contribution.
• advantages: (i) It represents permanent capital. Hence there is no liability
for repayment. (ii) It does not involve any fixed obligation for payment of
dividend.
• Disadvantages: : (i) The cost of equity capital is high because equity
dividend are not tax-deductible expenses. (ii) The cost of issuing equity
capital is high
•
• Equity : shareholder, income, dividend is not tax deductible, control on
firm affairs
• Debt: fixed claim of interest, tax deductible, fixed maturity, passive role in
firm affairs
• Keyfactors in determining Debt-equity ratio
• Cost
• Nature of assests
• Business risks
• Control consideration,
• Market condition
• Norms of lenders
• Equity capital represents ownership capital as equity shareholders
collectively own the company
• They enjoy the rewards and bear the risks of ownership
• authorized capital
• Issued capital
• subscribed capital
• Paid up capital
• Par value
• Issue price
• book value
• Market value
• Use more equity when Use more debt when
The corporate tax rate applicable The corporate tax rate
is negligible applicable is high

Business risk exposure is high Business risk exposure is low

Dilution of control is not an Dilution of control is an

important issue issue

The assets of the project are The assets of the project

mostly intangible mostly tangible

The project has many valuable The project has few growth
growth options options
• Preference capital
• It represents a hybrid form of financing.
• It takes some characteristics of equity and some attributes of debt
• The capital raised by issue of preference shares is called preference share
capital.
• The preference shareholders enjoy a preferential position over equity
shareholders in two ways:
• (i) receiving a fixed rate of dividend, out of the net profits of the company,
before any dividend is declared for equity shareholders; and
• (ii) receiving their capital after the claims of the company’s creditors have
been settled, at the time of liquidation
• compared to the equity shareholders, the preference shareholders have a
preferential claim over dividend and repayment of capital.
• Preference shares bear fixed rate of return and the dividend is payable only
at the discretion of the directors and only out of profit after tax
• Cumulative and Non-Cumulative:The preference shares which enjoy the
right to accumulate unpaid dividends in the future years, in case the same
is not paid during a year are known as cumulative preference shares.
• non-cumulative shares, dividend is not accumulated if it is not paid in a
particular year.
• Participating and Non-Participating: Preference shares which have a right
to participate in the further surplus of a company shares which after
dividend at a certain rate has been paid on equity shares are called
participating preference shares.
• The non-participating preference are such which do not enjoy such rights
of participation in the profits of the company.
INTERNAL ACCRUALS

• Internal accruals are the reserve of profits or retention of earnings

that the project or business that has been created over the years.
They represent one of the most essential sources of long term finance
and not used into the business from external sources.
• it is self-generated and highlights the sustainability and profitability of
the entity and therefore create no charge on the assets of the
company.
• Cons: It may be a source of conflict since the shareholders may prefer
payout of dividends rather than a plough back
 BONDS
• Bonds are debt instruments involving two parties- the borrower and the
lender.
• borrower can be the government, a local body or a corporation.
• They provide fixed interest payments at periodic intervals and are redeemable
at a predetermined date in future.
• Bonds are normally issued against collateral security and are therefore a
highly secured form of long term finance.
• They may prove to be a very cost effective source of funds in a bullish market.
• Pro: Easier to raise funds via bonds, especially federal bonds since they enjoy
complete investor confidence.
• Con: Subject to interest rate risk. Therefore the price of bonds will fall with an
increase in prevailing interest rates.
Types
• Deep discount bonds
• Convertible bonds
• Floating rate bonds
• secured premium notes
• Index
Advantages and disadvantages
• Tax deductibility of interest
• no dilution of control
• Lower issue costs
• Debt servicing burden is generally fixed in nominal terms
• Tailor made maturity
• Disadvantages
• Fixed interest and principal repayment obligation
• Increased leverage raises the cost of equity
Debenture Capital
• Debenture capital has emerged as an important source for project financing.
Debentures are capital raised by a company by accepting loans from general
public which bear a fixed rate of interest..
• Debentures are an important instrument for raising long term debt capital
• There are three types of debentures that are commonly used in India:
NonConvertible Debentures (NCDs), Partially Convertible Debentures (PCDs),
and Fully Convertible Debentures (FCDs).
• NCDs are used by companies for raising debt that is generally retired over a
period of 5 to 10 years. They are secured by a charge on the assets of the
issuing company.
• PCDs are partly convertible into equity shares as per pre-determined terms of
conversion. The unconverted portion of PCDs remains like NCDs.
• FCDs, as the name implies, are converted wholly into equity shares as per pre-
determined terms of conversion. Hence FCDs may be regarded as delayed
equity instruments
• A debenture is not backed by any collateral and usually has a term
greater than 10 years
• Debentures are backed only by the creditworthiness and reputation of
the issuer.
• Both corporations and governments frequently issue debentures to
raise capital or funds.
• Some debentures can convert to equity shares while others cannot.
• The sum of money borrowed from a bank/financial institution is a loan
whereas borrowed from a person is a debt.
• The loan does not affect credit score but Debt affects credit score
• The loan includes signing collateral, however Debt does not need this.
Rupee Term Loans
• Provided by financial institutions and commercial banks, rupee term loans
which represent secured borrowings are a very important source for
financing new projects as well as expansion, modernisation, and
renovation schemes of existing units.
• These loans are generally repayable over a period of 8-10 years which
includes a moratorium period of l-3 years.

• The rupee term loan is generally given directly to the organizations for
setting up new projects or buying new capital assets. Whereas, the
currency loan is given to meet the expenses incurred in importing the
machinery or equipment or paying the fees against the foreign technical
know-how.
• These loans are medium to long-term in nature (5 to 10 years) and
can be extended to manufacturing firms as well as projects involving
trading activities or services.

• Banks evaluate the project for technical and economic viability

before granting term loans.
The interest rate would depend on factors like riskiness of the project,
amount of loan, credit history of the borrowing firm and structure of
the debt.
• TERM LOAN PROCEDURE
• The principal norms and policies of financial institutions are described
• Eligibility :long term loans were provided by financial institutions to
concerns in certain industries and denied to concerns in industries
placed in the negative list.

• financial institutions followed a consortium approach as per the

advice of the Ministry of Finance. But now permitted to lend
individually as well as participate in consortium lending.
• Steps in getting term loans

• Submission of loan application

• Initial processing of loan application
• Appraisal of the proposed project
• Issue of the letter of sanction
• acceptance of the terms and conditions by the borrowing unit
• Execution of loan agreement
• Creation of security
• Disbursement of loans
• Monitoring
• Eurocurrency loans
• eurocurrency is simply a deposit of currency in a bank outside the country
of the currency.
• It is managed by a syndicate of banks
• It is a bearer bond
• The interest is usually paid annually or half 2 yearly
• features of eurocurrency loans
• syndication
• Floating rate
• Multi currency option
• bullet repayment or installment repayment
Euro issues
• They have employed two types of securities: Global Depository
Receipts (GDRs) and Euroconvertible Bonds (ECBs).
• Denominated in US dollars, a GDR is a negotiable certificate that
represents the publicly traded local currency (Indian Rupee) equity
shares of a non-US (Indian) company.
• GDRs are issued by the Depository Bank (such as the Bank of New
York) against the local currency shares (such as Rupee shares) which
are delivered to the depository’s local custodian banks.
• GDRs trade freely in the overseas markets.
.
• A Euroconvertible Bond (ECB) is an equity-linked debt security.
• The holder of an ECB has the option to convert it into equity shares at
a pre-determined conversion ratio during a specified period.
• ECBs are regarded as advantageous by the issuing company because
(i) they carry a lower rate of interest compared to a straight debt
security,
(ii) they do not lead to dilution of earnings per share in the near future,
and
(iii) they carry very few restrictive covenants
Working Capital Advances
• Working capital, is “a measure of both a company’s efficiency and its
short-term financial health.
• It can be borrowed as loan or as advance
• Working Capital Advances means a Borrowing for the purchases of
equipment, leasehold improvements and working
capital requirements.
• It is an advance of cash on your future credit card receivables
• A flat fee will be charged to you for the advance. In most cases, these
short-term working capital advances have a term of between three
and twelve months.
• Gross Working Capital
• Gross Working is the capital invested in total current assets of the
business concern. Gross Working Capital is simply called as the total
current assets of the concern.
• Gross Working Capital = Current Assets
• Net Working Capital
• Net Working Capital
• considers both current assets and current liability of the concern. Net
Working Capital is the excess of current assets over the current liability
of the concern during a particular period
• . Net Working Capital = Current Assets – Current Liabilities
 Nature of Working Capital:
• Working capital enhances liquidity, solvency, creditworthiness and reputation
of the enterprise.
• It enables the enterprise to avail the cash discount facilities offered by its
suppliers.
• Need for Working Capital:
• 1. Adequate working capital is needed to maintain a regular supply of raw
materials, which in turn facilitates smoother running of production process.
• 2. Working capital ensures the regular and timely payment of wages and
salaries, thereby improving the morale and efficiency of employees.
• 3. Working capital is needed for the efficient use of fixed assets.
• 4. In order to enhance goodwill a healthy level of working capital is needed. It
is necessary to build a good reputation and to make payments to creditors in
time.
• 5. It is needed to pick up stock of raw materials even during economic
depression
• Components of Working Capital:
• Working capital is composed of various current assets and current
liabilities, which are as follows:
• (A) Current Assets: These assets are generally realized within a short
period of time, i.e. within one year. Current assets include:
• (a) Inventories or Stocks (i) Raw materials (ii) Work in progress (iii)
Consumable Stores (iv) Finished goods
• (b) Sundry Debtors
• (c) Bills Receivable
• (d) Pre-payments
• (e) Short-term Investments
• (f) Accrued Income and
• (g) Cash and Bank Balances
• Current Liabilities:
• Current liabilities are those which are generally paid in the ordinary
course of business within a short period of time, i.e. one year.
• Current liabilities include:
• (a) Sundry Creditors
• (b) Bills Payable
• (c) Accrued Expenses
• (d) Bank Overdrafts
• (e) Bank Loans (short-term)
• (f) Proposed Dividends
• (g) Short-term Loans
• (h) Tax Payments Due
• working capital cycle - the conversion of cash into finished goods to
debtors and back to cash.
• operating cycle refers to the length of time which begins with the
procuring raw materials of a firm and ends with the final realization
of cash from debtors.
• The steps involved in the determination of working capital operating
period
• Credit Period Received from Suppliers:
 • Estimate of working capital requirement
• Total Working Capital Requirement = Total Operating Expenses in the
Last Year/Number of Operating Cycles in the Year
• Example 1
• A proforma cost sheet of a company provides the following particulars
for a level of activity of 2,40,000 units of production
Average raw materials in stock=one month.
average Materials in process =half a month.
average Finished goods in stock = for one month.
Credit allowed by suppliers = one month –
credit allowed by debtors= two months.
Time for payment of wages = 1.5 weeks.
Time for payment of overhead expenses = one month.
output is sold against cash= One fourth
Cash in hand and at bank =Rs. 50,000.
prepare a statement showing the working capital needed to finance. Assume
that production is carried evenly throughout the year; wages and overhead
accrue
Assume a time period of 4 weeks in a month
NOTE: Year = 4×12 = 48 weeks
 Sources
• Trade Credit:
• Trade credit refers to the credit extended by the suppliers of goods in
the normal course of business.
• the trade credit arrangement is an important source of short-term
finance.
• The credit-worthiness of a firm and the confidence of its suppliers are
the main basis of securing trade credit.
• It is granted on an open account basis whereby supplier sends goods
to the buyer for the payment to be received in future as per terms of
the sales invoice.
• It may also take the form of bills payable whereby the buyer signs a bill
of exchange payable on a specified future date
Bills discounting
• The bank purchases the bills payable on demand and credits the
customer’s account with the amount.
• the bills rediscounting scheme is meant to promote the sale of
indigenous machinery on deferred payment basis.
• Here, the seller realizes the sale proceeds by discounting the bills or
promissory notes accepted by the buyer with a commercial bank
which in turn rediscounts them
• Purchasing and discounting of bills is done by bank which lends
without any collateral security.
• .Cash Credits:
• A cash credit is an arrangement by which a bank allows his customer to
borrow money up to a certain limit against some tangible securities or
guarantees.
• The customer can withdraw from his cash credit limit according to his needs
and he can also deposit any surplus amount left with him.
• The interest in case of cash credit is charged on the daily balance and not on
the entire amount of the account.
• Overdrafts:
• Overdraft means an agreement with a bank by which a current account-
holder is allowed to withdraw more than the balance to his credit up to a
certain limit.
• There are no restrictions for operation of overdraft limits. The interest is
charged on daily overdrawn balances.
• The main difference between cash credit and overdraft is that overdraft is
allowed for a short period and is a temporary accommodation whereas the
cash credit is allowed for a longer period.
Letter of Credit
It is an arrangement whereby a bank helps its customers to obtain
credit from their suppliers, especially - import/export letters of credit,
in international trade
• When a bank opens LC in favour of its customer for some specific
purchase, bank undertakes responsibilities to honour the obligation to
its customer
Working capital Loans:
When a bank makes an advance in lump-sum against some security it is
called a loan. In case of a loan, a specified amount is sanctioned by the
bank to the customer.
The entire loan amount is paid to the borrower either in cash or by
credit to his account.
The borrower is required to pay interest on the entire amount of the
loan from the date of the sanction.
A loan may be repayable in lump sum or installments.
Interest on loans is calculated at quarterly
repayments are stipulated in installments
• Example 2
• A proforma cost sheet of a company provides the following particulars,
prepare a statement showing the working capital needed to finance a
level of activity of 1,04,000 units of production
Average raw materials in stock =one month.
average Materials in process (completion stage, 50 per cent)=half a month.
Finished goods in stock =average for one month.
Credit allowed by suppliers = one month –
credit allowed by debtors= two months.
Time for payment of wages = 1.5 weeks.
Time for payment of overhead expenses = one month.
output is sold against cash= One fourth
Cash in hand and at bank =Rs 3,65,000.
Assume that production is carried on evenly throughout the year; wages and
overhead accrue
Assume a time period of 4 weeks is equivalent to a month (assume 52 weeks in
year)
Venture capital
• Venture capital financing is funding provided to companies and
entrepreneurs. It can be provided at different stages of their
evolution.
• An investment strategy defines in part the identity of a firm that
engages in the provision of venture capital financing.
• There are five common stages of venture capital financing
• -seed funding | Concept stage
• Seed stage
• Post-seed / pre-third stage | Bridge round
• Startup stage
• Pre-initial public offering (IPO) stage
Other sources
• Deferred credit
• lease and hire purchase finance
• unsecured loans and deposits
• Special schemes of institutions
• subsidies and sales tax deferments and exemptions
• short term loans from financial institutions
• Commercial paper
•
 Lease and Hire purchase
• Lease finanace-It is contractual agreement where lessor grants lessee
right to use an asset with periodic lease rental payments.
• Leasing can be done on building, land, equipments.
• Primary Lease period can be three to five years, during which lessor
recovers through rentals , his investment in equipment along with
agreed rate of return.
• Lessee is responsible for maintenance of equipment and insurance
• If need lessee can extend his lease period.
• Lease rental is tax deductable expense to lessee
• However lessee cannot claim depreciation
 Hire purchase
Main features of Hire purchase is
The hirer can purchase assest from hirer by paying instalments over
specified time.
Hiree charges interest on a flat basis.
Hirer is entitled to claim depreciation.
Only Interest component of the hire purchase installment is tax
deductible
 • Commercial Paper (CP)
• is an unsecured money market instrument issued in the form of a
promissory note.
• It was introduced in India in 1990 for enabling highly rated corporate
borrowers to diversify their sources of short-term borrowings and to
provide an additional instrument to investors.
• primary dealers and all-India financial institutions are permitted to issue
CP to enable them to meet their short-term funding requirements for their
operations.
• Individuals, banking companies, other corporate bodies (registered or
incorporated in India) and unincorporated bodies, NonResident Indians
(NRIs) and Foreign Institutional Investors (FIIs) etc. can invest in CPs
• it is a freely transferable instrument, it has high liquidity
 Finance structure
• The structuring of project financing is a framework in which
ownership structure, project structure, risk structure, and financial
structure decisions are made and tied together in the project's legal
structure which, in turn, forms a foundation for funding the project .

• Financial structure refers to the mix of financing used to fund a

project, which includes equity, short‐ and long‐term loans, bonds,
trade credits, etc. and the cash flows to equity providers and the
lenders.
 Project financing structure
• Project finance is the funding (financing) of long-term infrastructure,
industrial projects, and public services using recourse structure.Two
structures-full recourse structure and limited recourse
• A lender’s recourse is the degree to which it can recoup its losses by
possessing a borrower’s assets.
• Full recourse is a state in which a debt obligation is owed regardless of
the borrower's personal financial situation.
• Limited recourse debt is a debt in which the creditor has limited claims
on the loan if the borrower defaults.
• Limited recourse debt sits in between secured debt and unsecured
debt in terms of the backing behind the loan.
Financial closing
• Financial closure is defined as a stage when all the conditions of
a financing agreement are fulfilled prior to the initial availability of funds.
• The financial close process includes reviewing and reducing account
balances before the accounting cycle closes.
• It begins with recording the journal entry for each transaction and activity,
which leads to the review stage.
• suitable credit enhancement is done to the satisfaction of lenders
• adequate underwriting arrangements are made for market-related
offerings(Underwriting is the process of calculated risks taken to protect
investors, banks, applicants and the market).
• The process is started early and concurrent appraisal is initiated if several
lending agencies are involved
Financial closure procedure
Financial Institutions
• The structure of financial institutions in India is as follows :
• All India institutions
• Industrial Finance Corporation of India
• Industrial Credit and Investment Corporation of India
• Industrial Development Bank of India
• Other all-India institutions II. State-level institutions
• State Financial Corporations
• State Industrial Development Corporations
• Industrial Finance Corporation of India (IFCI)
• Industrial Finance Corporation of India (IFCI)- The IFCI is the first industrial
financing institution in India soon after independence.
• It was set up as a statutory corporation in July, 1948 ,later converted in to
a Government Company.
• The IFCI provides financial assistance to any public limited company and co-
operative society registered in India.
• Companies must be engaged in the manufacture, preservation or
processing of goods, or in the shipping, mining or hotel industry, or in the
generation and distribution of electricity or any other form of power.
• Industrial Credit and Investment Corporation of India (lCICI)
• It Is enterprising and flexible institution to facilitate industrial development
in the private sector in India.
• It can provide any amount of financial assistance to any public or private
company in the private sector.
• It can now give assistance to projects in the joint sector and co-operative
sector.
• It is authorized to provide foreign currency loans to partnerships and
proprietary concerns also.
• Loans are given generally for the purpose of buying capital assets like land,
buildings and machinery
• Industrial Reconstruction Bank of India
• The industrial Reconstruction Bank of India, headquartered in
Calcutta, was set up when its precursor, the Industrial Reconstruction
Corporation of India, was reconstituted in 1984.
• IRBI is primarily an agency to help the reconstruction and
rehabilitation of industrial units which have closed down or which
face the risk of closure.
• IRBI offers assistance in various forms : (i) financial assistance which
is not available from normal channels of finance and banking, (ii)
technical assistance
• State Financial Corporations
• The State Financial Corporation, set up under the State Financial
Corporation Act, 1951, render assistance to medium and small scale
industries in their respective states.
• Their shareholders are the respective state governments, IDBI, insurance
companies, credit cooperatives and private shareholders. State Industrial
and Development Corporations
• The State Industrial Development Corporation, were set up by the state
governments during the 1960s to serve as catalytic agents in the
industrialization process of their respective states. Presently almost every
state has an SIDC which is fully owned by the respective state government.