Raising of Funds from Debt and Procedural Aspects

Amount in ₹

= ₹ 6,50,000 – 25% on ₹ 6,50,000 = ₹ 4,87,500

Alternative Answer

Assuming the debtor at sales value

Amount in ₹

= ₹ 6,50,000 – 25% on ₹ 6,50,000 = ₹ 4,87,500

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 6A(i) (Syllabus 2022).

Introduction of Liquidity Window facility for investors in debt securities through Stock Exchange mechanism

SEBI has introduced Liquidity Window facility for investors in debt securities through Stock which allows investors holding listed debt securities to sell them back to the issuer using a put option on specific dates, ensuring liquidity. It is felt that establishing a framework of providing a Liquidity Window facility by the issuers through use of put options exercisable on pre-specified dates or intervals will provide uniform norms for such issuer(s) to consider Liquidity Window facility in the manner specified. The provisions of this circular has become applicable on and from November 01, 2024.

The circular inter-alia covers the following features and the conditions governing the Liquidity Window facility:

1.Issuer Discretion and Prospective Applicability : The Liquidity Window can only be provided at the discretion of the Issuer. Further, this option is only available for prospective issuances either by way of public issue or private placement.

2.Eligible securities: All listed debt securities governed by the SEBI (Issue and Listing of Non- Convertible Securities) Regulations, 2021 are eligible for the Liquidity Window Facility.

3.Prior approval of the Board of Directors of the issuer is required to provide the Liquidity Window.

4.Stakeholders Relationship Committee (SRC): For entities which have listed their specified securities, the implementation and outcome of the Liquidity Window shall be monitored by the SRC. However, for entities which only have listed debt securities (for whom constitution of SRC is not mandatory), the monitoring of the implementation and outcome of the Liquidity Window shall be under the aegis of the board of directors, or such board-level committee as determined by the board of directors.

5.Eligible Investors : The issuers have the option to specify the classes of investors for whom the Liquidity Window shall be provided.

6.Minimum Holding Period: The Liquidity Window can only be offered to investors after the expiry of one year from the date of issuance of the debt securities.

7.Period of Liquidity Window : The issuers offering the Liquidity Window shall keep it open for a minimum of three working days. The Liquidity Window facility can be provided on a monthly or quarterly basis, but the schedule of such facility shall be provided upfront in the offer documents.

8.Reporting and Disclosure Requirements: After closure of a Liquidity Window, the issuer is required to submit a report to the stock exchanges on which such debt securities are listed. However, the form and manner of such disclosures are yet to be specified by the stock exchanges in consultation with SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 1(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

(a)Issue price per bond is ₹ 1000 and 10 bonds were subscribed. Total investment ₹ 10000

Coupon rate 2% Maturity date 2 years

Option I: Conversion of Bonds into shares

Number of Equity Shares Mr. Sharma will get @ ₹ 100 per shares at Maturity

= ₹ 10400/ ₹ 100 = 104 equity shares

(b)Option II: Redemption

(c)Therefore, if market price of equity shares is ₹ 250 per share, he will get an amount of ₹ 26000 (104 shares x ₹ 250 per share) in Option I; is higher than ₹ 10400 which he is getting in option II. So, conversion option is better than redemption as he would get higher amount.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 2A(ii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Liquidity Window Facility for investors of debt securities through Stock Exchange Mechanism SEBI vide circular dated 16th October, 2024 introduced Liquidity Window Facility for investors in debt securities through Stock Exchange Mechanism.

It allows investors holding listed debt securities to sell them back to issuers using a put option on specific dates ensuring liquidity. It is felt that establishing a framework of providing liquidity window facility by the issuers through use of put options exercisable on pre specified dates or intervals will provide uniform norms for such issuer(s) to consider adopting liquidity window facility in the manner specified. The provisions of this circular shall be applicable w,e,f 1st November, 2024. The circular inter alia covers the following features and conditions governing the Liquidity Window Facility:

Issuer Direction and Prospective applicability : Liquidity Window can only be provided at the discretion of the issuer. Further this option is available only for future issues either by public or by private placement.

Eligible Securities: All listed debt securities governed by SEBI NCS Regulations are eligible for this facility.

Prior approval of the Board of Directors of the issuing company is required for providing liquidity window.

Stakeholders’ Relationship Committee (SRC): For entities which have listed their specified securities , the implementation and the outcome of the liquidity window shall be monitored by the SRC. However for the entities which only have listed debt securities (for whom constitution of SRC is not mandatory), the monitoring of the implementation and monitoring of the liquidity window shall be under the aegis of board of directors, or such board level committee.

Eligible Investors: Issuers have the option to specify the class of investors who can be provided the said facility.

Minimum holding period: Investors can exercise the option only after the expiry of one year from the date of issue.

Period of the Liquidity window: The issuer shall keep the window open for a minimum three working days. The facility can be provided for a monthly or quarterly basis, but the facility details shall be provided upfront in the offer documents.

Reporting and disclosure requirements: After the closure of a liquidity window, the issuer is required to submit a report to the stock exchanges on which the securities are listed. However, the form and manner of such disclosures are to be specified by the stock exchanges in consultation with SEBI.

***

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 6A(iii) (Syllabus 2022).

As per Regulation 15 (1) of SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, an issuer making the issuance of non-convertible securities shall:

(i)have the right to recall such securities prior to the maturity date (call option)

(ii)shall have right to provide such right of redemption of debt securities prior to the maturity date (put option) to all the investor or only to retail investor.

Regulation 15 (5) of SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 provides than no such right will be exercisable before the expiry of one year from the date of issue of such non-convertible securities.

In the present case, the investor approached the company with a request to exercise his put option after 8 months from the date of the issue, hence his request will be rejected.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 4(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Answer: (D) 10.91%

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2024, Q. 31 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (C) Discount to face value

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2024, Q. 35 (Financial and Strategic Management paper, Syllabus 2017).

(i)Working capital cycle of a company is the time taken to convert its current asset and current liabilities into cash. It is the key matric for measuring the company’s financial health and efficiency. A shorter working capital cycle indicates generally good health of the company because it frees up cash for other uses. A longer working cycle indicates that capital is tied up without earning return. The working capital cycle indicates the Procuring materials, production, sales and collection. Shorter the cycle means better inventory management, collection and better payment conditions.

(ii)Calculation of working capital cycle of Classic Ltd. as on 31-03-24

₹ in Lakh

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 5(c) (Syllabus 2022).

SEBI has provided certain clarifications on aspects related to day count convention for debt securities issued under the SEBI(Issue and Listing of Non-Convertible Securities) Regulations, 2021 (read with the master circular) as follows:

1.If coupon payment date falls on a holiday, the payment may be made on the following working day. However, the dates of future coupon payments would be as per the schedule originally stipulated at the time of issuing the security. In other words, the subsequent coupon schedule would not be disturbed merely because the payment date in respect of one particular coupon was postponed earlier because it fell on a holiday.

2.In order to ensure consistency for interest calculation, a uniform methodology shall be followed for calculating interest payments in case of leap year, which shall be as follows:

During a leap year, the number of days shall be reckoned as 366 for the whole one-year period irrespective of whether interest is payable annually, half yearly, quarterly or monthly. Hence if the periodicity is half yearly, 366 days would be reckoned twice as denominator, for quarterly interest, it would be four times and for monthly interest payment, twelve times.

In the above example, since 2024 is a leap year and as the interest is payable quarterly, 366 would be reckoned four times as denominator.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2A(i) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Answer: (D) Discount on face value

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2024, Q. 6 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (C) 1.67

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2024, Q. 19 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (C) Bonds, Debentures

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2024, Q. 22 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (D) 12.73%

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2024, Q. 25 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (D) None of the above

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2024, Q. 33 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (C) Treasury Bills

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2023, Q. 10 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (B) Promissory Note, Corporates, 1 Yr Gov. Securities Yield

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2023, Q. 13 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (A) 8.97%

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2023, Q. 18 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (C) Property Dividend

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2023, Q. 32 (Financial and Strategic Management paper, Syllabus 2017).

Effective yield = (Coupon rate/ Market price) *100

= (12/109.50) x 100 = 10.96%

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 3(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Demerits of Commercial Paper

1)Commercial Paper is a short term instrument. The duration generally ranges from 7 days to 364 days. Thus it is suited for short term borrowings only.

2)Commercial Paper is an unsecured instrument.

3)Since by nature Commercial paper is unsecured, only financially secure and highly rated organizations can raise money through Commercial Paper. New and moderately rated organizations may not be as successful in raising funds through Commercial Paper

4)The amount of money that can be raised through commercial paper is limited to the deductible liquidity available with the suppliers of funds at a particular point.

5)The duration of commercial paper cannot be extended.

6)Mutual Funds, which are the largest investors, invest only in listed Commercial Paper. Thus in case the Commercial Paper is unlisted, it may lose out on Mutual Funds as investors.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 4(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

An issuer of Green Debt Securities shall:

1)Maintain a decision-making process which it uses to determine the continuing eligibility of the project(s) and/or asset(s). This includes, without limitation a statement on the environmental objectives of the Green Debt Securities and a process to determine whether the project(s) and/or asset(s) meet the eligibility requirements.

2)Ensure that all project(s) and/or asset(s) funded by the proceeds of Green Debt Securities, meet the documented objectives of Green Debt Securities.

3)Utilize the proceeds only for the stated purpose, as disclosed in the offer document.

An issuer of Green Debt Securities or any agent appointed by the issuer, if follows any globally accepted standard(s) for the issuance of Green Debt Securities including measurement of the environmental impact, identification of the project(s) and/or asset(s), utilisation of proceeds, etc., shall disclose the same in the offer document/disclosure document and/or in continuous disclosures.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 4(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Answer: (C) 7.63%

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2023, Q. 26 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (D) None of the above

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2023, Q. 37 (Financial and Strategic Management paper, Syllabus 2017).

Calculation of Working capital

Step No Working Notes:

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 1(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Calculation of Issue Price of Commercial Paper

Face Value (FV) of Commercial Paper : ₹ 5,00,000

Rate of Interest (ROI): 10% p.a.

Period of maturity: 90 Days

(There may be little difference in the final answer due to consideration of digits after decimal)

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 3(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Categorises of projects eligible for issue of Green Debt Securities

Different categories of projects which can be executed with the funds raised through issue of Green Debt includes the following:

a)Renewable and sustainable energy including wind, solar, bioenergy, other sources of energy which use clean technology etc.;

b)Clean transportation including mass/public transportation etc.;

c)Sustainable water management including clean and/or drinking water, water recycling etc.;

d)Climate change adaptation;

e)Energy efficiency including efficient and green buildings etc.;

f)Sustainable waste management including recycling, waste to energy, efficient disposal of wastage etc.;

g)Sustainable land use including sustainable forestry and agriculture, afforestation etc.;

h)Biodiversity conservation;

i)Any other category as may be specified by the SEBI, from time to time.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 3(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Answer: (C) There is a dilution of ownership when a company issue these securities

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2022, Q. 30 (Financial and Strategic Management paper, Syllabus 2017).

ICSI did not treat any of the given options as correct.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2022, Q. 31 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (A) Property Dividend

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2022, Q. 45 (Financial and Strategic Management paper, Syllabus 2017).

Calculation of effective interest yield of Commercial Paper (CP) of MSC Ltd.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 2(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

The recognized stock exchange and depository are identified to act as an Electronic Book Provider (EBP). In order to streamline the procedures for issuance of debt securities on private placement basis and enhance transparency to discover prices, SEBI has laid down a framework for issuance of debt securities on private placement basis through an electronic book mechanism. The obligations and duties of the EBP:

•EBP shall ensure that all details regarding issuance is updated on the website of the EBP.

•EBPs shall together ensure that the operational procedure is standardized across all EBP platforms and the details of such operational procedure are disclosed on their website.

•Where an issuer has disclosed estimated cut-off yield/range to the EBP, the EBP shall ensure its electronic audit trail and secrecy.

•All EBPs shall ensure coordination amongst themselves and also with depositories so as to ensure that the cooling off period for issuers and debarment period for investors is adhered to

•EBP shall ensure that bidding is done.

•The EBP shall be responsible for accurate, timely and secured bidding process of the electronic bid by the bidders.

•The EBP shall be responsible for addressing investor grievances arising from bidding process.

•EBP shall ensure that the pay-in of funds towards allotment of securities, placed through EBP platform, are done through clearing corporation mechanism

PART B

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 4(e) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Answer: (D) 2.5 times

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2022, Q. 12 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (B) 5.6%

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2022, Q. 14 (Financial and Strategic Management paper, Syllabus 2017).

ICSI did not treat any of the given options as correct.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2022, Q. 15 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (C) 12.99%

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2022, Q. 23 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (D) None of the above

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2022, Q. 27 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (C) 1.03

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2022, Q. 50 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (A) Equity share capital, Preference share capital, Retained earnings

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2021, Q. 19 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (A) 2.73%

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2021, Q. 20 (Financial and Strategic Management paper, Syllabus 2017).

Yes, A Ltd. is eligible for issuing Commercial Papers (CPs) as it meets the following conditions, as issued by Reserve Bank of India

(1)the tangible net worth of the company, as per the latest audited balance sheet, is not less than ₹ 4 crore;

(2)company has been sanctioned working capital limit by bank/s or Financial Institutions; and

(3)the borrowal account of the company is classified as a Standard Asset by the financing banks/ institutions.

However, A Ltd. shall obtain credit rating for issuance of CPs from any one of the SEBI registered Credit Rating Agencies.

The minimum credit rating shall be ‘A2' [as per rating symbol and definition prescribed by the Securities and Exchange Board of India (SEBI)] The company shall also appoint an Issuing and Paying Agent for issuance of CPs.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 1(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

CP can be issued in denominations of ₹ 5 lakh and multiples thereof. The amount invested by a single investor should not be less than ₹ 5 lakh (face value). Therefore, the Company can issue CPs for ₹ 4 crore.

While option is available to company to issue/hold CP in dematerialised or physical form, issuers and subscribers are encouraged to opt for dematerialised form of issue/ holding. However, banks, Financial Institutions (Fls) and Primary Dealers (PDs) are required to make fresh investments and hold CP only in dematerialised form.

CP can be issued for maturities between a minimum of 7 days and a maximum of up to one year from the date of issue. The maturity date of the CP should not go beyond the date up to which the credit rating of the issuer is valid. The Company therefore, can issue CPs for a period of 1 year or up to the period for which credit rating will be valid.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 1(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Commercial Paper can be issued in denominations of ₹ 5 lakh and multiples thereof. The amount invested by a single investor should not be less than ₹ 5 lakh (face value). Hence, company cannot issue CPs in denomination of ₹ 1 lakh.

CP may be issued to individuals, banking companies, other corporate bodies (registered or incorporated in India) and unincorporated bodies, Non-Resident Indians and Foreign Institutional Investors (FIIs). The initial investor in CP shall pay the discounted value and not the par value and that too by means of a crossed account payee cheque to the account of the issuer through Issuing and Paying Agent (IPA).

Though CPs can be traded on OTC but all trades shall be reported within 15 minutes of the trade to the reporting platform of Clearcorp Dealing Systems (India) Ltd. (CDSIL).

Additionally, the SEBI has prescribed framework for listing of Commercial Papers. Post listing, CPs will be available for trading on stock exchange's trading platform.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 1(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

A Debt Security shall be considered as “Green or Green Debt Securities”, if the funds raised through issuance of the debt securities are to be utilised for project(s) and/ or asset(s) falling under any of the following broad categories:

(i)Renewable and sustainable energy including wind, solar, bioenergy, other sources of energy which use clean technology etc.;

(ii)Clean transportation including mass/public transportation etc.;

(iii)Sustainable water management including clean and/or drinking water, water recycling etc.;

(iv)Climate change adaptation;

(v)Energy efficiency including efficient and green buildings etc.;

(vi)Sustainable waste management including recycling, waste to energy, efficient disposal of wastage etc.;

(vii)Sustainable land use including sustainable forestry and agriculture, afforestation etc.;

(viii)Biodiversity conservation;

(ix)Any other category as may be specified by SEBI, from time to time.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 3(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Regulation 54 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 deals with Asset Cover for Non-convertible Debt securities which provides that the listed entity shall maintain 100% asset cover or asset cover as per the terms of offer document/Information Memorandum and/or Debenture Trust Deed, sufficient to discharge the principal amount at all times for the non-convertible debt securities issued.

Such entities are also required to disclose to the stock exchange in quarterly, halfyearly, year-to-date and annual financial statements, as applicable, the extent and nature of security created and maintained with respect to its secured listed Non-convertible Debt securities.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 6A(ii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

The issuer of a Green Debt Securities shall make following disclosures:

(i)A statement on environmental objectives of the issue of Green Debt Securities;

(ii)Brief details of decision-making process issuer have followed/would follow for determining the eligibility of project(s) and/or asset(s), for which the proceeds are been raised through issuance of Green Debt Securities. An indicative guideline of the details to be provided is as under:

•process followed/to be followed for determining how the project(s) and/or asset(s) fit within the eligible green projects categories;

•the criteria, making the project(s) and/or asset(s) eligible for using the Green Debt Securities proceeds; and

•environmental sustainability objectives of the proposed green investment.

(iii)Issuer shall provide the details of the system/procedures to be employed for tracking the deployment of the proceeds of the issue.

(iv)Details of the project(s) and/or asset(s) or areas where the issuer, proposes to utilise the proceeds of the issue of Green Debt Securities, including towards refinancing of existing green project(s) and/or asset(s), if any.

(v)The issuer may appoint an independent third party reviewer/certifier, for reviewing/ certifying the processes including project evaluation and selection criteria, project categories eligible for financing by Green Debt Securities, etc. Such appointment is optional and shall be disclosed in the offer document.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2A(ii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 3(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Answer: (D) 4.21%

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2020, Q. 18 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (B) 8.72%

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2020, Q. 23 (Financial and Strategic Management paper, Syllabus 2017).

A vibrant capital market, both equity and bond, has to play an increasingly pivotal role to facilitate fund mobilization for sustaining India’s projected economic growth momentum. The role of corporate bond market becomes even more important now, given the stress on the banking sector.

Keeping in view the larger complementary role that corporate bonds have to play along-side bank credit for financing economic activities, several policy measures have been taken by the Government and the Regulators to develop a vibrant corporate bond market.

Some important measures include:

•Framework for allowing banks to provide Partial Credit Enhancement for enhancing creditworthiness of corporate bonds.

•Information Repositories developed by Exchanges and Depositories to provide consolidated information on primary issuance and secondary market trades in corporate bonds.

•Electronic Book Building mechanism for providing enhanced transparency in issuance of debt securities on private placement basis.

•Enhanced standards for Credit Rating Agencies for timely monitoring of credit quality of bonds

•Specifications related to International Securities Identification Number (ISINs) for debt securities to encourage liquidity and reduce fragmentation of issues.

•Tri-Party Repo trading on Exchanges to enhance liquidity and price discovery in corporate bonds.

•Time taken for listing of public issue of bonds reduced from 12 days to 6 days. And

•Doing away with the requirement of 1% security deposit for public issue of debt securities.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Following are the differences between Commercial Paper and Inter Corporate Deposits:

Commercial Paper (CP) : It is an unsecured money market instrument issued in the form of a promissory note to enable highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors.

Companies, Primary Dealers and financial institutions (FIs) are permitted to raise short-term resources under the umbrella limit fixed by the Reserve Bank of India (RBI) are eligible to issue Commercial Paper.

A company would be eligible to issue Commercial Paper provided:

(a)the tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs. 4 crores;

(b)the company has been sanctioned working capital limit by bank/s or FIs; and

(c)the borrowal account of the company is classified as a Standard Asset by the financing bank/ institution.

Inter Corporate Deposits

Corporates also have access to another market called the Inter Corporate Deposits (ICD) market. An ICD is an unsecured loan extended by one corporate to another. Existing mainly as a refuge for low rated corporates, this market allows corporates with surplus funds to lend to other corporates facing shortage of funds. Another aspect of this market is that the better-rated corporates can borrow from the banking system and lend in this market to make speculative profits. As the cost of funds for a corporate in much higher than that of a bank, thus, the rates in this market are higher than those in the other markets. ICDs are unsecured, and hence the risk inherent is high. The ICD market is an unorganised market with very less information available publicly about transaction details.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2A(iii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Answer: (D) 15.55%

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2019, Q. 19 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (B) ₹ 16 Lakhs

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2019, Q. 29 (Financial and Strategic Management paper, Syllabus 2017).

SEBI has provided certain clarifications on aspects related to day count convention for debt securities issued under the SEBI (Issue and Listing of Debt Securities) Regulations, 2008.

(i)If the interest payment date falls on a holiday, the payment may be made on the following working day however the dates of the future coupon payments would be as per the schedule originally stipulated at the time of issuing the security.

EXAMPLE:-

Date of Issue of Corporate bonds: July 01 2016

Date of Maturity: June 30, 2018

Date of coupon payments: January 01 and July 01

Coupon payable: semi-annually

In this case, January 01, 2017 is a Sunday, thus the coupon would be payable on January 02, 2017 i.e. the next working day. However the calculation for payment of interest will be only till December 31, 2016, which would have been the case if January 01, 2017 were not a holiday. Also, the next dates of payment would remain July 01, 2017 and January 01, 2018 despite the fact that one of the interest payment was made on January 02, 2017.

(ii)In order to ensure consistency for interest calculation, a uniform methodology shall be followed for calculation of interest payments in the case of leap year, which shall be as follows:

In case of a leap year, if February 29 falls during the tenor of a security, then the number of days shall be reckoned as 366 days (Actual/Actual day count convention) for a whole one year period, irrespective of whether the interest is payable annually, half yearly, quarterly or monthly etc.

EXAMPLE:-

Date of issue of corporate bonds: January 01, 2016

Coupon payable : Semi-annually

Date of coupon payments : July 01 and January 01

In the above example, in case of the leap year (i.e, 2016), 366 days would be reckoned as the denominator (Actual/Actual), for payment of interest, in both the half year periods i.e. Jan 01, 2016 to Jul 01, 2016 and Jul 01, 2016 to Jan 01, 2017.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 1(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Corporates also have access to another market called the Inter Corporate Deposits (ICD) market. An ICD is an unsecured loan extended by one corporate to another. Existing mainly as a refuge for low rated corporates, this market allows corporates with surplus funds to lend to other corporates facing shortage of funds. Another aspect of this market is that the better-rated corporates can borrow from the banking system and lend in this market to make speculative profits. As the cost of funds for a corporate in much higher than that of a bank, thus, the rates in this market are higher than those in the other markets. ICDs are unsecured, and hence the risk inherent is high.

The role of regulator in case of default by a company:

1.If company fails to repay, the depositor may apply to Tribunal and tribunal may direct that:

(a)the company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than one crore rupees but which may extend to ten crore rupees; and

(b)every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years or with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees, or with both:

Provided that if it is proved that the officer of the company who is in default, has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he shall be liable for action under section 447 of Companies Act, 2013.

2.Where a company fails to repay the deposit or part thereof or any interest thereon referred to in section 74 of the Companies Act, 2013 within the time specified in sub-section (1) of that section or such further time as may be allowed by the Tribunal under sub-section (2) of that section, and it is proved that the deposits had been accepted with intent to defraud the depositors or for any fraudulent purpose, every officer of the company who was responsible for the acceptance of such deposit shall, without prejudice to the provisions contained in subsection

(3)of that section and liability under section 447 of the Companies Act, 2013,

be personally responsible, without any limitation of liability, for all or any of the losses or damages that may have been incurred by the depositors.

3.Any suit, proceedings or other action may be taken by any person, group of persons or any association of persons who had incurred any loss as a result of the failure of the company to repay the deposits or part thereof or any interest thereon.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 3(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Face Value - Amount Realised (Net)

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 4(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Valuation under NI approach

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 2A(i) (Financial and Strategic Management paper, Syllabus 2017).

Computation of Drawing power of Mukund

For the month of March 2025

Amount in ₹

The sanctioned limit given in the question is ₹ 45000 whereas drawing power as per the above working is ₹ 48000. So drawing power would be restricted to sanctioned limit i.e ₹ 45000.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 3(b) (Syllabus 2022).

Operating Cycle = R + W + F + D - C

Where,

R = Raw material storage period = 65 days

W = Work-in-progress Inventory holding period

F = Finished goods storage period

D = Receivables (Debtors) collection period = 36 days

C = Credit period allowed by suppliers (Creditors) = 63 days

Work-in-progress Inventory holding period (W)

= Average WIP inventory/ Average cost of production per day

= ₹ 94,600/ ( ₹ 15,48,000/360 days)

= 22 days

Finished goods storage period (F)

= Average stock of finished goods/ Average Cost of Goods Sold per day

= ₹ 2,43,500 / ( ₹ 14,61,000/ 360 days)

= 60 days

Net Operating Cycle = 65+22+60+36-63 days = 120 days

No. of operating cycles in year

= No. of days in year/ Operating cycle period

= 360 days/ 120 days

= 3 times

Amount of working capital required

= Annual operating cost/ Number of Operating Cycles

= ( ₹ 14,61,000 + ₹ 4,14,000)/ 3

= ₹ 6,25,000

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 3(c) (Syllabus 2022).

a)Maximum Permissible Banking Finance Method (Tandon Committee) : A committee headed

by Mr. P.L. Tandon, ex-chairman of PNB, was constituted with view to suggest improvement in the existing cash credit system. The Committee submitted its report on guidelines for follow up of credit in August 1974, suggesting three methods of lending as follows:

•1st Method of Lending : 75% of the working capital gap (Working Capital Gap = Total current assets- Total current liabilities other than bank borrowings) is financed by the bank and the balance 25% of the Working Capital Gap considered as margin is to come out of long-term source i.e., owned funds and term borrowings.

•2nd Method of Lending: Bank will finance maximum up to 75% of total current assets (TCA) and borrower has to provide a minimum of 25% of total current assets as the margin out of long-term sources. This will give a minimum current ratio of 1.33:1.

•3rd Method of Lending: This is same as 2nd method of lending, but excluding core current assets from total assets and the core current assets are financed out of longterm funds of the company. The term ‘core current assets’ refers to the absolute minimum level of investment in current assets, which is required at all times to carry out minimum level of business activity.

b)Turnover Method (Nayak Committee) : This method of assessing working capital requirement of a firm is given by “Nayak Committee”. The committee headed by Mr. P.R. Nayak examined the adequacy of institutional credit to SSI sector and gave its recommendations which are as under:

Under this method, bank credit for working capital purposes for borrowers requiring fund based limits up to ₹ 5 crore for Small Scale Industries borrowers and ₹ 2 crore in case of other borrowers, may be assessed at minimum of 25% of the projected annual turnover of which should be provided by the borrower (i.e. minimum margin of 5% of the annual turnover to be provided by the borrower) and balance 4/5th (i.e. 20% of the annual turnover) can be extended by way of working capital finance.

The projected turnover or output value may be interpreted as projected gross sales which will include excise duty also.

Since the bank finance is only intended to support the need based requirement of a borrower, if the available Net Working Capital (net long term surplus funds) is more than 5% of the turnover the former should be reckoned for assessing the extent of bank finance.

***

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 6A(iii) (Syllabus 2022).

Calculation of working capital cycle

Average stock of RM

= 30+22+18+45-30=85 Days

Number of Operating Cycles in a year = 360/85 days = 4.23 = 4 nos. (Approx.)

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 2A(i) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Banks can grant non-funded facilities including partial credit enhancement to customers, not availing fund-based facility from any bank in India under following conditions:

1.Banks are to ensure that the borrower has not availed any fund-based facility from any bank operating in India. At the time of granting non-funded facilities, bank to obtain declaration from the customer about the non-funded credit facilities already enjoyed by them from other banks.

2.Banks are to undertake similar credit appraisal as for fund-based facilities.

3.Credit information relating to such facility shall be mandatorily be furnished to the Credit Information Companies.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 4(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Calculation of Operating Cycle of Verna Trading Limited

₹ in Lakh

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2A(ii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Answer: (C) 80 days

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2024, Q. 45 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (D) 1,52,00,000

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2024, Q. 43 (Financial and Strategic Management paper, Syllabus 2017).

= ₹ 480 lakh

Current Liabilities = Public Deposits (Short-term) + Trade Creditors + Bills Payable

= ₹ 100 Lakh + ₹ 80 Lakh + ₹ 100 Lakh = ₹ 280 lakh

Maximum Permissible Banks Finance under Tandon Committee Norms

Method I

Maximum Permissible Bank Finance = 75% of (Current Assets – Current Liabilities other than bank borrowings)

= 75% of ( ₹ 480 Lakh – ₹ 280 Lakh)

= ₹ 150 lakh

Method II

Maximum Permissible Bank Finance = (75% of Current Assets) – Current Liabilities

= (75 % of ₹ 480 Lakh) – ₹ 280 Lakh

= ₹ 80 lakh

Method Ill

Maximum Permissible Bank Finance = 75% of (Current Assets – Core Current Assets) – Current Liabilities

= 75 % of ( ₹ 480 Lakh – ₹ 30 Lakh) – ₹ 280 Lakh

= ₹ 57.5 lakh

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 5(a) (Syllabus 2022).

(i)Calculation of Net Operating Cycle period of Ganpati Ltd.

Average stock of raw material

Raw Material storage period (R) = Average Cost of Raw Material Consumption per day

₹ 50,000

= 30 days

Average WIP inventory

WIP inventory holding period (W) = Average Cost of Production per day

₹ 30,000

= 21.60 OR 22 days

Average stock of Finished Goods

Finished Goods inventory holding period (F) = Average Cost of Goods sold per day

₹ 40,000

Net Operating Cycle = R + W + F+ D – C

= 30 + 22 + 18 + 45 – 30 = 85 days Number of days in a year

(ii)Number of operating cycles in a year =

Operating cycle period

= 360/85 days

= 4.23 times

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 5(b) (Syllabus 2022).

Answer: (A) 10905750

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2023, Q. 29 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (A) Decrease

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2023, Q. 45 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (B) It is not cash equivalent

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2023, Q. 47 (Financial and Strategic Management paper, Syllabus 2017).

Calculation of Maximum Permissible Bank Finance and decision making

To maintain the minimum current ratio of 1.33, Second method of lending as suggested by Tondon Committee would be used wherein maximum financing by bank can be up to 75% of current assets.

So as per the suggested methodology, Maximum Permissible Bank Finance (MPBF) as per Tondon Committee would be: MPBF = 75% (Current Assets) - Current Liabilities (excluding Bank Borrowings)

MPBF = [Current Assets – Current Liabilities (excluding Bank Borrowings)] – 25% of Current Assets

MPBF would be

Since YBL Ltd. has already availed Maximum Permissible Bank Finance and hence have reached the minimum current ratio of 1.33:1 via borrowings of ₹ 820 Lakhs, the Bank Manager should not sanction the loan request of YBL Ltd.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 1(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Answer: (D) None of the above

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2022, Q. 52 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (D) None of the above

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2022, Q. 20 (Financial and Strategic Management paper, Syllabus 2017).

Calculation of Operating Cycle of Raksha Goods Limited

Operating cycle = Inventory period + Accounts receivable period Inventory period = Average inventory/Cost of goods sold * 365 Average Inventory = ( ₹ 4,00,000 + ₹ 3,80,000)/2 = ₹ 3,90,000

Inventory period = ₹ 3,90,000 / ₹ 1,55,00,000 * 365 = 9.18 days

Average Accounts receivable = ( ₹ 18,00,000 + ₹ 22,50,000)/2 = ₹ 20,25,000

Accounts receivable period = ₹ 20,25,000 / ₹ 2,65,00,000 * 365 = 27.89 days

Operating cycle = 9.18 + 27.89 days = 37.07 days

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

As per Nayak Committee, bank credit for working capital purposes for borrowers requiring fund-based limits up to Rs. 5 crores for Small Scale Industries borrowers and Rs. 2 crores in case of other borrowers, may be assessed at minimum of 25% of the projected annual turnover of which should be provided by the borrower (i.e. minimum margin of 5% of the annual turnover to be provided by the borrower) and balance 4/5th (i.e. 20% of the annual turnover) can be extended by way of working capital finance.

The projected turnover or output value may be interpreted as projected gross sales which will include excise duty also.

Since the bank finance is only intended to support the need-based requirement of a borrower, if the available Net Working Capital (net long-term surplus funds) is more than 5% of the turnover the former should be reckoned for assessing the extent of bank finance.

Computation of Working Capital

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Answer: (D) 85 days

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2021, Q. 40 (Financial and Strategic Management paper, Syllabus 2017).

Overdraft : Overdraft means allowing the customer to draw cheques over and above credit balance in his account. Bank overdraft is line of credit that overs the transaction if the bank account balance drops below zero. Overdraft is normally allowed to Current Account customers and in exceptional cases Savings bank account holders are also allowed to overdraw their account. High rate of interest is charged on daily debit balance of overdraft account as these are clean advances i.e. banks do not have any securities to fall back if these facilities are not repaid. There are two types of overdraft accounts as prevalent in Banks i.e. (i) Temporary overdraft or clean overdraft and (ii) Secured overdraft.

Temporary overdrafts are allowed purely on personal credit worthiness of the customer concerned and it is meant for the customer to meet some urgent commitments on rare occasions. Allowing a customer to draw against his cheques sent in clearing known as “against clearing” also falls under this category. Secured overdraft is allowed up to a certain limit against some tangible security like bank deposits, LIC policies, National Saving Certificates, shares and other similar assets. Secured overdraft is most popular with traders as lesser operating cost, simple application and document formalities are involved in this facility.

Cash Credit Account : A cash credit facility is a short-term finance to a borrower company, having a tenure of up to one year which can be renewed for further period by the bank on the basis of projected sales and satisfactory operation in the account during the period of finance. Cash credit facility is extended in two forms viz. Open Cash Credit and Key Cash Credit. Open Cash credit account is a running account just like a current account where the borrower is allowed to maintain debit balance in the account up to a sanctioned limit or drawing power whichever is lower.

The Cash Credit facility is offered to borrowers normally either against pledge (Key Cash Credit) or hypothecation of stocks of raw materials, semi - finished goods and finished goods and Book Debts (Receivables). This type of limit is offered mainly to traders who find it difficult to maintain stock register and submitting periodic stock statements. In the case of Key Cash Credit, the borrower lodges the stocks in his godown and the key of the godown will be handed over to the bank. By this process, the goods lodged in the godown are pledged to the bank and the bank will allow the customer to draw funds against the value of the goods less margin. This is known as Drawing Power. The pledged goods are allowed to be removed by the borrower on remitting into his CC account the amount equivalent to value of the goods. The bank would release further funds to the borrower within the Drawing Power (DP)/sanctioned limit on borrower depositing (pledge) more stock in the godown. Therefore, such facility is called Key Cash Credit. Cash Credit limits are also sanctioned to a borrower against security of term deposits, LIC policies, National Saving Certificates or Gold Jewels.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2A(i) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Net Working Capital = Current Assets - Current Liabilities i.e Bank Borrowings & Creditors

Net Working Capital = ₹ 7,40,000 - ₹ 6,30,000 = ₹ 1,10,000

(i)Minimum Working Capital required i.e 25% of Sales = 25% of 20,00,000 = ₹ 5,00,000

(ii)Margin or Minimum Borrower’s contribution i.e. 5% of projected sales = 5% of 20,00,000 = ₹ 1,00,000

(iii)Margin or Net Working Capital whichever is higher to be deducted from 25% of Sales i.e. ₹ 5,00,000 – ₹ 1,10,000 = ₹ 3,90,000

So, maximum permissible finance as per Nayak Committee's recommendation in the case under consideration shall be ₹ 3,90,000.

PART B

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 4(e) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Answer: (D) ₹ 450 Lakhs

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2021, Q. 45 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (B) Raw Material, W.I.P., Finished Goods and Receivables Conversion period

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2021, Q. 49 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (B) Current Assets–Current Liabilities

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2021, Q. 50 (Financial and Strategic Management paper, Syllabus 2017).

In respect of borrowers having aggregate fund based working capital limit of Rs. 1500 million and above from the banking system, a minimum level of ‘loan component’ of 40 percent shall be effective from April 1, 2019. Accordingly, for such borrowers, the outstanding ‘loan component’ (Working Capital Loan) must be equal to at least 40 percent of the sanctioned fund based working capital limit, including ad hoc limits and TODs. Hence, for such borrowers, drawings up to 40 percent of the total fund based working capital limits shall only be allowed from the ‘loan component’. Drawings in excess of the minimum ‘loan component’ threshold may be allowed in the form of cash credit facility. The bifurcation of the working capital limit into loan and cash credit components shall be effected after excluding the import credit limits and bills limit for inland sales from the working capital limit. {Ok in terms of page no.200 of module}

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 1(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Generally, wherever the promoter decides to set up another venture, funds are required as promoter’s contribution.

Advantages of taking loans against shares by promoters in a listed company

i)Funds can be raised easily because the shares have liquidity and are easily saleable valuation is determined based on market price. After hair cut/ margin loan against equity is granted by Banks, NBFCs or other entities.

ii)Large funds can be raised.

iii)Share are pledged in favour of lender but voting rights remain with the promoter.

iv)Promoter can make repayment based on the availability of funds.

Disadvantages of taking loans against shares by promoters in a listed company

i)If the market price of the share goes down, the margin has to be maintained. The shortfall is to be met by either additional pledge of shares, or by making repayment of loan to the extent of shortfall.

ii)In case the promoter is not able to fulfil has commitment, the lender has a right to sell the shares to the extent of short fall as per terms and conditions of agreement. Such large scale sale may result into further downtrend in the stock market, thus creating further shortfall.

iii)This situation does not leave any room sometimes with the promoter and the confidence of its shareholders goes down.

iv)Multiplier impact worsen the situation.

v)The promoter has to be disclose details of pledge of its equity and all charges. A higher percentage of pledge may result into confidence shake of the investors.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 3(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Answer: (B) 6 months

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2020, Q. 39 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (D) Tandon Committee

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2020, Q. 41 (Financial and Strategic Management paper, Syllabus 2017).

Working Note:

With this additional borrowing the Current Liabilities shall become Rs. 555 lakhs (300 + 255) and the new Current Ratio shall become 1.33 (740/555).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 1(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Bills Finance and Project Finance are two different methods of financing

Bills Finance

Bills finance is short term and self liquidating finance in nature. The bills can be classified as Demand Bills and Usance Bills. Demand Bill is purchased and Usance bill is discounted by the banks. The credits available to the seller against the bills drawn under Letter of Credit either on sight draft or usance draft are called bills negotiated by the banks. The advantage of bills finance is that the seller of goods (borrower) gets immediate money from the bank for the goods sold by him irrespective of whether it is a purchase, discount or negotiation by the bank. The ‘Demand Bills’ can be documentary or clean. Usually banks accept only documentary bills for purchase. However, clean bills from good parties also purchased by the banks.

The ‘Documentary Bills’ may be drawn by a Seller of Goods (‘Drawer’) on D/P (Delivery against payment) or D/A (Delivery against Acceptance) terms. In case of D/P terms the documents of title to goods are delivered to the buyer of the goods (drawee) against payment of bill amount. In case of D/A bills, the documents to the title of goods are to be delivered to the drawee (Buyer) against acceptance of bills. These types of bills are called “Usance Bills’ which means bills are maturing on a future date and payment will be made on due date. In case of ‘Usance Bills’ bills become clean after it is delivered to drawee on acceptance.

Therefore banks take into consideration the credit worthiness not only of the borrower but also of the drawee.

Project Finance : It is the long-term financing of infrastructure and industrial projects based upon the projected cash flows of the project. Usually, a project financing structure involves a number of equity investors, known as ‘sponsors’, a ‘syndicate’ of banks or other lending institutions that provide loans to the operation. They are most commonly loans which are secured by the project assets and paid entirely from project cash flow, rather than from the general assets or creditworthiness of the project sponsors. The financing is typically secured by all of the project assets, including the revenue-producing contracts. Project lenders are given a lien on all of these assets and are able to assume control of a project if the project company has difficulties complying with the loan terms.

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

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2A(i) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Banks can grant non-funded facilities including partial credit enhancement to customers, not availing fund based facility from any bank in India under following conditions:

1.Banks are to ensure that the borrower has not availed any fund based facility from any bank operating in India. At the time of granting non-funded facilities, bank to obtain declaration from the customer about the non-funded credit facilities already enjoyed by them from other banks.

2.Banks are to undertake similar credit appraisal as for fund based facilities.

3.Credit information relating to such facility shall be mandatorily be furnished to the Credit Information Companies.

PART–B

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 4(e) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Answer: (B) Cash Credit

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2019, Q. 27 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (C) 18 days

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2019, Q. 32 (Financial and Strategic Management paper, Syllabus 2017).

Maximum Bank Borrowings: (Tandon Committee norms)

Under all the 3 methods, the excess bank borrowings can be converted in to long term debt.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 1(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Features of Term Loan

1.Loan in any Currency : These loans are provided both in home or foreign currency. Home currency loans are offered normally for purchase of fixed assets such as land, building, plant and machineries, preliminary and preoperative expenses, technical know-how, working capital etc. On the other hand, foreign currency loans are offered for import of certain plant or machinery, payment of foreign consulting fee etc.

2.Secured Loan : Term loans come under secured category of loans. Two kinds of securities are there –primary and collateral.

3.Loan Installments : Repayment of loan is done in installments. These installments cover both principal and interest. Normally, loan installments are decided by banks based the borrower’s cash flow capacity. There may be installments paid

monthly, quarterly, biannually, or even annually.

4.Maturity : Normally a term loan is ranging between 5 to 10 years. Forecasting for more than 10 years in the current changing business environment is very difficult.

5.Loan Agreement : An agreement is drafted between the borrower and the bank regarding the terms and conditions of the loans which is signed by the borrower and is preserved with the bank.

6.Loan Covenant : Covenants are a part of loan agreement. They are certain statements in the agreement which states about certain do’s and dont’s for the company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 1(b) (Financial and Strategic Management paper, Syllabus 2017).

Calculation of total cost of (400 x 12) 4800 units

Maximum permissible bank finance under second method of financing as per Tandon Committee norms

Rs.

calculated at cost price.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 4(a) (Financial and Strategic Management paper, Syllabus 2017).

(i)Total Letters of Credit (LC) Limit required for the year:

•Estimated raw material purchase = ₹ 400 crore

•LC purchases/Total LC Limit = 80% of ₹ 400 crore = ₹ 320 crore

(ii)Domestic vs. Import LC Requirement

1.Domestic LC

o Share of domestic = ₹ 320 crore – ₹ 128 crore = ₹ 192 crore

o Effective cycle = Lead (1 month) + Transit (1 month) + Usance (1 month) = 3 months

o LC exposure for domestic = ₹ 192 crore × (3 ÷ 12) = ₹ 48 crore

2.Import LC

o Share of imports = 40% of ₹ 320 crore = ₹ 128 crore

o Effective cycle = Lead (60 days) + Transit (30 days) + Usance (90 days) = 180 days = 6 months

o LC exposure for imports = ₹ 128 crore × (6 x 12) = ₹ 64 crore

Total LC Limit (with effective credit cycle) = ₹ 48 crore + ₹ 64 crore = ₹ 112 crore

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 3(a) (Syllabus 2022).

Letter of Credit (LC)

A letter of credit is a document from a bank that guarantees payment. A Letter of Credit is issued by a bank at the request of its customer (importer / buyer) in favour of the beneficiary (exporter/seller). Sometimes, a letter of credit acts as a promissory note from a bank. It represents an obligation taken on by a bank to make a payment once certain criteria are met. Once these terms are completed and confirmed, the bank will transfer the funds to the beneficiary. The letter of credit ensures the payment will be made as long as the services are performed.

Letters of credit are especially important in international trade due to the distance involved and potentially differing laws in the countries of the businesses involved. In these transactions, it is not always possible for the parties to meet in person. The bank issuing the letter of credit holds payment on behalf of the buyer until it receives confirmation that the goods in the transaction have been shipped. Letters of credit are used mostly in international trade agreements, whereas bank guarantees are often used in real estate contracts and infrastructure projects.

Letter of Guarantee (LG) (Bank Guarantees)

Bank guarantees are part of non-fund based credit facilities provided by the bank to the customers. Bank issue bank guarantee on behalf of his client as a commitment to third party assuring her/ him to honor the claim against the guarantee in the event of the nonperformance by the bank's customer. A Bank Guarantee is a legal contract which can be imposed by law. The banker as guarantor assures the third party (beneficiary) to pay him a certain sum of money on behalf of his customer, in case the customer fails to fulfil his commitment to the beneficiary. Bank guarantees represent a more significant contractual obligation for banks than letters of credit do.

A bank guarantee, like a letter of credit, guarantees a sum of money to a beneficiary; however, unlike a letter of credit, the sum is only paid if the opposing party does not fulfil the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to non- performance by the other party in a contract.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 6A(i) (Syllabus 2022).

SEBI vide circular dated 3rd July, 2024 modified the relevant clauses of Chapter V of the Master Circular dated May 22, 2024, issued by SEBI which prescribes provisions pertaining to denomination of issuance and trading of non-convertible securities.

SEBI vide this circular has made the following changes:

1.This amendment inserts a provision allowing the issuance of debt securities or non-convertible redeemable preference shares at a face value of ₹ 10,000 on a private placement basis, subject to specific conditions that include the appointment of at least one Merchant Banker, ensuring the security is interest/ dividend bearing with fixed maturity, and allowing various credit enhancements like guaranteed bonds, Standby Letter of Credit (SBLC) backed securities, and others.

2.The amendment permits several credit enhancements to make these securities more attractive to investors. These include guaranteed bonds, partially guaranteed bonds, SBLC backed securities, debt backed by pledges of shares or other assets, and more. Credit Rating Agencies (CRAs) are tasked with verifying the documentation related to these enhancements to ensure they are unconditional, irrevocable, legally enforceable, and that the support provider has a lower probability of default compared to the issuer.

3.For issuers with valid shelf placement memoranda or General Information Documents (GID) as of the effective date of the circular, funds can be raised through trade placement memoranda or Key Information Documents at a face value of ₹ 10,000, provided due diligence is carried out by a Merchant Banker.

Deletion of clauses:

The circular deletes clauses 2.1 and 2.2 of Chapter V of the Master Circular, which previously mandated face values of ₹ 1 lakh and ₹ 1 crore for listed securities traded on stock exchanges or OTC basis, respectively. Clause 2.3 is modified to state that the trading lot of listed debt securities and non-convertible redeemable preference shares issued on a private placement basis will always be equal to their face value.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 6(a) (Syllabus 2022).

Total raw materials (procured from Faridabad) purchased during 2025-26 = ₹ 180 crore

Annual consumption of raw materials purchased under LC = ₹ 60 crore

Average monthly purchase of raw materials under LC = 60/12 = ₹ 5 crore

Lead time = 10 days

Transit time = 20 days

Credit (Usance) period available = 2 months

Total period= 10 days+20 days+2 months= 3 months (Assuming 30 days in a month)

Hence requirement of LC for the year = ₹ 5 crore x 3 months = ₹ 15 crore

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 3(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Calculation of ILC & FLC limits of Casino Ltd for FY 2025-26

Raw material required for FY 2025-2026 is ₹ 400 crore, of which 80% is procured through LC i.e. ₹ 320 crore

Total LC limit required for the year = 56+56= ₹ 112 crore.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 3(a) (Syllabus 2022).

Letter of Credit (LC)

A letter of credit is a document from a bank that guarantees payment. A Letter of Credit is issued by a bank at the request of its customer (importer / buyer) in favour of the beneficiary (exporter / seller). It is an undertaking/ commitment by the bank, advising/ informing the beneficiary that the documents under a letter of credit would be honoured, if the beneficiary (exporter) submits all the required documents as per the terms and conditions of the letter of credit.

•A letter of credit, sometimes referred to as a documentary credit, acts as a promissory note from a bank.

•It represents an obligation taken on by a bank to make a payment once certain criteria are met. Once these terms are completed and confirmed, the bank will transfer the funds.

•The letter of credit ensures the payment will be made as long as the services are performed.

•Letters of credit are especially important in international trade due to the distance involved and potentially differing laws in the countries of the businesses involved. In these transactions, it is not always possible for the parties to meet in person.

•The bank issuing the letter of credit holds payment on behalf of the buyer until it receives confirmation that the goods in the transaction have been shipped.

•Letters of credit are used mostly in international trade agreements; bank guarantees are often used in real estate contracts and infrastructure projects.

Bank Guarantees

Bank guarantees are part of non-fund based credit facilities provided by the bank to the customers. Bank issue bank guarantee on behalf of his client as a commitment to third party assuring her/ him to honour the claim against the guarantee in the event of the non- performance by the bank’s customer. A Bank Guarantee is a legal contract which can be imposed by law. The banker as guarantor assures the third party (beneficiary) to pay him a certain sum of money on behalf of his customer, in case the customer fails to fulfil his commitment to the beneficiary.

•Bank guarantees represent a more significant contractual obligation for banks than letters of credit do.

•A bank guarantee, like a letter of credit, guarantees a sum of money to a beneficiary; however, unlike a letter of credit, the sum is only paid if the opposing party does not fulfil the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to non-performance by the other party in a contract.

•Bank guarantees insure both parties in a contractual agreement from credit risk. For instance, a construction company and its cement supplier may enter into a new contract to build a mall.

•Both parties may have to issue bank guarantees to prove their financial stance and capability. In a case where the supplier fails to deliver cement within a specified time, the construction company would notify the bank, which then pays the company the amount specified in the bank guarantee.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2A(i) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Assessment of Limit of Bank Guarantee: -

(in ₹ Lakh)

Hence, in the given circumstances the requirement of Bank Guarantee by ABC Ltd. is ₹ 945 Lakh which is within the sanctioned Bank Guarantee ₹ 950 lakh. As a result, there is no necessity to increase the Bank Guarantee limit.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 5(a) (Syllabus 2022).

A listed entity which has outstanding long term borrowings of ₹ 1000 crore or above shall be considered as Large Corporate (LC). Further, an LC shall raise not less than 25% of its qualified borrowings by way of issuance of debt securities in the financial years subsequent to the financial year in which it is identified as an LC.

Accordingly, the mandatory incremental borrowings of BDE Ltd. (LC) shall be 25% of incremental borrowings i.e. 25% of ₹ 500 Crore = ₹ 125 Crore

If a Large Corporate (LC) exceeds the 25% borrowing requirement in the three-year block, it is entitled to incentives such as reduced annual listing fees and a credit in the form of a reduction in the contribution to the Core Settlement Guarantee Fund (SGF) of LPCC (Limited Purpose Clearing Corporation) and in case if it fails to meet the 25% incremental requirement, it faces a disincentive in the form of an additional contribution to the Core Settlement Guarantee Fund (SGF) of LPCC. These are staggered over future periods.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 1(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Assessment of Limit of Bank Guarantee: -

Hence, in the given circumstances the requirement of Bank Guarantee by SCL Ltd. is ₹ 830 Lakh which is within the sanctioned Bank Guarantee ₹ 850 lakh. As a result, there is no necessity to increase the Bank Guarantee limit.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2A(iii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Galaxy Ltd.

(Amount in ₹ Crore)

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 5(c) (Syllabus 2022).

Some of the purposes for which Bank Guarantees are issued are:

(i)To secure any claims by the buyer on the seller arising from default in delivery or performance of the terms of the contract (e.g. construction, assembly, execution).

(ii)Due performance of a specific contract undertaken by a customer in favour of Government bodies/ Others. For example supply of materials, Construction of Roads, Buildings Dams, Civil Work, etc.

(iii)Due performance of an equipment/project after completion for a specific period due to possible defects appearing after delivery during warranty period of the equipment's.

(iv)Execution of Long Term Infrastructure Projects such as Seaports, Airports, Road Construction, Bridges, Sanitation and Sewerage Projects, Telecommunication Services, Construction of Educational Institutions and Hospitals, Generation/ Transmission/ Distribution of Power, etc.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 4(d) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Difference between fund based and non-fund based credit facilities

In Fund based credit facility, there is cash outflow right from the initial stage. The examples of funded facility are term loan, cash credit and bill purchased or bill discounting. When a term loan is disbursed, cash credit facility is sanctioned or a bill is purchased or discounted cash flow takes place. The income earned by the banks when they extend funded facilities to the borrowers, is accounted under income head interest (in case of term loans and cash credits) and discount (in case of bill discounting facility).

In Non-fund based facility, initially there is no cash outflow, later on there may or may not be cash outflow. The examples of non-fun based facility are Bank Guarantees (BGs) including deferred payment guarantees and Letter of Credit (LCs). When BG or LC is issued, there is no cash out flow. However, latter on if the guarantee is invoked by the beneficiary, the bank will have to make the payment under the guarantee at times even if there is no balance in the account of customer. Similarly, when bills negotiated under LC are due for payment the bank may have to honour the same at times by creating forced loan in the account of the buyer on whose behalf Letter of Credit is issued. The income earned by banks while issuing bank guarantees or LCs is accounted under the income head “commission”. Non-Fund based credit facilities to non- borrowers of the bank.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 2A(i) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Red Clause Letter of Credit

Red clause letter of credit is an advance payment letter of credit. Under the red clause letter of credit, the issuing bank will make an advance payment to the exporter i.e. the seller before the seller ships the goods to the importer i.e. buyer. This is usually done to provide aid to the seller in the form of working capital to purchase raw material, processing and packaging of goods, etc. The advance payment will be done against documentary requirement under the red clause letter of credit. Generally, documents required are written undertaking and receipts.

Green Clause Letter of Credit

Green clause letter of credit is an extension of the red clause letter of credit, as it provides the advance of not only the purchase of raw materials, processing and packaging of goods, but it also takes into account pre-shipment warehousing at the port of origin and insurance expenses.

In usual cases, the advance under this letter of credit is granted only after the purchased goods are stored in bonded warehouses. This type of letter of credit is usually used in transactions related to commodity market such as wheat, rice, gold, etc.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 2A(ii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Financial Bank Guarantee

A financial guarantee assures repayment of money. The banker issues guarantee in favour of a government department against caution deposit or earnest money to be deposited by bank's client. At the request of his customer, in lieu of a caution deposit/ earnest money, the banker issues a guarantee in favour of the government department. This type of guarantee helps the bank's customer to bid for the contract without depositing actual money. In case, the contractor does not take up the awarded contract, then the government department would invoke the guarantee and claim the money from the bank.

Performance Bank Guarantee

A performance guarantee provides an assurance of compensation in the event of inadequate or delayed performance on a contract. Performance Guarantees are issued by banks on behalf of their clients. In performance guarantee, the bank issues on behalf of his client to assure the third party to complete some work on time or as per the terms of the contract between the parties. If the work is not completed as per the terms of the contract, then the third party can request the bank to invoke the bank guarantee and make payment for default.

Performance Bank Guarantees are issued guaranteeing due performance of contract or obligation of the borrower under the contract. In the event of non-performance of obligation in terms of the contract, the bank assumes monetary liability up to the amount specified in the Guarantee.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 2A(iii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Calculation of Inland & Foreign Letter of Credit Limit of Gulab Ltd. for the Financial Year 2021-22

Annual Raw Material Consumption for

* ILC = Inland Letter of Credit

* FLC = Foreign Letter of Credit

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 3(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Computation of Bank Guarantee limit of Moon Ltd for Financial Year 2021-22

Amount in ₹

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 4(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Computation of Bank guarantee limits as on March 31, 2020

Notes:

•₹ 92 crores have been considered as the opening bank guarantees outstanding as on April 1, 2019

•Additions during the year include ₹ 8 crore and ₹ 2 crore bank Guarantee provided towards the interest with the income-tax department

•₹ 14 crores have not been considered separately, as it was provided during the earlier years and is included in the opening guarantees as on April 01, 2019

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Bank guarantee and a letter of credit are similar in many ways but they are two different things. Letters of credit ensure a transaction proceeds as planned, while bank guarantees reduce the loss if the transaction doesn’t go as planned. Therefore, the Letter of Credit (LC) and Letter of Guarantee (LG) are not one and same. There are some differences between the LC and LG which are as under:

Letter of Credit (LC)

A letter of credit is a document from a bank that guarantees payment. A Letter of Credit is issued by a bank at the request of its customer (importer / buyer) in favour of the beneficiary (exporter / seller). It is an undertaking/ commitment by the bank, advising/ informing the beneficiary that the documents under a letter of credit would be honoured, if the beneficiary (exporter) submits all the required documents as per the terms and conditions of the letter of credit.

•A letter of credit, sometimes referred to as a documentary credit, acts as a promissory note from a bank.

•It represents an obligation taken on by a bank to make a payment once certain criteria are met. Once these terms are completed and confirmed, the bank will transfer the funds to the beneficiary.

•The letter of credit ensures the payment will be made as long as the services are performed.

•Letters of credit are especially important in international trade due to the distance involved and potentially differing laws in the countries of the businesses involved. In these transactions, it is not always possible for the parties to meet in person.

•The bank issuing the letter of credit holds payment on behalf of the buyer until it receives confirmation that the goods in the transaction have been shipped.

•Letters of credit are used mostly in international trade agreements, whereas bank guarantees are often used in real estate contracts and infrastructure projects.

Letter of Guarantee (LG) (Bank Guarantees)

Bank guarantees are part of non-fund based credit facilities provided by the bank to the customers. Bank issue bank guarantee on behalf of his client as a commitment to third party assuring her/ him to honour the claim against the guarantee in the event of the non- performance by the bank's customer. A Bank Guarantee is a legal contract which can be imposed by law. The banker as guarantor assures the third party (beneficiary) to pay him a certain sum of money on behalf of his customer, in case the customer fails to fulfil his commitment to the beneficiary.

•Bank guarantees represent a more significant contractual obligation for banks than letters of credit do.

•A bank guarantee, like a letter of credit, guarantees a sum of money to a beneficiary; however, unlike a letter of credit, the sum is only paid if the opposing party does not fulfil the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to nonperformance by the other party in a contract.

•Bank guarantees insure both parties in a contractual agreement from credit risk. For instance, a construction company and its cement supplier may enter into a new contract to build a mall.

•Both parties may have to issue bank guarantees to prove their financial stance and capability. In a case where the supplier fails to deliver cement within a specified time, the construction company would notify the bank, which then pays the company the amount specified in the bank guarantee.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 3(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Letter of Credit Limit : Letter of credit (LC) is a method of settlement of payment of a trade transaction and is widely used to finance purchase of raw material, machinery etc. It contains a written undertaking by the bank on behalf of the purchaser to the seller to make payment of a stated amount on presentation of stipulated documents and fulfilment of all the terms and conditions incorporated therein. Letters of credit thus offers both parties to a trade transaction a degree of security. The seller can look forward to the issuing bank for payment instead of relying on the ability and willingness of the buyer to pay.

Bank Guarantee Limit : Appraisal of proposals for Bank guarantees is done with same diligence as in the case of fund-based limits. Whenever an application for the issue of bank guarantee is received, Bank examine & satisfy the following aspects:

a)The need of the bank guarantee & whether it is related to the applicant's normal trade/business.

b)Whether the requirement is one time or on the regular basis.

c)The nature of bank guarantee i.e., financial or performance.

d)Applicant's financial strength/ capacity to meet the liability/ obligation under the bank guarantee in case of invocation.

e)Past record of the applicant in respect of bank guarantees issued earlier, e.g., instances of invocation of bank guarantees, the reasons thereof, the customer's response to the invocation, etc.

f)Present outstanding on account of bank guarantees already issued.

g)Margin

h)Collateral security offered.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2A(iii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Documents handed under letter of credit-

(i)Bill of exchange

(ii)Commercial invoice

(iii)Transport document

(iv)Bill of lading

(v)Insurance Policy / Certificate

(vi)Certificate of origin

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 4(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Sr. No. Particulars

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 1(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Indian Company will not succeed , since the foreign LC is subject to Uniform Customs and Practices for Documentary Credit (UCPDC 600) as per the guidelines of International Chamber of Commerce (ICC). According to which LC is not payment against goods but only payment against documents. As far as the Bank is concerned, the documents as called for in the LC have been presented by the seller and there is no internecine discrepancy among the documents. Because of this he will not be held liable for short shipment of the goods, physically.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 1(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Letter of Credit : A letter of credit, sometimes referred to as a documentary credit, acts as a promissory note from a bank. It represents an obligation taken on by a bank to make a payment once certain criteria are met. Once these terms are completed and confirmed, the bank will transfer the funds. The letter of credit ensures the payment will be made as long as the services are performed.

Bank Guarantee : Bank guarantees are part of non-fund based credit facilities provided by the bank to the customers. Bank issue bank guarantee on behalf of his client as a commitment to third party assuring her/ him to honour the claim against the guarantee in the event of the non- performance by the bank’s customer. A Bank Guarantee is a legal contract which can be imposed by law. The banker as guarantor assures the third party (beneficiary) to pay him a certain sum of money on behalf of his customer, in case the customer fails to fulfill his commitment to the beneficiary.

While letters of credit are used mostly in international trade agreements, bank guarantees are often used in real estate contracts and infrastructure projects.

Both bank guarantees and letters of credit work to reduce financial risk.

(Note : Student may read as Letter of Credit instead of Letter of Guarantee in Question No. 2A(ii)).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2A(ii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Bill Discounting and Factoring

Commercial bills are basically negotiable instruments accepted by buyers for goods or services obtained by them on credit. Such bills being bills of exchange can be kept up to the maturity date and encashed by the seller or may be endorsed to a third party in payment of dues owing to the latter. The most common practice is that the seller who gets the accepted bills of exchange discounts it with the Bank or financial institution or a bill discounting house and collects the money (less interest charged for the discounting).

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

***

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 6A(iii) (Syllabus 2022).

Working Notes :

Average level of receivables = ₹ 360 lakhs x 30/360 = ₹ 30 lakhs

Factoring commission = 1% of ₹ 30,00,000 = ₹ 30,000

Reserve = 10% of ₹ 30,00,000 = ₹ 3,00,000

Total (i) = ₹ 3,30,000

Thus, the amount available for advance is:

Average level of receivables = ₹ 30,00,000

Less : Total (i) from above = ₹ 3,30,000

(ii)Amount available for advance = ₹ 26,70,000

Less: Interest @ 15% p.a. for 30 days = ₹ 33,375

Net amount of advance available = ₹ 26,36,625

Evaluation of Factoring Proposal

Since the savings to the firm exceed the cost to the firm on account of factoring, therefore, the proposal is acceptable.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 4(a) (Syllabus 2022).

Net Annual Cost of Funding through the Factoring of receivables

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 1(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

1.Computation of amount financed (Amount ₹ )

Annual Sales = ₹ 60 lakh

Cash sales 20% ( ₹ 12 lakh), credit sales 80% = ₹ 48 lakh

Credit sales per month = 48/12= ₹ 4 lakh

Finance available in both the situation 90% of credit sales= ₹ 3.60 lakh (per month)

2.Factoring Cost

Fees payable to the factor = ₹ 3.60 lakh x 1% = ₹ 3,600

Processing charges = 4% on monthly debtors= ₹ 4 lacs x 4% = ₹ 16,000

Total cost = ₹ 16,000 + ₹ 3,600 = ₹ 19,600

Less: Savings in debt management costs = ₹ 21600 per year or 21600/12

= ₹ 1,800 per month

Savings in book debts = 1% of total debtors = ₹ 4 lakh x 1% = ₹ 4,000

Hence, Net factoring cost= ₹ 19,600 – ( ₹ 1,800 + ₹ 4,000) = ₹ 13,800

3.Cost of Bank borrowing (working capital against book debts)

Limit sanctioned = 90% of book debts = 90% x ₹ 4,00,000 = ₹ 3,60,000

Interest payable @ 12% = ₹ 3,60,000 x12% = ₹ 43,200

Per month interest payable= 43,200/12 = ₹ 3,600

Processing fee = 2% x ₹ 4,00,000 = ₹ 8,000

Total cost of bank finance = ₹ 3,600 + ₹ 8,000 = ₹ 11,600

Advice: Since cost of Bank finance is less than that of cost of factoring, company can opt for bank funding.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 5(a) (Syllabus 2022).

Invoice Amount = ₹ 2 Crore

Amount that can be received from Blue Ltd. as advance

= 80% of ₹ 2 Crore

= ₹ 1.6 Crore

Quoted discount rate: 2% flat discount Rate for the first 30 days and at 3% flat discount rate for next 30 days afterwards (Assuming factoring is allowed @ 3% discount for next 30 days)

The fee on ₹ 2 Crore invoice if it is paid in 60 days would be:

Total factoring cost / fee for DAL Ltd. = ₹ 10 lakh

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2A(ii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Answer: (D) 1,26,000

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2023, Q. 23 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (A) Factoring

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2023, Q. 27 (Financial and Strategic Management paper, Syllabus 2017).

Net Annual Cost of Funding from the Factoring of receivables

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 1(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 1(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

If terms of agreement are negotiated from Recourse Factoring to Non-Recourse Factoring keeping the other terms of agreement same, it is advisable to opt for ‘on Non - recourse basis’ clause since it will reduce the effective cost of factoring to 17.02% (19.02% -2.00%) which is lower than the cost of Short Term Loan i.e 18%.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 1(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Answer: (C) Outright sale of accounts receivables to a financial agency

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2021, Q. 44 (Financial and Strategic Management paper, Syllabus 2017).

Bill Discounting : Commercial bills are basically negotiable instruments accepted by buyers for goods or services obtained by them on credit. Such bills being bills of exchange can be kept upto the maturity date and encashed by the seller or may be endorsed to a third party in payment of dues owing to the latter. The most common practice is that the seller who gets the accepted bills of exchange discounts it with the Bank or financial institution or a bill discounting house and collects the money (less the interest charged for the discounting).

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

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2A(i) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Cost of Factoring

(A)₹ 34,800 Less : Savings in Cost:

(B)₹ 7,000

Since cost of Bank Finance is less than the cost of factoring, therefore, it is advisable to accept bank offer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2A(ii) (Financial and Strategic Management paper, Syllabus 2017).

Forfaiting and Export Factoring

Forfaiting is similar to cross border factoring or export factoring to the extent both have common features of non recourse and advance payment. But they differ in several important respects:

a.A forfaiter discounts the entire value of the note/bill but the factor finances between 75-85% and retains a factor reserve which is paid after maturity.

b.The availing bank which provides an unconditional and irrevocable guarantee is a critical element in the Forfaiting arrangement whereas in a factoring deal, particularly non-recourse type, the export factor bases his credit decision on the credit standards of the exporter.

c.Forfaiting is a pure financing arrangement while factoring also includes ledger administration, collection and so on.

d.Factoring is essentially a short term financing deal. Forfaiting finances notes/ bills arising out of deferred credit transaction spread over three to five years.

e.A factor does not guard against exchange rate fluctuations; a forfaiter charges a premium for such risk.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 3(a) (Financial and Strategic Management paper, Syllabus 2017).

Regulation 24 of the SEBI ( Issue and Listing of Non-Convertible Securities) Regulations, 2021 deals with the Obligation of Debenture Trustee as under:

1.The debenture trustee shall be vested with the requisite powers for protecting the interest of holders of NCRPS including a right to appoint a nominee director on the Board of the issuer in consultation with holders of such securities and in accordance with applicable law.

2.The debenture trustees shall supervise the implementation of the conditions regarding creation of security for the securities, if secured .

3.The debenture trustee shall monitor the payment of dividend as well as the security cover in relation to secured NCRPS in the manner as specified by the Board (if secured).

4.The Debenture Trustee shall monitor disclosures made to shareholders by the company directly and on its website / websites of Stock Exchanges.

5.The Debenture Trustee shall ensure that any change in terms of issuance of the NCRPS is communicated to the holders and the same is approved by them as per the requirements of the SEBI LODR Regulations.

PART-B

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 4(e) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Meaning of Large Corporate Entities and disclosure

A Large Corporate means a listed entity (except for scheduled commercial banks):

a)having its specified securities or debt securities or non-convertible redeemable preference shares, listed on a recognised stock exchange(s) in terms of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015; and

b)have an outstanding long term borrowing of 100 crore or above, where outstanding long-term borrowings shall mean any outstanding borrowing with original maturity of more than one year and shall exclude external commercial borrowings and inter-corporate borrowings between a parent and subsidiary(ies); and

c)have a credit rating of “AA and above” where credit rating shall be of the unsupported bank borrowing or plain vanilla bonds of an entity, which have no structuring/ support built in; and in case, where an issuer has multiple ratings from multiple rating agencies, the highest of such ratings shall be considered.

A listed entity, identified as a Large Corporate under the instant framework, shall make the following disclosures to the stock exchanges, where its security(ies) are listed:

a)Within 30 days from the beginning of the financial year, disclose the fact that they are identified as a LC in the format specified by the SEBI.

b)Within 45 days of the end of the financial year, the details of the incremental borrowings done during the financial year in the format specified by the SEBI.

The above disclosures shall be certified both by the Company Secretary and the CFO of the Large Corporates.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 2(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Part A of Chapter IV of SEBI (Issue and Listing of Non- Convertible Securities) Regulation 2021 deals with the Conditions for listing of Non-Convertible Redeemable Preference shares on Private placement basis

The issuer shall forward the listing application along with the disclosures as per this regulation to the stock exchange(s) within such days as may be specified by the SEBI from the date of closure of the issue. However, in case of delay in listing of such securities beyond such time period as may be specified by the SEBI from the date of closure of the issue, the issuer shall pay an additional interest/dividend at the rate as may be specified by the SEBI from time to time, over and above the coupon/dividend applicable for such securities.

Regulation 45 of SEBI (Issue and Listing of Non- Convertible Securities) Regulation 2021 states that the issuer making a private placement of debt securities and nonconvertible redeemable preference shares and seeking listing thereof on a recognised stock exchange shall make the following disclosures in the placement memorandum:

(a)disclosures specified in Schedule II of these regulations;

(b)disclosures specified in the Companies Act, 2013 (18 of 2013), as applicable;

(c)additional disclosures as may be specified by the SEBI.

The disclosures as mentioned above shall be made on the websites of stock exchange(s) where such securities are proposed to be listed and shall be available for download in PDF or any other format as may be specified by the SEBI.

(3)The issuer shall ensure that the audited financial statements contained in the

placement memorandum and tranche placement memorandum shall not be more than six months old from the date of filing placement memorandum or the issue opening date, as applicable:

However, in case of:

a)listed issuers (whose non-convertible securities or specified securities are listed on recognised stock exchange(s)), who are in compliance with the listing regulations;

b)the issuers of non-convertible securities, who are subsidiaries of entities who have listed their specified securities, and are in compliance with the listing regulations, instead of audited financial statements for the stub period, they may disclose unaudited

financial information for such period in the format as prescribed in the listing regulations with limited review report, as filed with the stock exchange(s), subject to necessary disclosures in this regard in the placement memorandum including risk factors.

PART - B

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 4(e) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Issuance and listing of Non-Equity Regulatory Capital Instruments by Banks

The provisions of Chapter VI of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013 shall apply to the issuance and listing of Perpetual Non-Cumulative Preference Shares and Innovative Perpetual Debt Instruments by banks. No issuer other than a bank shall issue such instruments subject to the prior approval and in compliance with the Guidelines issued by RBI.

(a)If a bank is incorporated as a company under Companies Act, 2013, it shall, in addition, comply with the provisions of Companies Act, 2013 and/or other applicable statues.

(b)The bank shall comply with the terms and conditions as may be specified by SEBI from time to time and shall make adequate disclosures in the offer document regarding the features of these instruments and relevant risk factors and if such instruments are listed, shall comply with the listing requirements.

Alternate Answer

Conditions for Issuance and listing of Perpetual Debt Instruments, Perpetual Noncumulative Preference Shares and Similar Instruments

Issuers permitted by the RBI to issue perpetual debt instruments, perpetual noncumulative preference shares and instruments of similar nature forming part of non-equity regulatory capital may list such instruments after complying with the conditions stipulated under chapter V of SEBI ( Issue and Listing of Non-Convertible Securities) Regulations, 2021.

An issuer may issue such instruments in compliance with the guidelines issued by the RBI and/or any other relevant applicable laws.

Issuers of these securities shall be required to make the disclosures as specified under Schedule II of SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 202; any disclosure as provided under the guidelines framed by the RBI or the Companies Act, 2013 (18 of 2013), as applicable; and any other disclosures as may be specified by the SEBI.

The issuer shall comply with the terms and conditions as may be specified by the SEBI from time to time and shall make adequate disclosures in the offer document regarding the features of these instruments and relevant risk factors and if such instruments are listed, shall comply with the listing regulations.

The SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 have come into force vide SEBI notification dated August 09, 2021 and SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013) stands repealed.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 4(d) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Regulation 3 of the SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013 (NCRPS Regulations) extends the applicability of Regulations to issue and listing of Perpetual Non-Cumulative Preference Shares and Perpetual Debt Instrument, issued by banks on private placement basis in compliance with Guidelines issued by Reserve Bank of India.

The provisions of Chapter VI of SEBI NCRPS Regulations may, apply to the issuance and listing of Perpetual Non-Cumulative Preference Shares and Innovative Perpetual Debt Instruments by Banks. No issuer other than a Bank shall issue these instruments. RBI guidelines allow banks to raise capital by issue of non-equity instruments such as Perpetual Non-Cumulative Preference Shares and Innovative Perpetual Debt Instruments. These instruments need to be in compliance with the specified criteria for inclusion in Additional Tier I Capital. A Bank may issue such instruments subject to the prior approval and in compliance with the Guidelines issued by Reserve Bank of India:

•If a bank is incorporated as a company under Companies Act, 1956 / 2013, it shall, in addition, comply with the provisions of Companies Act, 2013 and/or other applicable statues.

•The bank shall comply with the terms and conditions as may be specified by the Board from time to time and shall make adequate disclosures in the offer document regarding the features of these instruments and relevant risk factors and if such instruments are listed, shall comply with the listing requirements.

Accordingly, Dharmadhi Bank can issue perpetual non-convertible preference shares subject to fulfilment of the conditions as stated above.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 4(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Flow Chart for Issuance of Non-Convertible Redeemable Preference Shares under the SEBI (Non-Convertible Redeemable Preference Shares) Regulations, 2013 is as under:

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 3(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

An issuer may list its non-convertible redeemable preference shares issued on private placement basis on a recognized stock exchange subject to the following conditions as provided under the SEBI (Issue & Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013:

a)the issuer has issued such non-convertible redeemable preference shares in compliance with the provisions of the Companies Act, 2013 rules prescribed thereunder and other applicable laws;

b)credit rating has been obtained in respect of such non-convertible redeemable preference shares from at least one credit rating agency registered with the

SEBI. Where credit ratings are obtained from more than one credit rating agencies, all the ratings shall be disclosed in the offer document;

c)the non-convertible redeemable preference shares proposed to be listed are in dematerialized form;

d)the disclosures as provided in Regulation 18 of the SEBI (Non-Convertible Redeemable Preference Shares) Regulations, 2013 have been made;

e)the minimum application size for each investor is not less than ten lakh rupees;

f)the issuer shall create a capital redemption reserve in accordance with the provisions of the Companies Act, 2013;

g)the issuer shall not issue non-convertible redeemable preference shares for providing loan to or acquisition of shares of any person who is part of the same group or who is under the same management, other than to subsidiaries of the issuer, and

h)where the application is made to more than one recognised stock exchange, the issuer shall choose one of them as the designated stock exchange.

The issuer shall comply with conditions of listing of such non-convertible redeemable preference shares as specified in the Listing Agreement with the stock exchange where such non-convertible redeemable preference shares are sought to be listed.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 4(d) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

The issuer may provide the facility for subscription of application in electronic mode.

An issuer proposing to issue non-convertible redeemable preference shares to the public through the on-line system of the designated stock exchange shall comply with the relevant applicable requirements as may be specified by SEBI, which are as under:.

All the investors applying in a public issue shall use only Application Supported by Blocked Amount (ASBA) facility for making payment i.e. writing their bank account numbers and authorising the banks to make payment in case of allotment by signing the application forms. An investor, intending to subscribe to a public issue, shall submit a completed bid-cum application form to Self-Certified Syndicate Banks (SCSBs), with whom the bank account to be blocked is maintained or any of the following intermediaries:

(i)A syndicate member (or sub-syndicate member)

(ii)A stock broker registered with a recognised stock exchange

(iii)A depository participant ('DP')

(iv)A registrar to an issue and share transfer agent ('RTA')

General Conditions to issue non-convertible redeemable preference shares

1.No issuer shall make any public issue of non-convertible redeemable preference shares if as on the date of filing of draft offer document or final offer document,

(a)the issuer or the person in control of the issuer or its promoter or its director is restrained or prohibited or debarred by the Board from accessing the securities market or dealing in securities; or

(b)the issuer or any of its promoters or directors is a wilful defaulter or it is in default of payment of interest or repayment of principal amount in respect of non-convertible redeemable preference shares issued by it to the public, if any, for a period of more than six months.

2.No issuer shall make a public issue of non-convertible redeemable preference shares unless the following conditions are satisfied, as on the date of filing of draft offer document and final offer document:

(a)it has made an application to one or more recognized stock exchanges for listing of such securities being issued and where the application is made to more than one recognized stock exchange, the issuer shall choose one of them as the designated stock exchange. In case any of such stock exchanges have nationwide trading terminals, the issuer shall choose one of them as the designated stock exchange. The issuer is however free to choose a different stock exchange as a designated stock exchange for any subsequent public issue.

(b)it has obtained in-principle approval for listing of its non-convertible redeemable preference shares on the recognized stock exchanges where the application for listing has been made.

(c)it has obtained a credit rating from at least one credit rating agency registered with SEBI and is disclosed in the offer document. In case the issuer company has obtained credit ratings from more than one credit rating agency, all the ratings, including the unaccepted ratings, shall be disclosed in the offer document.

(d)it has entered into an arrangement with a depository registered with SEBI for dematerialization of the non-convertible redeemable preference shares that are proposed to be issued to the public, in accordance with the Depositories Act, 1996 and regulations made there under.

(e)the minimum tenure of the non-convertible redeemable preference shares shall not be less than three years.

(f)the issue has been assigned a rating of not less than AA- or equivalent by a credit rating agency registered with SEBI

(3)The issuer shall create a capital redemption reserve in accordance with the provisions of the Companies Act, 2013.

(4)The issuer shall not issue non-convertible redeemable preference shares for providing loan to or acquisition of shares of any person who is part of the same group or who is under the same management, other than to subsidiaries of the issuer; Explanation: For the purpose of this regulation, the terms “part of the same Group” and “under the same management” shall have the same meaning as provided in the explanation to Regulation 23 of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.

(5)In case of public issue of non-convertible redeemable preference shares, the issuer shall appoint one or more merchant bankers registered with SEBI at least one of whom shall be a lead merchant banker.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 4(d) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

As per Regulation 58 of the Listing Obligations and Disclosure Requirements, Regulations, 2015 issued by SEBI following are the list of documents and informations required to be submitted to holders of Non-Convertible Preference Shares:

(a)Soft copies of full annual reports to all the holders of Non-Convertible Preference Shares who have registered their email address(es) for the purpose;

(b)Hard copy of statement containing the salient features of all the documents, as specified in Section 136 of Companies Act, 2013 and rules made there under to those holders of Non-Convertible Preference Shares who have not so registered;

(c)Hard copies of full annual reports to those holders of Non Convertible Debt Securities and Non-Convertible Preference Shares, who request for the same.

(d)Half yearly communication, to holders of Non Convertible Debt Securities and Non-Convertible Preference Shares.

•To send the notice of all meetings of holders of Non Convertible Debt Securities and Non-Convertible Preference Shares specifically stating that the provisions for appointment of proxy as mentioned in Section 105 of the Companies Act, 2013, shall be applicable for such meeting.

•To send proxy forms to holders of Non Convertible Debt Securities and Non-Convertible Preference Shares which shall be worded in such a manner that holders of these securities may vote either for or against each resolution.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6A(ii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

As per regulation 17 of the SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013, an issuer may list its non-convertible redeemable preference shares issued on private placement basis on a recognized stock exchange subject to the following conditions:

i.The issuer has issued such non-convertible redeemable preference shares in compliance with the provisions of the Companies Act,2013 rules prescribed thereunder and other applicable laws.

ii.Credit rating has been obtained in respect of such non-convertible redeemable preference shares from at least one credit rating agency registered with SEBI.

iii.It must be in dematerialized form.

iv.The minimum application size for each investor is not less than ten lakh rupees.

v.The issuer shall create a capital redemption reserve in accordance with the provisions of the Companies Act, 2013.

vi.The disclosure as provided in regulation 18 of the SEBI NCRPS regulations have been made.

vii.The minimum application size for each investor is not less than ten lakh rupees; and

viii.The issue is in compliance with sub-regulation (3) and (4) of regulation 4.

ix.Where the application is made to more than one recognised stock exchange, the issuer shall choose one of them as the designated stock exchange.

PART B

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 4(e) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

The statement is wrong. Chapter V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 provides for obligations of listed entity which has listed its non-convertible debt securities or non-convertible redeemable preference shares or both. The provisions of this chapter shall also be applicable to “perpetual debt instrument” and "Perpetual non-cumulative preference share” listed by banks.

Further, Chapter V of these regulations deals with the provisions which are applicable to perpetual debt instrument” and "perpetual non-cumulative preference share” listed by banks relating to the following:

•Intimation to stock exchange(s),

•Disclosure of information having bearing on performance/operation of listed entity and/or price sensitive information

•Financial Results

•Annual Report

•Asset Cover

•Documents and Intimation to Debenture Trustees

•Other submissions to stock exchange(s)

•Documents and information to holders of non-convertible debt securities and nonconvertible preference shares

•Structure of non-convertible debt securities and non-convertible redeemable preference shares

•Record Date

•Terms of non-convertible debt securities and non-convertible redeemable preference shares

•Website etc.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

(i)Fund based credit facilities are those in which an actual outflow of funds from the bank to the borrower takes place, typically involve cash transactions, whereas non-fundbased facilities are those, which do not involve such immediate outflow of the bank's funds or do not deal with cash transactions or funds. Examples of fund-based facilities are term loans, cash credit and overdraft whereas non-fund-based facilities are letters of credit, bank guarantees etc.

(ii)Calculation of Fund based and non-fund based credit facilities availed by Veena Ltd.

Hence, Veena Ltd. has availed ₹ 186.65 Lakhs fund - based facilities and ₹ 68 Lakh Non -Fundbased facilities from Bank.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 5(c) (Syllabus 2022).

Calculation of fund based & non-fund-based credit facilities availed by Casino Ltd ( ₹ in crore) as on 31.03.2025

facilities of ₹ 8.50 crore.

Project loan is not yet availed & Bill discounting outstanding is only ₹ 50 lakhs, bills for ₹ 25 lakhs sent for collection is not funded.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 3(b) (Syllabus 2022).

Finance facilities available to exporters in Indian currency are in two forms- pre shipment credit and post shipment credit.

A short-term advance/loan given to an exporter for procuring, processing, manufacturing/packing goods prior to shipping such goods. Such export credit can be given for working capital purposes also. Banks are at liberty to decide the tenor of such loans (which are usually up to three/six months or in exceptional cases nine months) depending upon individual cases. These loans are given at concessional interest rates. If these loans are not adjusted by submission of export documents within 360 days, banks will charge normal rate of interest on such loans/ advances instead of concessional rates. Pre-shipment advances are to be repaid out of finance made available at post-shipment stage or from eligible resources of the exporting customer as per RBI directions.

This is again a short-term advance/loan given to an exporter after shipment of goods to the date of realization of proceeds of exported goods. Such credit facility granted to an exporter has to be repaid out of the proceeds of goods exported or from eligible resources of the exporter as permitted by RBI directions. The period of such advance/loan will be as specified by Foreign Exchange Dealers Association of India (FEDAI).

Example

ABC Ltd is an exporter of hosiery goods who secured an export order from USA For executing this order he needs to buy raw cloth, get them stitched, coloured, remove defective pieces, labelled, packed etc. The finance needed for these processes is pre shipment or packing credit.

After the manufacturing/ processing when the goods are ready for export and subsequent realisation, the manufacturer needs fuds to run his activity to tide over the temporary working capital need. The banker comes to his help with post shipment credit in the form of fund based limits or bill discounting facility which are repayable after realisation of export proceeds.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 4(c) (Syllabus 2022).

Answer: (C) 35 days

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2024, Q. 56 (Financial and Strategic Management paper, Syllabus 2017).

Buyers’ Credit Suppliers’ Credit

Buyers' credit refers to loans for payment of Suppliers' credit relates to the credit for imports into Imports into India arranged by the importer from India extended by the overseas supplier. overseas bank or financial institution. Imports should be as permissible under the extant In this case too, imports should be permissible Foreign Trade Policy of the Director General of under the extant Foreign Trade Policy of the DGFT. Foreign Trade (DGFT).

For the overseas exporter, it is converted into a The importer pays an agreed amount of down Cash transaction. payment and the balance amounts are paid in instalments over a deferred period.

Since the facility is provided by an overseas bank Since the facility is provided by the supplier itself, the interest rates may be slightly high. interest rates are comparatively low.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 2A(iii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Buyers' Credit : It refers to loans for payment of imports into India arranged by the importer from overseas bank or financial institution. Imports should be as permissible under the extent of Foreign Trade Policy of the Director General of Foreign Trade (DGFT). For the overseas exporter the transaction becomes a cash sale.

Suppliers' Credit : Suppliers' credit relates to the credit for imports into India extended by the overseas supplier. In this case too, imports should be as permissible under the extent of Foreign Trade Policy of the DGFT. Usually this type of facility is availed for import of Capital goods. The importer pays an agreed amount of down payment and the balance amounts are paid in instalments over a deferred period. Interest rates for the transactions are decided at the initial contracting stage and are included in the instalments payable by the importer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2A(ii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Rupee Deemed Export Credit

A deemed export transaction is one in which goods are supplied to a project in India itself which are funded by International / Multilateral agencies or where goods are supplied to units in SEZs or foreign shipping companies calling on Indian ports, supply of goods to foreign tourists etc., such that the proceeds of such goods supplied will be paid in foreign currencies. Such transactions are treated as prima facie export transactions and enjoy incentives and other concessions given to normal export transactions.

Pre-shipment and Post-shipment credit facilities granted to Rupee Deemed Export Credit transactions are similar to finance / credit extended under Rupee Export credit Pre-shipment as well as Post-shipment as described herein. However in deemed export transactions the date of supply to the projects /SEZ units / foreign tourists is taken as date of export. Also the value of the transaction will be based on Free on Rails (FOR) basis instead of usual Free on Board (FOB) basis, usually associated with export transactions.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 4(d) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Hire Purchase

Hire Purchase transactions are very similar to leasing transactions. Like Leasing Finance, in Hire Purchase, the ownership of the vehicle continues to remain with the Leasing Company till the agreement period ends. However, at the end of the stipulated period, the hirer (lessee) has options either to return the asset to leasing company while terminating the agreement or purchase the asset upon terms set out in the hire-purchase agreement. Under Hire Purchase the financing entity may get the benefit of depreciation as well as ownership of the asset financed. Also, banks cannot take advantage of Hire Purchase Arrangement, as ownership aspect of the asset will result in violating permitted line of activity under the banking license granted by RBI.

Hypothecation

Before SARFARSI Act, 2002, this was not defined legally in India. It is a charge on any movable asset of a borrower for which bank has extended its finance. It is an equitable charge on the assets in favor of the financing bank where the asset is owned by the borrower as well as possession is with him on behalf of the bank. If a borrower fails to repay the finance extended for the movable asset the bank can repossess the asset with the consent of the borrower. If the borrower surrenders the asset to the bank, bank has a legal right to sell the asset without the intervention of the court and adjust the proceeds towards the loan dues. Under SARFAESI Act bank also has got the right to sell the movable asset of a defaulted borrower without the intervention of a court subject to following rules laid down in this regard.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 6A(ii) (Syllabus 2022).

Answer: (B) Operating Lease

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2023, Q. 34 (Financial and Strategic Management paper, Syllabus 2017).

Hire Purchase

HP transactions are very similar to leasing transactions. Like Leasing Finance, in Hire Purchase, the ownership of the vehicle continues to remain with the Leasing Company till the agreement period ends. However, at the end of the stipulated period, the hirer (lessee) has options either to return the asset to leasing company while terminating the agreement or purchase the asset upon terms set out in the hire-purchase agreement. . Under Hire Purchase the financing entity may get the benefit of depreciation as well as ownership of the asset financed. Also, banks cannot take advantage of Hire Purchase Arrangement, as ownership aspect of the asset will result in violating permitted line of activity under the banking license granted by RBI

Hypothecation

Before SARFARSI Act, 2002, it was not define legally in India. It is a charge on any movable asset of a borrower for which bank has extended its finance. It is an equitable charge on the assets in favour of the financing bank where the asset is owned by the borrower as well as possession is with him on behalf of the bank. If a borrower fails to repay the finance extended for the movable asset the bank can repossess the asset with the consent of the borrower. If the borrower surrenders the asset to the bank, bank has a legal right to sell the asset without the intervention of the court and adjust the proceeds towards the loan dues. Under SARFAESI Act bank also has got the right to sell the movable asset of a defaulted borrower without the intervention of a court subject to following rules laid down in this regard.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2A(iii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

(Amount in ₹ )

Present Value of cash out flows under lease alternative