ASUMMER PROJECT PRESENTATION

ON“A STUDY ON PSU FUNDING BY TATA CAPITAL

FINANCIAL SERVICES LIMITED”

SUBMITTED TO (OAKBROOK BUSINESS SCHOOL)

GUJARAT TECHNOLOGICAL UNIVERSITY(MBA PROGRAMME)

SUBMITTED BY

(STUDENT NAME: KHUSHBU JAGAD)

[ENROLLMENT NO.: 148320592014]

INTRODUCTION OF THE INDUSTRY

Non-Banking Financial Companies: Non-banking financial companies, or NBFCs, are financial institutions that provide banking services, but do not hold a banking license. These institutions are not allowed to take deposits from the public. Nonetheless, all operations of these institutions are still covered under banking regulations.

In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every NBFC should be registered with RBI to commence or carry on any business of non-banking financial institution as defined in clause (a) of Section 45 I of the RBI Act, 1934.

BUSINESS PROFILE OF NBFCS

CURRENT SCENARIO • Over the years, the NBFC sector has been gaining systemic

importance. The share of NBFC assets have steadily grown from 10.7% of banking assets in 2009 to 14.3% of bank assets.

• The total number of NBFCs as on March 31, 2014 are 12,029 of which deposit taking NBFCs are 241 and non-deposit taking NBFCs with asset size of Rs 100 crore and above are 465, non-deposit taking NBFCs with asset size between Rs 50 crore and Rs 100 crore are 314 and those with asset size less than Rs 50 crore are 11009.

• With increase in systemic importance, RBI has been tightening the regulations to manage the risk in the sector and has been prescribing higher capital and provisioning requirement. RBI also has been emphasizing on higher disclosures by large size NBFCs as well as deposit taking NBFCs to safeguard public money and avert any systemic shocks.

COMPANY INTRODUCTION• A subsidiary of Tata Capital Limited, Tata Capital Financial

Services Limited (TCFSL) is registered with the Reserve Bank of India as a Systemically Important Non-Deposit Accepting Non-Banking Financial Company (NBFC).

• Incorporated: On 19/11/2010• Authorized capital: 2500 Crore• Paid up share capital: 1297.55 Crore• CEO & MD: Mr. Praveen Purushottam Kadle• Services at TCFSL: Corporate Finance, Consumer

Finance, Rural Finance, Tata Cards

TOPIC INTRODUCTIONPSU funding by Tata Capital Financial Services Ltd

What is PSU?Any company in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company.

In my project I am going to learn the fundamentals of funding to PSUs and the tools and process of funding followed by TSFCL.

OBJECTIVES To understand what is PSU Funding To understand the base on which TCFSL lends fund to

PSUs To understand the tools of funding available at TCFSL To understand the process of PSU lending

RESEARCH METHODOLOGYRESEARCH DESIGN: Descriptive POPULATION: All PSUs of IndiaSAMPLING DESIGN: Random SamplingSAMPLING UNIT: PSUs in GujaratSAMPLING SIZE: 30 PSUs of GujaratDATA TYPE: Secondary DataDATA COLLECTION METHOD: Online data collectionDATA ANALYSIS TECHNIQUE: Graphical analysis

LEARNINGWhat is PSU funding:•Different from other funding•Government Grants•Bankers•Interest rate and Competitions

The bases for PSU lending:• Credit Ratings• Promoters• Financial Performance and Projections

Tools for Funding to PSUs

• Term loan• Working Capital Demand Loan• Bill Discounting• Channel Financing

The Process of funding to PSUsSourcing

Meeting

Document Analysis

Offer

NegotiationReject

Accept

Preparation of CAM

Credit Team Evaluation

Reject

Accept

Sanction

Sanction letter Send to Client

Withdrawal

ANALYSIS

23%

3%

17%

3%3%

14%

14%

17%

3% 3%

PSUs

Agriculture & al-lied

Mining

Petrochemical

services

Manufacturing

Power & Energy

Infrastructure

Oil & Gas

IT

Misellaneous

Sector/ Industry

No of PSU

%

Agriculture & Allied 7 23%

Mining 1 3%

Petrochemical 5 17%

Services 1 3%

Manufacturing 1 3%

Power and Energy 4 14%

Infrastructure 4 14%

Oil & Gas 5 17%

IT 1 3%

Miscellaneous 1 3%

Sectorial Bifurcation

PSUS IN GUJARAT THAT GOES FOR LOAN FUNDING

53%47%

Loan Funding

Loan

No loan

Loan in B/S No of PSUs Percentage

Yes 16 53%

No 14 47%

PERCENTAGE OF NBFCS IN THE DEBT STRUCTURE OF PSUS

PSU Total Loan

Amount (In

Cr)

Loan

from

NBFCs

(In Cr)

Percentage

of NBFC

GSSCL 472.93 0 0

GSFCL 145591.37 0 0

GSCSCL 2438.79 0 0

GUVNL 3522.28 378.24 10.74%

GIPCL 61038.24 1520 2.49%

GNFC 335004.53 30305 9.04%

GCPTL 44953 0 0

GACL 9576.85 0 0

GSPL 142881.57 90274.6

5

63.18%

GGL 2689 0 0

GSPCL 11151.83 0 0

GSPC

PIPAVAV

206892.13 44600 21.56%

GSPC

LNG LTD

2030 2020 99.5%

GSSCL

GSCSCL

GIPCL

GCPTLGSPL

GSPCL

GSPC LNG LTD

0102030405060708090

100

NBFC Govt. & Banks

PSU BORROWING PATTERN:

NBFCs17%

Govt and

Banks83%

NBFCs Govt and Banks

Total Loan Funds 969366.88

Part of NBFC 169097.8

Percentage of NBFCs 17.44%

CREDIT RATING ANALYSIS OF PSUS FOR LONG TERM & SHORT TERM DEBT:

PSU Credit Rating

GSFC A++

GUVNL A+

GIPCL A+

GNFC AA- / A1+

GACL AA+ / A1+

GCPTCL BB

GWSSB B+

GIDC A++

GSPL AA

GGL A1+

GSPCL AA- / A1+

Long Term:AA: High SafetyA: Adequate SafetyBB: Moderate RiskB: High Risk

Short Term:A1: Very Strong Degree of Safety

FINDINGS• From my research I found out that the major sectors in

PSUs in Gujarat are Agriculture, Petrochemicals and Oil & Gas. So TCFSL have targeted these segments.

• As only 53% PSUs goes for loan funding so the market over here is comparatively less. But It is very lucrative as the requirements of PSUs are huge.

• The share of NBFCs in the debt structure of PSUs is 17% only. Being an NBFC TCFSL faces tough competition from National Banks and Foreign Banks as they provide funds at very nominal rate. Even foreign banks can provide loan at 3-4%, which is very low.

FINDINGS• Credit rating plays very crucial role in lending. • TCFSL provides customised tools for the requirements of

PSUs.• The process of lending to PSUs are very long as they

demand for huge fund so the proposal goes to Investment committee and it takes time. On the part of PSUs also it is quite a lengthy affair to procure funds from NBFCs.

CONCLUSIONFrom the 45 days of experience at TCFSL by working on the Project of PSUs, I can conclude that the Government Segment in Corporate Finance is very Niche Market. Not all PSUs resort to NBFCs, But those who go to NBFCs for their fund requirement are very lucrative for any NBFC. Tata Capital realized the importance of this segment and it is targeting those NBFCs with high creditability by providing a variety of customised tools for their fund requirements such as Short term-Long term Loans, Bill discounting, Channel Funding, WCDL etc. The terms and conditions are highly negotiable and customised as per the requirements of client. Though the process is very long as the amount of credit is also very large. It seems that TCFSL is emerging as leading NBFC in PSU funding.

REFERENCEShttp://nbfclicense.blogspot.in/ http://www.gujaratalkalies.com/new/pdf/ar1314.pdf http://www.ibef.org/industry/financial-services-india.aspxhttp://thefirm.moneycontrol.com/story_page.php?autono=1224349

http://www.arthapedia.in/index.php?title=Public_Sector_Undertakings/Enterprises

http://www.investopedia.com/terms/c/creditrating.asp

http://www.carerating.com http://www.crisil.com

http://www.gurabini.com/viewdetail.aspx?type=AnualReports&id=

http://www.gmdcltd.com/financials/annual-report.aspxhttp://www.gnfc.in/PDFandWORD/GNFC-Annual-Report_2013-14_Final.pdfhttp://gswc.gujarat.gov.in/annual-reports.htmhttp://www.gspcgroup.com/content.php?SecType=3&CID=1&CATID=25http://www.gujaratgas.com/investors/annual-reports/

REFERENCEShttp://www.gsfclimited.com/annual_reports.asp?mnuid=5http://gscscl.gujarat.gov.in/images/annual-report-2013-14-english.pdfhttp://www.gsfdcltd.co.in/MyEditorPage.aspx?PageID=FinancialPoshttp://gfcca.gujarat.gov.in/annual-report.htmhttp://gusheel.gujarat.gov.in/annual-report.htm

http://www.gipcl.com/financial-reports

http://www.gnfc.in/PDFandWORD/GNFC-Audited-Fin-Result-2014-15.pdf http://www.gacl.com/public_html/new/pdf/q4_20142015.pdf http://www.gidc.gov.in/annual_report.html http://gsphc.org/annualbudget.aspNBFC Sector Report- CARE

GLOSSARYTCFSL- Tata Capital Financial Services LtdTCL- Tata Capital LimitedGoG- Government of GujaratGSSCL- Gujarat State Seed Corporation LtdGSFC- Gujarat State Fertilizer & chemical ltdGSCSCL- Gujarat State Civil Supplies Corporation LtdGSFDCL- Gujarat State Forest Development Corporation LtdGUVNL- Gujarat Urja Vikas Nigam LtdGIPCL- Gujarat Industrial Power Company LtdGNFC- Gujarat Narmada Valley Fertilizers Company LtdGACL- Gujarat Alkalies and Chemicals LimitedGCPTL- Gujarat Chemical Port Terminal Co. Ltd

GLOSSARYGWSSB- Gujarat Water Supply and S. BoardGIDC- Gujarat Industrial Development Corporation GSPL- Gujarat State Petronet LtdGGL- Gujarat Gas LtdGSPCL- Gujarat State Petroleum corporation LtdOEM- Original Equipment ManufacturerCAM- Credit Approval MemorandumACM- Area Credit ManagerRCM- Regional Credit ManagerCOO- Chief Operating OfficerCFO- Chief Financial Officer