Project Finance, Working Capital and SME Finance

Institute of Chartered Accountants of India , WIRCInstitute of Chartered Accountants of India , WIRC

Regional Banking SummitRegional Banking Summit

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Presented by : Mr Praveen TrivediJoint General Manager West Zone Head , SME ICICI Bank

Finance

21st July 2012

Safe HarbourExcept for the historical information contained herein, statements in this

Release which contain words or phrases such as 'will', 'would', ‘indicating’,

‘expected to’ etc., and similar expressions or variations of such expressions

may constitute 'forward-looking statements'. These forward-looking

statements involve a number of risks, uncertainties and other factors that

could cause actual results to differ materially from those suggested by the

forward-looking statements. These risks and uncertainties include, but are

not limited to our ability to successfully implement our strategy, future

levels of non-performing loans, our growth and expansion in business, the

adequacy of our allowance for credit losses, technological implementation adequacy of our allowance for credit losses, technological implementation

and changes, the actual growth in demand for banking products and

services, investment income, cash flow projections, our exposure to market

risks as well as other risks detailed in the reports filed by us with the United

States Securities and Exchange Commission. ICICI Bank undertakes no

obligation to update forward-looking statements to reflect events or

circumstances after the date thereof.

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Contents

▪ Introduction

▪ SME Corporate

▪ Long Term Financing

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▪ Short Term Financing

▪ Role of CA

ICICI Securities(investment banking)

ICICI Bank(corporate & retail

banking)ICICI Prudential

Mutual Fund(AMC)

Over 50 Years of Over 50 Years of

ICICI Group: comprehensive coverage of financial servicesICICI Group: comprehensive coverage of financial services

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ICICI Prudential Life Insurance

(life insurance) ICICI Lombard General

Insurance (general insurance)

ICICI Venture Capital

(venture capital fund)

Over 50 Years of Finance

Over 50 Years of Finance

Emergence of Indian Economy

Second fastest growing economy in the world ~6.3%

~6.6%

~9.3%

GDP growth rate trend

Growth momentum

6.7%

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~ 3.6%

Regulatedlicensedregime

~4.5%

Source RBI & CSO

1950-1979

Gradual de-regulation

1980-1989 1990-2000 2001-2006 2007 - 2008

Emergenceof

Indianeconomy

Opening upof Indianeconomy

continues to be healthy with strong domestic demand

2009

Contents

▪ Introduction

▪ SME Corporate

▪ Long Term Financing

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▪ Short Term Financing

▪ Role of CA

SME sector- Vital to the Economy

Key benefits of SME Exploiting local economies

Largest employer (Direct & Indirect)

Fastest to innovate

Entry agent into new sectors

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economyExploiting local economies

for global profit

Ensure equitable wealth distribution

Frontline in drive towardsglobalisation

SME sector- Vital to the Economy

SME Sector in India

95% of all industrial units

40% of industrial output

45% of industrial employment

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accounts for

35 % of exports

45% of industrial employment

Prime driver of new employment

Characteristic of SMEs

Fragmented marketFragmented market

Scarcity of risk capital (equity and debt)Scarcity of risk capital (equity and debt)

Few incentives for foreign equity fundingFew incentives for foreign equity funding

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Limited abilities for economies of scale and scopeLimited abilities for economies of scale and scope

Prevailing policy initiatives focus largely on SSIs*Prevailing policy initiatives focus largely on SSIs*

Poor entrepreneurial attitudePoor entrepreneurial attitude

*SSI – Small Scale Industries

Contents

▪ Introduction

▪ SME Corporate

▪ Long Term Financing

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▪ Short Term Financing

▪ Role of CA

Character

Capital Risk-bearing Commitment

Willingness to Pay

Borrower’s PositionCritical Criteria

Approach

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Cash flow

Collateral

Condition

Ability to Pay / Cash Flow Adequacy

Priority of Charge and Value

Business Model and Industry Trend

• ECB is Foreign currency term loan offered for fresh capital expenditure by corporates in India except few industries specified by RBI

• Suitable for corporate having future earnings in USD

• Floating rates of interest linked to LIBOR

• ECB is Foreign currency term loan offered for fresh capital expenditure by corporates in India except few industries specified by RBI

• Suitable for corporate having future earnings in USD

• Floating rates of interest linked to LIBOR

ECB term loanECB term loan

Rupee Term Loan

Rupee Term Loan

Long term Finance: External commercial borrowing Long term Finance: External commercial borrowing

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• Floating rates of interest linked to LIBOR

• IRS will help to convert to Fixed Rate of interest

• RBI Cap on Pricing, based on average maturity

• Repayments can be structure

• Floating rates of interest linked to LIBOR

• IRS will help to convert to Fixed Rate of interest

• RBI Cap on Pricing, based on average maturity

• Repayments can be structureNon fund based Non fund based

FCTL FCTL

ECAECAECAECA

• Rupee term loan offered for capital expenditure and takeover of existing term loan by corporates in India

•Floating rates of interest linked to base rates of banks

• Suitable for corporate having future earnings in rupee and using indigenous items in capex

• Rupee term loan offered for capital expenditure and takeover of existing term loan by corporates in India

•Floating rates of interest linked to base rates of banks

• Suitable for corporate having future earnings in rupee and using indigenous items in capex

FCTL FCTL

Rupee Term Loan

Rupee Term Loan

ECB term loanECB term loan

Long term Finance : Rupee term loan Long term Finance : Rupee term loan

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• Monthly repayment of Interest payment

• Repayments can be structured

• Monthly repayment of Interest payment

• Repayments can be structured

Non fund based Non fund based

FCTL FCTL

ECAECA

• Foreign currency term loan offered for capital expenditure incurred outside India by Corporates

• Suitable for : 1)corporates looking for acquisitions or takeover of foreign

companies in overseas , 2) Asset purchase like of Mines, Brands/IP, Ships etc

• Foreign currency term loan offered for capital expenditure incurred outside India by Corporates

• Suitable for : 1)corporates looking for acquisitions or takeover of foreign

companies in overseas , 2) Asset purchase like of Mines, Brands/IP, Ships etc

ECB term loan ECB term loan

FCTLFCTL

Rupee Term Loan

Rupee Term Loan

Long term Finance : Foreign currency term loanLong term Finance : Foreign currency term loan

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• Floating rates of interest linked to LIBOR Linked.

•IRS will help to convert into Fixed interest Rate

• Major comfort is build on the existing free cash- accruals of parent company in India

• Floating rates of interest linked to LIBOR Linked.

•IRS will help to convert into Fixed interest Rate

• Major comfort is build on the existing free cash- accruals of parent company in India Non fund based Non fund based

FCTLFCTL

ECAECA

• ECA is credit line to Indian bank from foreign bank mostly EXIM bank for specified end use and linkage

• It will be like ECB offered at comparative cheaper price if corporates or it project qualifies for specified linkage

• Linkage can be instance like 1) Import of capital goods from Specified country

• ECA is credit line to Indian bank from foreign bank mostly EXIM bank for specified end use and linkage

• It will be like ECB offered at comparative cheaper price if corporates or it project qualifies for specified linkage

• Linkage can be instance like 1) Import of capital goods from Specified country

ECB term loan ECB term loan

Rupee Term Loan

Rupee Term Loan

Long term Finance : External Commercial Arrangement Long term Finance : External Commercial Arrangement

FCTLFCTL

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1) Import of capital goods from Specified country2) Borrower being WOS of the Specified country’s corporate 3) Environment friendly’s project

• Most suitable for foreign currency earning corporates

1) Import of capital goods from Specified country2) Borrower being WOS of the Specified country’s corporate 3) Environment friendly’s project

• Most suitable for foreign currency earning corporates

Non fund based Non fund based

ECA ECA

FCTLFCTL

• Stand by Letter of credit It is given for funding overseas activities like capex in , acquisition and long term working capital foreign country.International bank will give the fund based limit on SBLC as security.

• Capex buyers credit

• Stand by Letter of credit It is given for funding overseas activities like capex in , acquisition and long term working capital foreign country.International bank will give the fund based limit on SBLC as security.

• Capex buyers credit

ECB term loan ECB term loan

Rupee Term Loan

Rupee Term Loan

Long term Finance : Non-fund based Long term Finance : Non-fund based

FCTLFCTL

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• Capex buyers credit For funding import of capital goods for maximum tenure of 3 years at comparative cheaper price

• Capex buyers credit For funding import of capital goods for maximum tenure of 3 years at comparative cheaper price

ECA ECA

Non fund based

Non fund based

FCTLFCTL

Contents

▪ Introduction

▪ SME Corporate

▪ Long Term Financing

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▪ Short Term Financing

▪ Role of CA

Net Working Capital

Share holders’funds + Long term

liabilities

Fixed assets +Intangible assets

+ Non currentassets + Misc. exp.

SOURCES APPLICATION

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liabilities

Current liabilities

assets + Misc. exp.

Current assets

Net working capital

There are basket of products for working capitalfinance :-

• Cash credit

• Overdraft

• Working Capital Demand Loan

• Working Capital Term Loan

• Buyers Credit

There are basket of products for working capitalfinance :-

• Cash credit

• Overdraft

• Working Capital Demand Loan

• Working Capital Term Loan

• Buyers Credit

Fund based Fund based

Short term Finance : Fund based Short term Finance : Fund based

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• Buyers Credit

• CMS

• FCNR ( B) • Factoring

• Export and import trade Finance

•PSCFC offered at Libor linked pricing

( Drawing power in based on the stock and receivable statements )

• Buyers Credit

• CMS

• FCNR ( B) • Factoring

• Export and import trade Finance

•PSCFC offered at Libor linked pricing

( Drawing power in based on the stock and receivable statements )

Non Fund based

Non Fund based

There are basket of Non fund based products suitable for corporates which arefollows

• Letter of Credit

• Bank guarantee- Financial and Performance

• Stand By Letter of Credit for funding

There are basket of Non fund based products suitable for corporates which arefollows

• Letter of Credit

• Bank guarantee- Financial and Performance

• Stand By Letter of Credit for funding

Fund based Fund based

Short term Finance : Non - Fund based Short term Finance : Non - Fund based

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• Stand By Letter of Credit for fundingworking capital requirement

• Derivative limits for hedging

• Stand By Letter of Credit for fundingworking capital requirement

• Derivative limits for hedging

Non Fund based

Non Fund based

Cash credit (stock)

Demand Loan

Packing credit

Purchase bill discounting

Letters of credit (usance)

Cash credit (stock)

Demand Loan

Packing credit

Purchase bill discounting

Letters of credit (usance)

Pre-salefinance

Pre-salefinance

Another way of looking Working capital finance Another way of looking Working capital finance

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Letters of credit (usance)

Post Sale finance

Post Sale finance

Cash credit (book debt)

Bill purchase/discounting

Factoring / Forfaiting

Post shipment finance

Cash credit (book debt)

Bill purchase/discounting

Factoring / Forfaiting

Post shipment finance

Contents

▪ Introduction

▪ SME Corporate

▪ Long Term Financing

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▪ Short Term Financing

▪ Role of CA

Role andopportunity to CA's in SME

Since many of SME promoters are not finance savvy. CA can play major

role in advisory as below

1) Designing capital structure and Tax planning structure

2) Liasoning with banks for securing the facilities and running of facilities

of business

3) Preparing project feasibility and viability reports3) Preparing project feasibility and viability reports

4) Internal process improvements aligning

5) Risk management and hedging strategy

6) Arranging risk capital or Private equity -valuation models , due

diligence , pitch book etc

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Emerging India Awards

� An annual event to celebrate entrepreneurship – awards to emerging corporates

Emerging India Awards

� An annual event to celebrate entrepreneurship – awards to emerging corporates

SME CEO Knowledge Series� Forum to mentor entrepreneurs and CEO of emerging

corporates with industry experts

� Discussion revolve around best practices in the industry

SME CEO Knowledge Series� Forum to mentor entrepreneurs and CEO of emerging

corporates with industry experts

� Discussion revolve around best practices in the industry

Focus on SME centric initiatives

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� Discussion revolve around best practices in the industry� Discussion revolve around best practices in the industry

SME ToolkitPartnered with IFC, the platform offers support in termsof training to upcoming entrepreneurs

SME ToolkitPartnered with IFC, the platform offers support in termsof training to upcoming entrepreneurs

SME Rating Agency� Co-participated in creating SME rating agency in IndiaSME Rating Agency� Co-participated in creating SME rating agency in India

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Thank you

www.sme.icicibank.comwww.sme.icicibank.com