Resource Planning in A Development Bank

Resource planning in a
Development bank
Presented By:
Kartike
Kittu
Laveena
Nishith
satyaveer
Need of resource planning in development bank
 Development banks in India at both national and state level –have
been operating under a considerable financial strain , particularly in
recent year ,in view of their burgeoning financial needs ,as also the
new responsibilities entrusted to them.
 In their bid to surmount this problem ,resource planning must

precede the mobilisation of resource .In resource planning ,the
management has to take decision on the quantum of funds and the
pattern of funds requirement.
 The former is reflected in capitalisation and latter in the capital

structure .
 The success of development bank hinges in a great measure on how carefully and
prudently resource planning has been done.
 By making precise estimates of current and forthcoming funds requirement and

choosing an appropriate capital structure ,the management can utilise resources
to the optimum level and avoid wastage and thus reduce the cost of operation
and improve profitability.
 Faulty resource planning may entail the problem of inadequacy or redundance of

capital.
 While determining the different forms of financing in the total capitalisation ,the
management has to ensure that it pays the minimum cost and incur the least risk.
Planning fund requirement for a development bank
1)The planning of funds requirement should be done in the light of the
principal objectives of the bank .
 The basic objective of development bank is to provide long term
financial support to industrial enterprise with a view to accelerating the
pace of industrialisation and correcting regional imbalances in the
country.
2) After identifying the objective of the institution ,the management should

determine the purpose for which it would need funds.
3)The planning exercise involves the matching of cash inflows and cash
outflows A development bank has to draw a cash flow statement
showing incoming and outgoing cash.
4) In forecasting the funds requirement of a newly set up development
bank of management should estimates the requirement of funds for
disbursal on the basis of the observed pattern of disbursal in the past
few years and the time lag between sanction and commitment and
disbursal.
5) Apart from the requirement for the disbursal of assistance , the

institution would need funds to repay the loan it has taken and to
service these loans.
6) A institution engaged in guaranteeing deferred payment and in

underwriting activity will have to make projection of the funds
required for this purpose.
7) Since the newly organised institution would not receive
loan repayment ,the total funds required for the above
stated purpose will be the aggregate funds that the bank
has to raise in advance to ensure its smooth operation.
8) Where the development bank has been existence for
several year ,it would receive loan repayment and would
have a certain net cash generation.
9) It would also receive funds by the redemption of
debenture it holds .On the basis of agreed repayment
schedules ,it can estimates the funds that will be flowing
consequent upon the repayments.
10) The gap between the total requirement and the internal
resources will then indicate the quantum of resources
that the development bank will have to raise from
external sources.
Methods of reducing resource requirement
1) Shortening of repayment period:-By shortening the

Development Bank of a repayment of loan ,the
management can reduce its resources requirement
because resources will flow back to the development bank
in the smaller number of years.
2) Grant of assistance in the form of marketable securities:-

Resource constraint can to some extent be minimised if
the financial institution decides to invest in the debenture
of corporate enterprise instead of providing them loan.
3) Convertibility option:-If the convertibility clause is inserted in the
loan agreement ,the financial institution may after some year
convert the loan into equity shares .This will enable it to share in
the prosperity of the concern and make capital gains on the
investment by liquidating a portion of its holding when the price
rules high in the stock market.
4) Proper deployment of resources:-In the country like our where

capital and foreign exchange resources are scare ,adequate
attention has to be paid for the proper deployment of resources
,so that project not ensure adequate return are weeded out.
PLANNING CAPITAL STRUCTURE
 CAPITAL STRUCTURE refers to the combination of

debt and equity in overall capital .
 In development bank management must decide

about the composition of capitalization. Means what
types of funds should a “Development Bank” seek to
meet its financial needs? and in what proportion
these funds raised?
 The main source of funds in “Development Bank” are:-
(1) Equity capital
(2) Long term interest free loan from
Government subordinate to share capital
(3) Free reserve created out of business earning
(4) Borrowings carrying interest from the Government/
Central bank.
(5) Borrowings from markets by way of bonds
(6) Sale of investment
(7) Refinance of loan
(8) Public deposit
 Broadly, there may be two fundamental patterns of capital structure in
a “Development Bank”

(1) Financing of capital requirement inclusively by equity
(2) Financing of capital requirement by equity and bonds

An adequate equity based is an important in “Development Bank” as it
serves as guaranty funds to creditors against losses , and protects the
institution against liquidation.
 However, an exclusively dependence on equity capital for the purpose

of financial needs may not be considered financially good, because it is a
relatively dearer source of financing.

 As debt offers the cheapest source of financing and it does
not disturb the voting of the share holders but financial
institution does not increases debt frequently. As it may be
risky to the firm .
 So, the management make an appropriate mix of the debt

equity ratio .

FACTORS INFLUENCING PATTERN OF CAPITAL
STRUCTURE OF A “DEVELOPMENT BANK”

• 1.) Restriction Imposed By Article Of Association:-

In many “Development Bank”, the Article Of Association
plans limit on the banks borrowings. A decision on the debt
equity mix must therefore be taken within the imposed limit.
• 2.) Restriction imposed on creditors :-A loan agreement

contains restrictions on the amount of the total borrowings
that a “Development Bank” bank can make, the management
must take due note of it.
• 3.) Capital Structure Norms Of World Bank :-
The norms governing debt equity structure which have been
laid down by the world bank, should receive due
consideration in deicing the pattern of capital structure of a
“Development Bank”
• 4.) Access Of “Development Bank” To Capital Market:-

Management of development bank has easy access to the
different sources of capital market.
Cont..
5) Scope of business of Development Banks
6) Age of Development Bank
7) Stability of Earning
8) Reserves Policy
9) Government Support
Thank You

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Resource planning in a

 In their bid to surmount this problem ,resource planning must

 The former is reflected in capitalisation and latter in the capital

 By making precise estimates of current and forthcoming funds requirement and

 Faulty resource planning may entail the problem of inadequacy or redundance of

2) After identifying the objective of the institution ,the management should

5) Apart from the requirement for the disbursal of assistance , the

6) A institution engaged in guaranteeing deferred payment and in

1) Shortening of repayment period:-By shortening the

2) Grant of assistance in the form of marketable securities:-

4) Proper deployment of resources:-In the country like our where

 CAPITAL STRUCTURE refers to the combination of

 In development bank management must decide

 However, an exclusively dependence on equity capital for the purpose

 So, the management make an appropriate mix of the debt

• 1.) Restriction Imposed By Article Of Association:-

• 2.) Restriction imposed on creditors :-A loan agreement

• 4.) Access Of “Development Bank” To Capital Market:-

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