Long Type Questions - Business Arithmetic, Entrepreneurship, Class 12 | Additional Study Material for Commerce PDF Download

Q1. Write a short note on IIBI. (TBQ) (6 marks)
Ans. The Industrial Investment Bank of India Ltd. (IIBI) was formed by transforming the Industrial Reconstruction Bank of India (IRBI). It was set up by IDBI at the instance of the Government of India in April 1971 for rehabilitation of sick industrial companies.
IRBI was incorporated under the Companies Act, 1956 and renamed as the Industrial Investment Bank of India Ltd. in March 1997.
Functions : IIBI offers a wide range of products and services such as :
(i) Term-loan assistance for project finance.
(ii) Short duration non-project asset-backed financing working capital/other short term loans to companies.
(iii) Equity Subscription Asset Credit.
(iv) Equipment finance.
(v) Investments in Capital Market and Money Market instruments.

Q2. Describe the form of assistance provided by SIDBI to the industrial concern. (CBSE, 2014) (TBQ) (6 marks)

Ans. The financial assistance of SIDBI to the small scale sector is channelised through the following two routes :
(i) Indirect assistance.
(ii) Direct assistance SIDBI has taken over the responsibility of administering following two funds which were previously administered by IDBI, i.e.,
(i) Small Industries Development Fund.
(ii) Small Industries Development Assistance Fund.
1. SIDBI’s financial assistance to SSS is primarily channelised through the existing credit delivery system consisting of commercial banks, co-operative banks, RRBs and SFCs.
2. Refinance loans and advances extended by the primary lending institutions to small scale industrial units, alongwith providing them even resource support.
3. Discounts and rediscounts bills arising from sale of machinery to or its manufacture by industrial units in the small-scale sector.
4. All forms of business organization are eligible for refinance assistance for :
(a) Setting up of new venture.
(b) Expansion.
(c)Modernisation.
(d) Diversification of existing units for all activities.
5. Extends seed capital/loan assistance under the National Equity Fund, Mahila Udyan Nidhi and Mahila Vikas Nidhi and seed capital scheme through specified lending agencies.
6. Grants direct assistance as well as refinance loans extended by Primary Lending Institutions for financing export of products manufactured by industrial concerns in the Small Scale Sector.
7. Provide Venture Capital assistance to the entrepreneurs for their innovative ventures if they have a sound management team, long term competitive advantage.
8. Leasing and factoring to small-scale units are also provided for by SIDBI.

Q3. What are the functions of ICICI ? (6 marks)
Ans. It provides medium and long term loans in Indian and foreign currency for importing capital equipment and technical services.
(i) It subscribes to new issues of shares, generally by underwriting them or directly subscribing the same;
(ii) It guarantees loans raised from private sources including deferred payment;
(iii) It provides technical and managerial assistance to industrial units, along with consultancy services for new projects;
(iv) It provides assets on lease to industrial concerns. In other words, assets are owned by ICICI but allowed to be used by industrial concerns for a consideration called lease rent.
(v) It provides merchant banking services.
(vi) ` 5 lakhs is the minimum amount sanctioned by it to a single concern and normally it does not go beyond the maximum limit of Rupees One Crore.

Q4. Explain in detail objectives and three important primary functions of NABARD. (TBQ) (6 marks)
Ans.
Objectives :
1. The bank will serve as a financing institution for institutional credit such as long -term, short-term and for the promotion of activities in rural areas.
2. To provide direct lending to any institution as may be approved by the Central Government.
Functions : The primary functions of NABARD can be classified under three heads :
I. Credit Functions : NABARD provides different types of refinance to eligible institutions. They assist entrepreneurs through :
(a) Short-term credit to State Cooperative Banks, Regional Rural Banks and Other financial institutions approved by RBI for the following purposes :
(i) Financing seasonal agricultural operations,
(ii) Marketing of crops,
(iii) Pisiculture activities,
(iv) Production/procurement and marketing of cooperative weavers and rural artisans societies and individually,
(v) Production and Marketing activities of industrial cooperatives.
(b) Medium-term credit to State Cooperative Banks, State Land Development Banks, Regional Rural Banks and other approved financial institutions by RBI for converting short-term loans to medium-term for approved agricultural purposes.
(c) Long-term credit to State Land Development Banks, Regional Rural Banks, Commercial Banks, State Cooperative Banks and other approved financial institutions.
(d) Refinance to cottage/village/small-scale industries located in rural areas
II. Development Functions :
(i) NABARD coordinates the operations of rural credit institutions.
(ii) It develops expertise to deal with agricultural and rural problems so as to assist in rural development efforts.
(iii) It acts as an agent to the Government and RBI in the transaction of business in relevant areas and provide facilities for training, research and dissemination of information in rural banking and development.
(iv) Contributes to the share capital of eligible institutions.
(v) Provides direct loans to centrally approved cases.
III. Regulator Functions :
1. NABARD is empowered to undertake inspection of RRBs and Cooperative Banks, other than the Primary Cooperative Banks.
2. To open a new branch, a recommendation of NABARD is imperative by RRBs or Cooperative Banks to seek permission from RBI.
3. RRBs and Cooperative Banks, along with RBI are required to file returns and documents with NABARD.

Q5. What is the need and importance of Specialised Financial Institutions (SFIs) ? (6 marks)
Ans. Establishment of SFIs has facilitated the following :
(i) Provision of sufficient long-term funds in the desired sectors in accordance with planned priorities to the industrial units and entrepreneurs.
(ii) New and small entrepreneurs in setting up industry.
(iii) Development of (a) Small scale industry and
(iv) Provision of technical and managerial advice to entrepreneurs, thus facilitating in identification, evaluation and execution of new investment enterprises.
(v) Underwriting of and direct subscription to the issue of shares and debentures in the capital market of the upcoming ventures.
(vi) Establishment of enterprises which require extra-ordinarily large amount of finance for their projects with a long-gestation period.

Q6. Which are the different SFIs at National and State levels ?  (6 marks)
Ans. SFIs at National Level are :
(i) Industrial Development Bank of India (IDBI)
(ii) Small Industries Development Bank of India (SIDBI)
(iii) Industrial Finance Corporation of India (IFCI)
(iv) Industrial Credit and Investment Corporation of India (ICICI)
(v) National Bank for Agriculture and Rural Development (NABARD)
(vi) Industrial Investment Bank of India Ltd. (IIBI) SFIs at State Level are :
(i) State Financial Corporation (SFC)
(ii) Tourism Finance Corporation of India (TFCI)
(iii) State Industrial Development Corporations (SIDC)

Q7. Explain the functions of ICICI.  (6 marks)
Ans. Following are the functions of ICICI :
(i) It provides medium and long-term loans in Indian and foreign currency for importing capital equipment and technical services loans sanctioned generally go towards purchase of fixed assets like land, building and machinery.
(ii) It subscribes to new issues of shares, generally by underwriting them or directly subscribing the same.
(iii) It guarantees loans raised from private sources including deferred payment.
(iv) It provides technical and managerial assistance to industrial units, along with consultancy services fo r new projects.
(v) It provides merchant banking services.
(vi) It provides assets on lease to industrial concerns. In other words, assets are owned by ICICI, but allowed to be used by industrial concerns for a consideration called lease rent.
(vii) ` 5 lakhs is the minimum amount sanctioned by it to a single concern and normally it does not go beyond the maximum limit of rupees one crore.

Q8. Write the functions of SFCs. (6 marks)
Ans.
(i) Grant of loans and advances to or subscribe to debentures of, industrial concerns repayable within a period not exceeding 20 years, with option of conversion into shares or stock of the industrial concerns.
(ii) Guaranteeing loans raised by industrial concerns which are repayable within a period not exceeding 20 years.
(iii) Guaranteeing deferred payments due from an industrial concern for purchase of capital goods in India.
(iv) Underwriting of the issue of stock, bonds or debentures by industrial concerns.
(v) Subscribing to, or purchasing of, the stock, shares, bonds or debentures of an industrial concern subject to a maximum of 30% of the subscribed capital, or 30% of paid up share capital and free reserves, whichever is less.
(vi) Providing technical and administrative assistance to any industrial concern or any person for the promotion, management or expansion of any industry.
(vii) Planning and assisting in the provition and development of industries.
(viii) Act as an agent of capital government, state government, IDBI, IFCI or any other financial institution in the matter of grant of loan or business of IDBI, IFCI or financial institution.

Q9. Write a note on TFCI along with its functions. (6 marks)
Ans. The Tourism Finance Corporation of India (TFCI) was born as a result of the government of India’s decision, in 1987, to promote a separate all-India financial institution for providing financial assistance to tourism-related activities. It was incorporated as a public limited company under the companies Act, 1956 on 27 January, 1989 and became operational with effect from 1 February, 1989. It is a specialized all India development financial institution to cater to the needs of the tourism industry.
Following are the function of TFCI :
(i) It provides financial assistance to enterprises for setting up or the development of tourism -related projects, facilities and services such as hotels, holiday resorts, rope ways, cultural centres, etc.
(ii) It also provides advisory and merchant banking services in this field.
(iii) The projects with a capital cost of ` 1 crore or above are generally eligible for assistance from TFCI. Smaller projects would also be considered.

Q10. Explain Inter-Corporate Deposits (ICD). (6 marks)
Ans. It is the deposit made by one company with another company. This option of using finance is available to all public companies whether having share capital or not. It includes :
(i) When a company acquires security of another company.
(ii) When a company gives loan to another company.
(iii) When a company gives guarantee to any person or institutions who provides loan to another company. There are three types of ICDs :
(i) Three Month’s Deposits : These are the most common deposits to overcome the short-term finance problem. The annual rate of interest given for three months’ deposits is 12% p.a.
(ii) Six Months’ Deposits : These are made with first class borrowers. The annual interest rate is 15%.
(iii) Call Deposits : This can be withdrawn by lender by giving one day notice. The rate of interest is 10%. The advantage of ICDs is that transactions are free from legal formalities.