Test: Other Banking & Financial Organisations - 1 - Banking Exams MCQ

There are five development finance institutions regulated by the Reserve Bank of India.

External Commercial Borrowings are commercial loans raised by eligible resident entities from recognized non-resident entities.
The utilization of ECB proceeds is now permitted to satisfy general corporate purposes, working capital requirements, repayment of INR loans and for such on-lending purposes. ECBs cannot be used for investment in the stock market or speculation in real estate.
Hence, Only 1 and 2 us correct. 

Exim Bank was established by the Indian government under the Export-Import Bank of India Act, 1981 as an export credit provider, replicating worldwide export credit agencies. Headquarters: Mumbai

• All eligible borrowers can raise up to $750 Million per financial year under the automatic route.
• External Commercial Borrowings is a loan availed by an Indian entity from a nonresident lender with a minimum average maturity.
• External commercial borrowings facility can be used by all the entities that can receive Foreign Direct Investment.
• ECB proceeds cannot be utilised for real estate activities, investment in the capital market, equity investment, working capital purposes repayment of Rupee loans.

The National Bank for Agricultural and Rural Development (NABARD) is India's primary regulatory organization in charge of matters relating to policy, planning, and operations in the field of credit for agriculture and other economic activities in rural regions.

Borrowers can use 25 per cent of the ECB to repay rupee debt and the remaining 75 per cent should be used for new projects. A borrower can not refinance its entire existing rupee loan through ECB. The money raised through ECB is cheaper given near-zero interest rates in the US and Europe, Indian companies can repay part of their existing expensive loans from that. An ECB is an instrument used in India to facilitate the access to foreign money by Indian corporations and PSUs (public sector undertakings). ECBs include commercial bank loans, buyers' credit, suppliers' credit, securitised instruments such as floating rate notes and fixed rate bonds etc., credit from official export credit agencies and commercial borrowings from the private sector window of multilateral financial Institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc. ECBs cannot be used for investment in stock market or speculation in real estate.

For the promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts, and other rural crafts and other allied economic activities in rural areas to promote integrated rural development and secure prosperity of rural areas.

The Small Industries Development Bank of India is India's apex regulatory organization for licensing and regulating micro, small, and medium-sized enterprise financial companies. It is governed by the Government of India's Ministry of Finance. Headquarters: Lucknow.

• Trade credit is the credit extended by one trader to another for the purchase of goods and services. Trade credit facilitates the purchase of supplies without immediate payment. Trade credit is commonly used by business organizations as a source of short-term financing. It is granted to those customers who have a reasonable amount of financial standing and goodwill. There are many forms of trade credit in common use. Various industries use various specialized forms. They all have, in common, the collaboration of businesses to make efficient use of capital to accomplish various business objectives.
• Trade credit is the largest use of capital for a majority of business-to-business (B2B) sellers in the United States and is a critical source of capital for a majority of all businesses. For example, Wal-Mart, the largest retailer in the world, has used trade credit as a larger source of capital than bank borrowings; trade credit for Wal-Mart is 8 times the amount of capital invested by shareholders.

The minimum maturity period in respect of external commercial borrowing (ECB) should be 3 years or 5 years, according to the amount.