Page 44 - Banking Finance September 2023

ARTICLE

Key Steps in Capital Management Key types of raising the equity capital by
1. Business Strategy Plan: Every process starts with the Banks:
planning; it is one of the most crucial steps. Here it is
Primarily, issues made by an Indian company can be classified
to be decided where we are heading.
as Public, Rights, Bonus and Private Placement. The
2. Business Forecast: Business forecasts need to be Classification of issues is as illustrated below:
prepared for long term basis. Setting long-term goals
will certainly help in management of the capital as
capital can be used in a much more effective manner
with clear objectives.
3. Analysis of Balance sheet: Balance sheets and
profitability should be analyzed thoroughly to
understand and align the objectives.

4. Assessment of various risk factors/ICAAP: Capital
Planning is done to cover the expected risk/loss the
normal course of business. This includes identification
Key types of
of risk through ICAAP. ICAAP is comprehensive raising the
assessment of the bank's entire spectrum of risk, how equity capital
the bank intends to mitigate those risks and how much
current and future capital is necessary for the bank,
reckoning other mitigating factors.
5. Stress Testing: The use of stress testing framework can
provide a bank's management a better understanding
of the bank's likely exposure in extreme circumstances.

6. Final Forecast of Business: Final forecast will be
prepared after understanding the present position of
the bank and after aligning the business development
policies.
a) Public issue: When a company issue/offer shares or
7. Policies and Action Plan: Action plans will be prepared,
convertible securities is made to fresh investors for
which is the last element in the whole exercise.
becoming part of shareholders' family of the issuer
company, it is called as public issue. Public issue can be
further classified into two following categories:
(i) Initial Public Offer (IPO): When an unlisted company
makes fresh issue of shares for the first time to the
public, it is called an Initial Public Offer.
(ii) Further Public Offer (FPO): When an already listed
company makes either a fresh issue of shares or
convertible securities to the public or an offer for
sale to the public , it is called a Further Public offer
or follow on offer.
b) Rights issue: When an issue of shares or convertible
securities is made by an issuer to its existing share
holders as on a particular date fixed by issuer (known
as Record date), it is called a rights issue. These issues
are offered in a particular ratio to the number of shares
held as on the record date.

44 | 2023 | SEPTEMBER | BANKING FINANCE