Banks, institutions and international finance

Commercial banks, such as SBI, Punjab National Bank, Canara Bank, HDFC, ICICI and Axis Bank, lend to business in many ways: cash credit, overdraft, term loans, discounting bills of exchange, and issuing letters of credit. Their loans are usually for the short to medium term, and the bank asks for security (collateral), so it can recover its money if the borrower cannot pay.

Financial institutions, also known as development banks, were set up by the central and state governments to give long and medium-term finance. They also give advice and help with planning. They are well suited to firms that need large sums for expansion and modernisation.

Firms can also raise money abroad:

• Foreign currency loans from commercial banks abroad.
• International agencies and development banks, such as the International Finance Corporation (IFC), the EXIM Bank and the Asian Development Bank.
• International capital markets, through the instruments below.

Depository receipts let a company's shares be bought and sold in another country. The company's shares are converted into receipts, which are traded abroad:

• GDR (Global Depository Receipt): issued in US dollars and traded on stock exchanges abroad.
• ADR (American Depository Receipt): issued and traded only in the USA.
• IDR (Indian Depository Receipt): works the other way: a foreign company raises money in India, in rupees. The first was issued by Standard Chartered PLC in June 2010.

FCCBs (Foreign Currency Convertible Bonds) are bonds issued in a foreign currency, which carry a low fixed rate of interest and can later be converted into equity shares.