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What are regulatory requirements in formulation of financial strategies in financial management?
The two main regulatory authorities are Securities Exchange Board of India (SEBI) and Reserve Bank of India (RBI).
Given below are the regulatory compliance −
- Raising finance through IPO or SPO.
- Capital structure changes.
- Credit rating.
- Foreign exchange transactions.
- Derivative transactions.
- Project financing.
Raising finance through IPO or SPO
IPO − Initial public offering (first time company comes to public to rise money)
SPO − Seasonal public offering (subsequent time a company raises money from the public directly)
SEBI prescribed regulatory guidelines regarding the entire process of going public which includes, disclosure to public regarding the potential use of cash, financial projections, etc. Every time company wants a company to access the capital market (to raise finance through debt or equity), these regulatory compliances have to meet.
Capital structure changes
Finance manager has to reduce equity capital for various strategic reasons, technically called capital reduction, which again requires regulatory compliances prescribed by SEBI and Companies Act.
Credit rating
If a company wants to raise money through debt or by any new instrument whenever required, it has to be rated by credit agency (CRISIL, ICRA etc.) as per SEBI guidelines.
The whole process of initiating the rating process and providing relevant information and answering the queries by rating agencies will be the responsibility of the Chief Financial Officer (CFO).
Foreign exchange transactions
A company needs foreign exchange for various reasons like importing equipment, travel of salesman etc. Similarly, company may receive remittances of foreign exchange for exports made.
A company needs foreign exchange for various reasons like importing equipment, travel of salesman etc. Similarly, company may receive remittances of foreign exchange for exports made.
Derivative transactions
Whenever a company uses derivatives for hedging, there are accounting and disclosures requirements to be complied with as per companies Act & GAAP accounting, accounting standards of ICAI and the international accounting standards.
Project financing
If a company goes for major project financing option finance manager plays an important role in complying with the requirements of various agencies involved in the exercise.
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