2011 Revised MFS Curriculum

8/6/2019 2011 Revised MFS Curriculum

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F 2 - MANAGEMENT OF FINANCIAL SERVICES

MBA 465 2 Credits

DESCRIPTION

This course is offered as a finance elective in the MBA programme. It familiarizes thestudents about the Indian Financial System. Within the financial system, the focus of study

would be the financial products, financial institutions and the money and capital markets.

LEARNING OBJECTIVES

To provide knowledge to the students about Indian Financial System, including the

major financing institutions apart from Banks, financial products and money and

capital markets functioning.

UNIT I OVERVIEW OF INDIAN FINANCIAL SYSTEM AND SERVICES

(2 Hrs)

Level of Knowledge Working knowledge

Financial System An Overview, Indian Financial System, Global Financial System,

Financial Services An Overview

UNIT II MONEY MARKETS (4 Hrs)

Role and Responsibilities of RBI with respect to Money Market, RBI Monetary Policy and its

relevance to Money Market

Money Market, Call Money Market, Commercial Paper Market, Commercial Bill Market,

Certificate of Deposit (CD), Treasury Bills, Govt. Securities Market

UNIT III CAPITAL MARKETS PRIMARY MARKET (5 Hrs)

Level of Knowledge Conceptual and Working

Capital Markets An Overview, Capital Market Instruments, Capital Market Reforms, New

Issues Market A Conceptual Framework, New Issues Market An evaluation, Prospectus,

Global Depository Receipts


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UNIT IV CAPITAL MARKETS - SECONDARY (5 Hrs)

Stock Exchange An Overview, Stock Exchange Trading, Stock Exchange Regulatory

Framework, Indian Stock Exchanges A Profile, Insider Trading, Listing, Delisting, SEBI

Functions and Working, Restructuring of Indian Stock Exchanges Major issues

UNIT V FINANCIAL INSTITUTIONS (6 Hrs)


Clearing Corporation of India Limited (CCIL), Credit Information Bureau of India Limited

(CIBIL), Discount and Finance House of India Limited (DFHI), Over-the-Counter Exchange

of India Limited (OTCEI), National Securities Depository Limited (NSDL), National

Housing Bank (NHB), Export Import Bank of India(EXIM)

UNIT VI FINANCIAL SERVICES (8 Hrs)


Credit Rating, Hire Purchase Finance, Factoring and Forfaiting, Leasing- An Overview,

Lease evaluation, Mutual Funds, Securitization, Venture Capital and Private Equity Funds

[TOTAL 30 Hours]

Skill Development

1. Understanding and follow up of day-to-day developments in the area of Financial

Services Industry.

2. Familiarization of financial system including products.

Prescribed Text

1. Dr. Gurusamy S, Financial Markets and Institutions, Tata McGraw Hill, 2nd Edition

2. Dr. Gurusamy S, Indian Financial System, Tata McGraw Hill

References

1. Khan M Y, Financial Services, Tata McGraw Hill Publications, 5th Edition

2. Bhalla V.K., Management Of Financial Services, New Delhi: Anmol

Publications Pvt. Ltd., First Edition

3. Srivastava R.M., Financial Management, Himalaya Publishing

4. Subramaniam P, Investment Banking

5. Bhole, , Financial Institution and Markets, Tata McGraw Hill Publications, 3rd Edition


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MANAGEMENT IS NOT A SCIENCE IN THE WAY

MATHEMATICS OR PHYSICS ARE.

IT IS A PRACTICE , A DISCIPLINE SIMILAR TO

MEDICINE TO THE PRIEST HOOD TO LAW.

GOOD PRACTICES IS ONLY WHAT REST ON GOOD

THEORY.

GOOD THEORY IS ONLY WHAT IS VALIDATED IN

AND THROUGH GOODPRACTICE.


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MANAGEMENT OF FINANCIAL SERVICES

OBJECTIVE.

To understand our Financial system, acquire knowledge of variousfinancial products, services , Institutions and use it for Corporate /

Individual requirements .

WHY TO STUDY

This subject covers the entire domestic financial system ,functions.

Various financial services provided in the system . A finance professional

should have basic knowledge of day to day happenings in the financial

system to take decision whether it is investment , borrowings or fundraising.

HOW TO STUDY.

1. Read Financial papers. Understand the happenings at the

Financial markets.. articles by eminent finance Professionals.

2. Understand the terminologies used in the process and their meaning .

3. Look at the happenings more practically.


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UNIT I OVERVIEW OF INDIAN FINANCIAL SYSTEM AND SERVICES

Financial System An Overview, Indian Financial System, Global Financial System,

Financial Services An Overview

FINANCIAL SYSTEM COMPRISES OF ..

FINANCIAL.

a. MARKETS

b. PRODUCTS.INSTRUMENTS

c. INTERMEDIARIES.

d. INVESTORS.

e. INSTITUTIONS.

f. BENEFICIARIES.

REGULATORY AUTHORITIES.

1. RESERVE BANK OF INDIA.1934

2. S E B I 1992

3. I R D A.1999

4. PENSION FUND REGULATORYAND DEVELOPMENT

AUTHORITY 2008

( A)

SAVE..INVEST

CREATE ASSETS

.PERFORM..PROFITGROWTH..

..INCREASE WEALTH..


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(B)

RAISE FUNDS..BORROW

CREATE ASSETS PERFORM

.PAY BACK THE LOANS..TAKE MORE

.BETTERGROWTH.

BOTH THESE OPPORTUNITIES ARE AVAILABLE IN THE

MARKETS AND ALSO WITH THE INSTITUTIONS.

INVESTORS SHOULD PUT THE SURPLUS MONEY

AVAILABLE ..TO PROPER USE.

BENEFICIARIES WOULD CREATE ASSETS WHICH WILL

GROW GENERATE SURPLUS.

System will have required Financial product for both with different

qualities.

MAIN OBJECTIVE IN THE SYSTEM WILL BE ECONOMIC

DEVELOPMENT

REGULATORY AUTHORITIES ..FORMULATES THE

GUIDELINES FOR THE ACTIVITIES TO BE TAKEN UP BYALL THE PLAYERS IN THIS INVESTMENT OR FUND RAISING

GAME.

INVESTOR ALWAYS LOOKS AT..

SAFETY

LIQUIDITY RETURN


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BENEFICIARY ALWAYS LOOKS AT..

CHEAP SOURCE..

COST OF FUNDS.

SIMPLE FORMALITIES..

THE SYSTEM SHOULD ENSURE CREATION OFINFRASTRUCTURE FOR INVESTMENT ACTIVITY and FUND

RASING ACTIVITY.

FINANCE FIELD IS EVER GREEN.

CHANGES HAPPENS ..

DUE TO EXTERNAL FACTORS..

INTERNAL FACTORS..

TO UNDERSTAND THE SUBJECT OF FINANCE AND THE

OPERATIONS

KEEP UPDATED WITH THE MARKET KNOWLEDGE ..

CONTINUOUS FOLLOW UP.

MANY FACTORS AFFECTING THE CHANGE.

( READ FINANCIAL PAPERS DAILY )

R B I ..REGULATESMONEY MARKET.BANKING

SYSTEM..GOVERNMENT OPERATIONS

SEBI.REGULATES .CAPITAL MARKET

OPERATIONS.RELATED INSTITUTIONS

IRDA.REGULATES.INSURANCE SECTOR.


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PFRDA..PESNION FUND MANAGEMENT

IMPORTANT ACTIVITIES HAPPENS IN THE SYSTEM FOR THE

OPERATIONS.

1. ECONOMIC SURVEY

2. UNION BUDGET

3. RBI`SMONETARY AND CREDIT POLICY

4. FOREIGN TRADE POLICY.

THESE ARE THE TOOLS FOR ECONOMIC DEVELOPMENT AND

FUNCTIONING OF VARIOUS PLAYERS IN THE SYSTEM.

************

UNIT II MONEY MARKETS

Role and Responsibilities of RBI with respect to Money Market, RBI Monetary Policy

and its relevance to Money Market

Money Market, Call Money Market, Commercial Paper Market, Commercial Bill

Market, Certificate of Deposit (CD), Treasury Bills, Govt. Securities Market

ROLE AND RESPONSIBILITIES OF R.B.I.FOR

MONEY MARKET..

..Has 26 departments

Established under RBI act 1934 and commenced functioning from

1.4.1935.

Central bank of country

regulating.guiding..monitoring and promoting Indian financial

system


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FUNCTIONS OF CENTRAL BANK

The structure of Central bank may vary from country to country

the basic functions are..

Issuance of notes and regulation of volume of currency.

Act as a Banker to the Government.

Acts as a Banker to Banks.

Custodian of Country`s reserves.

Lender of last resort. Controller of credit.

Supervises Bank`s activities.

Ensure economic development of the country.

FUNCTIONS CAN BE CLASSIFIED..

Traditional.

Promotional. Supervisory.

RESPONSIBILITY

Ensure Monetary stability.

Ensure stable payment system

Ensure development of Financial infrastructure of markets and

systems.

Ensure Credit allocation according to national economic priorities

and social concerns.

MONETARY POLICY DEPARTMENT.

Monetary policy is a tool used by the Central bank to manage money

supply in the economy in order to achieve a desirable growth.

The Central bank controls the money supply by increasing and decreasing

the cost of money and the rate of interest.


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Expansionary policy is to increase money supply by lowering interest

rates.

Contractionary policy is to decrease money supply and make money

dearer.

Fiscal policy of the government is used to monitor the economy by

looking at Revenue collection and spending.

RBI Governor announces the Monetary and credit policy every year

after the Union budget is presented.

The policy outlines the plan of action for the markets, institutions

and guidelines for functioning of our financial system for economicdevelopment.

The guidelines covers the Economic scenario, domestic scenario,

international economic situation and guides the market and

institutions with new policy , product, reforms to be implemented

during the financial year.

From 2005 RBI will review the policy guidelines quarterly .

BANKERS TO THE GOVERNMENT..

On behalf of Central government , State government and State PSU`s

assists in mobilizing funds from market.

Manages the Government accounts.

Manages the Public debt.

PROMOTER OF FINANCIAL SYSTEM..

Development of financial sector.

Strengthen the financial system.

Achieve the objective of economic development.

Creation of institutions in respective field.


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R B I on a regular basis has brought many reforms in functioning ofMoney market, Commercial banks, DFI`s, NBFC`s and Co opertive banks.

Prudential norms for functioning of institutions and adoption of technology

in the financial system.

Money market

It is a market for short term Money and Financial assets that are close

substitute for Money.

Assets that are converted to Money with minimum cost.

Also known as debt market.

Debt securities are tradable loans.

FEATURES..

Not a visible market.

Transactions with Oral contract

Large volume.

Quick transactions.

Structured Primary and Secondary market.

OBJECTIVES

Market enables to meet the short term deficit with short term surpluses.

Short term users to have access to funds at a realistic price.

INSTRUMENTS..PRODUCTS..


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SERVICES.

1. CALL AND NOTICE MONEY2. COMMERCIAL BILLS

INSTRUMENTS AND PRODUCTS.

3. TREASURY BILLS

4. COMMERCIAL PAPER

5. CERTIFICATE OF DEPOSITS

6. GOVERNMENT SECURITIES

7. REPOS.

CHARACTERISTICS.

INSTRUMENTS ISSUED AT A DISCOUNT TRADED AT A

DISCOUNT AND REEDEEMED AT PAR

Assured Safety..

Highly liquid.

Reasonable return.

Short duration.

Reasonable cost of transactions.

Normally Large volumes of transactions.

ISSUERS OF SECURITIESBENEFICIARIES..

Central Government

State Government.

Government organizationsStatutory bodies.

Commercial banks.

Corporates.


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INTERMEDIARIES

Registered Primary dealersmay be IndividualCommercial

banksCorporates.

Should have a minimum net worth of Rs 50.00 crs. Most of the

Commercial banks have established P.D.

To be licensed from RBI.

INVESTORS.

Those who have surplus funds to invest for a short term duration

Commercial banks,

Financial institutions.

Other Major institutions.

Trusts

Corporates.

Individuals.

1. CALL AND NOTICE MONEY


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BORROWING AND LENDING ACTIVITY BETWEEN BANKS.

CALL MONEY MARKET DEALS WITH OVERNIGHT FUNDS.

MORE THAN ONE DAY UPTO 14 DAYS IT IS NOTICE

MONEY.

IT IS A INTERBANK MARKET.

CALL RATE IS THE INTEREST PAID ON CALL LOANS.

FROM 6.8.2005 ALL NON BANK PARTICIPANTS EXCEPT PD`SWOULD BE PHASED OUT .

PRUDENTIAL LIMITS ON EXPOSURE IN THIS MARKET

LINKED TO CAPITAL FUNDS.

SCREEN BASED QUOTE BASED APPROACH IS PROPOSED.

NEED FOR USE OF SUCH PRODUCT.

TO MEET C R R REQUIREMENTS.

ILLIQUIDITY IN THE MARKET.

SUDDEN WITHDRAWALS OF FUNDS.

2. COMMERCIAL BILLS..

REPRESENTS GENUINE TRADE TRANSACTIONS.

BILLS ROUTED THROUGH COMMERCIAL BANKS.

BANKS DISCOUNT THESE BILLS.

BILLS.MAY BEDEMANDUSANCE.

BANKS CREATS ASSETS IN THE FORM BILLS DISCOUNTING

.APPROACHES R B I FOR REDISCOUNTING TO MEET

ITS LIQUIDITY.

IT IS AN ON GOING FACILITY FOR THE BANKS WITH


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R B I .

THIS ALSO HAPPENS ONLY BETWEEN BANKS AND R B I .

R B I charges certain interest for this lending which is known as Bank

rate .

3GOVERNMENT SECURITIES

G .O. I SECURITIES ARE SOVEREIGN DEBT OBLIGATIONSINSTRUMENTS.

TO FINANCE DEFICIT AND ASSIST PUBLIC SECTOR

DEVELOPMENT PROGRAMMES.

TENOR.2 YRS TO 30 YEARS.

COUPON EITHER PRE DETERMINED OR BIDDING PROCESS.

GOI SECURITIES ARE APPROVED SECURITIES FOR S. L. R

REQUIREMENTS OF BANKS.

STATE GOVERNMENT SECURITIES. AGENCY BONDS ARE ISSUED BY PSU`S GUARANTEED BY

GOVERNMENT.

CG..RS10.000/-

SG.RS.1,000/-

AGENCYRS 5,000/-

PUBLIC DEBT OFFICE A DEPARTMENT OF

R B I MANAGES THIS FUNCTION.


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4TREASURY BI LLS.

KNOWN AS T-BILLS

ISSUED BY CENTRAL GOVERNMENT. R .B. I ISSUES ON BEHALF OF GOVERNMENT FOR A TENOR

OF 91 DAYS AND 364 DAYS.

ROUTE FOR BORROWING PROGRAMME OF THE

GOVERNMENT .

ISSUED A T A DISCOUNT AND REDEEMED AT PAR.,

ISSUED THROUGH AUCTION PROCESS.

DENOMINATION.91 DAYSRS.25000/- 364 DAYS FOR

RS.1,00,000/

UNIFORM PRICE AUCTION FOR 91 DAYS PAPER CUT OFF PRICE METHOD.

MULTIPLE PRICE AUCTION FOR 364 DAYS PAPER.

RETAIL INVESTORS .THROUGH NON COMPETITIVE BIDDING .

T-BILLS ARE FREELY TRANSFERABLE AND TRADED.

OVER THE COUNTER OR THROUGH N .S.E.

SECONDARY MARKET IS VERY ACTIVE..QUOTES AREREADILY AVAILABLE

5REPOS.

SALE AND REPURC HASE OF SAME SECURITY ..BETWEEN TWO

PARTIES..

SELLER SELLS SPECIFIC SECURITY WITH AN AGREEMENT TO

REPURCHASE. THE SAME AT A DECIDED FUTURE DATE AND

PRICE


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( REPO)

R B I ------ RELEASES SECURITIES TO BANKS UNDER THIS

SCHEMEMOBILISES THE FUNDS FOR THE GOVERNMENT

( REVERSE REPO)

R B I ..LENDS AGAINST THE SECURITIES SOLD BYTHE

BANK WITH A REPURCHASE AGREEMENT.

SOURCE OF FUNDS FOR BANK.THIS THE RATE AT WHICH

BANKS BORROW . REPO RATE

DEPENDS UPON THE PARTY INITIATED THE TRANSACTION.

MAJOR PLAYERS ARE BANKS.

REPO RATES ARE IN LINE WITH ONGOING MARKET RATES.

SIMPLE DEFINITION.

REPO MEANS ..an instrument for borrowing funds by selling securities

with an agreement to repurchase the securities on a mutually agreed future

date at an agreed price which includes interest for the funds borrowed .

REVERSE REPOis an instrument for lending funds by purchasing

securities with an agreement to resell the securities on a mutually agreed

future date at an agreed price which includes interest for funds lent.

6.CERTIFICATE OF DEPOSITS..

CD`S ARE NEGOTIABLE MONEY MARKET INSTRUMENT.

INTRODUCED IN JUNE 1989.

ISSUED BY COMMERCIAL BANKS AND F.I.`S..not by RRB`s SECURED SHORT TERM INSTRUMENT.


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Banks can issue for any amount.FI`s have limit fixed by RBI.

ISSUED AT A DISCOUNTDISOCUNT RATE IS MARKET

DETERMINED.

FREELY TRANSFERABLE.

ISSUED IN DEMAT FORMAT. SUBSCRIBERIndividulas, Corporates, Trusts, >.NRI on non

repatriation basisNRI should hold it till maturity.

TENOR.15 DAYS TO ONE YEAR.

FI`s can issue from 1 yr to 3 years.

CD`s issued attracts CRR and SLR as per issue price.

MIN F.V.RS.1 LAKH AND MULTIPLES.

Banks and FI`s cannot give loan against the CD`s

7. .COMMERCIAL PAPER

AN UNSECURED MONEY MARKET INSTRUMENT.

ISSUED IN THE FORM OF PROMISSORY NOTE.

INTRODUCED IN 1990.

ALTERNATIVE SOURCE FOR HIGHLY RATED CORPORATES

TO RAISE FUNDS FOR SHORT TERM REQUIREMENTS.

ISSUERS..

CORPORATES.

PRIMARY DEALERS

FI`S AS PER R B I GUIDELINES.

ELIGIBILITY.. CORPORATES..

T .N .W AS PER LAST AUDITED BALANCE SHEET NOT LESS

THAN RS.4 CRS.

SHOULD HAVE SACTIONED WORKING CAPITAL LIMIT.

ASSET SHOULD BE CLASSIFIED AS STANDARD ASSET.


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FEATURES OF THE INSTRUMENT.

TO BE RATEDBY CRA`S

.MUST HAVE MINIMUM P2 OF CRISIL OR

EQUIVALENT .

SHOULD BE CURRENT NOT DUE FOR REVIEW.

ISSUED FOR A PERIOD OF MIN..7 DAYS TO

MAXIMUM 365 DAYS.

ISSUED IN THE DENOMINATIONS OF

RS.5.LAKHS

CAN BE ISSUED AS A STAND ALONE PRODUCT. AMOUNT OF FUNDS TO BE RAISED LIMITS TO

BOARD OF DIRECTOR APPROVALOR AS

INDICATED BY C R A AS PER RATING

MUST BE COMPLETED WITH IN TWO WEEKS

FROM ISSUE OPENING .

CAN BE ISSUED EITHER IN PHYSICAL OR

DEMAT FORMAT.

ISSUED AT A DISCOUNT ON THE FACE VALUE

DECIDED BY THE ISSUER.. NO UNDERWRITING

ISSUING AND PAYING AGENT

ONLY SCHEDULED COMMERCIAL BANK CAN ACT AS I P A FOR

THE ISSUE OF C .P.

ON ISSUE IPA COLLECTS THE FUNDSON MATURITY IPA

MAKES PAYMENT.

INVESTORS..


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INDIVIDUALS.

BANKS.

CORPORATES.

TRUSTS.NRI`S

FII`S

PROCEDURE.

APPOINT.I P A

I P A ISSUE CERTIFICATE AFTER CHECKING ALL THE

DOCUMENTS.

APPOINT A INTERMEDIARYMAY BE MERCHANT

BANKER.FOR MARKETING.

GET THE INSTRUMENT RATED.

GET THE FUNDS BY SALE OF C.P.

ON DUE DATE WHO EVER IS THE HOLDER OF C.P. WILL

GET THE REPAYMENT .

I P A SHOULD REPORT TO R B I THE C.P. ISSUE.

ISSUER SHOULD DISCLOSE IN THEIR ANNUAL REPORT

THE FUNDS RAISED THORUGH THIS ROUTE.

***********************

OPERATIONAL ASPECTS OF MONEY MARKET..

REGULATORY AUTHORITY

RESERVE BANK OF INDIA.. PUBLIC DEBT ACT 1944.


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FIXED INCOME MONEY MARKET AND

DERIVATIVES ASSOCIATION OF INDIA (FIMMDA)

..S.R.O.

RECOMMENDS HEALTHY BUSINESSPRACTICES..EHTICAL CODE OF CONDUCT

PRINCIPLES AND PRACTICES

In the year 2000Government clearly delineated the areas of

responsibility

R B I .CONTROLS..G sec tradesGold related securitiesMoney market securities

SEBI controls the MF, and other operations on Stock exchange.. trading

mechanism..etc.

LIQUIDITY ADJUSTMENT FACILITY

Introduced in 1999. as a Banking sector reforms. Management of short

term liquidity .

RBI infuses funds..takes away the fundsdepends upon the

situation..operates through Repos and reverse repo operations..rate

for the transactions represents the interest rate at which RBI does the

transactions.

French auction..

Multiple price allotment.all bids below cut off price will be rejected.

Allotment will be made to the highest bidder balance with any given tonext highest bidder..

MULTIPLE PRICE AUCTION.FRENCH AUCTION

Cut off yield 6.20%

BANK YIELD

A 5.80%.......rs.400.00 crsB 6.25%.......rs.300.00


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C 6.35%.......rs1000.00

D 6.50%.......rs2000.00

E 5.95%......rs. 800.00

F 6.00%......rs1200.00

Higher than 6.20% is rejected.

Lowest yield first priority

Second lowest second.

A will get first priority

E will get second

F gets last priority

In this auction the government will be benefited by issuing at different yield

as per bid.

The cost of funds will be better.

RBI IS LOOKING AT COST OF FUNDS.

INVESTOR IS LOOKING AT THE RETURNS/YIELD

Dutch auction

Uniform price allotment.

The bidders at lower than cut off price are rejected.

Allotment will be made at a uniform price to all those who have bid above

cut off price at the same price.

Those bids at higher than cut off will be given priority.

UNIFROM PRICE AUCTION..DUTCH AUCTION

BANK YIELDA 5.80%

B 6.25%

C 6.35%

D 6.50%

E 5.95%

F 6.00%

The cut off yield is set at 6.10%.

All banks which have yields not exceeding 6.10% namely A, E, and F willget the securities with 6.10% yield .


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From April 2009 RBI will auction the Govt securities under Uniform price

auction.

EXAMPLE

1)X purchased a T bill of Rs1000/- for Rs 987, 90 days before maturity

What is the yield on this T bill ?

Yield(Face value-Price) X365 x100

-----------------------------------------

Price x no of days of maturity

5.342%

2)

A is offered a T bill of Rs 1000/- for rs 968, 182 days before the date of

maturity,

A expects an yield of 6.25%.Would A buy the T bill offered?

6.629%

.

RECENT CHANGES..

R B I has phased out non banking entities from call money market.

Introduction of R T G S..Real time gross settlement ( faster settlement in

case of banks) has been introduced.

COLLATERISED BORROWING AND LENDING OBLIGATION

CBLO..

CBLOis a negotiable instrument developed by CCILplatform for

borrowing /lending.no credit risk associated.CCILProvides

guarantee against default.to be trade on CCIL Platform..(clearing

corporation of India ltd).

BENCHMARK RATES..


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Are prices of instruments that are traded in the market. which are used for

pricing other instruments.

Internationally accepted benchmark is LIBOR ( London inter bank offerrate)

National stock exchange developed Bench mark rate for Indian markets

MIBID..MUMBAI INTER BANK BID RATE

MIBOR.MUMBAI INTER BANK OFFER RATE

Both these are used for short term and medium term in Money market.

FIMMDAFIXED INCOME MONEY MARKET AND DERAVITIVE

ASSOCIATION

CREATES BENCHMARK RATES WHICH CAN BE USED BY THE

MARKET PLAYERS.

Computation is based on the data collected. Computation should be done

on a day to day basis on a time bound schedule. .

GOVERNMENT SECURITIES INDICES..

Index provides a benchmark for a portfolio management .

FOUR INDICES ARE THERE FOR GOVERNMENT SECURITIES

MARKET.

IBEX PUBLISHED BY ICICI SECURITIES.

GOVERNMENT SECURITIES INDEX BYN S EJP MORGAN`S INDIA GOVENRMENT BOND INDEX.

SBI-GILT INDEX..

SECONDARY MARKET..

PLAT FORM FOR TRADING.

Trading in Government securities , T bills, Bonds, other fixed incomesecurities ..


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W .D. M SEGMENT OF N. .S .E.

GILT SEGMENT OF B S E

DIRECT NEGOTIATIONS.

WDM segment of N S E commenced operations in June 1994.

Formal screen based trading facility for debt market in the country.

NEAT.(National exchange for automated trading )system provides

trading and reporting for G.sec.

All debt instruments are included.

Trading is order drivenmatching.

NEGOTIATED DEALING SYSTEM (NDS).. COMMENCED

OPERATIONS IN FEB.2002.

An electronic dealing system for facilitating dealing Gsec.Online bidding

facility. Transparency of trade and electronic settlement.

CLEARING CORPORATION OF INDIA LTD.(CCIL)

Promoted by Banks and institutions was incorporated in April 2001 to

support and facilitate clearing and settlement of trades in G.secs and also

FEX market.

Objective..

Settlement of G.sec transactions on DVP basis(.delivery

versus payment )

Acts as a counter party for learing and settlements of

transactions done thorugh N D S

Also provides guaranteed settlement of G secs including

Repos through risk management process.

FIXED INCOME DERIVATIVES


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An investor in the Fixed income market is exposed to various risks

including Interest risk.

Income may be from.Interest payments..capital gains/loss

reinvestment income.

Inverse relation to the price of Bond and interest rates.

These are hedged by Interest rate derivatives

Interest rate swaps

Forward rate agreements are popular ..

INTEREST RATE SWAPS

Two parties agreed to exchange a stream of interest payments for a

notional principal amount.

The transactionsmay be between

Fixed to floating rate.

Floating rate to fixed rate.

One floating rate to other floating rate

Outflow will be only Interest payment

DISOCUNT AND FINANCE HOUSE OF INDIA LTD..

SET UP IN 1988 AS PER THE VAGHUL COMMITTEE

RECOMMENDATIONS.

PROMOTED BY R B I AND CB`S AND FI`S .

A LEADING PRIMARY DEALER.

TO MANAGE THE LIQUIDITY IMBALANCE IN MONEY MARKET.

TO BE AN ACTIVE TRADER IN THE SECONDARY MARKET OFMONEY MARKET.

PROVIDE SAFE AND RISK FREE INVESTMENT AVENUES.

GREATER LIQUIDITY.

IN JUNE 2004 SBI GILTS LTD MERGED WITH DFHI .

^^^^^^^^^^^^^^^^^^^^^^^^^


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UNIT III CAPITAL MARKETS PRIMARY MARKET

Capital Markets An Overview, Capital Market Instruments, Capital

Market Reforms, New Issues Market A Conceptual Framework,

New Issues Market An evaluation, Prospectus, Global Depository

Receipts

CAPITAL MARKET

Market for Long term fundingMarket more for retail investors .

Also called as speculative market.

Volatile market.

Capital market comprises of .

I..1..ISSUERS

CORPORATES.

COMMERCIAL BANKS, ,

FINANCIAL INSTITUTIONS.

I..2. INSTRUMENTS..( PRODUCTS)

EQUITY SHARES..

PREFERENCE SHARES.

DEBT FAMILY.


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DEBENTURES

FULLY CONVERTIBLE ,

PARTLY CONVERTIBLE ,

NON CONVERTIBLE, BONDS..CONVERTIBLE, REDEEMABLE

I3.. INTERMEDIARIES..

MERCHANT BANKER.

REGISTRAR TO ISSUE.

BANKERS TO ISSUE.

UNDERWRITERS

BROKERS.( Primary and secondary market)

DEBENTURE TRUSTEE.

I..4.. INSTITUTIONS..

STOCK EXCHANGES.

DEPOSITORIES.

CUSTODIANS.

CREDIT RATING AGENCY.

I..5.. INVESTORS.

INDIVIDUALS.

HUF

TRUSTS.

CORPORATES.

COMMERCIAL BANKS.

FINANCIAL INSTITUTIONS.

FOREIGN INSTITUIONAL INVESTORS.

NRI.. NRI (NR)


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FUND RAISING ROUTES.

INITIAL PUBLIC OFFER.( I P O )

FURTHER PUBLIC OFFER.

BOTH THE ABOVE CAN BE ..FIXED PRICE ROUTE

PREMIUM WITH A FIXED PRICE OR BOOK BUILDING ROUTE

RIGHTS ISSUE.

PRIVATE PLACEMENT

Q.I.P.

OFFER DOCUMENTS..

FOR A PUBLIC ISSUE..PROSPECTUS.

FOR A BOOK BUILDING ISSUE..RED HERRING

PROSPECTUS. FOR A RIGHTS ISSUE.LETTER OF OFFER

FOR PRIVATE PLACEMENT.INFORMATION

MEMORANDUM.

FUND RAISING EXERCISE SEQUENCE OF EVENTS

ISSUER SELECTS AN INSTRUMENT

FINALISES THE PRICE

FINALISES THE ROUTE


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AND

TAKES THE ASSISTANCE OF THE

INTERMEDIARIES

AND

AVAIL THE SERVICES OF THE INSTITUTIONS

AND

OFFER THE SAME TO THE INVESTORS

FOR MOBILISING FUNDS FROM THE INVSTORS.SEBI GUIDELINES WILL BE FOLLOWED .

MERCHANT BANKER IS THE IMPORTANT

INTERMEDIARY IN CARRYING OUT THIS EXERCISE

WITH A PROPER PLANNING AND COORDINATION.

INVESTORS CAN SUBSCRIBE TO THE ISSUE ORMAKEA BID FOR THE ISSUE DEPENDING UPON THE

NATURE OF ROUTE TAKEN BY THE ISSUER.

SEBI HAS GIVEN GUIDELINES FOR THE PLAYERS IN

THE CAPITAL MARKET

CHAPTER..6

MERCHANT BANKING

NECESSITY OF SUCH SERVICES..

CHANGE IN INDUSTRIAL SCENARIO..

GROWTH IN CORPORATE SECTOR

NEW SOURCES OF FUNDS.

LACK OF PROFESSIONAL SERVICES


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PROPER CAPITAL STRUCTURING.

COMPLEXITY IN CAPITAL /MONEY MARKET PRODUCTS.

IDENTIFYING APPROPRIATE SOURCE.

ACTIVITIES

PROJECT COUNSELLING

PROJECT APPRAISAL SERVICES

LOAN SYNDICATION

ISSUE MANAGEMENT.

TREASURY MANAGEMENT SERVICES.INTERNATIONAL FINANCE.

ADVISORY SERVICES..

ROLE AND RESPONSIBILITIES OF MERCHANT BANKER.

MERCHANT BANKERSELF

A PROFESSIONAL IN THE FINANCE FIELD.

A WELL ORGANISED FINANCE PROFESSIONAL.

IDENTIFIED AS A CORPORATE FRIEND.

A WELL INFORMED INTERMEDIARY.

QUALITIES

GOOD LISTENER.

PLANNER.

ORGANISER.

COORDINATOR.

RELATIONSHIP MANAGER.

INDUSTRY/MARKET KNOWLEDGE.ANALYTICAL SKILLS.


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ISSUE ASSIGNMENT...MERCHANT BANKER

LEAD THE TEAMCORRECT GUIDANCE PROPER PRICING

PROFESSIONAL WORK.

SUCCESS.

MERCHANT BANKER

Should ..

Be good at Due diligence work.Understand the Disclosure concept.

Do Proper pricing of the securities.

Market the securities effectively.

ISSUE MANAGEMENT

From ..Merchant Bankers view

ONLY ACTIVITY ..VISIBILITY OF M. B.

PLAN THE ACTIVITY.

ACTIVITY CHART AND RESPONSIBILITY.

GOOD RELATION WITH OTHER INTERMEDIARIES .

UNDERSTAND THE MARKET

PRICE THE ISSUE PROPERLY.

EACH ASSIGNMENT IS DIFFERENT.

DRAFTING OF THE OFFER DOCUMENT AND CAPITAL

STRUCTURE IS VERY IMPORTANT.

MARKETING .MERCHANT BANKER

PROPER PRESENTATION TO INVESTORS.

IDENTIFY PROPER SOURCES.

NOT A SECONDARY MARKET MAN

RESPONSIBILITIES.

COMMITTMENT TO ISSUER.

COMMITTMENT TO INVESTORS. ( DISCLOSURE )

FOLLOW THE ETHICS.NO COMPROMISES.


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GOALSUCCESS

FOLLOW UP. RELATION BASED.

CONTINUITY IN SERVICES.

BUILDING UP SELF IMAGE

MORE PROFESSIONAL APPROACH.

kng

CASE STUDY FOR A MERCHANT BANKING ACTIVITY..

COST OF THE PROJECT HAS BEEN GIVEN FOR TWO DIFFERENT

SITUATIONS.

HOW A MERCHANT BANKER ADVISES HIS CLIENT ABOUT THE

FURTHER PLAN OF ACTION FOR FUNDING .

RS IN LAKHS


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I II

NEW UNIT 6 YEARS OLD

LAND 20.00 50.00

LAND DEVELOPMENT 5.00 10.00BUILDING

FACTORY 75.00 250.00

OFFICE 20.00 100.00

QUARTERS 50.00 150.00

PLANT AND

MACHINERY . 300.00 900.00

MISC

FIXED ASSETS 75.00 200.00PRELIM AND

PREOP EXP 50.00 150.00

CONTINGENCIES.. 35.00 140.00

TECHNOLOGY

TRANSFER.. 00.00 300.00

WORKING CAPITAL

MARGIN. 20.00 150.00

TOTAL 650.00 2400.00

SOURCES OF FUNDS..

GROUP1

TERM LOAN ..FROM BANKS, FIS, SFCS AND

NBFCSFOREIGN CURRENCY LOAN ..FROM CBS AND FIS


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D.P.G ...FROM CBS

LEASING FINANCE FROM .NBFCELCO..

HIREPURCHASE..FROM ..NBFC.HP CO.

GROUP2.

PUBLIC ISSUE. EQUITY AT PAR

PUBLIC ISSUEDEBT

PUBLIC ISSUE OF DEBT AND EQUITY

PUBLIC ISSUE OF EQUITY AT PREMIUM.

RIGHTS ISSUE AT PAR AND PUBLIC ISSUE AT PREMIUM

RIGHTS ISSUE AT LOWER PREMIUM AND PUBLIC ISSUE AT

HIGHER PREMIUM.

PRIVATE PLACEMENT .INVESTMENT FROM VCS

PRIVATE EQUITY

INVESTMENT FROM MFS.

INTERNATIONAL CAPITAL MARKET..ADRS AND GDRS.

GROUP.3

WORKING CAPITAL FINANCE FROM COMMERCIAL BANKS.

BILLS DISCOUNTING

FACTORING.

COMMERCIAL PAPER.

GROUP.4

PROMOTERS CONTRIBUTION

INTERNAL ACCRUALS.

FIXED DEPOSITS.

UNSECURED LONG TERM LOANS.

JOINT VENTURE. (Financial)F.D.I..FC.C.B.

E.C.B..FOREIGN CURRENCY BORROWINGS

ANY OTHER SOURCES OF FUNDS AVAILABLE.ADD TO THE

LIST.

RIGHTS ISSUE..


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Fresh securities offered to the existing share holders.

Ratio to be offered and the price to be finalised.

This is a source of funds .

Record date to be fixed.

Book closure to be announced.Trading will go on either in Cum rights or Ex rights.

An existing share holders may or maynot exercise option of subscribing,

He can ask for split forms to be given to more members ( Max 3)

He can renounce his rights .

Original holder can apply for more than his entitlement.

Rights kept open for min 30 daysmax 60 days.

Offer document is Letter of offer.

Composite application form.

The issue can be at par or premium.

The fresh securities will be listed on exchanges .

Merchant banker services are a must along with RTI and BTI.

BONUS ISSUE..

Existing shareholders will get the fresh securities free of cost.

This is known as Capitalisation of reserves.

1994SEBI has given clear instruction regarding capitalization of reserves

Certain eligibility criteria has to be followed.

Ratio in which it has to be given has to be finalized.

Once company decided this has to be completed before six months.

Record date has to be fixedBook closure to be announced.

Trading continues either Cum bonus or ex bonus.

The new securities has to be listed .

Private placement ..

Substantial acquisitions of shares

Buy back of shares by the company

Q.I.P

A qualified institutional placement

Is where by a listed company can issue equity shares fully ,partly convertible

debentures or any securities other than warrants to a select group.Introduced in 2006.


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Company shres must be listed and traded nation widemin 10% under the

scheme must be offered to MF`s.No issue to QIB where the promoters are

related .

AMERICAN DEPOSITIRY SHARES..( ADS)

Conversion of local shares into American depositoryshares of a Company

is called an ADS conversion. Large investment banker familiar with

Indian and foreign markets manage such activity.

A company where the listing in domestic and foreign exchanges can take up

this. Local share holders can convert and sell in US markets.American

market will be at a premium compare to Indian market. Short term capital

gains is applicable.Company gets visibility and new shareholders

SEBI GUIDELINES..

S E B ISECURITY EXCHANGE BOARD OF INDIA .

Concept of SEBI is based on SEC of US.

1990 ..started functioningunderstudy to C C I .

1991..CCI abolished ..

1992SEBI act was passed.it became the regulatory authority for

capital market operations.

Objectives..

1. To protect the interest of the investors.

2. Bring in Disclosure norms

3. To promote, regulate and develop the securities market and its

operations.

REFORMS (CHANGES) IN CAPITAL MARKET

SEBIAS A REGULATORY AUTHORITY.

Identification of Intermediaries.

Registration of intermediaries.( Mandatory)

Capital adequacy./Code of conduct

Norms for all intermediaries.Eligibility criteria for issuers.


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Free pricingjustification of pricing

Disclosure norms.( Various changes brought in )

High lights

Risk factors/management perception.

Due diligence certificateM.O.U.

Inter se allocation of responsibilities.

Under writing (optional.)

Introduction of Stock invest.

Lock in period

Share holding pattern

Rating of debt instruments.

Book building process.

Reduction of time in post issue activities.Refund of subscription in case of no underwriting.

Guidelines for Debt issue.

Penalty points for MB`s

Guidelines to Bonus issue.

Acquisition ./ Take over guidelines.

Buy back of shares.

Guidelines on Insider trading .

Creation of MF as a separate entity

Creation of AMC for MF

Concept of Promoters contribution

In Equity issue, Debt issue, Rights issues

Indian company to access International capital market.( ADR GDR)

ESOP

Introduction of new investors

Guidelines for private placement.

Stock exchange under SEBI guidelines.

Setting up of OTCEI

Setting up of NSESetting up of Inter connected stock exchange.

Introduction of Demat system

Introduction 1% deposit with Stock exchanges by issuer.

Release of 90 % of the amount subscribed in Rights issue to Issuer.

No need to approach ROC for Public issue clearances.

All activities have reporting system.

Removal of Badla.

Derivatives trading.( futures and options)

Introduction INDO NEXT platform for MID CAP stocks trading.Demutualisation Of stock exchanges


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Guidelines for IPO through Debt instruments..

Introduction ASBA FACILITY.

SEBI will change the guidelines as per the changes required in the

financial system by amending the existing guidelines which will be

circulated to the respective intermediaries and also any one have accessthrough website of SEBI.

ACTIVITIES OF CAPITAL MARKET GOVERNED BY SEBI

GUIDELINES.

ISSUER OF SECURITIES.

PUBLIC ISSUE

RIGHTS ISSUE

BONUS ISSUE.

BOOK BUILDING PROCESS.DRAFTING OF OFFER DOCUMENTS.

MERCHANT BANKER.

REGISTRAR TO ISSUE/SHARE TRANSFER AGENCY

BANKER TO ISSUE

BROKERS TO ISSUE

UNDERWRITERS TO ISSUE

DEBENTURE TRUSTEE

CREDIT RATING

DEPOSITORIES.

CUSTODIAL SERVICES.

OPERATIONS OF STOCK EXCHANGE.

PORTFOLIO MANAGERS

FOREIGN INSTITUTIONAL INVESTORS.

VENTURE CAPITAL.

MUTUAL FUNDS

ADR/GDR ISSUES

SUBSTANTIAL ACQUISITION /TAKE OVERS

BUY BACK OF SECURITIES.

ISSUE OF SWEAT EQUITY.COLLECTIVE INVESTMENT SCHEME.

PRICING OF AN ISSUE.

DISCLOSURE AND INVESTOR PROTECTION.

OFFER DOCUMENTS.PROSPECTUS.SEBI GUIDELINES

DISCLOSURES TO BE MADE..

STRUCTURE AND CONTENTS DEFINED..


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HIGHLIGHTS

RISKFACTORSMANAGEMENT PERCEPTION..

GOVERNMENT APPROVALS

SEBI DISCLAIMER CLAUSE

STOCK EXCHANGE DISCLAIMER CLAUSE..LISTING.MINIMUM SUBSCRIPTION

RATING AND DEBENTURE TRUSTEE (IN CASE OF DEBT ISSUE)

ISSUE MANAGEMENT TEAM

CAPITAL STRUCTURE LOCK IN PERIODBUILD UP OF

CAPITAL

SHAREHOLDING PATTERN.

TERMS OF THE ISSUE.

INSTRUCTIONS TO APPLICANTS.

INFORMATION ABOUT DEPOSITORY.STOCK INVEST PROCEDURE.

TAX BENEFITS.

OBJECTS OF THE ISSUE.

COMPANY PROFILE.

PROMOTERS BACK GROUND.

GROUP COMPANIES.

BOARD OF DIRECTORSOTHER DIRECTORSHIP

PROJECT DETAILS.

INDUSTRY PROFILE.

BUSINESS PROFILE.

OUTSTANDING LITIGATIONS.

JUSTIFICATION PRICINGQUALITATIVEQUANTITATIVE.

( ISSUE WITH PREMIUM)

FINANCIALSAUDIT REPORT.

MAIN PROVISIONS OF ARTICLES.

MATERIAL CONTRACTS ..DOCUMENTS

PROJECTIONS ..VS..PERFORMANCE. ( INCASE OF COMPANY

GOING FOR 2nd TIME THROUGH PUBLIC ISSUE).

For Offer document of Rights issue.Letter Of offerinformation is

kept at minimum as the existing share holders knows more about the

company..normally statutory clauses will be furnished.


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SCHEDULE I

(Clause 5.3.1.2)

MEMORANDUM OF UNDERSTANDING BETWEEN THE LEAD

MERCHANT

BANKER TO THE ISSUE AND THE ISSUER COMPANY

THIS MEMORANDUM OF UNDERSTANDING MADE BETWEEN.......

(name of theissuing company), A COMPANY WITHIN THE MEANING OF THE

COMPANIES ACT,

1956 AND HAVING ITS REGISTERED OFFICE AT ......... (registered

office address of

the issuing company) (HEREINAFTER REFERRED TO AS the

Company) AND........

a Company registered under the Companies Act 1956, and having its

registered office

at...................... with the branch office at (hereinafter referred to as the

Lead Merchant

Banker).

WHEREAS:

1. The Company is taking steps for issue of...................... (particulars of the

issue)

to the public / existing shareholders of the Company; the said issue of

shares/debentures is hereinafter referred to as the issue; AND

2. The company has approached the Lead Merchant Banker to manage the

issue

and the Lead Merchant Banker has accepted the engagement inter-aliasubject

to the company entering into memorandum of understanding for the

purpose

being these presents;

NOW, THEREFORE, the Company and the Lead Merchant Banker do

hereby agree

as follows:

1. Besides the Lead Merchant Banker, .........., ............, and .................,

would beacting as the co-managers to the issue.


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2. The Company hereby declares that it has complied with or agrees to

comply

with all the statutory formalities under the Companies Act, Guidelines for

Disclosure and Investor Protection issued by the Securities and Exchange

Board of India (hereinafter referred to as the Board) and other relevantstatutes

to enable it to make the issue and in particular in respect of the following

matters:

(Give details and particulars of statutory compliances which the company

has to

fulfil before making the issue)

Consent of the general body has been obtained vide........... (details of the

resolution) and in accordance to the terms of the Resolution passed by the

General Meeting held on .............. (date of the meeting).3. The company undertakes and declares that any information made

available to

the Lead Merchant Banker or any statement made in the Offer Documents

shall

(Updated till June 10, 2007)

Page 247 of 348

be complete in all respects and shall be true and correct and that under no

circumstances it shall give or withhold any information or statement which

is

likely to mislead the investors.

4. The Company also undertakes to furnish complete audited annual

report(s),

other relevant documents, papers, information relating to pending

litigations, etc.

to enable the Lead Merchant Banker to corroborate the information and

statements given in the Offer Documents.

5. The Company shall, if so required, extend such facilities as may be called

for by

the Lead Merchant Banker/(s) to enable him to visit the plant site, office ofthe

Company or such other place/(s) to ascertain for himself the true state of

affairs

of the company including the progress made in respect of the project

implementation, status and other facts relevant to the issue.

6. The Company shall extend all necessary facilities to the Lead Merchant

Banker

to interact on any matter relevant to the Issue with the solicitors / legal

advisors,auditors, co-managers, consultants, advisors to the Issue, the financial


43/86

institutions, banks, or any other organisation, and also with any other

intermediaries who may be associated with the issue in any capacity

whatsoever.

7. The Company shall ensure that all advertisements prepared and released

by theAdvertising Agency or otherwise in connection with the Issue conform to

regulations, guidelines etc. issued by the Board and instructions given by

the

Lead Merchant Banker/(s) from time to time and that it shall not make any

misleading, incorrect statement in the advertisements, press releases, or in

any

material relating to the Issue or at any Press / Brokers / Investors

Conferences.

8. The Company shall not, without prior approval of the Lead MerchantBanker,

appoint other intermediaries or other persons such as Registrars to the

Issue,

Bankers to the Issue, Refund Bankers, Advertising Agencies, Printers for

printing application forms, allotment advices / allotment letters, share

certificates/

debenture certificates, refund orders or any other instruments, circulars,

or

advices.

9. In consultation with the Lead Merchant Banker, the company shall,

whenever

required, enter into a Memorandum of Understanding with the concerned

intermediary associated with the issue, clearly setting forth their mutual

rights,

responsibilities and obligations. A certified true copy of such Memorandum

shall

be furnished to the Lead Merchant Banker.

10. The Company shall take such steps as are necessary to ensure the

completionof allotment and despatch of letters of allotment and refund orders to the

applicants including NRIs soon after the basis of allotment has been

approved

by the stock exchanges and in any case not later than the statutory time

limit

and in the event of failure to do so pay interest to the applicants as

provided

under the Companies Act, 1956.

(Updated till June 10, 2007)Page 248 of 348


44/86

11. The Company shall take steps to pay the underwriting commission and

brokerage to the underwriters and stock brokers, etc. within the time

specified in

any agreement with such underwriters or within a reasonable time.

12. The Company undertakes to furnish such information and particularsregarding

the issue as may be required by the Lead Merchant Banker to enable him

to file

a report with the Board in respect of the issue.

13. The company shall keep the Lead Merchant Banker informed if it

encounters

any problems due to dislocation of communication system or any other

material

adverse circumstance which is likely to prevent or which has prevented theCompany from complying with its obligations, whether statutory or

contractual, in

respect of the matters pertaining to allotment, despatch of refund orders /

share

certificates / debenture certificates etc.

14. The company shall not resort to any legal proceedings in respect of any

matter

having a bearing on the issue except in consultation with and after receipt

of the

advice from the Lead Merchant Banker.

15. The company shall not access the money raised in the issue till

finalisation of

basis of allotment or completion of offer formalities.

16. The company shall refund the money raised in the issue to the

applicants if

required to do so for any reason such as failing to get listing permission or

under

any direction or order of SEBI. The company shall pay requisite interest

amountif so required under the laws or direction or order of SEBI.

17. Clauses relating to rights of Lead Merchant Banker vis--vis the issuer

shall be

inserted.

18. Consequences of breach.

In Witness whereof the parties hereto have set their hands on the day and

the year

hereinabove written.



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SCHEDULE II(Clause 5.3.2.1)

INTERSE ALLOCATION OF RESPONSIBILITIES

I. The Lead Merchant Bankers shall make interse allocation of the

activities / sub

activities.

II. The lead merchant banker shall ensure that activity wise allocation is

properly

delineated and that the Board is advised the name of the Lead Merchant

Bankerresponsible for each set of activities / sub-activities, well before opening of

issue.

This advice must be signed by all Lead Merchant Bankers to issue.

III. Where the circumstances warrant joint and several responsibility of

Lead

Merchant Bankers for a particular activity, a co-ordinator designated from

among the Lead Merchant Bankers shall furnish to the Board, when called

for,

with information, report, comments etc. on matters relating to the activity

(of joint

and several responsibility).

IV. The activities / sub-activities may be grouped on the following lines:

(a) Capital structuring with the relative components and formalities such

as

composition of debt and equity, type of instruments.

(b) Drafting and Design of the offer document and of advertisement /

publicity

material including newspaper advertisements and brochure /

memorandumcontaining salient features of the offer document.

The designated Lead Merchant Banker shall ensure compliance with the

Guidelines for Disclosure and Investor Protection and other stipulated

requirements and completion of prescribed formalities with Stock

Exchange,

Registrar of Companies and SEBI.

(d) Marketing of the issue, which will cover, inter alia, formulating

marketing

strategies, preparation of publicity budget, arrangements for selection of (i)ad-media, (ii) centres of holding conferences of brokers, investors etc. (iii)


46/86

bankers to issue, (iv) collection centres (v) brokers to issue and (vi)

underwriters and the underwriting arrangement, distribution of publicity

and

issue material including application form, prospectus and brochure, and

deciding on the quantum of issue material.(e) Selection of various agencies connected with issue, namely Registrars to

Issue, printers and advertising agencies.

(f) Follow-up with bankers to the issue to get quick estimates of collection

and

advising the issuer about closure of the issue, based on the correct figures.


Page 250 of 348

(g) The post-issue activities will involve essential follow-up steps, which

mustinclude finalisation of basis of allotment / weeding out of multiple

applications, listing of instruments and despatch of certificates and

refunds,

with the various agencies connected with the work such as registrars to the

issue, bankers to the issue, and the bank handling refund business.

(h) Even if many of these post-issue activities would be handled by other

intermediaries, the designated Lead Merchant Banker shall be responsible

for ensuring that these agencies fulfil their functions and enable him to

discharge this responsibility through suitable agreements with the issuer

company.

(i) Ordinarily, one Lead Merchant Banker shall be responsible for post

issue

activities.


Page 251 of 348

354(SCHEDULE III)

354

Substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14,

2003 for the following:SCHEDULE III

(Clause 5.3.3.1)


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FORMAT OF DUE DILIGENCE CERTIFICATE TO BE GIVEN BY

LEADMERCHANT BANKER(S) ALONGWITH DRAFT OFFER

DOCUMENTTo,

SECURITIES AND EXCHANGE BOARD OF INDIA

Dear Sirs,

SUB.: ISSUE OF ____________________ BY _______________LTD.

We, the under noted Lead Merchant Banker (s) to the above mentioned

forthcoming issue state as follows :

1. We have examined various documents including those relating to

litigation like commercial disputes, patent

disputes, disputes with collaborators etc. and other materials moreparticularly referred to in the Annexure

hereto in connection with the finalisation of the draft prospectus/letter of

offer pertaining to the said issue;

(2) On the basis of such examination and the discussions with the company,

its directors and other officers,

other agencies, independent verification of the statements concerning the

objects of the issue, projected

profitability, price justification and the contents of the documents

mentioned in the Annexure and other

papers furnished by the company, WE CONFIRM that:

(a) the draft prospectus/letter of offer forwarded to the Board is in

conformity with the documents, materials

and papers relevant to the issue;

(b) all the legal requirements connected with the said issue as also the

guidelines, instructions, etc. issued by

the Board, the Government and any other competent authority in this

behalf have been duly complied

with; and

the disclosures made in the draft prospectus / letter of offer are true, fairand adequate to enable the

investors to make a well informed decision as to the investment in the

proposed issue.

(3) We confirm that besides ourselves, all the intermediaries named in the

prospectus/letter of offer are

registered with the Board and that till date such registration is valid.

(4) We have satisfied ourselves about the worth of the underwriters to fulfil

their underwriting commitments.

(5) We certify that written consent from shareholders has been obtainedfor inclusion of their securities as


48/86

part of promoters contribution subject to lock-in and the securities

proposed to form part of promoters

contribution subject to lock-in, will not be disposed / sold / transferred by

the promoters during the period

starting from the date of filing the draft prospectus with the Board till thedate of commencement of lock-in

period as stated in the draft prospectus.

PLACE: LEAD MERCHANT BANKER(S) TO THE ISSUE

DATE: WITH HIS/ THEIR SEAL (S)

ANNEXURE TO THE DUE DILIGENCE CERTIFICATE FOR THE

ISSUE OF _______________________

BY ______________________________LIMITED

1. Memorandum and Articles of Association of the Company.

2. Letter of Intent/SIA Registration/Foreign CollaborationApproval/Approval for import of plant and

machinery, if applicable.

3. Necessary clearance from governmental, statutory, municipal authorities

etc. for implementation of the

project, wherever applicable.

4. Documents in support of the track record and experience of the

promoters and their professional

competence.

5. Listing agreement of the Company for existing securities on the Stock

Exchanges.

6. Consent letters from Companys auditors, Bankers to issue, Bankers to

the Company, Lead Merchant

Bankers, Brokers and where applicable, Proposed Trustees.

7. Applications made by the company to the financial institutions/banks for

financial assistance as per object

of the Issue and copies of relative sanction letters.

8. Underwriting letters from the proposed underwriters to the issue.

9. Audited Balance Sheets of the Company/Promoter companies for

relevant periods.10. Auditors certificate regarding tax-benefits available to the Company,

Shareholders and Debenture

holders.


Page 252 of 348

(Clause 5.3.3.1)

FORMAT OF DUE DILIGENCE CERTIFICATE TO BE GIVEN BY

LEAD MERCHANTBANKER(S) ALONGWITH DRAFT OFFERDOCUMENT


49/86

To,

SECURITIES AND EXCHANGE BOARD OF INDIA

Dear Sirs,

SUB.: ISSUE OF ____________________ BY _______________LTD.

We, the under noted Lead Merchant Banker (s) to the above mentionedforthcoming

issue state as follows:

1. We have examined various documents including those relating to

litigation like

commercial disputes, patent disputes, disputes with collaborators etc. and

other

materials more particularly referred to in the Annexure hereto in

connection with

the finalisation of the draft prospectus/letter of offer pertaining to the saidissue;

2. On the basis of such examination and the discussions with the company,

its

directors and other officers, other agencies, independent verification of the

statements concerning the objects of the issue, projected profitability, price

justification and the contents of the documents mentioned in the Annexure

and

other papers furnished by the company, WE CONFIRM that:

11. Certificate from Architects or any other competent authority on project

implementation schedule furnished

by the company, if applicable.

12. Reports from Government agencies / expert agencies / consultants /

company regarding market demand

and supply for the product, industry scenario, standing of the foreign

collaborators, etc.

13. Documents in support of the infrastructural facilities, raw material

availability, etc.

14. Auditors Report indicating summary of audited accounts for the

period including that of subsidiaries of thecompany.

15. Stock Exchange quotations of the last 3 years duly certified by regional

stock exchange in case of an

existing company.

16. Applications to RBI and approval thereof for allotment of shares to

non-residents, if any, as also for

collaboration terms and conditions.

17. Minutes of Board and General Body meetings of the company for

matters which are in the prospectus.


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18. Declaration in Form 32 from Directors (for particulars of Directorship)

or the Company Secretarys

certificate in this regard.

19. Revaluation certificate of companys assets given by Government

Valuer or any other approved Valuer.20. Environmental clearance as given by Pollution Control Board of the

State Government or the Central

Government as applicable.

21. Certificate from companys solicitors in regard to compliance of legal

provisions of the Prospectus as also

applicability of FERA/MRTP provisions to the company.

22. Other documents, reports etc. as are relevant / necessary for true, fair

and adequate disclosures in the

draft prospectus / letter of offer (to give details).23. True copy of the Board resolution passed by the issuer authorising a

representative of the Registrar to act

on its behalf in relation to handling of stockinvests.

PLACE: LEAD MERCHANT BANKER (S) TO THE ISSUE

DATE: WITH HIS / THEIR SEAL (S)


Page 253 of 348

(a) the draft prospectus/letter of offer forwarded to the Board is in

conformity

with the documents, materials and papers relevant to the issue;

(b) all the legal requirements connected with the said issue as also the

guidelines, instructions, etc. issued by the Board, the Government and any

other competent authority in this behalf have been duly complied with; and

the disclosures made in the draft prospectus / letter of offer are true, fair

and

adequate to enable the investors to make a well informed decision as to the

investment in the proposed issue.

3. We confirm that besides ourselves, all the intermediaries named in the

prospectus/letter of offer are registered with the Board and that till datesuch

registration is valid.

4. We have satisfied ourselves about the worth of the underwriters to fulfil

their

underwriting commitments.

5. We certify that written consent from shareholders has been obtained for

inclusion of their securities as part of promoters contribution subject to

lock-in

and the securities proposed to form part of promoters contribution subjectto


51/86

lock-in, will not be disposed / sold / transferred by the promoters during

the

period starting from the date of filing the draft prospectus with the Board

till the

date of commencement of lock-in period as stated in the draft prospectus.PLACE: LEAD MERCHANT BANKER(S) TO THE ISSUE

DATE: WITH HIS/ THEIR SEAL (S)


Page 254 of 348

ANNEXURE TO THE DUE DILIGENCE CERTIFICATE FOR THE

ISSUE OF

_______________________ BY

______________________________LIMITED1. Memorandum and Articles of Association of the Company.

2. Letter of Intent/SIA Registration/Foreign Collaboration

Approval/Approval for

import of plant and machinery, if applicable.

3. Necessary clearance from governmental, statutory, municipal authorities

etc. for

implementation of the project, wherever applicable.

4. Documents in support of the track record and experience of the

promoters and

their professional competence.

5. Listing agreement of the Company for existing securities on the Stock

Exchanges.

6. Consent letters from Companys auditors, Bankers to issue, Bankers to

the

Company, Lead Merchant Bankers, Brokers and where applicable,

Proposed

Trustees.

7. Applications made by the company to the financial institutions/banks for

financialassistance as per object of the Issue and copies of relative sanction letters.

8. Underwriting letters from the proposed underwriters to the issue.

9. Audited Balance Sheets of the Company/Promoter companies for

relevant

periods.

10. Auditors certificate regarding tax-benefits available to the Company,

Shareholders and Debenture holders.

11. Certificate from Architects or any other competent authority on project

implementation schedule furnished by the company, if applicable.


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12. Reports from Government agencies / expert agencies / consultants /

company

regarding market demand and supply for the product, industry scenario,

standing of the foreign collaborators, etc.

13. Documents in support of the infrastructural facilities, raw materialavailability,

etc.

14. Auditors Report indicating summary of audited accounts for the

period including

that of subsidiaries of the company.

15. Stock Exchange quotations of the last 3 years duly certified by

designated stock

exchange in case of an existing company.


16. Applications to RBI and approval thereof for allotment of shares to

nonresidents,

if any, as also for collaboration terms and conditions.

17. Minutes of Board and General Body meetings of the company for

matters which

are in the prospectus.

18. Declaration in Form 32 from Directors (for particulars of Directorship)

or the

Company Secretarys certificate in this regard.

19. Revaluation certificate of companys assets given by Government

Valuer or any

other approved Valuer.

20. Environmental clearance as given by Pollution Control Board of the

State

Government or the Central Government as applicable.

21. Certificate from companys solicitors in regard to compliance of legal

provisions

of the Prospectus as also applicability of FERA/MRTP provisions to thecompany.

22. Other documents, reports etc. as are relevant / necessary for true, fair

and

adequate disclosures in the draft prospectus / letter of offer (to give details).

23. 355(Deleted)

PLACE: LEAD MERCHANT BANKER (S) TO THE

DATE: ISSUE WITH HIS / THEIR SEAL (S)

355 Omitted the following clause vide SEBI Circular No.

SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25,2005:


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True copy of the Board resolution passed by the issuer authorising a

representative of the Registrar to act on its

behalf in relation to handling of stockinvests.


Page 256 of 348

UNIT IV CAPITAL MARKETS SECONDARY

Stock Exchange An Overview, Stock Exchange Trading, Stock

Exchange Regulatory Framework, Indian Stock Exchanges AProfile, Insider Trading, Listing, Delisting, SEBI Functions and

Working, Restructuring of Indian Stock Exchanges Major issues

TRADING..SECONDARY MARKET OPERATIONS.

Trading means buying and selling of securities that are listed on the

stock exchanges.

The trading has to be done through an authorised broker who is a

member of stock exchange and registered with SEBI..

The client should have a contract signed with a specified broker to do

the transactions.

To day because of online trading the settlement and transparency of

the transactions can nbe understood by the client.


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There are basically three types of Investors ..speculative.short

term long term ..

`Secondary market facilitates but does not ensure liquidity.

Prices of the quoted securities changes depending upon the various

factors.

An investor should have a proper knowledge of the market

operations.

BSE and NSE are the major exchanges in the Indian capital market

facilitates trading.

Companies are grouped according to the size , performance andother factors.

SEBI keeps a watch on the movement of price and volatility of the

market.

Sensitivity index of the capital market in India are BSE sensex (30)

and NIFTY.(50).

To understand the performance of companies in the industry thereare certain index related to industry.

For secondary market operations one has to use the services of

Depository and custodians.and stock exchange.

Settlement happens now with in two days of the transactions.

Stock exchange follows the listing guidelines vis a vis companies

listed for following the guidelines.

Volume is one which is important. With out adequate volume the

liquidity will be affected.

Various factors affect the markets regularly.

Since past two years Capital market has introduced Derivative

trading, in the form of Options and futures.


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51 Companies have been identified which can be considered under

this scheme.

This market is yet to develop.

All the operations are technology driven.

The secondary market transactions (trading)in demat format only,.

*********************

MARGINS..

In the Capital market secondary market operations ..there is concept ofhaving adequate capital for the proposed transactions in the form of

Margins.

Stock exchange insists that Brokers should built up margins in different

forms. This is a precaution to avoid payment crisis.

GROSS EXPOSURE MARGIN..

SECURITY IN THE FORM OF CASH, BANK GUARANTEE, SHARESON DAILY OUTSTANDINGS.

DAILY /INITIAL MARGIN

BROKERS HAVE TOCOLLECT MARGIN FROM HIS TWO WAY

CLIENTS ON THE OPEN POSITION

SPECIAL MARGIN..

BASED ON THE ABNORMAL MOVEMENT OF THE PRICES OF

SCRIPS THE EXCHANGE INSISTS FOR THIS.

MARK TO MARK MARGIN..

HAPPENS IN F & O SEGMENT IN CASE OF FALL OR RISE OF

TRANSSACTION PRICES.

VOLATALITY MARGIN


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TO CHECK ABNORMAL FLUCTUATIONS IN THE INTRADAY

DEALINGS.

ADHOC MARGINS

ARE IMPOSED ON THE BROKERS CARRYING OVER ALL POSTION

OF ILLIQUID STOCKS WHICH ARE LOW PRICED.

STOCK MARKET INDEX..

It is a number measuring the relative value of a group of stocks.

Value of the group changes while they are traded.

It is the historical comparison of of returns on money invested in

stock market.

It reality reflects the mood of the market.

For a layman it is the pulse of the economy.

Market Index are constructed by way of value weighted method. Worked

based on base index rate.

VARIOUS ANALYTICAL APPROACH FOR VALUATION OF

STOCKS..

Fundamental analysis.

Process of looking at a company`s business from investment point of view.

Analysis of Company`s management capabilities,competitive advantage ,

key ratios of business,

Technical Analysis

Future value of share, volume traded, does not look at financial orfundamentals Shar price movement technical indicators, chart patterns.


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Quantitative analysis.

Process of determining quantitative analysis by using complex

mathematical and statistical modelling , value of the securitybuy and selldecisions .

All these different analytical tools have different uses.

STOCK EXCHANGEstatutorily defined as any body of individuals

whether incorporated or not constituted for the purpose of assisting or

controlling the business of selling or dealing in securities,.

Securities contract( Regulations ) act 1956

IMPORTANCE..

SUPPORT FOR JOINT STOCK ENTERPRISES.

FACILITY TO DEAL IN SECURITIES.

LIQUIFY THE CAPITAL IN AN ENTERPRISES BY AN

INVESTOR.

WITHOUT STOCK EXCHANGE THE CAPITAL WOULD HAVE

BECOME IMMOBILISED.

Stock exchanges are subject to primary regulations..


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The Securities and contract regulation act 1956..to regulate undesirable

transactions in securities

21 regional stock exchanges ..

CLOSURE OF SOME EXCHANGES

OTCEI.OVER THE COUNTER EXCHANGE OF INDIA.

( can be considered as 22 nd exchange)

Commenced operations in 1991.

Modelled on the NASDAQ ( National association of Securities dealers and

automated quotations) of USA.

OBJECTIVETO PROVIDE SMALL AND MEDIUM COMPANIES

EASY ACCESS TO CAPITAL MARKET TO RAISE CAPITAL IN COSTEFFECTIVE MANNER.

Commenced operations in 1992.

A ringless scripless.exchangemechanized trading national net

work.

NATIONAL STOCK EXCHANGE.

A fully automated screen based trading system. Commenced operations in

1994.

( CAN BE CONSIDERED AS 23 rd EXCHANGE)

Transparency of operations.enjoy quick and efficient settlements

system..

Operated on satellite based communication net work.


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Has two segments..

WDMWHOLE SALE DEBT MARKET SEGMENT..

To enable Institutions and Corporates to deal in Govt securities, treasurybills, PSU bonds, CP`s, CD`setc..

CAPITAL MARKET SEGMENT..

COVERS TRADING IN EQUITIES,NCD`sretail trade..

INTERCONNECTED STOCK EXCHANGE OF INDIA

15 participating exchanges promoted thisCommenced due to the fact

that the business of

regional exchanges reduced due to expansion of BSE and NSE.

ISE provides a national forum for trading in respect of all the regionally

listed securities.

Ensures liquidity of sparsely traded securities.

Commenced operations in Feb.1999.

DEMUTUALISATION IS THE NEW CONCEPT BEING BROUGHT IN

BY SEBI TO CORPORATISE THE STOCK EXCHANGE BY

REVAMPING THE BOARD WITH PROFESSIONALS

INDONEXT IS THE NEW CONCEPT INTRODUCED BY SEBI FORTRADING IN MID CAP SECURITIES LISTED ON STOCK

EXCHANGES.

DEPOSITORY SYSTEM


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The system commenced operations by virtue of Depositories act 1996.

HOLDING THE SECURITIES IN ELECTRONIC FORM.

FOUR PARTIES..

THE INVESTOR

THE ISSUER OF SECURITIES

PARTICIPANTS OR AGENTS.

DEPOSITORY OF SECURITIES.

NSDL AND CSD(I)L ARE THE TWO APEX LEVEL

INSTITUTIONS.

COMMERCIAL BANKS, FINANCIAL SERVICE INSTITUTIONS

ARE THE DEPOSITORY PARTICIPANTS .

SEBI.THE REGULATORY AUTHORITY HAS MADE

SECONDARY MARKET OPERATIONS MANDATORY

THROUGH DEMAT OPERATIONS.

FOR BOOK BUILDING PROCESS THE SUBSCRIPTION HAS TOBE MADE ONLY BY THE DEMAT ACCOUNT HOLDERS.

CUSTODIAL SERVICES.

Relating to securities means ..safe keeping of securities of a client andproviding incidental services..

Maintaining of accounts.

Collection of benefits.

Reconciling the records.


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DERIVATIVES

Are instruments whose value is derived from the value of one or more

underlying exposures.

Commonly known derivativesare.FORWARDS..FUTURES..

OPTIONS.SWAPS.

FUTURES.BASED ON INDICESARE .INDEX FUTURES.

BASED ON STOCKS..ARE..STOCK FUTURES.

ON THE SAME LINES THE OPTIONS ARE DEFINED..

FORWARDS..

A FORWARD CONTRACT IS A CONTRACT TO BUY/SELL THE

UNDERLYING ON A FUTURE DATE AT A PRICE THAT IS

DETERMINED TODAY.

NEGOTIATED BETWEEN TWO PARTIES

OUTSIDE THE FRAME WORK OF STOCK EXCHANGE

THE CONTRCTS ARE ILLIQUID.

RE NEGOTIATE WITH MUTUAL CONSENT..

FUTURES

ARE LIKE FORWARDS , EXCEPT THAT THEY ARE TRADE IN

STOCK EXCHANGE. ON THE BASIS OF STANDARD

CONTRACTS

The trades guaranteed by Stock exchanges.

Negotiation is on the price.

Positions are liquid.

Regulations permits futures upto 12 months.

Launched upto 3 months.


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Future pricing depend upon the current demand and supply

OPTIONS.

One party ( Option buyer)..has the right , but not the obligation to theterms of the contract.

Other party( Option writer) is obliged to the terms of the contract.

Contract lapse on expiration date.

Option premium has to be paid by the option buyer.

An option to buy is called Call option..An option to sell Put option

An American option can be exercised anytime before maturity. Stock

option

An European option can be exercised only on maturity.Index

options.

SWAP..

A swap is an arrangement between two parties to exchange streams of

payments calculated on different bases.

E .C .B

E C B .External commercial borrowingsrefers to commercial loans

availed from Non resident lenders in the form of Bank loans, Buyer`s credit, supplier`s credit , securitized instrumentswith a minimum average

maturity of 3 years.

ECB can be accessed through two routesAutomatic route and approved

route.

RECOGNISED LENDERS .

International banksInternational capital markets


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Multilateral financial institutionsIFC..ABD,CDC

Suppliers of equipment

Foreign Collaborators

Foreign equity holders.

ECB`s includes..

Commercial bank loans

Buyer`s credit

Supplier`s credit

From Foreign Financial Institutions.

Securitised instruments

Credit from official export credit agencies. Borrowings from Multilateral FI`sADB,CDC,IFC.

Indian borrowers have routes to avail , then maturity period according to

the amount.

The interest rates are fixed interms of basic rate of LIBOR plus other

charges.

FEMA guidelines are to be followed .

FOREIGN INVESTMENTS IN INDIA ..

Any investment flowing from one country to another is foreign investment .

Indian Government has classified as under..

Foreign direct investment

Foreign institutional investment

Non resident Indian Person of Indian origin

WHY.

Creation of additional economic activity

Generation employment

Flow of technology


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Foreign Investment in India is governed by the FDI policy announced by

GOI in the provisions of FEMA 1999.

FDIis a direct investment to the specific enterprises.FIIInvestment in secondary market.

FDI is more stable than FII..

FDI can enter certain sectors .with ceilings.

FII can buy and sell ..cannot have more than 10% of the paid up capital of

the company.

Under FDI investments can be made by non residents in shares and

convertible debentures of an Indian company under two routes.

Automatic route

Government route .FIPB approval is required.

Some areas are prohibited to have FDI.

The policy has clearly given the investment limits for various industry

segment.

HEDGE FUNDS

HEDGE FUNDS HAVE NOT ARRIVED IN Indian market. Through FDI

route they have entered Indian market.

They are typically private investment funds and invests in different classesof assets. They meet the speculative requirement of wealthy private

investors.

Hedging is a mechanism by which the participants in the physical /cash

markets can cover their price risk.


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PASS THROUGH CERTIFICATE ..

A Certificate issued by an issuer to the Investors against mortgaged

backed securities lying with the issuer. These are rated instruments. The income

is by way of interest

I PO GRADING..

IPO grading is a service aimed at facilitating the assessment of equity

shares offered to public. It is a relative assessment of fundamentals .

Grading assigned on five point scale.

IPO grading do not take cognisense of the price of the security. It is not an

investment recommendations. Grading becomes one of the inputs for the

decision to be made by the investors.

Credit rating agencies have to do it. The grade will not have any ongoing

validity.

Grade1.Poor fundamentals.

Grade2.Below average

Grade..3..AVERAGEGrade..4..Above average

Grade..5..Strong

WEF from May2007, all issuer has to get grading done fro the proposed

issue.

INDIAN DEPOSITORY RECEIPTS..


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Any instrument in the form of depository receipt created by Domestic

depository in India against the underlying equity shares of issuing

company.

Depository receipt is a document indicating ownership of a commoditystored in a bank or other depository

Companies wants to issue will have to follow the eligibility norms.

QIB` s are the only investors.

SHORT SELLING..

Is defined as selling a stock which the seller does not own at the time of

trade.

All classes of investors are permitted to short sell.

No naked short selling ie at the time of settlement the securities must be

delivered.

No intraday trading by Institutions.

F &O segment can also be traded under this .

QIB`S..QUALIFIED INSTITUTIONAL BUYERS.

Public financial institutions as per sec 4A of companies act.

Scheduled Commercial banks.

Mutual funds

FII `s registered with SEBI

Multilateral.bilateral DFI`s

VC registered with SEBI

EXTERNAL COMMERCIAL BORROWINGS


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******************************

UNIT V FINANCIAL INSTITUTIONS

Clearing Corporation of India Limited (CCIL), Credit Information Bureau of

India Limited (CIBIL), Discount and Finance House of India Limited (DFHI),

Over-the-Counter Exchange of India Limited (OTCEI), National Securities

Depository Limited (NSDL), National Housing Bank (NHB), Export Import

Bank of India(EXIM)

C C IL.CLEARING CORPORATION OF INDIA

CREDIT INFORMATION BEREAU OF INDIA LTD( CIBIL)

D F H I DISCOUNT HOUSE OF INDIA ( DFHI SBI GILTS LTD)

OTCEI.OVER THE COUNTER EXCHANGE OF INDIA

N.S.D.L. ANF CD.ISL.

NHB

EXIM BANK

UNIT VI FINANCIAL SERVICES

Credit Rating, Hire Purchase Finance, Factoring and Forfaiting, Leasing- AnOverview, Lease evaluation, Mutual Funds, Securitization, Venture Capital and

Private Equity Funds

LEASING..

An activity to acquire fixed assets. This has become popular in equipment

financing.


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The activity is confined to EQUIPMENT LEASING COMPANY

LICENSED AS N.B.F.C.

Big ticket leasing pertaining to Infrastructure financing is normally

done by Banks also.

However Industrial leasing activity is confined to N B F C .

This is one of the sources of funding in the industrial activity.

CHARACTERISTICS

Contract between two parties not governed by any act..

Based on certain assumptions.

Terms defined in the contract.

One who offers the service is .LESSOR.

One who takes the benefit is LESSEE

Lessor owns the Asset.

Lessee uses the asset and pays rentals.

Lessor recovers the cost of the assets and charges during the Lease

period.

Maximum period of leasing .eight years.

First five years ..Primary periodagreed rentals. Next three yearsSecondary periodnominal rentals.

Rentals are quoted asRs..per thousand per month/quarter. In

adv /in arrears.( Rs/1000/ permonth/perquarter in advance or

arrears

As Lessor owns the Assets .. Books depreciation .

Lesse charges the Lease rentals to Profit and Loss account and

reduces the profit and the Tax incidence.

LEASE FINANCE

100% FINANCE FOR LESSEE UNLESS HE GIVES LEASE

DEPOSIT.

AN OFF BALANCE SHEET FINANCE.

QUICK SANCTION AND DISBURSAL.

RENTAL CAN BE FLEXIBLE.

LOWER COST FOR CASH RICH COMPANIES.


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LESSOR CONSIDERS

RATE OF DEPRECIATION ON EACH TRANSACTION,

EFFECTIVE TAX RATE . TAX SHELTER.

COST OF CAPITAL I.R.R. ON EACH TRANSACTION

TRACK RECORD OF LESSEE.

FUTURE CASH FLOW.

SERVICING CAPAPCITY OF THE LESSEE.

AVOIDS SMALLSICK AND TURN AROUND CASES.

LEASES IDENTIFIABLEMOVABLE, RETRIEVABLE

ASSETS.

PREFERS MIX OF DEPRECIATION ASSETS.

QUOTES THE RENTALS BASED ON I.R.R.

FOR LESSEE

A SOURCE FOR ACQUIRING ASSETS.

FLEXIBILITY OF RENTALS.

LOW COST FUNDING.

OFF BALANCE SHEET ITEM.

SHOULD MAINTAIN THE ASSETS AS THEY HE OWNS IT.

OTHER SIMILAR PRODUCTS..

TERM LOAN FROM CB`S ,,FI`S ----SFC`S

D.P.G. FROM CB`S

HIRE PURCHASE.

&&&&&&&&&&&&&&&&&&&&

CHAPTER.10

HIRE PURCHASE

MODE OF FUNDING THE GOODS TO BE PURCHASED AT A

FUTURE DATE.


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INITIALLY LET ON HIRE..HIRER HAS AN OPTION TO

PURCHASEPAYMENT OF INSTALMENTS FOR A SPECIFIC

PERIOD .

TRANSACTIONS THROUGH A CONTRACT.

PROPERTY PASSES TO HIRER ON PAYMENT OF LASTINSTALMENT.

EACH INSTALMENT IS TREATED AS HIRE CHARGES.

HIRER CHARGES THE DEPRECIATION TILL HE USES THE

ASSETS.

IT IS A BALANCE SHEET ITEM.

HIREE HAS A RIGHT TO TAKE BACK THE ASSET IN CASE

THE INSTALMENT IS NOT PAID.

SIMILAR TO BANK TERM LOAN.

MARGIN IS STIPULATED.

RATES WILL BE QUOTED AS FLAT RATE.

THE EMI PAID WILL BE BIFURCATED AS PRINCIPAL AND

INTEREST FOR ACCOUNTING PURPOSE.

NORMALLY THIS WILL BE USED TO ACQUIRE MOVABLE

OR SMALL EQUIPMENTS.

MORE POPULAR IN VEHICLE FINANCING.

BOTH HIRER AND HIREE HAVE DUTIES, RESPONSIBILITIES

AS DEFINED IN THE AGREEMENT.

THE APPRAISAL IS SAME AS BANK TERM LOAN.

SECTION..11

CREDIT RATING

S E B I IS THE REGULATORY AUTHORITY.

MEANS ESTIMATING WORTH OR VALUE OF OR ASSIGN VALUE

TO..

THIS IS ONLY FOR INDUSTRIAL SECURITIES

RATING EXPRESSES THE CREDIT QUALITY OF THE

SECURITY USING SYMBOLS.


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RATES THE SECURITY NOT THE ISSUER.

NOT A RECOMMENDATION BY THE RATING AGENCY.

PROCESS EVALUATES THE RISK ASOCIATED WITH THE

INSTRUMENT.

DONE FOR DEBT INSTRUMENTSFIXED DEPOSITS.

RATING INSTITUTIONS

1. CRISIL.1988PROMOTED BY I C I C I .

2. ICRA1990..PROMOTED BY I F C I

3. CARE1993..PROMTED BY I D B I

4. FITCHPRIVATE SECTOR.

NEED..

GROWING CASES OF DEFAULT BY COMPANIES.

JUDGING THE DEBT OBLIGATION.

INVESTOR SHOULD UNDERSTAND THE RISK.

BENEFITS

INVESTORS.

RECOGNITION OF RISKS

CREDIBILITY OF THE ISSUER.

SYMBOLS EASY TO UNDERSTAND.

INVESTMENT DECISION.INDEPENDENTLY DONE. SELECTION INSTRUMENTS FOR INVESTMENTS.

ISSUER..

RATING AS A MARKETING TOOL.

LOWER COST OF FUNDS.

REACH MORE INVESTORS.

SELF DISCIPLINE BY ISSUERS.


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GOOD RATED INSTURMENTSIMPROVES ..GOOD WILL.

REPUTATION.

ADVANTAGES IN GENERAL.

SOURCE OF RELIABLE INFORMATION.

STRENGTHS AND WEAK NESSES IDENTIFIED.

INVESTMENT MARKET ..WILL BE STRONGER.

SYMBOLS

HIGHEST SAFETY.. +AAAHIGH SAFETY. AAA

ADEQUATE SAFETY ..AA

MODERATE SAFETYA

INADEQUATE SAFETYBBB

HIGHRISKBB

SUBSTANTIAL RISK..B

DEFAULT.C

RATING PROCESS.

MANUFACTURING COMPANY..

1. BUSINESS ANALYSIS.

2. INDUSTRY RISK.MARKET.

3. OPERATING EFFICIENCY.

4. MANAGEMENT ANALYSISPOLICIES

STRATEGIES.SWOT..PHILOSOPHY

DISCUSSION WITH KEY PERSONNEL.

5. FINANCIAL ANALYSIS..ACCOUNTING QUALITY

EARNINGSCASH

FLOWS

FINANCIAL SERVICES COMPANY.

1. CAPITAL ADEQAUCY.

2. ASSET`S QUALITY

3. LIQUIDITY

4. PROFITABILITY5. FUNDAMENTAL ANALYSIS


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6. REGULATORY ENVIRONMENT.

LOT OF REFORMS HAS BEEN DONE IN THE SYSTEM. TWO

AGENCIES RATING IS A MUST.

THE RESPONSIBILITY OF THE RATING AGENCIES IS YET TO BE

LOOKED INTO.

*********************

SECTION12

MUTUAL FUNDS..

A type of Financial intermediary that pools the funds of investors who seek

the same general investment objective and invests in different financial

products.

The investors are the Unit holders.

STRUCTURE OF MUTUAL FUNDS IN INDIA..

1. SPONSOROR

2. TRUSTEES.

3. A.M