Professional Documents
Culture Documents
CONTENTS
CHAPTER 1INTRODUCTION TO FINANCIAL
SYSTEM
2 RESERVE BANK OF INDIA
3.MONEY MARKET,STRUCTURE,
OPERATIONS
4.S. E .B. I. GUIDELINES
5.CAPITAL MARKET ..OPERATIONS
6.MERCHANT BANKING ..ACTIVITY..
7 .. NBFCSTRUCTURE AND SERVICES
8 .LEASING
9 HIRE PURCHASE
10 CREDIT RATING
11.... MUTUAL FUNDS.
12.... FACTORING
13. FORFAITING
14 VENTURE CAPITAL
15. PRIVATE EQUITY
16. WEALTH MANAGEMENT
17. . OTHER FINANCIAL INSTITUTIONS
18.. PENSION FUND.
19. SECURITISATION
20..TERMINOLOGIES.
OBJECTIVE
To understand our Financial system, acquire knowledge of various financial 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 fund
raising.
HOW TO STUDY
1. Read Financial papers.articles by eminent finance Professionals.
2. Understand the terminologies used in the process and their meaning .
3. There is no comprehensive text book covering the syllabus.
4. Notes given has covered all as per syllabus.
5. Read the notes and come to the class so that the doubts can be minimized.
WHAT ARE WE DISCUSSING
Financial markets
Financial institutions
Structure..operations.Regulatory authority.productsprocedureshow to use the
services
CHAPTER..1INTRODUCTION..
FINANCIAL SYSTEM COMPRISES OF ..
FINANCIAL.
a.
b.
c.
d.
e.
f.
MARKETS
PRODUCTS.INSTRUMENTS
INTERMEDIARIES.
INVESTORS.
INSTITUTIONS.
BENEFICIARIES.
REGULATORY AUTHORITIES.
1.
2.
3.
4.
SAVE..INVESTRAISE FUNDS..BORROW
CREATE ASSETS PERFORM..PROFITGROWTH..
INCREASE WEALTH..
PAY BACK THE LOANS..TAKE MORE.PERFORM BETTER..GROWTH.
BOTH THESE OPPORTUNITIES ARE AVAILABLE IN THE MARKETS AND ALSO WITH
THE INSTITUTIONS.
..TO PROPER
System will have required Financial product for both with different qualities.
CHEAP SOURCE..
COST OF FUNDS.
SIMPLE FORMALITIES..
FOR
ECONOMIC SURVEY
UNION BUDGET
RBI`SMONETARY AND CREDIT POLICY
FOREIGN TRADE POLICY.
CHAPTER2...
RESERVE BANK OF INDIA.
AS A REGULATORY AUTHORITY
Has 26 departmentsonly four departments have been discussed.
Established under RBI act 1934 and commenced functioning from 1.4.1935.
Central bank of country
MAKES POLICIES .
CREATES GUIDELINES..
BRINGS REGULATIONS .
MONITORS THE IMPLEMENTATION.
SUPERVISES THE OPERATIONS
PROMOTES THE SYSTEM
BRINGS IN REFORMS .
PREAMBLE OF THE ACT..
Where as it is expedient to constitute a Reserve Bank for India to regulate the issue of bank notes
and keeping the reserves operate the currency and credit system with a view of securing monetary
stability in India and generally to of the country to its advantage .
FUNCTIONS OF CENTRAL BANK
The structure of Central bank may vary from country to country
the basic functions are..
IMPORTANT DEPARTMENTS..
MONETARY POLICY DEPARTMENT.
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 economic development.
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.
ROLE OF R.B.I. IN FINANCIAL SYSTEM..
Development of financial sector.
Strengthen the financial system.
Achieve the objective of economic development.
Creation of institutions in respective field.
*************************
CHAPTER..3.. 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.
FEATURES..
OBJECTIVES
Market enables to meet the short term deficit with short term surpluses.
AND
ISSUERS OF SECURITIESBENEFICIARIES..
Central Government
State Government.
Government organizationsStatutory bodies.
Commercial banks.
Corporates.
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
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`S WOULD BE PHASED
OUT .
BANK WITH A
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.
6.CERTIFICATE OF DEPOSITS
CD`S ARE NEGOTIABLE MONEY MARKET INSTRUMENT.
INTRODUCED IN JUNE 1989.
7. .COMMERCIAL PAPER
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.
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 VALUEDECIDED 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 :
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.
***********************
YIELD
5.80%
6.25%
6.35%
6.50%
5.95%
6.00%
Identification of Intermediaries.
Registration of intermediaries.( Mandatory)
Capital adequacy./Code of conduct
Norms for all intermediaries.
Eligibility criteria for issuers.
Free pricingjustification of pricing
Disclosure norms.( Various changes brought in )
High lights
Risk factors/management perception.
Due diligence certificate
M.O.U.
Inter se allocation of responsibilities.
Under writing (optional.)
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
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.
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 the
issuing 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-alia subject
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 be
acting as the co-managers to the issue.
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 relevant statutes
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),
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)
FORMAT OF DUE DILIGENCE CERTIFICATE TO BE GIVEN BY LEADMERCHANT
BANKER(S) ALONGWITH DRAFT OFFER DOCUMENT
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 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 more particularly 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, 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 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 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 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 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)
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 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 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.
(Updated till June 10, 2007)
Page 252 of 348
(Clause 5.3.3.1)
FORMAT OF DUE DILIGENCE CERTIFICATE TO BE GIVEN BY LEAD
MERCHANTBANKER(S) ALONGWITH DRAFT OFFER DOCUMENT
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 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 more particularly 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:
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 the
company.
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.
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)
(Updated till June 10, 2007)
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 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 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 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 the
date of commencement of lock-in period as stated in the draft prospectus.
INSTRUMENTS..( PRODUCTS)
EQUITY SHARES..
PREFERENCE SHARES.
DEBT FAMILY.
DEBENTURES
.FULLY CONVERTIBLE ,
PARTLY CONVERTIBLE ,
NON CONVERTIBLE,
BONDS..CONVERTIBLE, REDEEMABLE
I3.. INTERMEDIARIES..
MERCHANT BANKER.
REGISTRAR TO ISSUE.
BANKERS TO ISSUE.
UNDERWRITERS
BROKERS.
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)
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
OFFER DOCUMENTS..
FOR A PUBLIC ISSUE..PROSPECTUS.
FOR A BOOK BUILDING ISSUE..RED HERRING RPOSPECTUS.
FOR A RIGHTS ISSUE.LETTER OF OFFER
FOR PRIVATE PLACEMENT.INFORMATION MEMORANDUM.
FUND RAISING EXERCISE
ISSUER SELECTS AN INSTRUMENT
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.
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.
ISSUE ASSIGNMENT...MERCHANT BANKER
LEAD THE TEAM
CORRECT 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.
GOALSUCCESS
FOLLOW UP. RELATION BASED.
CONTINUITY IN SERVICES.
BUILDING UP SELF IMAGE
MORE PROFESSIONAL APPROACH.
II
6 YEARS OLD
50.00
10.00
250.00
100.00
150.00
300.00
900.00
75.00
200.00
50.00
150.00
35.00
140.00
00.00
300.00
20.00
150.00
650.00
2400.00
SOURCES OF FUNDS..
GROUP1
TERM LOAN ..FROM BANKS, FIS, SFCS AND NBFCS
FOREIGN CURRENCY LOAN ..FROM CBS AND FIS
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.
EXTERNAL COMMERCIAL BORROWINGS
ECB`s includes..
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 .
Merchant banking
REFER TO THE PROJECT GIVEN.
Project1.
Rs..650.00 Lakhs
Funded.
Rs 325.00 .Promoters contributionwill be equity.
Rs 325.00.term loan
AS A NEW PROJECT THE CHANCE OF RAISING FUNDS IS RESTRICITED TO FEW SOURES
IN THE SYSTEM
AFTER SIX YEARS..
THE UNIT WILL BE ELIGIBLE TO TRY ANY OR ALL THE FOUR GROUPS OF FUNDING .
Main objective is to help the promoters to bring in lower amount for the project and still holds the
management position with out any difficulty.
Merchant banker should structure the Capital funding appropriately.
CAPITAL MARKET II..
RIGHTS ISSUE..
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 .
HAVE
BECOME
FOR BOOK BUILDING PROCESS THE SUBSCRIPTION HAS TO BE MADE ONLY BY THE
DEMAT ACCOUNT HOLDERS.
CUSTODIAL SERVICES.
Relating to securities means ..safe keeping of securities of a client and providing incidental services..
Maintaining of accounts.
Collection of benefits.
Reconciling the records.
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.
Future pricing depend upon the current demand and supply
OPTIONS.
One party ( Option buyer)..has the right , but not the obligation to the terms of the contract.
SHARES ON DAILY
ACCUMALATE
SELL
BOOK PROFITS
HOLD . EARLIER BUY RECOMMENDATIONS..SAYS HOLD MEANS IT HAS BEEN DOWN
GRADED.
OVERWEIGHT
OUTPERFORMER
UNDERWEIGHT
UNDERPERFORMER
INTERNATIONAL FINANCIAL REPORTING STANDARDS..
Accounting standards developed by the International accounting standards boards which is global
standards for preparation of financial statements .
In India from April 2011..to be followed by companies listed on BSE and NSE , other than net worth
of rs 500 crs.
Banks and insurance companies will converge from April 2013.
In India it needs training , implementing IT support,internal infrastructure
India needs to amend SEBI< Insurance and RBI regulations.
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 or fundamentals Shar price
movement technical indicators, chart patterns.
Quantitative analysis.
Process of determining quantitative analysis by using complex mathematical and statistical modelling
, value of the securitybuy and sell decisions .
All these different analytical tools have different uses.
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..AVERAGE
Grade..4..Above average
Grade..5..Strong
WEF from May2007, all issuer has to get grading done fro the proposed issue.
INDIAN DEPOSITORY RECEIPTS..
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 commodity stored 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.
DFI
SFC
Commercial banks
Co operative banks
NBFC`S
SECTION.8
NON BANKING FINANCIAL COMPANIES..( NBFC)
These are the institutions with out a proper definition . They can accept deposits and lend in any
manner.
These institutes were doing parallel Banking . RBI became their regulatory authority in 1997.
In the midterm review of Monetary policy of 2006 2007 at the request of the representatives of
NBFC`s , a separate classification was made.
All NBFC`s engaged in financing real /physical assets for productive / economic activity will be
classified as
.Asset Finance company.
..Investment company
Loan company
Registration has to be .NBFC-D.AFC or NBFC- ND-AFC
Registration has to be specific
R B I MAJOR GUIDELINES..
PAYMENT
CHAPTER9
LEASING..
An activity to acquire fixed assets. This has become popular in equipment financing.
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
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.
LESSOR CONSIDERS
FOR LESSEE
HIRE PURCHASE
MODE OF FUNDING THE GOODS TO BE PURCHASED AT A FUTURE DATE.
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 LAST INSTALMENT.
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.
CREDIT RATING
SEBI
RATING INSTITUTIONS
1.
2.
3.
4.
CRISIL.1988PROMOTED BY I C I C I .
ICRA1990..PROMOTED BY I F C I
CARE1993..PROMTED BY
IDBI
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..
ADVANTAGES IN GENERAL.
SOURCE OF RELIABLE INFORMATION.
STRENGTHS AND WEAK NESSES IDENTIFIED.
INVESTMENT MARKET ..WILL BE STRONGER.
SYMBOLS
HIGHEST SAFETY.. +AAA
HIGH SAFETY. AAA
ADEQUATE SAFETY ..AA
MODERATE SAFETYA
INADEQUATE SAFETYBBB
HIGHRISKBB
SUBSTANTIAL RISK..B
DEFAULT.C
RATING PROCESS.
MANUFACTURING COMPANY..
1.
2.
3.
4.
BUSINESS ANALYSIS.
INDUSTRY RISK.MARKET.
OPERATING EFFICIENCY.
MANAGEMENT ANALYSISPOLICIESSTRATEGIES.SWOT..PHILOSOPHY
DISCUSSION WITH KEY PERSONNEL.
5. FINANCIAL ANALYSIS..ACCOUNTING QUALITYEARNINGSCASH
FLOWS
FINANCIAL SERVICES COMPANY.
1.
2.
3.
4.
5.
6.
CAPITAL ADEQAUCY.
ASSET`S QUALITY
LIQUIDITY
PROFITABILITY
FUNDAMENTAL ANALYSIS
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.
*********************
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.
2.
3.
4.
5.
6.
7.
SPONSOROR
TRUSTEES.
A.M.C.
CUSTODIANS
AGENTS.
RTI
BANKS
SPONSOROR ESTABLISHES FUND.
REGISTRATION WITH S E B I .
APPOINTS BOARD OF TRUSTEES.
TRUST DEED DEFINES THE OBJECTIVE EACH SCHEMES.
TRUSTEES HOLD ASSETS ON BEHALF OF UNITHOLDERS.
APPOINTS ASSET MANAGEMENT COMPANY.
APPOINTS CUSTODIAN OF THE FUND.
GROWTH FUNDS.
BOND FUNDS.
MONEY MARKET FUNDS.
EQUITY INCOME FUNDS.
SECTOR FUNDS.
Risk appetite
Investment tenure..risky investments must not be held for long. It will take time to recover.
Investment goals
Performance.
CRISIL HAS composite performance ranking methodology..ranking of mutual fund schemestwo
year NAV history 100% portfolo disclosure on ranking date.
AMFI. Apex body of all registered AMC`s objective of the AMFI is to promote investor`s
interest by defining and maintaining high ethical and professional standards.
S E B I is the regulatory authority ..
MUTUAL FUNDS INVESTMENT..
The following are the area of investment
ADR`S/GDR`S issued by Indian or foreign companies.
Equity of overseas companies listed on recognized Stock exchanges.
Foreign debt instruments fully convertible ..with investment grading.
Derivatives traded on stock exchanges.
**********************
FACTORING
Sri C.S. Kalyana Sundaram committee studied the scope of such services and recommended to
RBI .
Introduced in the system in 1989.
To be done by a subsidiary.
Still a popular services
Supports working capital. Facilities.
DEFINITION..
Factoring is a continuous arrangement between a financial institution ( FACTORS)
And a business concern ( THE CLIENT ) selling goods or services to trade customers(THE
CUSTOMERS) where by the factors purchases the client`s account receivables /book debts either
with or without recourse to the client and in relation thereto controls the credit extended to the
customers and administers the sales ledger.
Small and medium scale units needs such services.
Collection of receivables on time.
Delay leads more complication.
FACTORS DOES..
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VENTURE CAPITAL
CONCEPT FUNDING..INNOVATION.ENTERPRISE.
VC`S SHOULD LOOK INTO SMALL AND MEDIUM ENTERPRISES FOR SUCCESS.
GOVERNMENT POLICY GIVING INCENTIVES WILL HELP TO IMPROVE THIS
INDUSTRY.
S E B I IS THE REGULATORY AUTHORITY.APPROVAL AND LICENSE FROM S E B I IS
A MUST (SEBI ( VENTURE CAPITAL FUND) REGULATIONS 1996.)
..
PRIVATE EQUITY
GENERAL.
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
SUCCESS..
In 2005, 17 PE backed companies came out with IPO`s raising Rs 5000 crs.
Western market PE has been institutionalized..with Banks, PF, MF Trust fund
participating.
Scouting for lucrative propositions.
Slow down in Chinense market.
Indian industries has ample scope and potential for development.
More scope for growth, expand, merge,buy outs.
AREA OF INTEREST OF PEE..
Green field airports.
Telecom
Hotels
Real estate.
Distillation and brewing potable alcohol.
Whole sale and export trading.
Setting up SEZ.`s
REGULATORY PARAMETERS
There is no regulatory frame work for PEE.
SEBI has for
VC`s
MF`s
FDI/FII
DOMESTIC..
ICICI VENTURE FUND
GW CAPITAL
HDFC
KOTAK
INDIAN SCENARIO.
Most of the companies has varied levels of funds requirement the following three levels of PE
funding is popular.
Early stage
Very limited deals are done in thi .
Growth capital.
PE funds listed companies Most of the deals are done through this route.
Buy out.
PE may acquire substantial and
market.
Through VC funding
Private equity in later stage financing ..unlisted companies.
Private equity in listed companies.
Qualified Institutional placements.Listed companies approaching QIB`s as per SEBI
guidelines.
e. Preferential allotments .to strategic investors, business collaborators and joint venture
partners not with an intention of fund raising but facilitate investors to join the business.
In each of these case the valuation of the Company and pricing of the equity becomes important .
SOME STATISTICS..
LEGAL ASPECTS.
For PE FUNDS there is no specific regulations compared to MF,VC,
C I S,.
There is a need for certain regulatory framemwork, after giving a clarity on terms like funds,
investors, section of public.
******************
Amount paid is in the nature of a deferred payment compounding for the services rendered.
There should be a change in attitude towards pensioners who should be treated as a respected senior
citizen of the country.
Management provides ( Means ) so that a person will be able to give a decent , independent , self
respect and attain standard equivalent to pre retirement level.
SECURITISATION( Mortagage backed securities)
Securitisation is process by which the forecast future income of an entity is transformed and sold as
debt instruments .
Suitable repackaging the future Cash flowswhich can be put to productive use in the business.
ORIGIN..
1970 in USA.
Most of the developed countries started a market for securitised assets.
1991 . First transaction took place in India.
ASSET SECURITISATION ..is defined as a carefully structured process whereby loans and other
receivables are packaged , underwritten and sold in the form of asset backed securities.
It is a process by which an illiquid, non negotiable and high value financial asset is converted into
securities of small value which are tradeable and transferable.
WHAT CAN BE SECURITISED ..
OBJECTIVES
Cardinal Principles.of Investment
Safety
Liquidity
Return.
NEED TO UNDERSTAND
PERIODSHORT TERM, MEDIUM TERM, LONG TERM
QUANTUM..HOW MUCH TO INVEST?
HOW LONG TO INVEST?
WHEN TO DISINVEST ?
HOW MUCH TO DISINVEST?
RETURN ON INVESTMENT .
TAX ASPECT.
servicesInvest
bankingportfolio
Growth in H N W I.
Diverse basket of products.
Concept of Financial planning.
Customised investment solutions.
Investment parameter determination.
Proper asset allocation.
Asset management.
Ensure timely returns.
Proper tax planning.
Industry experience/exposure.
Domain knowledge.
High degree of ethics.
Analytical skills.
Independent decision making .
ACTION.
AREAS COVERED
MONEY MARKET INSTRUMENTS
CAPITAL MARKET INSTURMENTS
DERIVATIVE PRODUCTS
BANK DEPOSITS
MUTUAL FUNDS.
INSURANCE PRODUCTS
REAL ESTATE.
managers..Wealth
COMMODITY MARKET .
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ADDITIONAL NOTES.
FOREIGN INVESTMENTS IN INDIA ..
Any investment flowing from one country to another is foreign investment .
Indian Government has classified as under..
WHY.?
Creation of additional economic activity
Generation employment
Flow of technology
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 classes of 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.
COMMODITY MARKET
Commodity refers to every kind of movable property other than actionable claims, money,and
securities.
Commodity market where the commodities are exchanged through a broker.
The commodities traded are.Gold, Coffee, Cardamom, Sugar,Silver, Natural gas,
TERMINOLOGIES
PRIMARY MARKET
SECONDARY MARKET.
TRADING
YIELD
COST OF FUNDS
RETURN ON INVESTMENT
SECURITY
SECURITIES
SECURITISATION
DERIVATIVES.
IPO
FPO
REDEEM
LISTING
QUOTATIONS.
FRENCH AUCTION
DUTCH AUCTION
ASBA
LOCK IN PERIOD
GREEN SHOE OPTION
UNDERWRITING
DEVOLVEMENT
DEPOSITORIES
D.P.
DEMAT
BASIS OF ALLOTMENT
MOU
DDC
INTERSE ALLOCATION
PREMIUM
OFFER PRICE.
PROMOTERS CONTRIBUTION
PROMOTERS HOLDING
LEASE RENTALS.
FINANCIAL LEASE
OPERATIONAL LEASE.
RTI/STA
CUSTODIANS
NAV
RECORD DATE
BOOK CLOSURE
EX RIGHTS/EX BONUS
CUM RIGHTS /CUM BONUS
RENOUNCING THE RIGHTS.
DELISTING
PRIMARY PERIOD
SECONDARY PERIOD
RESIDUAL VALUE
EXIT ROUTE
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