SRI SAIRAM INSTUTE OF MANAGEMENT STUDIES MERCHANT BANKING AND FINANCIAL SERVICES INTRODUCTION TO FINANCIAL SERVICES

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Indian Financial System
Indian Financial system consists of four parts: 1) Financial Institutions 2) Financial markets 3) Financial Instruments 4) Financial Services

Financial Institutions
They mobilize the savings and transfer it to deficit units. They are divided into regulatory, intermediaries, non- intermediaries and others. They deal only in financial assets like deposits, securities, etc. They collect fund from those units having savings.

Financial Markets
This is the place from where savings are transferred from surplus units to deficit units. There are two segments of financial market. They are money market and capital market. Money market is concerned with short-term funds or claims. Capital market deals with those financial assets, which have maturity period of more than a year. Another classification could be primary and secondary markets. Primary market deals with new issues. The secondary market deals with outstanding securities. Primary markets by issuing new securities mobilise the savings directly. Secondary markets provide liquidity to the securities.

Financial Instruments:
 The products, which are traded in a financial market, are financial assets or financial instruments. The requirement of lenders and borrowers are varied.  Therefore, there is a variety of securities in the financial markets. Financial assets represent a claim on the repayment of principal at a future date.Financial services include the services offered by both types of companies- Asset Management Companies and Liability Management Companies  Financial services include the services offered by both types of companies- Asset Management Companies and Liability Management Companies

FUNCTIONS OF FINANCIAL SERVICES:
Financial services firms not only help to raise the required funds but also assure the efficient deployment of funds.

They assist in deciding the financing mix. They extend their service up to the stage of servicing of lenders.They provide services like bill discounting, factoring of debtors, parking of short-term funds in the money market, e-commerce, Securitisation of debts, etc. in order to ensure an efficient management of funds. Financial services firms provide some specialised services like credit rating, venture capital financing, lease financing, factoring, mutual funds, merchant banking, stock lending, depository, credit cards, housing finance, book building, etc.

REGULATING AUTHORITIES:
There are 3 main regulatory authorities. They are:  The Structural Regulation,  The Prudential Regulation, and  The Investor Protection Regulation. FEATURES OF FINANCIAL SERVICES:  It is a customer-intensive industry.  Financial services are intangible in nature.  Production and supply of financial services must be performed simultaneously.  Marketing of financial service is people intensive.  Financial services firms should always be proactive in visualizing in advance what the market wants, or reactive to the needs and wants of customers.  They must always be changing to the tune of the market PROBLEMS:  Indian financial industry hardly finds suitable personnel to deal with financial services.  Expensive physical accommodation is another problem being faced by the financial services firms.  The financial services firms lack core competence.  They cannot review their performance without a benchmarking.  They fully depend on fee-based business.  Lack of proper appreciation of the advantages that could be derived by using the advances  In computer and telecommunication technology has constrained the growth of the industry. MERCHANT BANKING Merchant Banking – Meaning: “Merchant banking means any person who is engaged in the business of issue management either by making arrangements regarding selling, buying, underwriting or

subscribing to the securities underwriter, manager, consultant, advisor or rendering corporate advisory services in relation to such issue management” Merchant Banking- Definition:  “Merchant banks mostly provide advisory services, issue management, portfolio management and underwriting, which require less capital but generate more income (non interest income).” Services Rendered by Merchant Banker: 1. Corporate Counseling 2. Project Counseling and Pre-investment Studies 3. Capital Restructuring 4. Credit Syndication and Project Finance 5. Issue Management and Underwriting 6. Portfolio Management 7. Non-resident Investment 8. Working Capital Finance 9. Acceptance Credit and Bill Discounting 10. Mergers, Amalgamations and Takeovers 11. Venture Capital Financing 12. Lease Financing 13. Foreign Currency Finance 14. Fixed Deposit Broking 15. Mutual Funds Floatation and Management REGISTRATION OF MERCHANT BANKER: 1.The applicant should be a body corporate. 2. The applicant should not carry on any business other than those connected with the securities market. 3. The applicant should have necessary infrastructure like office space, equipment manpower, etc 4. The applicant must have at least two employees with prior experience in merchant banking. 5. Any associate company, group company, subsidiary or inter connected company of the applicant should not have been a registered merchant banker. 6. The applicant should not have been involved in any securities scam or proved guilty for any offence. 7. The applicant should have a minimum net worth of Rs. 5 crores FUNCTIONS OF A MERCHANT BANKER: 1. Management of debt and equity offerings 2. Promotional activities 3. Placement and distribution 4. Corporate advisory services 5. Project advisory services 6. Loan syndication

7. Providing venture capital and mezzanine financing 8. Leasing Finance 9. Bought out deals 10. Non-resident Investment 11. Advisory services relating to mergers and acquisitions 12. Portfolio management ISSUE MANAGEMENT: Issue management refers to management of securities offering of clients to the general public and existing shareholders on right basis. Issue managers are known as Merchant Banker or Lead managers Type of Issues: Issues are of three types. They are as follows: (a) Public Issue, (b) Right Issue, and (c) Private Placements. Public Issue-Reasons for Going Public: 1. To raise funds for financing capital expenditure needs like expansion, diversification, etc. 2. To finance increased working capital requirement. 3. As an exit route for existing investors. 4. For debt financing. Public Issue-Advantages: 1.The IPO provides avenues for funding future needs of the company. 2.It provides liquidity for the existing shares. 3. The reputation and visibility of the company increases. 4. Additional incentive for employees in the form of the company’s stocks. This also helps to attract potential employees. 5. It commands better valuation for the company. Public Issue-Disadvantages: 1.The profit earned by the company should be shared with its investors in the form of dividends. 2. An IPO is a costly affair. Around 15-20% of the fund realised is spent on raising the same. 3. In an IPO, the company has to disclose results of operations and financial position to the public and the Securities and Exchange Board of India (SEBI). 4.The company has to invest substantial management time and effort. Marketing of the Issue:

To be an issue manager. Merchant banker acts as a master designer in performing these activities. continue to hold and offer buy and sell quotes for the scrip's of the company after listing. Merchant banker makes number of promises to the potential investors.  No prospectus is issued in private placement.  Every merchant banker is expected to perform due diligence while managing a capitalissue.  They file number of reports related to issues. ISSUE MANAGER:  Issue managers generally do issue management. It is the stipulation of SEBI. A new company set up by existing companies with a five-year track record of consistent profitability will be free to price its issue provided the participation of the . capital gearing and financial planning for the company. PRIVATE PLACEMENT:  The direct sale of shares by a company to investors is called private placement. shares are offered to existing shareholders according to the proportion of their shareholding. PRICING OF PUBLIC ISSUES: 1. they register themselves with SEBI.  Merchant banker underwrites and invests in the issue lead managed by them. preference shares and debentures. It may be either right or public issue.  Private placement covers equity shares.  A merchant banker is required to coordinate with a large number of institutions and agencies. They have to revolve around SEBI.  They invest.  One of the important areas of issue management relates to capital structuring. Roles of Issue Manager:  Merchant banker floats the shares for and behalf of issuing company.  They are expected to interact and file offer documents with SEBI while managing issues. His association with the company is not merely restricted to management of issue but continues throughout. 2.  Marketing of an issue is an essential component of issue management. He puts him in the shoes of a dream merchant. In right issue.Post-issue Activities:  Principles of Allotment  Formalities associated with Listing RIGHTS ISSUE: Existing shareholders have pre-emptive right in taking part in the right issue. A new company set up by entrepreneurs without a track record will be permitted to issue capital to public only at par.

 Category II Merchant Banker. CODE OF CONDUCT OF MERCHANT BANKERS:  A merchant banker in the conduct of his business shall observe high standards of integrity and fairness in all his dealings with his clients and other merchant bankers. (b) bids to remain open for at least 5 days. 3. whether oral or written.  Category III Merchant Banker. 5.5 lakhs to be paid annually for the first two years. members and based on bids. (d) divulge to other clients. 4. demand for the security is assessed and its price discovered.A sum of Rs 1 lakh to be paid annually for the first two years. which is likely to be harmful to the interests of other merchant bankers. CODE OF CONDUCT OF MERCHANT BANKERS: A merchant banker shall not— (a) creation of false market.A sum of Rs.  Category IV Merchant Bankers. . 1. practice or unfair competition. REGISTRATION CHARGES: Category I Merchant Banker.A sum of Rs.  A merchant banker shall not make any statement or become privy to any act.  A merchant banker shall not make any exaggerated statement. to the client either about the qualification or the capability to render certain services or his achievements in regard to services rendered to other clients. ensure proper care and exercise independent professional judgment.  A merchant banker shall render at all times high standards of service.A sum of Rs. Book-Building:  Book-building is a process of offering securities in which bids at various prices from investors through syndicate. exercise due diligence.5 lakhs to be paid annually for the first two years. An existing private/closely held company with a three-year track record of consistent profitability shall be permitted to freely price the issue. 2. press or any other party any confidential information about his client. (b) price rigging or manipulation (c) passing of price sensitive information to brokers.promoting companies is not less than 50 per cent of the equity of the new company and the issue price is made applicable to all new investors uniformly. Other Requirements of Book-building: (a) issuer to provide indicative floor price and no ceiling price. which has come to his knowledge (e) deal in securities of any client company without making disclosure to the Board. An existing listed company can raise fresh capita! by freely pricing further issue.000 to be paid annually for the first two years.

Types of Mutual Funds Schemes: Based on Maturity Period: 1) Open End Scheme 2) Close End Scheme Based on Investment objective : 1) Growth 2) Income 3) Money Market 4) Gilt edged 5) Others Special Schemes: 1) Tax Savings 2) Load 3) No-Load 4) Industry Specific 5) Sector Specific Risk vs. (e) investors can bid at any price. MUTUAL FUNDS Meaning of Mutual Fund:  A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. and (h)the lead manager analyses the demand generated and determines the issue price in consultation with the issuer. Mutual Funds:  The following are some risks associated with investment in mutual funds:  Market Risk  Interest Rate Risk  Inflation Risk  Business Risk  Credit Risk  Political Risk  Liquidity Risk  Timing Risk Performance Measures of Mutual Funds: . etc. E-IPOS:  A company proposing to issue capital to public through on-line system of the stock exchange has to comply with Section 55 to 68A of the Companies Act. (d) bids are submitted through syndicate members.(c) only electronic bidding is permitted. (f) retail investors have option to bid at cut off price.2000. 1956 and SEBI (DIP) Guidelines. (g) bidding demand is displayed at the end of everyday.

Rf is risk free rate of return and Bi is beta of the fund. Rm is average market return during the given period. The Treynor Measure 2. Jenson Model 4.Rf)/Si where. Sharpe Measure: Sharpe Index (Si) = (Ri . can be evaluated by using the beginning and the end period net asset values (NAV) as follows: Rp= ((NAVt. The Sharpe Measure 3. Net asset values of the fund are adjusted for bonus and rights. Sm is standard deviation of market returns. Jenson Model: Required return of a fund at a given level of risk (Bi) can be calculated as: Ri = Rf + Bi (Rm . Si is standard deviation of the fund. Performance Measures of Mutual Funds: The most important and widely used measures of performance are: 1.Rf) where. Eugene Fama Model: Required return can be calculated as : Ri = Rf + Si / Sm (Rm .Rf) where.NAVT-1) + D1 + C1) / NAV T-1 The one period rate of return for a mutual fund (Rp) is defined as the change in net asset value (NAV) plus its cash disbursements (D) and capital gains disbursements (C). Ri represents return on fund. Eugene Fama Model Treynor Measure: Treynor’s Index (Ti) = (Ri .Rf)/Bi where. in general. Advantages of Mutual Funds: Reduced Risk Diversified investment Stress free investment Revolving type of investment Selection and timings of investment Wide investment opportunities Investment care Low investment and easy liquidity Tax benefits Moderate Returns Mutual Fund Taxation:  Tax provisions applying to fund investments and funds themselves in respect of various matters are listed below: Capital Gains .The performance of a mutual fund.

The consideration may be a price or a rent. (c) Net Asset Value (d) Return and (e) Volume of Investment expressed in Rupee Value LEASE FINANCE Definition: “A Lease is a transfer of a right to enjoy the property.Tax Deducted at Source (TDS) Wealth Tax Income from Units Income Distribution Tax Section 88 Growth of Mutual Fund: There are several yardsticks available to measure the performance of a fund sector.  Lease rentals should be shown separately under gross income in the income statement of the relevant period. or share of crops. Accounting Treatment of Lease: Accounting transaction for the Lessee:  A lessee should disclose assets taken under a finance lease by way of a note to the accounts. . Disclousing the future obligations of the lessee as per the agreement. The rent may be either money. The classification of the assets should correspond to that adopted for other fixed assets.  Domestic Lease and International Lease. to be rendered periodically by the transferee to the transferor.  Sale and Lease Back and Direct Lease. Accounting Treatment of Lease: Accounting transaction for the Lessor:  Assets under financial leases should be disclosed as “assets given on lease” as a separatesection under the head “fixed assets” in the balance sheet of the lessor. service of anything of value.” Classification of Lease:  Finance Lease and Operating Lease. They are: (a) Asset Under Management (AUM).  Single Investor Lease and Leveraged Lease. (b) Number of Unit Schemes in Operation.  There would be a lease equalization charge where the annual lease charge is more than the  minimum statutory depreciation.

1986  Easements Act. 1908  Reserve Bank of India Act.  Hire Purchase Act. Regulatory Authority: There is no specific Act or legislation governing leasing in India. 1956  Consumer Protection Act. 1985  Transfer of Property Act. 1882  Foreign Exchange Regulation Act. Lease rentals should be accounted for on an accrual basis over the lease period to recognize an appropriate charge in this respect in the income statement. 1972  Income Tax Act. with a separate disclosure thereof. . Some of the Acts include:  Companies Act. either in terms of assets held by the lesser or joined with assets for which payment in full has not been received. 1899  Manufacturing and Other Companies (Auditor’s Report) Order. 1934  Sale of Goods Act. 1988  Motor Vehicles Act. 1993  Registration Act. 1872  Indian Stamp Act. 1882g Advantages of Leasing:  Flexibility  Leased With User Oriented Variants  Tax-Based Benefits  Less Paper Work and Quick Disbursement  Convenience  Financing for the Total Requirements  Scope for Better Use of Own Funds  Off-Balance Sheet Financing  Miscellaneous Benefits Disadvantages of Leasing: 1. All legislations or Acts referring to assets and management of assets encompass leased assets.  The excess of lease rentals paid over the amount accrued in respect thereof should be treated as pre-paid lease rental and vice versa. 1962  Indian Contract Act. 1930  Sick Industrial Companies (Special Provisions) Act. Lease contracts may have terms restricting use of leased assets resulting in underutilization of operating capacity. 2000. 1988  Recovery of Debts due to Banks and Financial Institutions Act. now replaced with Foreign Exchange Management  Act. 1973.

the chances of the lessee disinvesting is restricted. 2. since. Lease rentals for the secondary period are very nominal.  When the hirer pays the last installment. 3. e. the title of the asset is transferred from the hire vendor to the hirer. The non-cancelable nature is a disadvantage where equipments have uncertain technology and market life. 4. most of the equipment lease transactions are finance leases. leasing may be costlier than other forms of borrowing. ‘Off-balance sheet financing’ through leasing exposes the firm to high financial risks as they tend to be highly geared (high debt equity ratios). and different methods of leasing and owning by tax authorities. The lease rentals are structured to recover the entire investment cost during the primary period. as it will turn out to be a hirepurchase transaction From tax angle. . in an imperfect financial market. Hire Purchase And Lease Compared:  Ownership of the vehicle is with the owner in HP but it is with the lessor in leasing.  The hire-vendor charges interest on a flat basis. HIRE PURCHASE Definition of HP: A hire purchase can be defined: “as a contractual arrangement under which the owner lets his goods on hire to the hirer and offers an option to the hirer for purchasing the goods in accordance with the terms of the contract. Indian Context: Salient Features of the Lease Structured In the Indian Context 1. This means that a certain rate of interest (usually around 10%) is charged on the initial investment (made by the hire-vendor) and not on the diminishing balance.2.  Theoretically the hirer can exercise the cancelable option and cancel the contract after giving due notice to the finance company.  The hirer is required to make a down payment of around 20 per cent of the cost of the equipment and repay the balance in regular hire purchase installments over a specified period of time. Lease rates. 3. Lease agreements do not provide for transfer of ownership to the lessee either during the lease period or at the end of the lease.. Operating leases are very limited as the resale market for the used capital equipment is Nil.” Features of Hire Purchase:  The hire-vendor (the counterpart of lessor) gives the asset on hire to the hirer (the counterpart of lessee). The leases structured in the Indian context are only ‘finance lease’. 4.g.

 Basic Tax Treatment of Hire Purchase and Lease Transactions. a. It expands client’s business or fills more orders. Clients can extend credit to customers on large orders without having to ask them pay Cash on Delivery (COD). which is not in HP.  Risk is very high in HP due to technological Obsolescence. It helps to buy equipment or inventory on demand. Reasons to Factor: It helps to obtain a source of working capital. Law & Accounting on HP & Leasing: Motor vehicles law in India contains specific provisions relating to lease purchase transactions. It helps to pay suppliers timely or take cash discounts or increase credit limits with suppliers. It facilitates to have funds for payroll and taxes. g. f. It eliminates the risk of credit losses on client’s customers. After the repayment vehicle is transferred to the owner but in leasing after the lease period the vehicle may not be transferred to the user.  Depreciation Allowance on Hire Purchase  Accounting for Hire Purchase Transactions  Indian and International Accounting Standards Problems:  Taxation  Shortage of Low-cost Funds  Slow Market Growth  Less Number of Players  Increasing Conservatism in the Market FACTORING Factoring:  Factoring is essentially a financial service designed to help firms manage their trade credit or receivables effectively. h. d. It increases sales. Factor has a professional credit checking and collection payment system It has flexible funding programme that increases as seller increases his sales (the goal of factoring).  Factoring is defined as an asset-based means of financing by which the factor buys up the book debts of a company on a regular basis.  Cancellation of lease is possible. and hire . and then collects the amounts from the customers to whom the company has supplied goods. c. i. e. j. paying cash down against receivables. b. But it is less in leasing.

q. It expands client’s business or fills more orders. 4. Any amount due from the customer is remitted to the factor. Customer’s account is maintained by the factor and he undertakes any follow-ups for payment. 5. the factor makes the final payment to the client. 6. m. s. A partial payment is made by the factor after adjusting commission and interest in advance against the account purchased. Types Of Factoring:  Recourse Factoring  Non-recourse Factoring  Advance Factoring  Invoice Discounting  Full Factoring  Bank Participation Factoring . Factor has a professional credit checking and collection payment system It has flexible funding programme that increases as seller increases his sales (the goal of factoring). Here.k. Clients can extend credit to customers on large orders without having to ask them pay Cash on Delivery (COD). n. It facilitates to have funds for payroll and taxes. the client sells the customer’s account to the factor and notifies the same to the customer. 3. t. 2. It helps to buy equipment or inventory on demand. It increases sales. It eliminates the risk of credit losses on client’s customers. o. It helps to obtain a source of working capital. It helps to pay suppliers timely or take cash discounts or increase credit limits with suppliers. On due date. p. r. In this stage. Mechanism of Factoring: The concept of factoring consists of six stages: 1. the client concludes a credit sale. l.

Advantages: Factoring offers the following advantages from the firm’s point of view: (a)There will be no liquidity problem if firms effectively use the factoring services.” Advantages of Forfaiting:  100 % Risk Cover  Country Risk (Political and Transfer Risk)  Currency Risk  Commercial Risk  Interest Rate Risk . Supplier Guarantee Factoring  Cross-border Factoring  Maturity Factoring Financial Aspects of Factoring: To use the services of a factor. Forfaiting:  It is a technique of trade finance.  Factoring is perceived as an expensive form of financing and also as finance of the last resort. running and improving business. The management has more time for planning. (d) Factoring also helps the firms to explore and exploit opportunities. (b) Factoring is invaluable as it leads to a higher level of activity resulting in profitability. which has attracted growing interest in the banking sector and the financial press of export-orientated countries over the last years. themselves as they have large size of business and well-organised credit and receivable management. This tends to have a negative effect on the creditworthiness of the company in the market. Large firms having access to similar sources of funds function like factors. and b. Disadvantages:  Factoring could prove to be costlier to in-house management of receivables. Definition of Forfaiting :  “Forfaiting is the term generally used to denote the purchase of obligations falling due at some future date. Interest on funds advances. Factoring commission. there is no need for factor services separately. (e) The improved cash flows and speedy collection will bring down the cost of debt. This will contribute towards cost savings. one should meet two types of expenses. Therefore. They a. arising from deliveries of goods and services—mostly export transactions— without recourse to any previous holder of the obligation. This is certainly due to the fact that in many cases it has proven to be the most efficient instrument when it comes to export finances. (c) Division of work is effectively carried out if a firm hires a factor. The factoring improves the cash flow.

The cost of the public issue is reduced. It is a mechanism where.  Type of Issues  Issues are of three types. during the period for which the book for the IPO is open. Bids are probable price offered by the possible buyers of shares. The offer or issue price is then determined after the bid closing date based on certain evaluation criteria. Such bids are above or equal to the floor price. Marketing of the Issue: (a) Timing of the Issue (b) Retail Distribution (c) Reservation of the Issue (d) Advertising Campaign Post-Issue Activities:  Principles of Allotment  Formality Associated With Listing Secondary Market: . bids are collected from investors at various prices. The process aims at tapping both wholesale and retail I investors. It is a process used for marketing a public offer of equity shares of a company. debentures and bonds. The Book Building process allows for price and demand discovery. Instant Cash  Flexibility and Simplicity CAPITAL MARKET Primary Market:  It is a market for new issues of shares. They are as follows: (a) Public Issue (b) Right Issue (c) Private Placements IPO Process:  Appointment of merchant banker and other intermediaries  Registration of offer document  Book Building  Marketing of the issue  Post-issue activities Book Building:  Book Building is basically a capital issuance process used in Initial Public Offer (IPO). The time taken to complete the entire process is also reduced.

 It is a market for the secondary sale of securities. India had 19 stock exchanges. Individual Membership Qualifications: (a) Minimum age of 21. (d) Not compounded with his creditors. (g) Not been.  There were around 9877 listed companies. the number of stock exchanges has risen to 23. at any time.  The stock exchange provides the linkage between the savings in the household sector and the investment in corporate economy. Weaknesses of Stock Exchanges in India: . (c) Not been adjudged bankrupt or insolvent. and Municipalities etc issue gilt-edged securities. preference is given to professionally qualified persons. however. Central Government.  By 1990. India’s stock market has risen to great heights.  The stock exchanges provide a market quotation of the prices of shares and bonds. By 1999. (h) Either matriculate or has the 10 plus 2 years. (f) Not engaged as principal or employee in any business other than that of securities. the market where existing securities are traded is referred to as the secondary market or stock market. qualification. (e) Not been convicted of an offence involving fraud or dishonesty. expelled or declared a defaulter by any other Stock Exchange. Generally. but also of a nation’s economy as a whole. relax this condition. not only of the state of health of individual companies. in suitable case. Types of Securities Traded:  Industrial Securities  Government Securities  Financial Intermediaries Securities Stock Market in India:  With small beginnings in the early 19th century. (b) Citizenship of India: The Governing Board may. Role and Functions: The major roles played by a stock exchange in a country are:  The stock exchange provides a market place for purchase and sale of securities. State Government.  The stock exchanges in India serve the joint sector units as also! to some extent public sector enterprises.  It serves a barometer.  Another important function that stock exchanges in India discharge is of providing a market for gilt-edged securities. In other words.

The major problem areas include settlement periods. 12. transfer. 8. Capital Issues (Control) Act of 1947 was repealed and the office of controller of Capital Issues abolished. Even with the world of dematerialization. 6. 9. 4. Potential source of information is people working in companies. which is price sensitive and not available to the public. and simplification of issue procedures. This is to enable shareholders to make comparisons between performance and promises. 2. 4.). Indian stock market has still fragmented regulation even with the arrival of SEBI. There are limited forward trading activities in the stock exchanges. introduction of prudential norms. only few sellers prevail. It is highly dominated by large financial firms. Companies are required disclosing all material facts and specific risk factors associated I with their projects while making public issues. Still there is some wall separating the foreign institutional investors to invest inIndian securities. The recent development of the primary market has created serious problems of interfacing with the secondary market. 5. Management is still dominated by brokers. 11. 2. margin system and carry forward (badla) system. 7. Poor disclosures by mutual funds are the main problem in the mutual fund industries. .1Unprecedented booms and crashes lead to rampant speculative activities.Listing agreements of stock exchanges have been amended to require listed companies to furnish annual statement showing variations between financial projections and projected utilization of funds in the offer document and actual figures. Companies are now free to raise funds from securities markets after filing prospectus with the Securities and Exchange Board of India (SEBI). big brokers and operators. Demand and supply forces in the stock market are not allowed to act freely. Net asset value (NAV) is not revealing the real picture about the performance of the fund. The secondary market should be re-oriented as to discharge the new responsibilities cast on it by the recent developments. 13. Reforms by SEBI in the primary market include improved disclosure standards. The Primary markets are not ignited enough to cope with changes taking place in the financial system. Reforms in Indian Securities Market: 1. Therefore. The power to regulate stock exchanges has been delegated to SEBI by the Government. In an Oligopoly market. Poor disclosure in prospectus is still rampant. This does not reflect a very healthy state of affairs. 3. 3. 5. Control over price and premiums of shares were removed. investors face problems of delays (refund.FIIs are now permitted to invest in unlisted securities and corporate and Government debt. Insider trading means operating on information. it is oligopolistic in structure. Stock Exchanges are run as brokers’ clubs. brings them within the regulatory framework. Insider trading is rampant on Indian stock exchanges. SEBI introduces regulations for primary and other secondary market intermediaries. etc. There is multiplicity of administration. 10.

Book building for institutional investors is introduced to bring down the costs of issue. 20. 13. 17. asset management companies. Regulations further revised and strengthened in 1996. 14. and other non-bank finance companies. Ltd. Foreign institutional investors (FIIs) are allowed access to Indian capital markets on registration with SEBI. 11.. 12. Hi.6. 10. 16. merchant banking.Foreign direct investment has been allowed in stock broking. System of mark-to-market margins has been introduced in the stock exchanges. \NSE has set up the National Securities Clearing Corporation. 7. and accountability. Transparency is brought about in short selling. 24. 23. 26. SEBI reconstitutes the governing boards of the stock exchanges and introduces capital adequacy norms for broker accounts. Board of Governors till 1956. Over-the-Counter Exchange of India has been formed. 25. 8. New issue procedures have been introduced. This is to reduce issue costs. after that it is changed to three-tier regulation. 15. 15 stock exchanges now have screened-based trading. New Generation Stock Exchanges:  Over the Counter Exchange of India (OTECI)  National Stock Exchange of India Regulation of Stock Exchanges: All stock exchanges were subject to self-regulation from their own management bodies i. . BSE is in the process of implementing a trade guarantee scheme 21. Stock lending scheme has been introduced. SEBI begins the process of prosecuting companies for misstatements and ensures refunds of application in several issues on account of misstatements in the prospectus. SEBI strengthens enforcement of its regulations. SEBI introduces regulations governing substantial acquisition of shares and takeovers and lays down conditions under which disclosures and mandatory public offers are to be made to the shareholders. Disclosure norms further have strengthened by introducing cash flow statements. giving more flexibility to fund managers while increasing transparent-disclosure. Capital adequacy requirement for brokers has been enforced. SEBI introduces a code of advertisement for public issues to ensure fair and truthful disclosures. Bombay Stock Exchange (BSE) introduces screen-based trading. Private mutual funds are permitted and several such funds have been already set up.e. BSE has been granted permission to expand its trading network to other centers. However. National Stock Exchange (NSE) has been established as a stock exchange with nationwide electronic trading. 9.Indian companies are permitted to access international capital markets through Euro issues. Regulations for mutual funds have been revised in 1996. SEBI strengthens surveillance mechanisms and directs all stock exchanges to have separate surveillance departments. 19. 22. All mutual funds are allowed to apply for firm allotment in public issues. 18.

8. 1956 (SCRA). SEBI (Insider Trading) Regulation. which are exercised through their governing Councils. SEBI (Registrars to Issue and Share Transfer Agents) Rules and Regulations. but they are not yet operational. 1993. Constitution of India lists the subject of ‘Stock Exchanges and Future Markets’ under the exclusive authority of Central Government. 1993. 1992. The concept of Venture Capital was introduced in India by the All India Financial Institutions in 1975. The Securities and Exchange Board of India (SEBI) also regulates the stock exchanges in order to protect the interest of investors and to promote the development of security markets in India. all stock exchanges have their own separate rules. 9. SEBI (Stockbrokers and Sub-brokers) Rules and Regulations. the chairman of Bhat Committee highlighted the problems of new entrepreneurs and technologists in setting up industries in 1972.S. SEBI (Mutual Fund) Regulations. The purpose of establishing the . 3. SEBI (Underwriters) Rules and Regulations. 1992. 6. Role of SEBI in Regulation: Few rules and regulations of SEBI are given below: 1. 3. SEBI (Bankers to an Issue) Rules and regulations. Few guidelines are given below: (a) Free pricing of shares (b) Disclosures and investors’ Protection (c) Registration of Foreign Institutional Investors (FII) (d) Allotment of shares (e) New financial instruments (f) Credit rating fixed return bearing securities. In addition. Bhat. 2. SEBI (Debentures Trustee) Rules and Regulations. 7. 1993. 1992. The SRO’s bylaws and codes of conduct bind members. byelaws and regulations. Self-Regulatory Body:  Self-regulatory organizations (SROs) have been adopted in many countries to regulate various participants in the securities market.  The Risk Capital Foundation (RCF) sponsored by the Industrial Finance Corporation of India (IFCI) was inaugurated. VENTURE CAPITAL Evolution:  R. 2. 1993. 5. SEBI (Portfolio Managers) Rules and Regulations. SEBI (Merchant Bankers) Rules and Regulations. 1993. SROs were introduced in the Indian capital market.  Through the SEBI Act of 1992. 1992 4. Central Government through Ministry of Finance regulates the stock exchanges primarily through Securities Contract (Regulation) Act.1.

the concept of venture capital was known as ‘Risk Capital’ and “Seed Capital’. (b)Invest in typically knowledge-based. Mechanism of Venture Capital:  The flow of venture capital from the investor to a Start-up Company and back can be thought of as a cycle that runs through several phases. (f) Take higher risks with the expectation of higher rewards. (c) Purchase equity or quasi-equity securities. (e) Add value to the company through active participation. Based on the Investment Strategy . returning capital to investors. Till 1984. Meaning:  Venture capital is a private equity investment in entrepreneurial companies used to finance the working capital requirement and asset needs of growing businesses. Industrial Development Bank of India (IDBI) introduced Seed Capital Scheme in 1976. up-scaleable companies. sustainable. (g) Have a long-term orientation.institution was to supplement promoters’ equity with a view to motivate technologists and professionals to promote new firms. (C) Exiting successful companies. The objectives of risk capital were different to those understood under venture capital today. monitoring of. Venture Capital Funds generally: (a) Finance new and rapidly growing companies. (B) Investing in. Types of Venture Capitalist:  The types of venture investors are classified based on (a) the investment strategy and (b) their specialization. adding value to firms. (d) Assist in the development of new products or services. (A) Raising of venture fund.

(b) Venture capital can help you achieve your ambitions for your company and provide a stable base for strategic decision making. without taking day-to-day management control. (c) The venture capital firms will seek to increase a company’s value to its owners. (d) Venture capital firms often work in conjunction with other providers of finance and may be able to help you to put a tats funding package together for your business. Types of Investors:  Informal Investors  Formal Investors Venture Capital Fund Stages: Problems With Vcs in India:  License Raj  Scalability  Valuation  Mindsets . within a few years your “slice” should be worth considerably more than the whole “cake” was to you before. which sets it apart from other forms of finance.                 Gen era lists Venture Capitalists of Early Stage Specialists Venture Capitalists of Expansion Stage Financing Later Stage Investors Turnaround Investors Diverse Investors Synergetic Venture Investment Based on their Specialization Incubators Angel Investors Venture Capitalists (VCs) Private Equity Players Types of Venture Capital Firms: Limited Partnership Firms Independent Venture Firms Affiliates or Subsidiaries Affiliates of Government Corporate Venturing Benefits of Venture Capital: (a) Venture backed companies have been shown to grow faster than other types of companies. Although you may have a smaller “slice of cake”. This is made possible by the provision of a combination of capital and experienced personal input from venture capital executives.

INSURABLE INTEREST To insure anything the Insured must have an insurable interest in the subject matter of insurance.STEPPING INTO THE SHOES It is the right of an insurance company who has paid a claim to its client to pursue another party who may have caused the incident resulting in the claim. The insurer then reimburses the insured for “covered” losses i.e. CONTRIBUTION Although the Insured may effect more than one policy to cover the same property or interest. those losses it pays for under the terms of the policy. A material fact is a fact which would influence the mind of a prudent underwriter in deciding whether to accept a risk for insurance and on what terms.      Types of Policies:  Endowment Policy  Whole Life Policy  Term Life Policies  Money-back Policies  Joint Life Policies  Children’s Insurance Policies  Pension Plan Or Annuities . INDEMNITY It is the placing of the insured in the same financial position after a loss as he/she was immediately before the loss. This is done by transferring the risks of a person. or organization. In the event of a claim the Insured must: UTMOST GOOD FAITH . he/she must benefit by its safety or be prejudiced by its loss.UBERRIMAE FIDEI It is the duty to disclose all material facts relating to the risk to be covered.i. SUBROGATION . Principles of Insurance:  PROXIMATE CAUSE It is the main cause which brings about a loss with no other intervening cause which breaks the chain of events “Cause proxima”. he/she cannot recover in total more than a full indemnity. business. the “insured” to an insurance company. the “insurer”.. Taxes and Regulations INSURANCE Meaning:  The function of insurance is to protect one against losses he cannot afford. Enforceability  Exit  Returns.e.

1972: There General Insurance Business (Nationalization) Act. the Oriental Insurance Company Regulation of Insurance Companies:  Insurance is a federal subject in India and the legislation that governs insurance in India is: • The Insurance Act. It is closely linked with the process of overall socio-economic development of a country. The Indian Mercantile Insurance Ltd set up the first company to transact all classes of general insurance business. HOUSING FINANCE Housing Vs Retail Lending:  Housing is one of the basic human needs of the society... the New India Assurance Company Ltd. 1957: General Insurance Council. About 107 insurers are amalgamated and grouped into four companies viz.  The retail lending business is growing at an outstanding rate of over 30% every year. 1938. a wing of the Insurance Association 1 of India.. Banks in India have gone a long way since 1990s where the retail portfolio was less than 5% to the current . framed a code of conduct for ensuring fair conduct and sound business practices. 1968: The Insurance Act was amended to regulate investments and I set minimum solvency margins and the Tariff Advisory Committee 1 set up. 1972 was passed as an act of parliament. 1999. the National Insurance Company Ltd. 1973. It helped the Government to nationalize the general insurance business in India with effect] from January 1. and • The IRDA Act. Women’s Policy  Special Plans  Group Insurance Major Insurance Roles:  Underwriter  Surveyor  Broker  Claims Adviser  Actuary  Financial Adviser Brief History of General Insurance Business in India:  Some of the important milestones in the general insurance business in India are: 1907.

Corp bank Homes. • Availability of better spread to banks. • Growing financial disintermediation process enabling many triple A rated companies to access the market directly. etc. Reasons for lending housing loan: • Poor credit off take of companies. • Improved liquidity with banks following a reduction in Cash Reserve Ratio (CRR) and low credit off take in the face of continued accretion of deposits. commercial and other traditionally industrial sector. The proportion of the retail share in the lending portfolio is slated to close in at around 40% by 2005-2006.  Private Sector Finance:  HDFC (Housing Development Finance Corporation)  DHFCL (Dewan Housing Finance Corporation Limited)  GHFCL (Global Housing Finance Corporation Limited)  BHFL (Birla Home Finance Limited)  Maharishi Housing . • Relatively less risk for retail borrowers. • Growing risk of lending to industry on account of recession. • Rising disposable income and changing life style aspiration of a sizable section of the Population. • Widespread of risk among large number of borrowers and • Developments in technology which have reduced transaction costs on a large number of borrower accounts. Cent Bank Home Finance Limited.level of around 18%. Housing Finance Institutions:  The Housing Finance Institutions can be segregated into three categories: • Public Sector Finance • Banks • Private Sector Finance Public Sector Institutions:  HUDCO (Housing and Urban Development Corporation Limited)  LICHFL (Life Insurance Corporation Housing Finance Limited)  GICHFL (General Insurance Corporation Housing Finance Limited)  PNBHFL (Punjab National Bank Housing Finance Limited)  SBIHF (State Bank of India Housing Finance)  The other major players in the public sector are the Indian Housing. • Increased governmental incentives by way of tax relief or concessions on certain types of Loans. • Continuous softening of lending rates which has improved the borrowers’ ability to repay.

and then pooling receivables. . GLFL Housing. whether by raising of funds by such securitisation company or reconstruction company from qualified institutional buyers by issue of security receipts representing undivided interest in such financial assets or otherwise”. It is a principal agency promoting housing finance institutions both at local and regional levels and provides financial and other support to such institutions. Hometrust Housing. Grihaa Finance. In the usual ABS transaction. etc. Process of Securitisation:  The SECURITISATION process begins with a financial institution segregating. As defined by the recent Ordinance: “Securitisation” means acquisition of financial assets by any securitisation company or reconstruction company from any originator. a wide variety of asset types are eligible to be pooled. Others Other key housing finance providers in the private sector are Sundaram Home Finance. Weizmann Homes. Housing Financial Services:  Project Finance  Refinance Assistance From NHB Types of Home Loans:  Home Purchase Loan  Home Improvement Loan  Home Construction Loan  Home Extension Loan  Home Conversion Loan  Land Purchase Loan  Bridge Loan  Balance Transfer Loan  Refinance Loan  Stamp Doty Loan  Loans to WRXs Innovative Home Loan Schemes:  Step Up Repayment Facility (SURF)  Flexible Loan Instalment Plan (FLIP)  Balloon Payment SECURITIZATION Definition: SECURITISATION is the process of transforming assets into securities. National Housing Bank:  The National Housing Bank was setup in 1988 as a subsidiary of Reserve Bank of India.

 After pooling. or SPV. Process of Securitisation: Types          of assets Seuritised: Asset-backed securitisation (ABS) Mortgage-backed Asset-backed commercial paper Conduit Collateralized Commercial MBS Multi-seller Pass-through securities Special-purpose vehicle (SPV) Reasons for Securitisation: There are three basic reasons why a financial institution wants to securitize assets: (a) Asset management. and (c) Regulatory performance ratios. Reasons for Purchasing Securitized Assets: 1. Pass-Through-Certificates (Single Maturity Structure) 2. Pay-Through-Securities (Multiple Maturity Structure) 3. Stripped Securities Pricing of the Securitisation instruments: Pricing of the instrument can be done in two ways. 2. Asset diversification. 3. (a) By Working Forward . a financial institution sells the selected assets to a special-purpose vehicle. This special-purpose vehicle. is responsible for both the financial re-engineering of the underlying cash flows and the sale of securities to investors. safe investments. (b) Funding. Securitisation Instruments: 1. attractive returns.

as high as up to 13%. • Unresolved tax issues . It involves series of steps. it is not transferable by endorsement and delivery. • If PTC issued in the form of a receipt. The main points are described as below:  Mandate  Team  Information . CREDIT RATING Definition:  “Credit ratings help investors by providing an easily recognizable. Legislation:  RBI Regulations and Guidelines:  Acquisition of Financial Assets  Engagement of Outside Agency  Sale Committee  Issue of Security Receipts  Accounting for Securitisation:  Importance of Accounting Standard  Treatment Gain On Sale  Accounting For Securitisation vs.who will be taxed? • Weak foreclosure laws failing to provide adequate comfort to investors in ABSs. Tradition Accounting Practices Problems in securitization: Several obstacles are hindering the growth of securitisation in India: • Stamp duty on transfer of assets by originator to the SPV.” Rating Process:  Rating is an interactive process with a prospective approach. simple tool that couples a possibly unknown issuer with an informative and meaningful symbol of credit quality. This should be less than the weighted average rate of return to the organisation and the difference will be the spread that the organisation will get as profit.This is done by calculating the return to the originator and then deducting the expenses from this return to arrive at the rate to be offered to the investor. • Ambiguity on whether PTCs can be regarded as negotiable promissory notes. (b) By ‘Working Backward The expectations are taken into consideration and a rate of return to be offered to the investor is arrived at. if PTC is issued in the form of a promissory note it will attract stamp duty.

in 1998.e. CONSUMER FINANCE Introduction: . in July 1999.  CRAs are not accountable for the ratings given by them.  Ratings may lead to herding behaviour thereby increasing the volatility of capital flows.the independence of ratings becomes questionable. Business risk drivers Financial risk drivers Industry characteristics Funding policies Market position Financial flexibility Operational efficiency New projects Management quality Credit Rating Agencies in India:  Credit Rating Information Services of India Limited (CRISIL)  Investment Information and Credit Rating Agency of India (ICRA)  Credit Analysis and Research Limited (CARE) Criticisms:  Since issuers are charged for ratings by CRAs. SEBI constituted a Committee to look into draft regulation for CRAs that were prepared internally by SEBI. SEBI issued a notification bringing the CRAs under its regulatory ambit in exercise of powers conferred on it by Section 30 read with Section 11 of the SEBI Act 1992. SEBI Act 1992 should be amended to bring CRAs outside the purview of SEBI for a variety of reasons.       Secondary Data Meetings and Visits Preview/Meeting Committee Meeting Rating Communication Rating Reviews Surveillance Rating Framework:  These factors can be conceptually classified into business risk and financial risk drivers. Regulations:  In India. i. The Committee held the view that in keeping with international practice.  In consultation with Government. the issues are pay masters.  Credit ratings change infrequently since the rating agencies are unable to constantly monitor developments..

In a consumer finance transaction. Consuming Class in India Characteristics of Consumer Finance:  Parties and Structure of the transaction  Payment for the transaction  Rate of Interest and Repayment Period  Security  Eligibility Criteria for Borrowers Importance of Consumer Finance:  Increasing Risk of Disintermediation in Corporate Lending  Housing Loans  Consumer Durables  Reduction in Interest Rates Impact of Consumer Finance Growth on Consumer Durables Market:  Passenger Cars and Two-wheelers  Key Issues and Success Factors  Innovative Solutions  Credit Constraint in Rural India for Consumer Durables  Consumer Preferences  Consumer Finance by GE Countrywide Consumer Protection:  Complaint Procedure . cars. refrigerators. two-wheelers.  Consumer finance is available for a large number of durables like televisions. personal computers and four-wheelers too. Consumer Finance includes all asset-based financing options provided to investors for acquiring consumer durables. washing machines. an individual initially pays a fraction of the cash on purchase while promising to pay the balance with interest over a specified time period. airconditioners.

(e) An outstanding balance. (c) The card carries a predetermined limit up to which the holder can spend. Mechanism of a Credit Card Transaction: Every transaction made on a credit card involves three parties: (a) The Card Issuer (b) The Cardholder (c) The Merchant Establishment (ME) Debit Card: It is the accountholder’s mobile ATM. The retailer swipes the card over an electronic terminal at this outlet. Benefits of Debit Cards:  Debit cards offer wide range of benefits to the customers. and payments for purchases are deducted from your bank account. (f) Regular use of the credit card by the user earns him additional points that provide the cardholder with discounts on purchases. Under the Consumer Protection Act. It is also popularly known as plastic money. called the billing cycle. (b) A cardholder need not have the required amount in his account to the extent of the transaction made. CREDIT CARD Introduction: Credit card is a monetary instrument that enables the cardholder to obtain goods and services without actual payment at the time of purchase.more commonly called a Consumer Court. every district has at least one Consumer Redressal Forum. you enter the personal identification number on a PIN pad and the money is immediately debited at the bank. the cardholder has to pay only 5-10% of the outstanding value and the rest can be paid in installments over the next few months/years. (d) He can carry one card to use both at ATMs and at merchant locations . Benefits of Holding Credit Card: (a)Credit can be availed for a period of 30-45 days (Max. (d) At the end of each billing cycle. Open an account with a bank that offers a debit card.52 days). a nominal rate of 2-3% per month is charged as interest. usually a month. Some of them are: (a) One can plan Budget within the savings instead of going for credit (b) He can access his own money 24 hours a day (c) He saves fee and other service changes on cash withdrawals. The value of purchases made by the cardholder using the card is recovered at the end of a specified period. It can be said that a credit card is basically a “Pay Later” card that is provided to a customer.

Global Credit Cards Eligibility To Get A Card:  Place of Residence  Telephone  Profession  Place of Eligibility To Get A Card  Age Costs of Credit Card Payment:  Renewal  Interest-free period on ‘every bill’  Purchases on credit  Fuel on credit  Billing period  Cash advance Choosing The Right Card:  Acceptability  Eligibility  Fees  Other Charges  Credit Period  Cash Advance  Insurance Cover .Types of Cards:  MasterCard  VISA Card  Affinity Cards  Standard Card  Classic Card  Gold Card or Executive Card  Platinum Card  Titanium Card  Secured Card  Charge Card  Rebate Card  Co-branded Card  Travel Card  Laghu Udyarni Credit Card (LUCC) Scheme New Types of Credit Card: 1. Smart Cards 3. Corporate Credit Cards 2.

MICRO FINANCE Micro credit:  Micro Credit is defined as provision of thrift. (h) Loans can be received in a continuous sequence. New loan becomes available to a borrower if her previous loan is repaid.. Self-help Group (SHG):  A Self-Help Group (SHG) is a registered or unregistered group of micro entrepreneurs having homogenous social and economic background voluntarily. (f) It provides service at the door-step of the poor based on the principle that the people should not go to the bank. (b) Cash Withdrawal Facility. the illiterate. the people who pleaded that they did not know how to invest money and earn an income. semi-urban and urban areas for enabling them to raise their income levels and improve living standards. and created access to credit on reasonable term enabling the poor to build on their existing skill to earn a better income in each cycle of loans. bank should go to the people. (g) In order to obtain loans a borrower must join a group of borrowers. or legally enforceable contracts. (e) Leveraged Investment Facility. Grameen Credit:  Grameen brought credit to the poor. particularly poor women. (c) Most distinctive feature of Grameen credit is that it is not based on any collateral. women. It is targeted to the poor. (c) Increase in Credit.Uses of Credit Cards: (a) Personal Accident Insurance. As a result it rejected the basic methodology of the conventional banking and created its own methodology. credit and other financial services and products of very small amount to the poor in rural. (d) It is offered for creating self-employment for income-generating activities and housing for the poor. It is based on “trust”. (e) It was initiated as a challenge to the conventional banking which rejected the poor by classifying them to be “not creditworthy”. Features of Grameen Credit: (a) It promotes credit as a human right. not on legal procedures and system. (i) All loans are to be paid back in installments (weekly. (b)Its mission is to help the poor families to help themselves to overcome poverty. . or bi-weekly). (d) “Add-On” Facility. as opposed to consumption. Grameen created a methodology and an institution around the financial needs of the poor. (j) Simultaneously more than one loan can be received by a borrower (k) It comes with both obligatory and voluntary savings programmes for the borrowers.

to mutually agree to contribute to a common fund and to meet their emergency needs on mutual help basis.coming together to save small amounts regularly. Microfinance-credit Lending Models:  Associations  Bank Guarantees  Community Banking  Cooperatives  Credit Unions  Grameen  Intermediaries  Peer Pressure  Rotating Savings and Credit Associations  Village Banking Loans Delivery Models:  Conventional /Branch Model  Partnership Model  Under both the models Legal Framework: MERCHANT BANKING AND FINANCIAL SERVICES .

6. Give a details account of the regulatory framework available for merchant banking in India. State the role of HDFC. 3. 16 Marks 1. What is green shoe option? 14. Elaborate the various services rendered by merchant bankers. ** 2. 4. Critically examine the functions. Define merchant banking. What do you mean by ‘safety net scheme’? 9. ** 3. What is the difference between capital structure and financial structure? 4. What is OTCEI and why is OTCEI not popular with investors? 12. Explain the major players in financial services. How to issue shares through OTC Exchange of India? 13. State the disclosure to be made to the SEBI as apart of general obligations of merchant bankers. Write the differences between money charger and exchanger. State the capital adequacy requirement prescribed for the merchant bankers by the SEBI. and powers of the SEBI. What is FEMA? 11. duties. What is credit syndication? 8. How is ‘merchant banker defined under the SEBI regulations? 7. 5. Who is lead manager? 10.IMPORTANT QUESTIONS (From University Question Papers) UNIT I 2 Marks 1. 5. Distinguish merchant banking and investment banking. Trace the origin of Merchant Banking briefly and institutional structure of Merchant banking in India. ** 2. .

What is Private placement? 4. What is GDRs. Outline the procedure relating to the registration of Portfolio managers under the SEBI regulations. 8. Enumerate the recent developments and challenges ahead of merchant bankers in India. Define underwriting and list the uses of underwriting? 2. What is due diligence certificate? 13. What do you know of the IPO method of marketing securities? 8. 1993. 12. (Global depositary Receipt) 14. What does the term ‘optimal capital structure refers to’? ** 6. Who are QIBs? . 7. 11. Explain the legal provisions of the Companies Act concerning merchant bankers. Discuss the various general obligations of merchant bankers under the SEBI regulations. What are Euro issues? 15. Explain in detail OTCEI. Give an account of the code of conduct prescribed by the SEBI for the portfolio managers. Features of Merchant banking? UNIT II 2 Marks 1. ** 10. What is Sensex? 10. Define prospectus. Explain E-IPO. What do you mean by ‘Private Placement’? 9. How is issue managers categorized? 5. 12. What is Book Building ** 3. Who is an issue manager? 7. 11.6. 9.

. 11. 4. Explain the various kinds of roles performed by merchant bankers in an IPO. What do you know the ‘IPO’ method of marketing securities? Explain the procedure involved in the same. Write the guidelines and considerations relevant for planning the capital structure of a new company. Describe the provisions of the Companies Act 1956 relating to allotment of shares and issue of share certificates. What is book-building? What are the requirements to be complied with by a company proposing to issue capital through book-building? 12.16 Marks 1. (16) [What are the main post-issue activity/activities relating to the issue of capital through prospectus? **6)] [Briefly outline the pre-issue activities relating to the issue of capital through prospectus (16) ** 3. 1956? 8. What are the guidelines issued by SEBI with regard to the underwriting business in India? 7. What are the regulations and laws that govern issue management in India? Discuss in detail. Explain the activities undertaken by merchant bankers in pre and post-issue management. Briefly outline the salient features of offer documents connected with right issue. ** 5. 2. Explain the factors influencing issue pricing when the pricing mechanism is considered to be right. 6. 9. Name some of the companies that carry out underwriting business in India. What are the contents of a prospectus issued for right issue as enshrined in the Indian companies Act. What are the different modes of public issue? What is an IPO? 14. 10. What are the general obligations and responsibilities of the registrar to as issue? 13.

What is business valuation? 10. What are the disadvantages of credit rating? 4. ** 3. Discuss the rating methodology used by rating companies for manufacturing and finance companies. What is a mutual fund? 18. What is meant by bail out takeover? 12. What is credit rating? 16 Marks 1. both domestic and international. 2. How does a mutual fund operate? 8. How can merger be financed? Analyse the impact of the various modes of finance on company’s EPS. 17. . Discuss the major functions and services rendered by merchant bankers as regards credit syndication. Distinguish between merger and takeover. 6. What are the types of mergers? 15. Give an account of some of the credit rating agencies. What is meant by insider trading? 11. What is credit syndication? 14. Define credit syndication. What is loan syndication? 9. Discuss the major issues of Mergers and Acquisitions in India. 4. What are offshore mutual funds? 5.UNIT III 2 Marks 1. What is conglomerate merger? 16. How does a mutual fund operate? 2. What is credit rating? 13. 3. ** OR Write a detailed note on the syndication of working capital funds by merchant bankers. What is ‘Bank Card Association’? 7.

Explain the factors that have contributed to the rating framework of credit rating agencies worldwide. What is AMC? (Asset Management Company) 6. To which type of consumers are hire purchase system and instalment system suitable? 5. State the different approaches of ascertaining the purchase price by an acquiring firm. 9. 3. UNIT IV 2 Marks 1. Explain the various types of mutual funds. Explain the benefits of credit rating to rated companies na dinvestors. Describe the structure of the mutual fund operation in India. Distinguish between primary and secondary lease. What are the functions of credit rating? Explain the methodology followed by CRISIL in rating credit instruments. What is leverage leasing? 9. What is ‘Swap leasing’? . What is Leverage Buyout. What is ‘hire purchase finance’? 4. What are the various methods of determining the value of a firm at the time of a merger? What are the methods of financing techniques in mergers? 11. How can the expected gains from merger be shared between the acquiring and the acquired companies? Explain. What is operating lease? 8. 10. Discuss the importance of Mutual funds.5. 10. 8. What are the factors to be considered before selecting a mutual fund? ** 12. 7. Explain the portfolio management process of a mutual fund. Also describe the various schemes that can be offered by it. What is cross border leasing? 7. 6. What are the various types of lease? 2. OR State briefly the framework of regulation of the mutual funds in India.

1972 regarding i. What is Edi factoring? 2. Explain the framework of evaluation (financial) of a hire purchase transaction from the view point of. ** 7. ** i. What are the financial implications of leasing? Discuss. State the provisions of the Hire Purchase Act. 9. Explain the methods of reporting adopted for a hire purchase finance transaction. How is forfeiting different from export factoring? . Differentiate hire purchase from leasing. Discuss the advantages of leasing. Identify the different ways of determining the rate of interest under the hire purchase finance arrangement. 6. UNIT V 2 Marks 1. Explain the different kinds of leasing. Limitation on hire purchase charges and ii. Distinguish between financial lease and operating lease. How will you define the term’ housing’? 6. Discuss briefly the role played by various participants in lease finance services. 3. 4. 5. **What guidelines do banks have for hire purchase business? *** 8. 11. Explain the different types of consumer finance.16 Marks 1. How is factoring different from forfeiting? 5. Enumerate and explain the advantages and disadvantages of leasing. 10. Hirer ii. What is the debt displacement effect of leasing? 3. What is forfeiting? How is forfeiting advantageous? 4. Finance Company. Repossession of goods by the hire vendor. Should a hirer deduct tax at source from the hire purchase instalment paid to a finance company? 2. Write a brief note on taxation aspects of hire purchase deals.

14. What is a stock invest? 13. Discuss the advantages and disadvantages of credit card to various parties. What are the characteristics features that distinguish venture capital from other capital investments? Describe in detail. *** What are the facilities offered to credit card holders? . Distinguish between ‘with recourse’ and ‘without recourse’ factoring. How does it differ from factoring? 3. 8. How do you appreciate the need for regulating the growth of venture capital funds in India? 6. What are the various types of venture capital? 9. 16 Marks 1. Define venture capital. Briefly outline the procedure of bills discounting. 10. What is Smart card? 16. Define Venture capital. Discuss in detail the various services rendered by factoring intermediaries. *** 11. What are the facilities and services provided by credit card issuers? 5. 17. What is real estate financing? 10.7. Critically examine the SEBI venture capital fund regulations. Identify the safeguards to be followed by a banker while granting consumer credit. What is forfeiting? 12. 7. Explain the benefits of factoring. List the guidelines regarding factoring services in India. State the salient features of cross border factoring and explain. Explain the various types of credit cards. Write any two similarities between factoring and bills discounting. How was the bills discounting misused by banks and finance companies? What steps have been taken by the RBI to prevent such misuse in future? Discuss. What is a credit card? 15. Critically evaluate the role of factoring as a source of financing. 18. 1996. What is kite flying? 11. 4. What is consumer credit? List some of its features. 8. 9. 2.

** 14. Briefly explain the venture capital scenario in India. What are the features of venture capital? Explain the stages in financing of venture capital. 13. 2000 to identify the impediments in the growth of venture capital industry in the country and suggest suitable measures for its rapid growth. Comment on the recommendations of SEBI (Chandrasekhar) Committee. Make suggestions for the success of venture capital in India. with special reference to SEBI venture capital funds (VCFs) Regulations. .12. What is ‘start-up’ financing? What factors does a venture capitalist consider before making start-up advance? 15. 1996.

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