Indian Financial System Notes MBA PPT

Indian Financial SystemIndian Financial System

IntroductionIntroduction Components of Indian Components of Indian Financial SystemFinancial System Functions of the Financial SystemFunctions of the Financial System• Payment systemPayment system• Pooling of fundsPooling of funds• Transfer of resourcesTransfer of resources• Risk managementRisk management• Price information for decentralized decision makingPrice information for decentralized decision making• Price discovery processPrice discovery process• LiquidityLiquidity• FungibilityFungibility Nature and Role of Financial Institutions Nature and Role of Financial Institutions

(Intermediaries) and Financial Markets(Intermediaries) and Financial Markets

Plastic Money (Credit / Plastic Money (Credit / Debit Card)Debit Card)

Non-Banking Financial Non-Banking Financial CompaniesCompanies

IntroductionIntroduction Non-Banking Financial Company has been defined vide Non-Banking Financial Company has been defined vide

clause (b) of Section 45-I of Chapter IIIB of RBI Act, clause (b) of Section 45-I of Chapter IIIB of RBI Act, 1934, as1934, as

(i)(i) a financial institution, which is a company;a financial institution, which is a company;(ii)(ii) a non-banking institution, which is a company and a non-banking institution, which is a company and

which has its principal business the receiving of which has its principal business the receiving of deposits under any scheme or arrangement or in any deposits under any scheme or arrangement or in any other manner or lending in any manner;other manner or lending in any manner;

(iii)(iii) such other non-banking institutions or class of such such other non-banking institutions or class of such institutions, as the bank may with the previous institutions, as the bank may with the previous approval of the central government and by notification approval of the central government and by notification in the official gazette, specify.in the official gazette, specify.

Classification of NBFCClassification of NBFC Registration RequirementsRegistration Requirements

NBFCs NBFCs AcceptanceAcceptance of Public Deposits of Public Deposits DirectionsDirections

1.1. Minimum NOF of Rs.25 lakh can accept public Minimum NOF of Rs.25 lakh can accept public deposit provided they obtain minimum deposit provided they obtain minimum investment grade for their fixed deposits from investment grade for their fixed deposits from one of the approved rating agencies, at least one of the approved rating agencies, at least once a year.once a year.

2.2. Period of deposits Period of deposits 3.3. Ceiling on depositsCeiling on deposits

RBI Non-Banking Financial (Deposit RBI Non-Banking Financial (Deposit Accepting/Holding Prudential Norms Accepting/Holding Prudential Norms Directions Directions

The prudential norms relate to:The prudential norms relate to:1.1. income recognition,income recognition,2.2. accounting standards,accounting standards,3.3. asset classification,asset classification,4.4. provisioning for loans and advances,provisioning for loans and advances,5.5. capital adequacycapital adequacy6.6. concentration of credit/investments.concentration of credit/investments.

Asset –Liability Management SystemAsset –Liability Management System Marketing ProcessMarketing Process The major marketing activity is done through advertisements. The major marketing activity is done through advertisements.

NBFCs engaged in chitties, sale of mutual funds, insurance policies NBFCs engaged in chitties, sale of mutual funds, insurance policies as also accepting deposits, have agents to canvass business and as also accepting deposits, have agents to canvass business and the agents are paid commission. The characteristics of financial the agents are paid commission. The characteristics of financial products are the same irrespective of whether they are offered by products are the same irrespective of whether they are offered by banks or NBFCs. Therefore, there is not much difference in the banks or NBFCs. Therefore, there is not much difference in the marketing process except in the case of buyer behavior. The buyer marketing process except in the case of buyer behavior. The buyer in the NBFC market are mostly motivated by higher returns as far as in the NBFC market are mostly motivated by higher returns as far as the savings products are concerned. In the case of loan products the savings products are concerned. In the case of loan products the most influencing element is the simple and customized the most influencing element is the simple and customized approach. For example, in the case of vehicle loans many of the approach. For example, in the case of vehicle loans many of the NBFCs have opened their sales counter at the automobile dealer NBFCs have opened their sales counter at the automobile dealer shop. Many of the automobile manufacturers have their own shop. Many of the automobile manufacturers have their own financing wing. financing wing.

LEASING & HIRE PURCHASELEASING & HIRE PURCHASE

LEASINGLEASING Concept & DefinitionConcept & Definition A lease is a commercial contract between A lease is a commercial contract between

the owner of equipment and the the owner of equipment and the prospective user agreeing that the owner prospective user agreeing that the owner would transfer the right to use the would transfer the right to use the equipment up to a specified period for a equipment up to a specified period for a pre-determined, mutually agreed pre-determined, mutually agreed periodical lease rentals.periodical lease rentals.

Essential ElementsEssential Elements1.1. Parties to the contractParties to the contract2.2. AssetAsset3.3. Ownership separated from userOwnership separated from user4.4. Term of leaseTerm of lease5.5. Lease rentalsLease rentals6.6. Modes of terminating leaseModes of terminating lease

ClassificationClassification1. Finance Lease 1. Finance Lease Types:Types:(i)(i) Leveraged Lease (xi) Dry LeaseLeveraged Lease (xi) Dry Lease(ii)(ii) Full Pay Out Lease (xii) Wet Lease Full Pay Out Lease (xii) Wet Lease (iii)(iii) Sale and Lease Back (xiii) Close-ended LeaseSale and Lease Back (xiii) Close-ended Lease(iv)(iv) Manufacturer Lease (xiv) Open-ended LeaseManufacturer Lease (xiv) Open-ended Lease(v)(v) Tripartite LeaseTripartite Lease(vi)(vi) Syndicated LeaseSyndicated Lease(vii)(vii) Big Ticket LeaseBig Ticket Lease(viii)(viii) Domestic LeaseDomestic Lease(ix)(ix) Cross-Border LeaseCross-Border Lease(x)(x) Import LeaseImport Lease

2. Operating Lease 2. Operating Lease In an operating lease, the lessor does not transfer all the In an operating lease, the lessor does not transfer all the

risks and rewards incidental to the ownership of the risks and rewards incidental to the ownership of the asset and the cost of the asset is not fully amortized asset and the cost of the asset is not fully amortized during the primary lease period. The lessor provides during the primary lease period. The lessor provides services (other than the financing of the purchase price) services (other than the financing of the purchase price) attached to the leased asset, such as maintenance, attached to the leased asset, such as maintenance, repair and technical advice. For this reason, operating repair and technical advice. For this reason, operating lease is also called lease is also called ‘service lease’. ‘service lease’.

Profile/Structure of Leasing in IndiaProfile/Structure of Leasing in India

Major Players – They can be categorized Major Players – They can be categorized into six groups:into six groups:

1.1. Independent Leasing CompaniesIndependent Leasing Companies2.2. Other Finance CompaniesOther Finance Companies3.3. Manufacturer-LessorsManufacturer-Lessors4.4. Financial InstitutionsFinancial Institutions5.5. In-house LessorsIn-house Lessors6.6. Commercial BanksCommercial Banks

Product Profile – The salient features of Product Profile – The salient features of the lease structures in India are as the lease structures in India are as detailed below:detailed below:

1.1. By and large, the structured lease fall in the category By and large, the structured lease fall in the category of finance lease.of finance lease.

2.2. The lease agreements do not provide for transfer of The lease agreements do not provide for transfer of ownership to the lessee.ownership to the lessee.

3.3. The lease rentals are structured so as to recover the The lease rentals are structured so as to recover the entire investment cost during the primary period.entire investment cost during the primary period.

4.4. Lease rentals are payable generally in equated/level Lease rentals are payable generally in equated/level monthly installments at the beginning of every month.monthly installments at the beginning of every month.

5.5. Sale and lease back type of transactions are rare.Sale and lease back type of transactions are rare.6.6. By and large equipment leases are for capital By and large equipment leases are for capital

investment not exceeding Rs.100 lakh.investment not exceeding Rs.100 lakh.7.7. Equipment leasing covers a wide range of equipments Equipment leasing covers a wide range of equipments

from industrial P&M and other office equipments to from industrial P&M and other office equipments to vechicles.vechicles.

Significance/Advantages & Significance/Advantages & LimitationsLimitations

Advantages of LeasingAdvantages of LeasingI To the Lessee:I To the Lessee:1.1. Financing of capital goodsFinancing of capital goods2.2. Additional source of financeAdditional source of finance3.3. Ownership preservedOwnership preserved4.4. Avoids conditionalitiesAvoids conditionalities5.5. Flexibility in structuring of rentalsFlexibility in structuring of rentals6.6. SimplicitySimplicity7.7. Tax benefitsTax benefits8.8. Obsolescence risk is avertedObsolescence risk is averted

II. To the LessorII. To the Lessor1.1. Full securityFull security2.2. Tax benefitTax benefit3.3. High profitabilityHigh profitability4.4. Trading on equityTrading on equity5.5. High growth potentialHigh growth potential

Limitations of LeasingLimitations of Leasing1.1. Restrictions on use of equipmentRestrictions on use of equipment2.2. Limitations of financial leaseLimitations of financial lease3.3. Loss of residual valueLoss of residual value4.4. Consequences of defaultConsequences of default5.5. Understatement of lessee’s assetUnderstatement of lessee’s asset6.6. Double sales-taxDouble sales-tax

Accounting Framework of Leasing Accounting Framework of Leasing (AS19)(AS19)

Scope = This should be applied in accounting Scope = This should be applied in accounting for all leases other than:for all leases other than:

1.1. Lease agreements to explore for or use natural Lease agreements to explore for or use natural resources, such as oil, gas, timber, metals and other resources, such as oil, gas, timber, metals and other mineral rights;mineral rights;

2.2. Licensing agreements for items such as motion picture Licensing agreements for items such as motion picture films, video recordings, plays, manuscripts, patents films, video recordings, plays, manuscripts, patents and copyrights; andand copyrights; and

3.3. Lease agreements to use lands.Lease agreements to use lands.

Leases in the financial statements of lesseesLeases in the financial statements of lessees1.1. Finance leases = At the inception of a finance lease, Finance leases = At the inception of a finance lease,

the lessee should recognize the lease as an asset and the lessee should recognize the lease as an asset and a liability. Such recognition should be at an amount a liability. Such recognition should be at an amount equal to the fair value of the leased asset at the equal to the fair value of the leased asset at the inception of the lease. However, if the fair value of the inception of the lease. However, if the fair value of the leased asset exceeds the present value of the leased asset exceeds the present value of the minimum lease payments from the stand point of the minimum lease payments from the stand point of the lessee, the amount recorded as an asset and a liability lessee, the amount recorded as an asset and a liability should be the present value of the minimum lease should be the present value of the minimum lease payments. In calculating the present value of the payments. In calculating the present value of the minimum lease payments, the discount factor is the minimum lease payments, the discount factor is the interest rate implicit in the lease, if this is practicable to interest rate implicit in the lease, if this is practicable to determine; if not, the lessee’s incremental borrowing determine; if not, the lessee’s incremental borrowing rate should be used.rate should be used.

2. Operating leases = Lease payments under an operating 2. Operating leases = Lease payments under an operating lease should be recognized as an expense in the lease should be recognized as an expense in the statement of profit and loss on a straight line basis statement of profit and loss on a straight line basis over the lease term unless another systematic basis is over the lease term unless another systematic basis is representative of the time pattern of the user’s benefit, representative of the time pattern of the user’s benefit, even if the payments are not on that basis.even if the payments are not on that basis.

Leases in the financial statements of lessorsLeases in the financial statements of lessors1.1. Finance lease = The lessor should recognize assets Finance lease = The lessor should recognize assets

given under a finance lease in its balance sheet as a given under a finance lease in its balance sheet as a receivable at an amount equal to the net investment. receivable at an amount equal to the net investment. The manufacturer or dealer lessor should recognize The manufacturer or dealer lessor should recognize the transaction of sale in the statement of profit and the transaction of sale in the statement of profit and loss for the period, in accordance with the policy loss for the period, in accordance with the policy followed by the enterprise for outright sales. If followed by the enterprise for outright sales. If artificially low rates of interest are quoted, selling profit artificially low rates of interest are quoted, selling profit should be restricted to that which would apply if should be restricted to that which would apply if commercial rate of interest were charged.commercial rate of interest were charged.

2. Operating leases = The lessor should present an asset 2. Operating leases = The lessor should present an asset given on operating lease in its balance sheet under fixed given on operating lease in its balance sheet under fixed assets. Lease income from operating leases should be assets. Lease income from operating leases should be recognized in statement of profit and loss on a straight recognized in statement of profit and loss on a straight line basis over the lease term, unless another systematic line basis over the lease term, unless another systematic basis is more representative of the time pattern in which basis is more representative of the time pattern in which benefit derived from the use of the leased asset is benefit derived from the use of the leased asset is diminished.diminished.

Tax Aspects of LeasingTax Aspects of Leasing

Income tax considerationsIncome tax considerations1.1. For LessorFor Lessor2.2. For LesseeFor Lessee

Sales tax aspectsSales tax aspects

Financial Evaluation of LeasingFinancial Evaluation of LeasingThe process of financial appraisal in a lease The process of financial appraisal in a lease

transaction generally involves three steps:transaction generally involves three steps:1.1. Appraisal of the client in terms of financial strength and Appraisal of the client in terms of financial strength and

credit worthiness;credit worthiness;2.2. Evaluation of security / collateral security offered andEvaluation of security / collateral security offered and3.3. Financial evaluation of the proposal.Financial evaluation of the proposal.The most critical part of a leasing transaction is the The most critical part of a leasing transaction is the

financial evaluation of the proposal both to the financial evaluation of the proposal both to the lessor and lessee.lessor and lessee.

Hire Purchase FinanceHire Purchase Finance Meaning and CharacteristicsMeaning and Characteristics The Hire Purchase Act, 1972 defines a hire purchase The Hire Purchase Act, 1972 defines a hire purchase

agreement as ‘an agreement under which goods are agreement as ‘an agreement under which goods are let on hire and under which the hirer has an option to let on hire and under which the hirer has an option to purchase them in accordance with the terms of the purchase them in accordance with the terms of the agreement. This also includes an agreement under agreement. This also includes an agreement under which:which:

(i)(i) The possession of goods is delivered by the owner The possession of goods is delivered by the owner thereof, to a person on condition that the person pays thereof, to a person on condition that the person pays the agreed amount in periodical installments andthe agreed amount in periodical installments and

(ii)(ii) The property in the goods is to pass to such person on The property in the goods is to pass to such person on payment of the last installment, andpayment of the last installment, and

(iii)(iii) Such person has a right to terminate the agreement at Such person has a right to terminate the agreement at any time before the property so passes.’any time before the property so passes.’

Modus OperandiModus Operandi The finance (hire purchase) company purchases the The finance (hire purchase) company purchases the

equipment from the supplier and lets it on hire to the equipment from the supplier and lets it on hire to the hirer to use it who is required to make a down payment hirer to use it who is required to make a down payment of, say, 20-25 percent of the cost and pay balance with of, say, 20-25 percent of the cost and pay balance with interest in Equated Monthly Installments (EMI) in interest in Equated Monthly Installments (EMI) in advance or arrears spread over 36-48 months. advance or arrears spread over 36-48 months. Alternatively, in place of the margin in the down-payment Alternatively, in place of the margin in the down-payment plan, under a deposit-linked plan, the hirer has to put an plan, under a deposit-linked plan, the hirer has to put an equal amount as a fixed deposit with the finance equal amount as a fixed deposit with the finance company which provides the entire finance on hire company which provides the entire finance on hire purchase terms repayable with interest as EMI over 36-purchase terms repayable with interest as EMI over 36-48 months. The deposit together with the accumulated 48 months. The deposit together with the accumulated interest is returned to the hirer after the payment of last interest is returned to the hirer after the payment of last installment.installment.

The interest component of each hire purchase installment The interest component of each hire purchase installment is computed on the basis of a flat rate of interest and the is computed on the basis of a flat rate of interest and the effective rate of interest is applied to the declining effective rate of interest is applied to the declining balance of the original loan amount.balance of the original loan amount.

Hire-Purchase vs Installment PaymentHire-Purchase vs Installment Payment1.1. OwnershipOwnership2.2. Call optionCall option3.3. Right of terminationRight of termination

Lease Financing vs Hire-Purchase FinancingLease Financing vs Hire-Purchase Financing1.1. OwnershipOwnership2.2. DepreciationDepreciation3.3. MagnitudeMagnitude4.4. ExtentExtent5.5. MaintenanceMaintenance6.6. Tax benefitsTax benefits

Legal FrameworkLegal Framework Taxation AspectsTaxation Aspects1.1. Income taxIncome tax2.2. Sales taxSales tax3.3. Interest taxInterest tax Accounting & ReportingAccounting & Reporting Financial EvaluationFinancial Evaluation

Consumer CreditConsumer Credit Consumer credit includes all asset-Consumer credit includes all asset-

based financing plans offered to primarily based financing plans offered to primarily individuals to acquire durable consumer individuals to acquire durable consumer goods.goods.

Salient FeaturesSalient Features1.1. Parties to the transactionParties to the transaction2.2. Structure of the transactionStructure of the transaction3.3. Mode of paymentMode of payment4.4. Payment period and rate of interestPayment period and rate of interest5.5. SecuritySecurity EvaluationEvaluation

Factoring and ForfaitingFactoring and Forfaiting

FactoringFactoring ConceptConceptAccording to the Webster Dictionary According to the Webster Dictionary ‘Factor‘Factor ’ is an agent, ’ is an agent,

as a banking or insurance company, engaged in as a banking or insurance company, engaged in financing the operations of certain companies or in financing the operations of certain companies or in financing wholesale or retail trade sales, through the financing wholesale or retail trade sales, through the purchase of account receivables.purchase of account receivables.

MechanismMechanism Functions of FactorFunctions of Factor1.1. Maintenance / administration of sales ledger;Maintenance / administration of sales ledger;2.2. Collection facility;Collection facility;3.3. Financing trade debts;Financing trade debts;4.4. Credit control and credit protection;Credit control and credit protection;5.5. Advisory services.Advisory services.

Cost of ServicesCost of Services Benefits of FactoringBenefits of Factoring Forms of FactoringForms of Factoring1.1. Recourse and Non-recourse FactoringRecourse and Non-recourse Factoring2.2. Advance and Maturity FactoringAdvance and Maturity Factoring3.3. Full FactoringFull Factoring4.4. Disclosed and Undisclosed FactoringDisclosed and Undisclosed Factoring5.5. Domestic and Export/Cross-Border/International Domestic and Export/Cross-Border/International

FactoringFactoring Factoring Vs Bill DiscountingFactoring Vs Bill Discounting Factoring Services in IndiaFactoring Services in India Marketing of factoring ServicesMarketing of factoring Services

ForfaitingForfaiting ConceptConceptForfaiting is a French word which means ‘surrendering of Forfaiting is a French word which means ‘surrendering of

rights’. In international trade and finance parlance rights’. In international trade and finance parlance forfaiting refers to surrendering of export receivables. forfaiting refers to surrendering of export receivables. Forfaiting is a non-recourse form of financing of export Forfaiting is a non-recourse form of financing of export receivables.receivables.

FeaturesFeatures Forfaiting Vs Export FactoringForfaiting Vs Export Factoring

Venture Capital FinancingVenture Capital Financing

ConceptConceptVenture capital is a long-term risk capital to finance high Venture capital is a long-term risk capital to finance high

technology projects which involve risk but at the same technology projects which involve risk but at the same time has strong potential for growth. Venture capitalists time has strong potential for growth. Venture capitalists pool their resources including managerial abilities to pool their resources including managerial abilities to assist new entrepreneurs in the early years of the assist new entrepreneurs in the early years of the project. Once the project reaches the stage of project. Once the project reaches the stage of profitability, they sell their equity holdings at high profitability, they sell their equity holdings at high premiumpremium

ORORA venture capital company is defined as a financing A venture capital company is defined as a financing

institution which joins an entrepreneur as a co-promoter institution which joins an entrepreneur as a co-promoter in a project and share the risks and rewards of the in a project and share the risks and rewards of the enterprise.enterprise.

FeaturesFeatures1.1. Equity participation, convertible debt or long-term loan.Equity participation, convertible debt or long-term loan.2.2. High risk but high growth potential projects.High risk but high growth potential projects.3.3. Only for commercialization of new idea or new Only for commercialization of new idea or new

technologies.technologies.4.4. Co-promoter.Co-promoter.5.5. Capital appreciation and not profit.Capital appreciation and not profit.6.6. Not just injection of money.Not just injection of money.7.7. Small and medium scale enterprises.Small and medium scale enterprises.

Stages of FinancingStages of Financing1. Early Stage Financing1. Early Stage Financing Seed CapitalSeed Capital Start-UpStart-Up Second Round FinancingSecond Round Financing

2.2. Later Stage FinancingLater Stage Financing Mezzanine/Development CapitalMezzanine/Development Capital Bridge ExpansionBridge Expansion Buy OutsBuy Outs TurnaroundsTurnarounds

Classification of Venture Capital FundsClassification of Venture Capital FundsThey are classified based on the activities.They are classified based on the activities. IncubatorsIncubators Angel InvestorsAngel Investors Venture CapitalistsVenture Capitalists Private Equity Players.Private Equity Players.

Venture Capital Financing ProcessVenture Capital Financing Process1.1. Deal originationDeal origination2.2. ScreeningScreening3.3. Due diligenceDue diligence4.4. Financial analysis/valuationFinancial analysis/valuation5.5. Structuring the deal/Financial instrumentsStructuring the deal/Financial instruments6.6. Investment nurturing/AftercareInvestment nurturing/Aftercare7.7. ExitExit

Indian Venture Capital ScenarioIndian Venture Capital Scenario SEBI Venture Capital Funds (VCFs) SEBI Venture Capital Funds (VCFs)

Regulations, 1996Regulations, 1996 SEBI Foreign Venture Capital Investors SEBI Foreign Venture Capital Investors

(FVCIs) Regulations, 2000(FVCIs) Regulations, 2000

Mezzanine capitalMezzanine capital , in , in financefinance, refers to a , refers to a subordinated debtsubordinated debt or or preferred equitypreferred equity instrument that instrument that represents a claim on company's assets, which is senior represents a claim on company's assets, which is senior only to that of the only to that of the common sharescommon shares. Mezzanine financings . Mezzanine financings can be structured either as debt (typically an unsecured and can be structured either as debt (typically an unsecured and subordinated note) or preferred stock.subordinated note) or preferred stock.

Mezzanine capital often is a more expensive financing Mezzanine capital often is a more expensive financing source for a company than secured debt or senior debt. The source for a company than secured debt or senior debt. The higher cost of capital associated with mezzanine financings higher cost of capital associated with mezzanine financings is the result of its location as an unsecured, subordinated (or is the result of its location as an unsecured, subordinated (or junior) obligation in a company's capital structure (i.e., in the junior) obligation in a company's capital structure (i.e., in the event of default, the mezzanine financing is less likely to be event of default, the mezzanine financing is less likely to be repaid in full after all senior obligations have been satisfied). repaid in full after all senior obligations have been satisfied). Additionally, mezzanine financings, which are usually private Additionally, mezzanine financings, which are usually private placements are also often used by smaller companies and placements are also often used by smaller companies and may also involve greater overall leverage levels than issuers may also involve greater overall leverage levels than issuers in the High Yield market and as such involve additional risk. in the High Yield market and as such involve additional risk. In compensation for the increased risk, mezzanine debt In compensation for the increased risk, mezzanine debt holders will require a higher return for their investment than holders will require a higher return for their investment than secured or other more senior lenderssecured or other more senior lenders

Insurance Services and Insurance Services and ProductsProducts

Fundamentals of Insurance Act Fundamentals of Insurance Act 1938 & IRDA Act 19991938 & IRDA Act 1999

EligibilityEligibility RegistrationRegistration Capital RequirementCapital Requirement Promoters’ HoldingPromoters’ Holding DepositsDeposits Accounts and Balance SheetAccounts and Balance Sheet Actuarial Report and AbstractActuarial Report and Abstract Investments of AssetsInvestments of Assets Licensing of Insurance AgentsLicensing of Insurance Agents Licensing of Surveyors and Loss AssessorsLicensing of Surveyors and Loss Assessors

Role of IRDARole of IRDA In order to provide better insurance cover to citizens and also to In order to provide better insurance cover to citizens and also to

augment the flow of long-term sources of financing infrastructure, the augment the flow of long-term sources of financing infrastructure, the government reiterated its announcement of 1996 in its budget speech, government reiterated its announcement of 1996 in its budget speech, 1998, to open up the insurance sector and also set up a statutory 1998, to open up the insurance sector and also set up a statutory IRDA.IRDA.

The IRDA would consist of a chairperson and not more than 9 The IRDA would consist of a chairperson and not more than 9 members of whom not more than 5 would be full-time members, to be members of whom not more than 5 would be full-time members, to be appointed by government.appointed by government.

Functions:Functions:1.1. Issue to the applicant a certificate of registration.Issue to the applicant a certificate of registration.2.2. Protection of interests of policyholders.Protection of interests of policyholders.3.3. Specifying requisite qualifications & practical training.Specifying requisite qualifications & practical training.4.4. Specifying code of conduct for surveyors & loss assessors.Specifying code of conduct for surveyors & loss assessors.5.5. Calling for information & undertaking inspectionCalling for information & undertaking inspection6.6. Regulating of investment of funds by insurance companiesRegulating of investment of funds by insurance companies7.7. Adjudication of disputes between insurers and intermediaries.Adjudication of disputes between insurers and intermediaries.

Types of InsuranceTypes of Insurance Life Insurance:Life Insurance:1.1. Term life insuranceTerm life insurance2.2. Whole life insuranceWhole life insurance3.3. Endowment policiesEndowment policies4.4. Money back policiesMoney back policies5.5. Children’s assurance planChildren’s assurance plan6.6. Annuity and pension plansAnnuity and pension plans7.7. Unit plansUnit plans8.8. Special plansSpecial plans9.9. Group insurance schemesGroup insurance schemes10.10. BancassuranceBancassurance11.11. Key-man insuranceKey-man insurance

Non-Life InsuranceNon-Life Insurance1.1. Personal policiesPersonal policies2.2. Commercial policiesCommercial policies3.3. Professional insuranceProfessional insurance4.4. Industrial insuranceIndustrial insurance5.5. Social insuranceSocial insurance6.6. Credit insuranceCredit insurance7.7. Farmers’ insuranceFarmers’ insurance

Marketing ProcessMarketing Process Characteristics of insurance business are different from other Characteristics of insurance business are different from other

services. The special characteristics of insurance services have its services. The special characteristics of insurance services have its bearing upon the marketing process also. There are two segments bearing upon the marketing process also. There are two segments in the insurance business. One segment needs customer education in the insurance business. One segment needs customer education to create product awareness, the other segment belongs to a class to create product awareness, the other segment belongs to a class where insurance is compulsory.where insurance is compulsory.

Business procurement is done through intermediaries called Agents Business procurement is done through intermediaries called Agents and Brokers. Development Officers monitor the business and Brokers. Development Officers monitor the business performance of agents/brokers. In private companies the agents are performance of agents/brokers. In private companies the agents are known as insurance advisors. Some companies are training the known as insurance advisors. Some companies are training the sales personnel as financial advisors. IRDA has issued specific sales personnel as financial advisors. IRDA has issued specific guidelines for insurance brokers. Brokers can be direct brokers, guidelines for insurance brokers. Brokers can be direct brokers, reinsurance brokers or composite brokersreinsurance brokers or composite brokers

Advertisement is used as supportive to the sales force. The Advertisement is used as supportive to the sales force. The advertisements are generally print advertisements and hoardings. advertisements are generally print advertisements and hoardings. Advertisement is done through TC channels also. Radio jingles are Advertisement is done through TC channels also. Radio jingles are also used occasionally to propagate insurance schemes among also used occasionally to propagate insurance schemes among people in the rural and semi-urban areas.people in the rural and semi-urban areas.

Merchant Banking & IPO Merchant Banking & IPO ManagementManagement

CONCEPTCONCEPTSection 2 (e) of SEBI Act, 1992 defines merchant banker Section 2 (e) of SEBI Act, 1992 defines merchant banker

as ‘any person who is engaged in the business of as ‘any person who is engaged in the business of issue management either by making arrangements issue management either by making arrangements regarding selling, buying or subscribing to securities as regarding selling, buying or subscribing to securities as manager, consultant, advisor or rendering corporate manager, consultant, advisor or rendering corporate advisory service in relation to such issue advisory service in relation to such issue management’.management’.

INTERMEDIARIES IN ISSUE MANAGEMENTINTERMEDIARIES IN ISSUE MANAGEMENT1.1. Lead managersLead managers2.2. UnderwritersUnderwriters3.3. Bankers to an issueBankers to an issue4.4. Brokers to the issueBrokers to the issue5.5. Registrars to an issue & Share transfer agentsRegistrars to an issue & Share transfer agents6.6. Debenture trusteesDebenture trustees7.7. PrintersPrinters8.8. Depository participantsDepository participants

ISSUE MANAGEMENT ISSUE MANAGEMENT ACTIVITIES/PROCEDURE IN INDIA (SEBI ACTIVITIES/PROCEDURE IN INDIA (SEBI GUIDELINES)GUIDELINES)

1. Eligibility Norms1. Eligibility Norms Filing of offer documentFiling of offer document IPOs/Offer for sale by unlisted companiesIPOs/Offer for sale by unlisted companies Public issues by listed companiesPublic issues by listed companies Means of financeMeans of finance

2. Pricing of Issues2. Pricing of Issues Differential pricingDifferential pricing Price bandPrice band Denomination of sharesDenomination of shares

3. Promoters’ Contribution and Lock-in3. Promoters’ Contribution and Lock-in4. Book Building4. Book Building 75 percent book building75 percent book building Offer to public through book buildingOffer to public through book building

Green Shoe OptionGreen Shoe Option

Preferential IssuesPreferential Issues1.1. PricingPricing2.2. Currency of financial instrumentsCurrency of financial instruments3.3. Non-transferability of financial instrumentsNon-transferability of financial instruments4.4. Currency of shareholders resolutionCurrency of shareholders resolution5.5. Other requirements (Statutory Auditors Certificate)Other requirements (Statutory Auditors Certificate)

Qualified Institutional PlacementQualified Institutional Placement

What Does What Does Greenshoe OptionGreenshoe Option Mean? Mean?A provision contained in an underwriting agreement that gives the A provision contained in an underwriting agreement that gives the underwriter the right to sell investors more shares than originally underwriter the right to sell investors more shares than originally planned by the issuer. This would normally be done if the demand for a planned by the issuer. This would normally be done if the demand for a security issue proves higher than expected. Legally referred to as an security issue proves higher than expected. Legally referred to as an over-allotment option.over-allotment option.

A greenshoe option can provide additional price stability to a security A greenshoe option can provide additional price stability to a security issue because the underwriter has the ability to increase supply and issue because the underwriter has the ability to increase supply and smooth out price fluctuations if demand surges. smooth out price fluctuations if demand surges.

Investopedia explains Investopedia explains Greenshoe OptionGreenshoe Option

Greenshoe options typically allow underwriters to sell up to 15% more Greenshoe options typically allow underwriters to sell up to 15% more shares than the original number set by the issuer, if demand conditions shares than the original number set by the issuer, if demand conditions warrant such action. However, some issuers prefer not to include warrant such action. However, some issuers prefer not to include greenshoe options in their underwriting agreements under certain greenshoe options in their underwriting agreements under certain circumstances, such as if the issuer wants to fund a specific project with circumstances, such as if the issuer wants to fund a specific project with a fixed amount of cost and does not want more capital than it originally a fixed amount of cost and does not want more capital than it originally sought.sought.

The term is derived from the fact that the Green Shoe Company was the The term is derived from the fact that the Green Shoe Company was the first to issue this type of option. first to issue this type of option.

What's red herring prospectus? What's red herring prospectus? What is the dif ference between an offer document, RHP, a prospectus and an What is the dif ference between an offer document, RHP, a prospectus and an

abridged prospectus? What does i t mean when someone says "draft offer doc"? abridged prospectus? What does i t mean when someone says "draft offer doc"? "Offer document" means Prospectus in the case of a publ ic issue or offer for sale "Offer document" means Prospectus in the case of a publ ic issue or offer for sale

and Letter of Offer in the case of a r ights issue which is f i led with Registrar of and Letter of Offer in the case of a r ights issue which is f i led with Registrar of Companies (RoC) and Stock Exchanges. An offer document covers all the Companies (RoC) and Stock Exchanges. An offer document covers all the relevant information to help an investor to make his/her investment decision. relevant information to help an investor to make his/her investment decision.

"Draft Offer document" means the offer document in draft stage. The draft offer "Draft Offer document" means the offer document in draft stage. The draft offer documents are f i led with SEBI, at least 21 days prior to the f i l ing of the Offer documents are f i led with SEBI, at least 21 days prior to the f i l ing of the Offer Document with the RoC/ SEs. SEBI may specify changes, i f any, in the draft Offer Document with the RoC/ SEs. SEBI may specify changes, i f any, in the draft Offer Document and the issuer or the lead merchant banker shall carry out such Document and the issuer or the lead merchant banker shall carry out such changes in the draft offer document before f i l ing the Offer Document with the changes in the draft offer document before f i l ing the Offer Document with the RoC/ SEs. The Draft Offer document is available on the SEBI Web site for public RoC/ SEs. The Draft Offer document is available on the SEBI Web site for public comments for a period of 21 days from the f i l ing of the Draft Offer Document with comments for a period of 21 days from the f i l ing of the Draft Offer Document with SEBI. SEBI.

"Red Herring Prospectus" is a prospectus which does not have details of either "Red Herring Prospectus" is a prospectus which does not have details of either price or number of shares being offered or the amount of issue. This means that price or number of shares being offered or the amount of issue. This means that in case the price is not disclosed, the number of shares and the upper and lower in case the price is not disclosed, the number of shares and the upper and lower price bands are disclosed. On the other hand, an issuer can state the issue size price bands are disclosed. On the other hand, an issuer can state the issue size and the number of shares are determined later. An RHP for and FPO can be f i led and the number of shares are determined later. An RHP for and FPO can be f i led with the RoC without the price band and the issuer, in such a case wil l noti fy the with the RoC without the price band and the issuer, in such a case wil l noti fy the f loor price or a price band by way of an advert isement one day prior to the f loor price or a price band by way of an advert isement one day prior to the opening of the issue. In the case of book-bui lt issues, i t is a process of price opening of the issue. In the case of book-bui lt issues, i t is a process of price discovery and the price cannot be determined unti l the bidding process is discovery and the price cannot be determined unti l the bidding process is completed. Hence, such details are not shown in the Red Herring prospectus f i led completed. Hence, such details are not shown in the Red Herring prospectus f i led with the RoC in terms of the provisions of the Companies Act. with the RoC in terms of the provisions of the Companies Act.

Only on completion of the bidding process, the details of the f inal price are Only on completion of the bidding process, the details of the f inal price are included in the offer document. The offer document f i led thereafter with ROC is included in the offer document. The offer document f i led thereafter with ROC is called a prospectus. called a prospectus.

"Abridged Prospectus" means contains al l the salient features of a prospectus. I t "Abridged Prospectus" means contains al l the salient features of a prospectus. I t accompanies the appl ication form of public issues.accompanies the appl ication form of public issues.

ISSUE MANAGEMENTISSUE MANAGEMENT1.1. Pre-Issue ObligationsPre-Issue Obligations Due diligenceDue diligence Requisite feeRequisite fee Submission of DocumentsSubmission of Documents Appointment of IntermediariesAppointment of Intermediaries Offer Document Made PublicOffer Document Made Public Pre-issue AdvertisementPre-issue Advertisement IPO GradingIPO Grading Dispatch of Issue MaterialDispatch of Issue Material No Complaints CertificateNo Complaints Certificate Mandatory Collection CentresMandatory Collection Centres Authorized Collection Agents Authorized Collection Agents Appointment of Compliance OfficerAppointment of Compliance Officer Agreement with DepositoriesAgreement with Depositories

2. Post-Issue Obligations2. Post-Issue Obligations Post-Issue Monitoring ReportsPost-Issue Monitoring Reports Redressal of Investors’ GrievancesRedressal of Investors’ Grievances Co-ordination with IntermediariesCo-ordination with Intermediaries Post-Issue AdvertisementsPost-Issue Advertisements Basis of AllotmentBasis of Allotment Other responsibilitiesOther responsibilities

DEPOSITORY SERVICESDEPOSITORY SERVICES

Depository SystemDepository System SEBI Depositories and Participants RegulationSEBI Depositories and Participants Regulation Registration of depositoryRegistration of depository Certificate of commencement of businessCertificate of commencement of business Registration of participantsRegistration of participants

Existing Depositories in IndiaExisting Depositories in India Opening of Demat AccountOpening of Demat Account Marketing and Distribution of Demat Accounts Marketing and Distribution of Demat Accounts

CREDIT RATINGCREDIT RATING

SEBI regulations for Credit Rating AgenciesSEBI regulations for Credit Rating Agencies Rating Agencies in IndiaRating Agencies in India Rating ProcessRating Process Rating MethodologyRating Methodology Credit Rating Agencies SymbolsCredit Rating Agencies Symbols1.1. DebenturesDebentures2.2. Fixed DepositsFixed Deposits3.3. Short-term Instruments (Commercial Paper)Short-term Instruments (Commercial Paper)4.4. Credit AssessmentCredit Assessment5.5. Structured ObligationsStructured Obligations6.6. Bank LoanBank Loan7.7. BanksBanks8.8. Indian StatesIndian States9.9. Real Estate Developers/BuildersReal Estate Developers/Builders

MUTUAL FUNDMUTUAL FUND

ConceptConcept Mutual Funds in IndiaMutual Funds in India OrganizationOrganization1.1. SponsorSponsor2.2. TrusteesTrustees3.3. Asset Management Company (AMC)Asset Management Company (AMC)4.4. CustodiansCustodians Types of Mutual Funds in IndiaTypes of Mutual Funds in India By StructureBy Structure1.1. Open-ended FundsOpen-ended Funds2.2. Close-ended FundsClose-ended Funds

By Investment ObjectiveBy Investment Objective1.1. Growth Funds (Large cap, Mid cap, Small cap)Growth Funds (Large cap, Mid cap, Small cap)2.2. Income FundsIncome Funds3.3. Gilt FundsGilt Funds4.4. Money Market FundsMoney Market Funds5.5. Hybrid FundsHybrid Funds By Options/PlansBy Options/Plans1.1. Growth/Dividend/ReinvestmentGrowth/Dividend/Reinvestment2.2. SIPSIP3.3. SWPSWP4.4. SwitchingSwitching Other FundsOther Funds1.1. Industry SpecificIndustry Specific2.2. Index SchemesIndex Schemes3.3. Gold FundGold Fund4.4. Real Estate FundReal Estate Fund