Financial Institutes and markets PDF

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FCCBS V FCEBS There are fundamental differences between FCCBs and FCEBs . In the case of FCCBs, the bonds convert into shares of the company that issued the bonds, while in the case of FCEBs, the bonds are exchangeable for shares in another company – ie the offered company. Further, in the case of FCCBs, when the holder exercises the option to convert, the issuer company issues fresh shares to the holder upon conversion of the FCCB. However, in the case of FCEBs, when the exchange option is exercised, there is no issuance of fresh shares by the offered company. Instead, it is a requirement that the shares of the offered company, into which the FCEBs are exchanged, be held by the issuing company at the time of issuance of the FCEBs and until redemption or exchange. Thus, on exchange, there is merely a transfer of the shares (of the offered company) held by the issuing company to the holder of the FCEB. As such, the issuance of FCEBs will have only a limited effect on the price of shares of the offered company, since there is no threat of future dilution, unlike in the case of FCCBs. DIFFERENCES BETWEEN FCCBs AND FCEBs Foreign Currency Convertible Bonds (FCCBs) mean a bond issued by an Indian company expressed in foreign currency, and the principal and interest in respect of which is payable in foreign currency. Further, the bonds are required to be issued in accordance with the scheme viz., "Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993”, and subscribed by a non-resident in foreign currency and convertible into ordinary shares of the issuing company in any manner, either in whole, or in part, on the basis of any equity related warrants attached to debt instruments. Foreign Currency Exchangeable Bond (FCEB) means a bond expressed in foreign currency, the principal and interest in respect of which is payable in foreign currency, issued by an Issuing Company and subscribed to by a person who is a resident outside India, in foreign currency and exchangeable into equity share of another company, to be called the Offered Company, in any manner, either wholly, or partly or on the basis of any equity related warrants attached to debt instruments. The FCEB must comply with the “Issue of Foreign Currency Exchangeable Bonds (FCEB) Scheme, 2008”, notified by the Government of India, Ministry of Finance, Department of Economic Affairs vide Notification G.S.R.89(E) dated February 15, 2008. There are following differences between FCCBs and FCEBs: 1. The essentials differences between an FCCB and FCEB lies in their convertibility. Unlike an FCCB which is convertible into new shares of the issuing company, an FCEB is convertible into existing shares of the offered company held by the issuing company. 2. The shares issued on conversion of FCCB would be issued a fresh by issuing company on conversion, whereas when the investor in FCEB want shares in exchange, he has to approach to issuing company which has already hold shares of offered listed company.

3. The Company that issue FCCB and the Company that issue shares on conversion are same and one whereas in case of FCEB the Company that issue FCEB and the Company whose shares are offered on exchange will be different but should belong to the same promoter group. 4. FCCBs are issued by an Indian Company to a person resident outside India giving them an option to convert them into shares of the company at a pre determined price. On the other hand, FCEBs are issued by Indian Investment Company or Holding Company of a group to non-resident which are exchangeable for the shares of a specified group company at a pre determined price. 5. In case of FCCBs issue, there is a change in the shareholding of issuing company on the other hand, in case of FCEBs issue there is no changes in the shareholding of issuing company.

What is IPO Grading?1 It is a rating assigned by the Securities and Exchange Board of India-registered credit rating agencies to initial public offerings (IPOs) of various firms. The grade indicates an assessment of business fundamentals and market conditions in comparison to other listed equities at the time of the issuance. These ratings are generally assigned on a five-point scale, with a higher score indicating stronger companies. IPO grading can be done either before filing the draft offer documents or thereafter. However, the red herring prospectus must have the grades given by all the rating agencies. A company which has filed the draft offer document for an IPO on or after May 1, 2007, must be rated by at least one agency. Companies cannot reject the grade. If dissatisfied, they can opt for another agency. But, all grades obtained for the IPO must be disclosed to the regulator and the investors. Why is it importa important? nt? IPO grading was introduced to make additional information about unlisted companies or those without any track record of their performance available to the investors, helping them assess the issue before investing and burning their fingers. Grading is additional investor information and assistance to enable informed investment decisions and more realistic pricing of shares. It helps issuing companies in that if they are given a higher score — indicating stronger fundamentals — they command a higher premium for their issue. Which factors determine the gr grade? ade? IPO grading covers both internal and external aspects of the issuing company. Internal factors include the competence of the management, promoters’ profile, marketing strategies, growth prospects, competitive edge, technology, operating efficiency, liquidity and financial flexibility, asset quality, accounting quality, profitability and hedged risks. External factors would be the industry and 1 http://www.business-standard.com/article/pf/what-is-ipo-grading-111051700025_1.html

economic, or, business environment for the company. It does not take into account the issue price. Therefore, investors needs to make an independent judgement on the subscription price. Where can one see IPO gr grades ades in the off offer er document? All grades, along with a description of the same, can be found in the issue prospectus, abridged prospectus and the issue advertisement. Further, the grading letter of the credit rating agency, which contains the detailed rationale for assigning the grade, is included with the documents available for inspection. How does it help? IPO grading by a professional credit rating agency informs investors about the issuing company after analysing factors like business and financial prospects, management quality and corporate governance practices etc. The grade is not a recommendation to subscribe to the IPO. It needs to be read with the disclosures, including risk factors.

SEBI Website Explanation What is ‘IPO Grading’? IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to the initial public offering (IPO) of equity shares or any other security which may be converted into or exchanged with equity shares at a later date. The grade represents a relative assessment of the fundamentals of that issue in relation to the other listed equity securities inIndia. Such grading is generally assigned on a five-point point scale with a higher score indicating stronger fundamentals and vice versa as below. IPO grade 1: Poor fundamentals IPO grade 2: Below-average fundamentals IPO grade 3: Average fundamentals IPO grade 4: Above-average fundamentals IPO grade 5: Strong fundamentals IPO grading has been introduced as an endeavor to make additional information available for the investors in order to facilitate their assessment of equity issues offered through an IPO.

Definitions 1.1 Financial inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost (The Committee on Financial Inclusion, Chairman: Dr. C. Rangarajan).

1.2 Financial Inclusion, broadly defined, refers to universal access to a wide range of financial services at a reasonable cost. These include not only banking products but also other financial services such as insurance and equity products (The Committee on Financial Sector Reforms, Chairman: Dr.Raghuram G. Rajan). 1.3 The essence of financial inclusion is to ensure delivery of financial services which include - bank accounts for savings and transactional purposes, low cost credit for productive, personal and other purposes, financial advisory services, insurance facilities (life and non-life) etc. Why Financial Inclusion ? 1.4 Financial inclusion broadens the resource base of the financial system by developing a culture of savings among large segment of rural population and plays its own role in the process of economic development. Further, by bringing low income groups within the perimeter of formal banking sector; financial inclusion protects their financial wealth and other resources in exigent circumstances. Financial inclusion also mitigates the exploitation of vulnerable sections by the usurious money lenders by facilitating easy access to formal credit.

Contribution of technology in changing the face of banking 4. Technology adoption has changed the face of banking in India. What started as a mere automation of some routine work processes in banks in the mid 80’s has moved on to become business process reengineering which has resulted in making banking services branchless, anytime and anywhere; facilitated new product development and, enabled near real time service delivery. Technology has helped banks to reach the doorsteps of the customer by overcoming the limitations on geographical/ physical reach in branch banking and easing the resource and volume constraints posed by the brick and mortar model. All the stakeholders have benefitted from the expansion of delivery channels, product innovation and efficiency enhancement which have been facilitated by technology adoption. Banks, however, need to guard against losing personal touch with their customers in such technology driven environment as this would result in their losing valuable information needed for their business. Overall, technology that began its journey in Indian banking as an enabler, has now become a business driver, and is poised to be an inseparable part of banking business process. This journey has come to the present stage by virtue of the push given by the Reserve Bank and the whole hearted co-operation by Industry participants. Use of IT for improving internal effectiveness – significance and benefits 16. Focus of technology in Indian banking, so far, has, mainly, been on transaction processing, data storage, service delivery, and rightly so. These were our priorities to make banking better, convenient and more accessible. Now, that our banking has reached a stage where many of such services are running on tech enabled processes, we can look forward to improving other areas which were not, hitherto, focus of our attention and have huge scope for improvement, such as internal management and back end processes. Currently, while data storage and retrieval are on computerized systems, the administrative processes are largely manual, warranting huge resource deployment. This adds to costs, impacts efficiency and reduces effectiveness of internal controls. Further, in the existing models followed in many work areas in banks, data flows and reporting for MIS as well as external filings require manual interventions and multiple database access/ sourcing. This not only affects the timeliness of data submission but also the quality thereof. Errors in submitted data and, sometimes, subjective interpretations of data submission requirements lead to wrong decisions and, may be, serious consequences. RBI has taken the initiative in the form of automated data flow project, through which an attempt is being made to ensure that all banks start furnishing reports to RBI by means of straight

through/ automated processes which do not require manual intervention. This will ensure that reporting is error free, direct from business data and timely. Technology has revolutionized the way banking is looked at and the way it is conducted in our country. It is growing in stature from a business enabler to becoming a part of the business process itself. It has opened new avenues for the industry in terms of business opportunities as well as their role in supporting inclusive growth for the Indian economy.

Meaning of NBFC2: A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/ debentures/securities issued by Government or local authority or other securities of like marketable nature, leasing, hirepurchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property. A nonbanking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company[2]. Definition of Non-Banking Financial Companies (NBFCs): Section 45-I(b) of chapter 3rd of Reserve Bank of India Act 1934 defines Non-Banking Financial Company as; (a) a financial institution , which is a company (b) a financial institution, which is accompany and which has as it principal business the receiving of deposits under any scheme or arrangement or in any manner or lending in any manner. (c) Such other non-banking institution or class of such institution, as the bank may with the previous approval of central government and any notification in the official gazette specific. NBFCs accepting of public deposit (Reserve Bank) direction 1998 define non banking financial institution as only the banking institution which is a loan company or an investment company or a hire purchase finance company or an equipment leasing company or a mutual benefit finance company. Classification of NBFC’s Different NBFCs are providing different services. The Reserve Bank of India has classified them into the following categories:1. Share Trading and Investment Holding 2. Loan Finance 3. Hire Purchase finance 4. Leasing Finance 5. Diversified 6. Miscellaneous Non-banking financial companies (NBFCs) in India has recorded marked growth in recent years. After their existence, they are useful and fruitful for the evolution of a vibrant, competitive and dynamic financial system in Indian money market. There are different categories of such companies like:1. Loan companies 2. Investment companies 3. Hire Purchase Finance companies 4. Equipment Leasing companies 5. Mutual Benefit Finance companies 6. Miscellaneous Non-Banking companies 7. Miscellaneous Finance companies 8. Residuary Non-Banking companies 9. Housing Finance companies 2 http://habibahmadazmi.blogspot.in/

Upper Tier 2 The main components of Upper Tier 2 are perpetual deferrable sub-ordinated debt (including debt convertible into equity); revaluation reserves from fixed assets and fixed asset investments; and general provisions. The main characteristics of Upper Tier 2 debt are: 

perpetual, senior to Tier 1 preferred and equity

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coupons are deferrable and cumulative

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interest and principal can be written down

Lower Tier 2 Lower Tier 2 capital is relatively standard in form and cheap for banks to issue. The Basel Accord states that only 25% of a bank's total capital can be lower Tier 2.

Tier 2 capital is debt that is subordinated to the majority of other calls on the bank. It is divided into Upper Tier 2 and Lower Tier 2. Upper Tier 2 debt is undated. It must be of a type unlikely to threaten the solvency of the bank. Lower Tier 2 capital is dated normally with a maturity date of more than 5 years. Tier 2 capital as a whole cannot exceed Tier 1 capital....