Reserve Bank Of India has reviewed the monetary policy and to squeeze money from the system CRR(cash

reserve ratio has been increased to 5.75 % from 5 %)Full policy can be downloaded from here Download third quarter review by RBI on monetary Policy Dear Friends, In last month or so every body have read the words "CRR" "repo rate" & SLR in News paper and wanted to know about it and interested in its effect on various things like Inflation,bank Interest rate and stock price of Bank and other Interest rate sensitive stocks .so we have divided this story in three parts. (A) Meaning of terms (B) Impact on Inflation & interest rates (C) other measure which can be taken (A) Meaning of terms

CRR(Cash Reserve Ratio):Cash reserve Ratio (CRR) is the amount of Cash(liquid cash like gold) that the banks have to keep with RBI. This Ratio is basically to secure solvency of the bank and to drain out the excessive money from the banks. If RBI decides to increase the percent of this, the available amount with the banks comes down and if RBI reduce the CRR then available amount with Banks increased and they are able to lend more.Present rate is (5.75% today 29.01.10) announced Repo Rate:Repo rate is the rate at which our banks borrow rupees from RBI. This facility is for short term measure and to fill gaps between demand and supply of money in a bank .when a bank is short of funds they they borrow from bank at repo rate and if bank has a surplus fund then the deposit the funds with RBI and earn at Reverse repo rate .present rate is 4.75 as on 29.01.2010) Reverse Repo rate is the rate which is paid by RBI to banks on Deposit of funds with RBI.A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive.To borrow from RBi bank have to submit liquid bonds /Govt Bonds as collateral security ,so this facility is a short term gap filling facility and bank does not use this facility to Lend more to their customers. present rate is 3.25 as on 29.01.2010) SLR((Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit.Generally this mandatory ration is complied by investing in Govt bonds.present rate of SLR is 25 %.(as on 29.01.2010)But Banks average is 27.5 % ,the reason behind it is that in deficit Budgeting ,Govt landing is more so they borrow money from banks by selling their bonds to banks.so banks have invested more than required percentage and use these excess bonds as collateral security ( over and above SLR )to avail short term Funds from the RBI at Repo rate.

Impact on Inflation and Interest rates: As we all have read the famous line "if all thing remain the same ......".so In all my below paragraphs please note that there are many assumption in fixing the relation between this ratio and interest rates . SLR and Cash reserve ratio is maintained for bank solvency and Higher ratio of SLR and CRR makes bank relatively safe as higher ratio means they have more of their funds deposited in liquid securities and can fulfill the demand on redemption of deposit from the Bank.lets take an example :suppose a Bank has taken a deposit of 100 from public and CRR is 9 and SLR is 25 then available funds to lend from deposits with the bank will be 100-9-25=66 so their is direct relation between CRR ,SLR and Funds available with bank to lend to public out of deposit received from public .

Impact on Interest rates of this ratios: Now take point what will be the impact on Interest rates of this ratios:Interest rate are fixed on the Demand supply situation of the amount available with person who want to lend and and person who want to borrow and interest rate is fixed on demand supply of the funds if demand is more and supply is less then interest rate rises up and if demand is less and supply is excessive then interest rate comes down .this relation is based on many assumption as said above. So RBI is controlling the supply side of the Funds and by changes in CRR and SLR, Bank control the supply side of the money.so when RBI increase these ratio then available funds with the banks will go down and as demand remain the same then people will have to pay more as interest and interest rate will go up.On the reverse if RBI reduce these rates ,then amount available with bank for lending will be increased and they have to reduce rates to lend more.In these situation bank also reduce the rate of short term deposit from public as they have surplus money already to lend.so these rates have double impact the first direct effect is ,bank reduce rate of lending so more money is available with people and second is interest on Deposit will be reduced so more money will be available with the people. But other side of interest rate i.e demand/off take of loan is also important to set the interest rate .This may be some time region wise and seasonal or other factor also effect the decision of Interest rate . Impact on inflation As from the above para we have understood that how these ratio reduce or increase the money supply in the system and we know if more person is demanding few goods then price of goods tends to increase and its called inflation so when RBI reduce these ratios then money supply in market increases and inflation is rises further but in present case this is not the correct and right relation.The Increase in CRR will squeeze 36000 crore from market ,so less money will chase few things means less demand so it will reduce Inflation. At the time of depression the reduction of these ratio is to maintain liquidity without disturbing inflation much.while marked is falling and each and every commodity rate going downwards.In

these situation after increasing of money supply inflation rate does not goes up as the demand is slow and reduction in commodity prices will nullify the impact of increase in money supply and have less inflationary effects. But some times in few cases Inflation is due to supply side ,like in case of pulses and sugar the demand is some what the same but production has been reduced and rate has been doubled .In these types of cases Ever Increase in CRR will not have much impact as the problem is from supply side . Impact of crises on exchange rate: please note that this explanation is based on many assumptions, Dollar rate is fixed by demand and supply position of dollar so if there is less supply and more demand of dollar then dollar-rupee exchange rate will go up means dollar value will increase.In present senerio dollar has risen up not the rupee has gone down means the issue is related to more to dollar and less to rupee.more over dollar exchange rates has risen up with all major currencies of the world so as ruppe. Dollar($) v/s rupee Dollar Main Inflow:(supply) 1. 2. 3. 4. through export through FII investment in share and Dept market repatriation fund sent back to India by NRI Capital receipt Loan.

As the Financial position of FII in their country is not good so they are not investing or waiting and in their own states they need funds or the rates of stock s in their home countries are also attractive so inflow to India has been reduced ,and net balance has gone negative as they are investing less than selling of their investments to save their parent companies in the home countries . Due to financial crunch demand in USA has reduced so less dollar inflow against Export. Repatriation by NRI has increased as exchange rate is favorable and now they can send more rupee to their relative with same dollar outflow so they are en cashing it.But their capacity to send more dollar has also been affected due to less income in USA. Capital receipt has also reduced as the financial company are not willing to lend funds. Dollar main Out flow(demand) 1. paid for Import 2. withdrawal of funds by FII 3. Capital loan repayment

effects of point 2 has increase the demand of dollar so from the above dollar demand /supply situation the exchange rates has been increased so fast. Measure which may be taken in this Crises:(this is based on measures taken by other countries ) 1. Share market:Govt should create a Fund which may be called as Market stabilization fund ,which should me managed by professional agency and should buy good reputed stock from the Market when share are available at throw away prices and sell them when they seems to be overvalued.and the purpose of the fund should be stabilization of the market and welfare of the Investor and not to earn a profit from the market and buying and selling should be on the basis of Long term period.By doing this sentiment will improve ,volatility will be reduced and selling from large FII can be absorbed and in my point of view there is no chance of loss in these venture.To start with 5000-10000 cr fund is enough.Russian govt has adopted this system. 2. Buying of stocks of private sector Banks:if govt By symbolically purchase shares of some major private banks then it will improve the sentiment and increase the confidence of public in private sector bank .This measures Indicate that banks are sound and govt is also investing in them .More over money received from selling of shares also improve the liquidity position of the banks 3. To control prices of Sugar,pluses and other eatable ,Govt must have strict policy against all stockist and speculator and should import material from outside as one time relief and should prepare a suitable plan to increase supplies of such things buy giving incentives to farmers and proper rate of their produce and should reduce middlemen out of the system .

Indians are known world over for their regular savings habit. We have imbibed this very healthy habit from our forefathers who practiced it in their own way throughout their life, and lived a safe and satisfactory retired life due to this habit. In this generation too the same habit is widely prevalent. We invest in traditional savings like Bank Deposits, Mutual Funds, and many such avenues. The latest being, investments in stocks and shares. In the last two decades people investing and trading in stocks and shares of various companies that are listed in most of our stock exchanges that are spread across India, has become a regular means of earning extra income, or a means of creating savings in the near future. What if the companies whose shares are publicly traded in stock exchanges wishes to expand its fund raising capacities to opportunities to raise funds from people from other countries. This is where ADR and GDR come into picture.

What is ADR

ADR is the full form of American Depository Receipts. This is the recent method adopted by many large and well respected companies from India to raise funds from American Markets.

How ADR Operates

Indian companies have direct access to raise funds from Indian public by way of issuing Shares, Debentures etc. However Indian companies cannot do so, in such a direct manner, when it comes to raising funds from American people. That would entail the Indian companies to adopt US Accounting Norms which is also called as GAAP, maintain accounting practices as per American Financial Year (Which starts in January and ends in December of any particular year), as also follow variety of stringent standards as per American norms. Effectively, it would mean that the Indian company would have to follow two different set of rules simultaneously, one to comply with the laws of Indian Companies Act, and the other to comply with the American Laws. The method to circumvent the American norms, but still raise funds from American people is available by way of ADR or American Depository Receipts. In this system, the Indian company deposits certain amount of its Indian shares with designated American Banks. The banks, in turn, issues receipts that are equivalent in values (And also based on the intrinsic value the Indian Companys shares would fetch in the American market) to the Indian Company. These receipts essentially would be in number of receipts. Then these Indian Companies can trade these ADRs or American Depository Receipts with the American public. These ADRs can be purchased and traded freely without any encumbrances in the American Stocks and Shares Market. This way the Indian company is able to enter into the American Stocks and Shares market, and raise funds from the American public. The role of the American bank which has issued these receipts is very crucial, since it is they who stand guarantee to the issued receipts. Hence they do exhaustive study of the Indian company from all perspectives, and only then issue the ADR to the Indian company.

What is GDR and how it operates

The full form of GDR is Global Depository Receipt. It is not a different financial instrument, as it may sound, from that of ADR. In fact if the Indian Company which has issued GDRs in the American market wishes to further extend it to other developed and advanced countries such as Europe, then they can sell these ADRs to the public of Europe and the same would be named as GDR.

Indian Companies with ADR & GDR

There are quite a lot of successful Indian companies that have now issued ADRs and GDRs. Some such companies are given underneath.

Dr. Reddys HDFC Bank

ICICI Bank Infosys Technologies MTNL VSNL WIPRO

Cblo
Collateralised Borrowing and Lending Obligation (CBLO)
RBI, in its Mid-Term Review of Monetary and Credit Policy for the year 2002-03, announced the introduction of "Collateralised Borrowing and Lending Obligation (CBLO)", a product developed by CCIL, as a money market instrument and subsequently issued detailed operative guidelines for the product. CBLO is a discounted instrument issued in electronic book entry form for the maturity period ranging from one day to one year. CCIL provides a dealing platform through which market participants can borrow and lend funds.

What is a CBLO?
1. An obligation by the borrower to return the money borrowed, at a specified future date; 2. An authority to the lender to receive money lent, at a specified future date with an option/privilege to transfer the authority to another person for value received; 3. An underlying charge on securities held in custody (with CCIL) for the amount borrowed/lent. Eligibility : The membership of CBLO segment is extended to banks, primary dealers, mutual funds, financial institutions and insurance companies, who are members of the NDS. The borrowing members are required to open Constituent SGL (CSGL) Account with CCIL for depositing securities which are offered as collateral for the borrowing. Eligible Securities : The eligible securities are Central Government securities including Treasury Bills with a residual maturity period of more than six months. Borrowing Limits : The borrowing limit for the members is fixed daily at the beginning of the day taking into account the securities deposited by them in the CSGL account. The securities are subjected to Mark-to-Market valuation and necessary haircuts. The post hair-cut Mark-to-Market value is the limit, which, in effect, denotes the drawing power up to which the members can borrow funds. Lenders in the Auction market and both borrowers and lenders in the Normal market are required to deposit initial margin in the form of Cash, computed at the rate of 0.50% on the total amount borrowed/lent by the members.

RBI Guidelines
RBI's Regulatory Provisions : Reserve Bank of India in its Mid Term Review of Monetary and Credit Policy for the year 2002 - 2003 has mentioned about the introduction of CBLO as a money market instrument and of issuance of detailed operating instructions separately in this regard. RBI vide its letter No. MPD.227/07.01.279/2002-03 dated December 20, 2002 has decided to permit CBLO developed by CCIL with the following norms: a. Nature of the Instrument : CBLO would be treated as a money market instrument. There will be no restrictions on the

minimum denomination as well as lock-in period for its secondary market transactions. The regulatory provisions for CBLO will be the same as those applicable to other money market instruments. b. Term of the Instrument : CBLO may have original maturity period between one day and upto one year. c. i. Issue and Trading Norms: CBLO shall be issued in electronic book-entry form only. The rate at which CBLO is issued and traded in the secondary market will be decided by market participants. CBLO could be traded in the secondary market without any lock-in period. CCIL will provide the trading platform for trading CBLOs to the satisfaction of the market participants. Dissemination of traded prices to all market participants as also to RBI will also have to be enabled by CCIL. ii. Borrowing Limits : Borrowing limits for members will be fixed by CCIL at the beginning of the day taking into account the securities deposited by borrowers in their CSGL account with CCIL. The securities will be subjected to necessary hair-cut after marking them to market. The limits so derived in effect will denote the drawing power upto which the members can borrow funds. Lenders will deposit cash to meet initial margin requirements that are designed to take care of the settlement risk. d. Reserve Requirements : Cash Reserve Ratio (CRR) / Statutory Liquidity Ratio (SLR): The treatment of CBLO in regard to CRR and SLR will be as follows. CRR : Since CCIL would be the central counter party for both borrowers and lenders, the status of CCIL would have implications for applicability of CRR. As CCIL is considered as a non-bank institution, transactions in CBLO will attract CRR even though the actual borrowers and lenders of the transaction are banks. However, in order to develop CBLO as a money market instrument, it has been decided to give a special exemption from CRR for transactions in CBLO subject to the bank maintaining minimum CRR of 3 percent. SLR : Securities lodged in the Gilt Account of the bank maintained with CCIL under CSGL facility remaining unencumbered at the end of any day will be reckoned for SLR purposes by the concerned bank. For this purpose, CCIL will provide a daily statement to banks/RBI listing the securities lodged/utilized/remaining unencumbered. The statutory pre-emptions relating to CRR and SLR will of course have no applicability to institutions like PDs, Mutual Funds, Insurance companies, DFIs, etc. e. Valuation of Collaterals : Securities in the Gilts Account of the participant for CBLO can be from any of the three categories, viz., 'Held to Maturity', 'Available for Sale', and 'Held for Trading'. While CBLO will involve movement of securities from the SGL account of a participant to its own Gilt Account with CCIL on a value free transfer basis, there is no transfer of ownership involved. Since the securities will continue to remain in investment portfolio of the participant even when encumbered, there will be no change in valuation of such securities. The CBLO arrangement envisages earmarking specified value of securities (based on the borrowings under CBLO). The intent of earmarking such securities will be accomplished through a suitable agreement. f. Risk Weight :

Market Risk : Since CBLO is fully collateralized by government securities, the risk weight as applicable to government securities for market risk would be applicable to CBLO. g. Accounting Norms : The accounting treatment of CBLO would be as applicable to any money market instruments/transactions. For detailed accounting entries, please refer to 'Accounting Guidelines'. h. Valuation : BLOs outstanding on the balance sheet date may be valued on the same basis as discounted instruments of similar nature and tenor.

CBLO - Eligibility Criteria for Membership

The membership of CBLO segment will be initially extended to NDS members and the membership will be subsequently extended to non-NDS members comprising NBFCs, Corporates and others. The borrowing members will open Constituent SGL (CSGL) Account with CCIL for lodgement of securities which will be used as collateral for borrowing. Lenders will deposit cash to meet initial margin requirements that are designed to take care of the settlement risks.

CIBLO - Collateral & Margin

Members of CCIL's CBLO Segment are required to maintain margin contributions in relation to their borrowing and/or lending obligations at any point of time. Cash collateral contributions for this Segment are received in CCIL's Current Account maintained with Reserve Bank of India, Mumbai. Security collaterals are received and maintained in CCIL's dedicated Constituent SGL (CSGL) Account maintained with Reserve Bank of India, Mumbai. Composition : Collaterals are received in the form of both cash and securities. Cash contributions are currently reckoned only towards members' initial margin obligations. Security contributions are currently reckoned only towards computation of members' borrowing limits.

Work Process
Collaterals - Cash : Members desirous of making cash contributions towards their initial margin obligations are required to intimate CCIL about the same using a prescribed format. Cash contributions from members are received by means of their cheques drawn on their Current Account with Reserve Bank of India, Mumbai. These are expected to be held in multiples of INR 100,000.00. Relative cheques are deposited at CCIL counters within cut-off timings prescribed for the purpose. Member SGF balances are updated by CCIL upon receipt of relative funds into its Current Account with RBI. Transaction Reports and Holding Reports are electronically delivered to the concerned members along with other daily business reports. Members seeking to withdraw from their collateral cash contributions are required to send a prior written notice to CCIL about the same using a prescribed format within cut-off timings prescribed for the purpose. Withdrawals requests shall be processed and permitted after taking into account concerned member's outstanding trade obligations Withdrawal payments are made by CCIL by means of their cheques drawn on its Current Account with Reserve Bank of India, Mumbai. Relative cheques are delivered to concerned Members on relative value date at CCIL counters after their collateral cash balances have been suitably reduced. Transaction Reports and Holding Reports are electronically delivered to the concerned members along with other daily business reports.

Collateral - Securities : All transfers of securities to and/or from CCIL by its members are carried out on a "Value Free of Payment" basis. Members desirous of making securities contributions towards their Borrowing Limits are required to intimate CCIL about the same using a prescribed format. Security contributions from members are tendered using SGL Transfer Form III duly signed by the concerned member as a "Seller". These forms are deliverable at CCIL counters by members within cut-off timings prescribed for the purpose. CCIL shall lodge these Forms with Reserve Bank of India, Mumbai after counter-signing them as a "Buyer". Member SGF balances are updated by CCIL upon receipt of relative securities into its CSGL Account with Reserve Bank of India. Transaction Reports and Holding Reports are electronically delivered to the concerned members along with other daily business reports. Members seeking to withdraw from their security contributions are required to send a prior written notice to CCIL about the same using a prescribed format within cut-off timings prescribed for the purpose. Withdrawals requests shall be processed and permitted after taking into account concerned members' outstanding trade obligation. Security withdrawals are effected to members by credit to their SGL Account with Reserve Bank of India, Mumbai on relative value date after their balances have been suitably reduced. Transaction Reports and Holding Reports are electronically delivered to the concerned members along with other daily business reports. Members are entitled to substitute their securities holdings after giving prior notice as prescribed by CCIL. Members are required to comply with relative deposit and withdrawal procedures specified for the same. Transaction Reports and Holding Reports are electronically delivered to the concerned members along with other daily business reports upon completion of the process. Corporate Actions and Benefits : All corporate actions on member SGF holdings are serviced through the electronic funds transfer mechanism of Reserve Bank of India. Relative funds are remitted to the Current Accounts of concerned members with separate individual electronic advices to members. Cash Collaterals - Interest Payment : Members are not entitled to any interest on their cash contributions towards initial margin on individual holdings upto INR 100,000.00. In respect of members holding cash collateral contribution in excess of Rs. 100,000.00, CCIL pays interest to such members at quarterly rests (at the end of every calendar quarter) on 90% of their average cash balances during the relative period (in excess of Rs. 100,000.00) @ 100 basis points below the weighted average 91 Day Treasury Bills' cut off yields at the last three primary auctions held before the relevant interest payment date. The benchmark instrument to which such interest is pegged as well as spread between the yield on the benchmark instrument and the interest rate paid by CCIL may be changed at the sole discretion of CCIL from time to time. SGF - Securities - Interest Payment : Periodic coupon payments received in respect of Members' SGF security contributions (held in the form of dated securities) are passed on to concerned Members by CCIL immediately upon receipt of relative interest from Reserve Bank of India. List of Eligible Securities : CCIL prescribes a list of securities that are eligible for margin contributions by members.

CBLO - Risk Management Process

CCIL's risk exposure in the CBLO segment emanates mainly on two counts-: a. Risk of default by a borrower in repayment on maturity of a CBLO b. Risk of failure by a lender to meet its obligations to make funds available or by a borrower to accept funds by providing adequate security.

As the repayment of borrowing under CBLO is guaranteed by CCIL, it should have enough security to meet any eventuality of a default by the borrower. To take care of this risk, all borrowings are fully collateralised. This process is managed through setting up of a Borrowing Limit from members against their deposit of Government Securities as collaterals. These collaterals are subjected to hair-cuts and are revalued on a daily basis. Any shortfall in the value of collateral (to meet outstanding borrowing) is collected through end of the day margin calls. CCIL may be exposed to risks due to a member not honouring his obligation from a trade done during a day. A member may undertake to either lend or borrow but may fail to honour such an obligation by day end (at the time of settlement). If the rates have moved adversely in the mean time, such defaulter member needs to compensate for the loss suffered. As CCIL extends guarantee for settlement of all CBLO transactions, to ensure that this risk is adequately taken care of, CCIL collects Initial Margin from the member in respect of its deals. As the risk for any such deal would continue up to the settlement of the deal, Initial Margin collected on deals is released on settlement of such deals.

Spv
1. SPV - What it is ?
The acronym stands for special purpose vehicle. In the US, the term used is special purpose entity (SPE). The name SPV is given to an entity which is formed for a specific purpose. An SPV can ONLY be formed for any lawful purpose. An SPV is, primarily, a business association of persons or entities eligible to participate in the association. According to Joy Jain of PricewaterhouseCoopers, an SPV is mainly formed to raise funds by collateralising future receivables.

2. Difference between a SPV and a company?

Technically, an SPV is a company. It has to follow the rules of formation of a company laid down in the Companies Act. Like a company, the SPV is an artificial person. It has all the attributes of a legal person. It is independent of members subscribing to the shares of the SPV. The SPV has an existence of its own in the eyes of law. It can sue and be sued in its name. The SPV has to adhere to all the regulations laid down in the Companies Act. Members of an SPV are mostly the companies and individuals sponsoring the entity. An SPV can also be a partnership firm. This, however, is unusual and not popular. The company, as distinguished from an SPV, may be called a general purpose vehicle. A company may do many things which are mentioned in the memorandum of association (MoA) or permitted by the Companies Act. An SPV may also do the same, but its scope of operation is limited and focused.

If it is not so, the SPV had better be called a company. The MoA is quite narrow in the case of an SPV. This is primarily to provide comfort to lenders who are concerned about their investment.

3. How is an SPV established?

Like a company, an SPV must have promoter(s) or sponsor(s). Usually, a sponsoring corporation hives off assets or activities from the rest of the company into an SPV. This isolation of assets is important for providing comfort to investors. The assets or activities are distanced from the parent company, hence the performance of the new entity will not be affected by the ups and downs of the originating entity. The SPV will be subject to fewer risks and thus provide greater comfort to the lenders. What is important here is the distance between the sponsoring company and the SPV. In the absence of adequate distance between the sponsor and the new entity, the later will not be an SPV but only a subsidiary company. A good SPV should be able to stand on its feet, independent of the sponsoring company. Unfortunately, this does not happen in practice. One of the reasons for the collapse of the Enron SPV was that it became a vehicle for furthering the ends of the parent company in violation of the prudential norms of corporate financing and accounting.

4. What are the advantages of setting up an SPV?

The biggest advantage is that it helps in separating the risk and freeing up the capital. As a result, the SPV and the sponsoring company are protected against risks like insolvency, which may arise during the course of operation. The SPV also allows securitisation of assets without disturbing the managerial relationship. Under the arrangement, any predictable income stream generated by secure assets can be securitised. According to some estimates, the worldwide securitisation market has increased from $1.2 billion of transactions in 1985, to $544 billion in 2003. Basically, a company can leverage future earnings to raise funds.

5. Will the SPV help in raising funds for the infrastructure sector?

The funds requirement for this sector are huge. There are different organisations, like the Infrastructure Development Finance Company (IDFC), Power Finance Corporation (PFC), Indian Rail Finance Corporation (IRFC) etc., which are engaged in raising funds for development of infrastructure sector projects for the sectors they are involved in. The proposed SPV, which is likely to be a government company, will add to the availability of long-term funds for infrastructure sector projects.

Publicissue book building

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About Public Issues

Corporates may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. This Initial Public Offering can be made through the fixed price method, book building method or a combination of both. There are two types of Public Issues:

ISSUE TYPE

OFFER PRICE

DEMAND Demand for the securities offered is known only after the closure of the issue

PAYMENT 100 % advance payment is required to be made by the investors at the time of application.

RESERVATIONS 50 % of the shares offered are reserved for applications below Rs. 1 lakh and the balance for higher amount applications.

Fixed Price Price at which the securities Issues are offered and would be allotted is made known in advance to the investors Book Building

A 20 % price Demand for 10 % advance 50 % of shares band is the securities payment is offered are reserved

Issues

offered by the issuer within which investors are allowed to bid and the final price is determined by the issuer only after closure of the bidding.

offered , and at various prices, is available on a real time basis on the BSE website during the bidding period..

required to be made by the QIBs along with the application, while other categories of investors have to pay 100 % advance along with the application.

for QIBS, 35 % for small investors and the balance for all other investors.

More About Book Building Book Building is essentially a process used by companies raising capital through Public Offerings-both Initial Public Offers (IPOs) or Follow-on Public Offers ( FPOs) to aid price and demand discovery. It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices, which are within the price band specified by the issuer. The process is directed towards both the institutional as well as the retail investors. The issue price is determined after the bid closure based on the demand generated in the process. The Process: The Issuer who is planning an offer nominates lead merchant banker(s) as 'book runners'. The Issuer specifies the number of securities to be issued and the price band for the bids. The Issuer also appoints syndicate members with whom orders are to be placed by the investors. The syndicate members input the orders into an 'electronic book'. This process is called 'bidding' and is similar to open auction. The book normally remains open for a period of 5 days. Bids have to be entered within the specified price band. Bids can be revised by the bidders before the book closes. On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various price levels. The book runners and the Issuer decide the final price at which the securities shall be issued. Generally, the number of shares are fixed, the issue size gets frozen based on the final price per share. Allocation of securities is made to the successful bidders. The rest get refund orders.

Guidelines for Book Building

Rules governing Book building are covered in Chapter XI of the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines 2000. BSE's Book Building System BSE offers a book building platform through the Book Building software that runs on the BSE Private network. This system is one of the largest electronic book building networks in the world, spanning over 350 Indian cities through over 7000 Trader Work Stations via leased lines, VSATs and Campus LANS. The software is operated by book-runners of the issue and by the syndicate members , for electronically placing the bids

on line real-time for the entire bidding period. In order to provide transparency, the system provides visual graphs displaying price v/s quantity on the BSE website as well as all BSE terminals.

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Depository system

ndia has adopted the Depository System for securities trading in which book entry is done electronically and no paper is involved. The physical form of securities is extinguished and shares or securities are held in an electronic form. Before the introduction of the depository system through the Depository Act, 1996, the process of sale, purchase and transfer of securities was a huge problem, and there was no safety at all. Key Features of the Depository System in India 1. Multi-Depository System: The depository model adopted in India provides for a competitive multi-depository system. There can be various entities providing depository services. A depository should be a company formed under the Company Act, 1956 and should have been granted a certificate of registration under the Securities and Exchange Board of India Act, 1992. Presently, there are two depositories registered with SEBI, namely:

National Securities Depository Limited (NSDL), and Central Depository Service Limited (CDSL)

2. Depository services through depository participants: The depositories can provide their services to investors through their agents called depository participants. These agents are appointed subject to the conditions prescribed under Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 and other applicable conditions. 3. Dematerialisation: The model adopted in India provides for dematerialisation of securities. This is a significant step in the direction of achieving a completely paper-free securities market. Dematerialization is a process by which physical certificates of an investor are converted into electronic form and credited to the account of the depository participant. 4. Fungibility: The securities held in dematerialized form do not bear any notable feature like distinctive number, folio number or certificate number. Once shares get dematerialized, they lose their identity in terms of share certificate distinctive numbers and folio numbers. Thus all securities in the same class are identical and interchangeable. For example, all equity shares in the class of fully paid up shares are interchangeable.

5. Registered Owner/ Beneficial Owner: In the depository system, the ownership of securities dematerialized is bifurcated between Registered Owner and Beneficial Owner. According to the Depositories Act, Registered Owner means a depository whose name is entered as such in the register of the issuer. A Beneficial Owner means a person whose name is recorded as such with the depository. Though the securities are registered in the name of the depository actually holding them, the rights, benefits and liabilities in respect of the securities held by the depository remain with the beneficial owner. For the securities dematerialized, NSDL/CDSL is the Registered Owner in the books of the issuer; but ownership rights and liabilities rest with Beneficial Owner. All the rights, duties and liabilities underlying the security are on the beneficial owner of the security. 6. Free Transferability of shares: Transfer of shares held in dematerialized form takes place freely through electronic book-entry system.