CHAPTER 5

UNIVERSAL BANKING IN
INDIA
 INTRODUCTION
The second Narasimham committee of 1998 gave an
introductory remark on the concept of the Universal
banking, as a different concept than the Narrow Banking.
Narsimham Committee II suggested that Development
Financial Institutions (DFIs) should convert ultimately into
either commercial banks or non-bank finance companies.
However, the concept of Universal Banking
conceptualized in India after the RH Khan Committee
recommended it as a different concept.
The Khan Working Group held the view that DFIs
(Development Finance Institutions) should be allowed to
become banks at the earliest.
 Entry of commercial banks into
securities
Merchant Banking
Project Finance
Investment Banking
Trust and pension management
Securities Operations
Management consultancy
 MUTUAL FUNDS
The first introduction of a mutual fund in India occurred in 1963,
when the Government of India launched Unit Trust of India (UTI)
UTI enjoyed a monopoly in the Indian mutual fund market until
1987, when a host of other government-controlled Indian financial
companies established their own funds, including State Bank of
India, Canara Bank, and Punjab National Bank.
This market was made open to private players in 1993, as a result
of the historic constitutional amendments brought forward by the
then Congress-led government under the existing regime of
Liberalization, Privatization and Globalization (LPG).
The first private sector fund to operate in India was Kothari
Pioneer, which later merged with Franklin Templeton.
In 1996, SEBI, the regulator of mutual funds in India, formulated
the Mutual Fund Regulation which is a comprehensive regulatory
framework.
 STOCK BROKING
Stockbroking is a service which gives retail and institutional investors
the opportunity to buy and sell equities.
Stockbrokers will trade shares both on exchange and over-the-counter,
dependent on where they can find the best price and liquidity. Stock
exchanges place strict regulations on who can trade shares directly on
their books, which is why most individual investors hoping to deal
shares will do so via a stockbroker.
Typically, a stockbroking firm will charge commission on the trades it
makes on a clients behalf, or a fee for retaining its services.
There are several different services a stockbroker can provide:
Execution-onlystockbrokers will complete orders on your behalf, but
do not offer any advice
Advisorystockbrokers will offer advice on where to trade, but only
trade on orders submitted by you
Discretionarystockbrokers will trade on your behalf, executing trades
without your input
 DEMAT
Dematerialization (DEMAT) is the
move from physical certificates to
electronic book keeping. Actual stock
certificates are slowly being removed
and retired from circulation in
exchange for electronic recording.
 UNDERWRITING
Underwriting is the process by which investment
bankers raise investment capital from investors on
behalf of corporations and governments that are
issuing either equity or debt securities.
The word "underwriter" originally came from the
practice of having each risk-taker write his name under
the total amount of risk he was willing to accept at a
specified premium.
This centuries-old practice continues, in a way, as new
issues are usually brought to market by an underwriting
syndicate, in which each firm takes the responsibility,
as well as the risk, of selling its specific allotment.
 GOVERNMENT SECURITIES
A government security is a bond issued by
a government authority with a promise of
repayment upon maturity.
Government securities such as savings
bonds, treasury bills and notes also
promise periodic coupon or interest
payments.
These securities are considered low-risk,
since they are backed by the taxing power
of the government.
 TREASURY BILLS
Short-term (usually less than one year, typically three months)
maturity promissory note issued by a national (federal) government
as a primary instrument for regulating money supply and raising funds
via open market operations.
Issued through the country's central bank, T-bills commonly pay no
explicit interest but are sold at a discount, their yield being the
difference between the purchase price and the par-value (also called
redemption value).
This yield is closely watched by financial markets and affects the yield
on municipal and corporate bonds and bank interest rates.
Although their yield is lower than on other securities with similar
maturities, T-bills are very popular with institutional investors
because, being backed by the government's full faith and credit, they
come closest to a risk free investment.
 Primary dealership
A primary dealer is a firm that buys
government securities directly from a
government, with the intention of
reselling them to others, thus acting
as a market maker of government
securities.
The government may regulate the
behavior and number of its primary
dealers and impose conditions of
entry.
 CLASSISIFCATION OF MERCHANT
BANKERS
Category I
Category II
Category III
Category IV
 CATEGORY I
can carry on all activities relating to management
of issues such as preparation of prospectus,
determining financial structure, conduct of market
surveys, raising funds from capital market, raising
of funds through new instruments, arranging
bought out deals and to provide advice on:
mergers and amalgamations, loan syndication,
technology tie-ups, working capital finance,
venture capital, lease finance, fixed deposit
management, factoring, portfolio management of
mutual funds, rehabilitation of sick units etc.
 Category II to act as advisor,
consultant, co-manager, underwriter
and portfolio manager.
Category III to act as underwriter,
advisor and consultant to an issue.
Category IV to act only as advisor
or consultant to an issue.
 CORPORATE COUNSELLING
Corporate counseling denotes the advice provided by the
Merchant Banking to the corporate unit to ensure better
corporate performance in terms of image building among
investors, steady growth through good working and
appreciation in market value of its equity shares.
The scope of corporate counseling, capital restructuring
and, portfolio management and the full range of financial
engineering includes venture capital, public issue
management, and loan syndication, working capital,
fixed deposit, lease financing, acceptance credit, etc.
However counseling is limited to only opinions and
suggestions and any detailed analysis would form part of
a specific service.
 PROJECT COUNSELLING
Project counseling services may be rendered independently or
maybe, it relates to project finance and broadly covers the study
of the project and offering advisory assistance on the project
viability and procedural steps for its implementation broadly
including following aspects:-
general review of he project ideas/ project profile, advice on
procedural aspects of project implementation, review of
technical feasibility of the project on the basis of the report
prepared by own experts Or by the outside consultants,
selecting Technical consultancy Organization (TCO) for preparing
project reports and market survey, or review of the project
reports or market survey report prepared by the TCO, preparing
project report form financial angle, and advice and act on
various procedural steps including obtaining government
consents for implementation of projects.
 LOAN SYNDICATION
Loan syndication is the process of involving
several different lenders in providing various
portions of a loan.
Loan syndication most often occurs in
situations where a borrower requires a large
sum of capital that may be too much for a
single lender to provide or outside the scope
of a lender's risk exposure levels. Thus,
multiple lenders work together to provide the
borrower with the capital needed.
 PRE/-ISSUE MANAGEMENT
1. Documents to be submitted:
MOU
Due diligence certificate
List of promoters
Draft prospectus in
computer floppy
Ten copies of draft offer
2. Appointment of Intermediaries:
Intermediaries such as advisor, bankers to
the issue, registrar, underwriters are
appointed in consultation with lead
merchant banker.

3. Underwriting:
Lead merchant banker shall undertake
minimum of 5% or 25lacs whichever is low.
4. Offer documents to be made public:
Draft offer document shall be made public
for a period of 21 days from date of filling
the offer document with the Board.

5. Appointment of compliance officer:

Compliance officer have liaison with Board
with regard to various laws, rules,
regulations and other directions issued by
Board.
6. Mandatory collection centres:
Minimum number of collection centres for
issue of capital shall be
- 4 metropolitan cities
-All centres of stock exchange where
registered office of company is situated.

7. Final offer document:

Furnish a new due diligence certificate, final
prospectus copy, offer document.
 POST ISSUE
1. Redressal of investor grievances:

2. Co-ordination with intermediaries:

Maintaining close co-ordination with
registrars to the issue and to depute its
officers to various intermediaries.

3. Stock Invest:
Ensure compliance with instructions issued
by the RBI.
4. Underwriters
a. Issue is closed at earliest date then issue
shall b fully subscribed before closure.
b. No definite figure of subscription, the issue
should be kept open.
c. In devolvement of underwriters,
underwriters shall honour commitment
within 60 days.
d. In undersubscribed issues, lead merchant
banker furnish information who failed to
meet their underwriting de-volvements
5. Bankers to an issue
Maintain a separate bank (Bankers to an
issue) as per provisions of section73(3)
of the
Companies Act 1956

6. Post issue advertisements

All issues and details are released
within 10
days from completion of activities.
7. Basis of allotment
In oversubscription allotments are to be
made in the prescribed manner.

8. Compliance with guidelines on

advertisement:
The lead merchant banker shall ensure
compliance with guidelines on
advertisement by issuer company.