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MFSI UNIT-I

MFSI Session 1

Basics
Entrepreneur Fund Raising Primary Market Secondary Market Merchant Banking - Concept

MFSI Session # 2

Indian Financial System


It connects the have s and the have-not 's !

Functions
Efficient Transformation of Funds Creating Innovative schemes for savings and Investment Globalization Diversification Financial Engineering Reforms

MFSI Session 3

Organized
It is a market which is governed by rules and regulations. It is controlled by a market regulator like SEBI. The market is recognized and formal. For example new issue market, stock exchange. There are many financial intermediaries which mobilize savings and make investments.

Unorganized
The procedures are not standardized. Rates of interest are exorbitant. There is no Investor protection regulator. The market is informal with the presence of chit funds and lotteries. There is no intermediation of funds as it is operated by people for their own private advantage.

Money Markets

Capital Markets

It is a market for financial It is a market for long term assets of maturity of less than funds. one year. It deals in shares debentures, In this market assets are at mutual funds investments. The short notice converted into cash. dealings are usually for a period Transaction cost is low. Assets of more than one year. are treasury bills, commercial The primary or new issue papers, inter-corporate deposits. Market deals with the first time The participants are large issue of securities. Stock market institutional investors. Short or secondary market deals with term transactions are conducted. trading of second hand securities. Individuals and institutions are participants.

Primary Market The market mobilizes savings of individuals. The participants are merchant banker, portfolio manager. This market helps in raising funds for industry or corporate organizations. This market is termed the new issue market. The IPO's are offered through it.

Secondary Market The market for second hand securities. Only listed securities can be traded. It is complementary to the primary market. It helps in the distributive mechanism of securities. It is popularly called the stock market. Individuals, brokers, corporate organizations, are the main participants.

Domestic Market International Market A domestic market deals in all An international market is the transactions that take place known for its home transactions within the home country. as well as those taking place m trading with other countries. Ex, Bonds issued outside the country, listing securities in NYSE or London stock exchange.

Functions of Financial Instruments


Liquidity Marketability Maturity period Interest Tax Dividends

Functions of MB Session 4

Functions of MB
Corporate Counseling Project Counseling Pre-investment Studies Capital Restructuring Credit Syndication and Project Finance Issue Management and Underwriting Portfolio Management Working Capital Finance

Contd.,
Mergers, Amalgamations and Takeovers Venture Capital Lease Financing Foreign Currency finance Fixed Deposit Broking Mutual Funds Relief of Sick Industries Project Appraisal

MB Category
Category I merchant bankers : Can act as Issue managers Category II merchant bankers : Can act only as co-managers Category III merchant bankers : Can act as comanagers but cannot undertake portfolio management Category IV merchant bankers :Can merely act as consultant or advisor to issue of capital

Capital Adequacy Norms


Category I Category II Category III Category IV : : : : Rs. 5 Crores Rs.50 Lakhs Rs.20 Lakhs Nil

MFSI Session # 5

Capital Issue
The capital issue is the most important aspects of MB services. The public issues are managed by the involvement of various agencies i.e. underwriters, brokers, bankers, advertising agency, printers, auditors, legal advisers, registrar to the issue and merchant bankers.

Pre-Issue Activities
1. Obtaining stock exchange approvals to memorandum and articles of associations. 2. Taking action as per SEBI guide lines 3. Finalizing the appointments of the following agencies: Co-manager/Advisers to the issue Underwriters to the issue Brokers to the issue Bankers to the issue and refund Banker Advertising agency Printers and Registrar to the issue

4. Advise the company to appoint auditors, legal advisers and broad base Board of Directors 5. Drafting of prospectus

Contd.,
6. Obtaining approvals of draft prospectus from the company s legal advisers, underwriting financial institutions/Banks 7. Obtaining consent from parties and agencies acting for the issue to be enclosed with the prospectus. 8. Approval of prospectus from Securities and Exchange Board of India. 9. Filing of the prospectus with Registrar of Companies. 10. Making an application for enlistment with Stock Exchange along, with copy of the prospectus. 11. Publicity of the issue with advertisement and conferences. 12. Open subscription list.

Post-Issue Activities
To verify and confirm that the issue is subscribed to the extent of 90% including devolvement from underwriters in case of under subscription To supervise and co-ordinate the allotment procedure of registrar to the issue as per prescribed Stock Exchange guidelines To ensure issue of refund order, allotment letters / certificates within the prescribed time limit of 10 weeks after the closure of subscription list To report periodically to SEBI about the progress in the matters related to allotment and refunds To ensure the listing of securities at Stock Exchanges. To attend the investors grievances regarding the public issue

Terminologies
ASBA Book Building DRHP Draft Red Herring Prospectus

MFSI Session 6

Authorization criteria by SEBI


Professional qualification in finance, law or business management Infrastructure like office space, equipment and man power Past track of record, experience, general reputation and fairness in all transactions Every merchant banker should maintain copies of balance sheet, Profit and loss account, statement of financial position Half-yearly unaudited result should be submitted to SEBI

Contd.,
Merchant bankers are prohibited from buying securities based on the unpublished price sensitive information of their clients SEBI has been vested with the power to suspend or cancel the authorization in case of violation of the guidelines Every merchant banker shall appoint a Compliance Officer to monitor compliance of the Act

Contd.,
SEBI has the right to send inspecting authority to inspect books of accounts, records etc of merchant bankers Inspections will be conducted by SEBI to ensure that provisions of the regulations are properly complied An initial authorization fee, an annual fee and renewal fee may be collected by SEBI

PRESENT STATE OF MERCHANT BANKING IN INDIA Development activities throughout the country fueled the demand for funds which the financial institution couldn t able to meet In such circumstances corporate sector had the only alternative to avail of the capital market service for meeting their long term financial requirement through capital issue of equity shares and debentures.

Contd.,
MB play highly significant role in mobilizing funds of savers to invisible channels assuring promising returns on investment and boost economic activity

Other Reasons For the Growth of MB


Growing complexity in rules and procedures of the government. Need for encouragement of small and medium industrialists, who require specialist services.

Contd.,
Need to develop backward areas and states which require different criteria. Exploring the possibility of joint ventures abroad and foreign market. Promoting the role of new issue market in mobilizing saving from the public.

MB in India
Commercial banks Foreign banks like Citibank, HSBC bank etc.. Development banks like ICICI,IFCI,IDBI etc..

End of Session 6 & End of Unit 1