SEBI Guidelines for Merchant Bankers

                                   What is Merchant Bank

Introduction :

Merchant banking is the direct, negotiated investment of private money into privately or publicly held companies by financial institutions or professional investors. The investors make private placements of equity and, in return, receive private stock that is not registered with financial regulators for trading on an exchange. In a way, they are becoming financial partners of the companies.

Merchant banking has been statutorily brought within the framework of the "Securities and Exchange Board of India".

Definition :

Any person who is engaged is the business of the issue management either by making arrangements selling, buying or subscribing to the securities of manager, consult adviser, or one rendering  corporate advisory service in the relation to such activities to the management. 

Guidelines for  merchant  banking :

A merchant banker will require authorization by SEBI to carry out the business.

SEBI has classified the merchant bankers into four categories based on the nature and range of the activities and the responsibilities.  

Category I:  It consists of  merchant bankers who carry on the business of issue management which consists of preparation of issue management which consists of preparation of prospectus, determining the financial structure, tie-up of the financiers and final allotment/refund of subscription and  to act in the capacity of managers, advisors or consultants to an issue, portfolio manager and underwriter. 

 Minimum networth required is  Rs. 1 crore.

Category II: It consists of those authorized  to act in the capacity of co-manger/advisor, consultant underwriter to an issue.

 The Minimum networth required is Rs. 50 Lakhs.

Category III: It consists of those authorized to act  as underwriter, advisor or consultant to an issue.

 The Minimum networth  required is Rs. 20 Lakhs.

Category IV: It consists of Merchant Banker who act as advisor or consultant to an issue.

 There is no Minimum networth required.

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

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

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.

A lead manager holding a certificate under category I shall accept a minimum underwriting obligation of 5% of size of issue or Rs.25 lakhs whichever is less

 

Money Market v/s Capital Market

                            Difference between Money Market and Capital Market

The relationship between the money market and capital market helps explain the basic framework of the financial system. Under this framework, businesses and government agencies access sources of short-term and long-term funds to generate immediate cash flow or finance long-term projects. Both markets have a particular role in how money flows from savers to businesses and government to finance operations and investment. As a result, both markets provide investors with opportunities to generate earnings and premiums from risky ventures. 

Money Market::

 The money market is a financial market that provides investors access to short term debt instruments, which include treasury bills, certificates of deposit, banker’s acceptances, commercial papers and repo agreements. These instruments are usually issued by financial institutions such as banks and investment companies, large corporations such as multinational firms as well as governments through the use of treasury securities. The financial instruments issued by such corporations possess a high rating with lower levels of risk and high liquidity. However, the lower risk of such securities means that the interest paid for holders of money market securities is lower.

Capital Market:

 Capital markets provide access to longer term finance through the use of debt capital and equity capital such as stocks, bonds, options and futures. Capital markets comprise of organized platforms for exchanges and over the counter markets, and the market is divided into two segments known as primary markets and secondary markets. The primary market is where securities are issued for the first time, and secondary market is where securities, which have been already issued, are traded among investors. The capital markets are under stringent regulations of the Securities and Exchange Commission, to ensure that securities traded are of good credit ratings so that no fraud may occur.

Best examples are:

 Maturity

In general, these two markets are separated on the basis of the maturity of the credit instruments related to these markets. The maturity of the instruments of money market is one year or less than one year. On the other hand, the maturity of the instruments of capital market is more than one year.

Risks

The risks are less in money market. Because, there is less possibility of default of the credit of less than one year maturity. Likewise, the risk of interest rate is also low in the money market. On the other hand, the credit of the capital market is of long term nature. Due to this risks are more and are of varied nature in capital market.

 Instruments

The main instruments of money market are -treasury bills, commercial papers, certificate of deposit which are of short-term nature. On the other hand, the main instruments of the capital market are -debentures, equities or shares and government securities which are of long-term nature.

Institutions

 The different financial institutions related to short-term credit participate in the money market. But there is predominance of commercial banks. In fact, the commercial bank is an institution related to the money market. On the other hand, different kinds of financial intermediaries participate in the capital market. The main participants of the capital market are -development bank, finance company, provident fund, insurance company, Investment Company and so on. The service institutions are also involved in the capital market such as investment banking, commission brokers association, investment consultancy etc. In recent clays, the commercial banks also provide long-term loans to some extent. So they may also be included among the participants of the capital market.

 
Finance

 The money market deals in only short-term funds. It receives short term deposits and also provides the short-term credit. On the other hand, the capital market receives long-term deposits and also grants long term loan and equity capital to the business and the government.

 Relation with the Central Bank

 The money market has close and direct relationship with the central bank. The central bank implements its monetary policy through this market. The central bank directly regulates the commercial banks in the money market. On the other hand, the central bank has influence over the capital market only indirectly through money market. Similarly, the institutions of the capital market are less regulated by the central bank.

 

Financial System

Introduction:Economic growth and development of any country depends upon a well-knit financial system. Financial system comprises, a set of sub-systems of financial institutions financial markets, financial instruments and services which help in the formation of capital. Thus a financial system provides a mechanism by which savings are transformed into investments and it can be said that financial system play an significant role in economic growth of the country by mobilizing surplus funds and utilizing them effectively for productive purpose.The financial system is characterized by the presence of integrated, organized and regulated financial markets, and institutions that meet the short term and long term financial needs of both the household and corporate sector. Both financial markets and financial institutions play an important role in the financial system by rendering various financial services to the community. They  operate in close combination with each other.Financial System;

The word "system", in the term "financial system", implies a set of complex and closely connected or interlined institutions, agents, practices, markets, transactions, claims, and liabilities in the economy.  The financial system is concerned about money, credit and finance-the three terms are intimately related yet are somewhat different from each other. Indian financial system consists of financial market, financial instruments and financial intermediation Role/ Functions of Financial System:

A financial system performs the following functions:

* It serves as a link between savers and investors. It helps in utilizing the mobilized savings of scattered savers in more efficient and effective manner. It channelises flow of saving into productive investment.
* It assists in the selection of the projects to be financed and also reviews the performance of such projects periodically.
* It provides payment mechanism for exchange of goods and services.
* It provides a mechanism for the transfer of resources across geographic boundaries.
* It provides a mechanism for managing and controlling the risk involved in mobilizing savings and allocating credit.
* It promotes the process of capital formation by bringing together the supply of saving and the demand for investible funds.
* It helps in lowering the cost of transaction and increase returns. Reduce cost motives people to save more.
* It provides you detailed information to the operators/ players in the market such as individuals, business houses, Governments etc.

Components/ Constituents of Indian Financial system:

The following are the four main components of Indian Financial system

1. Financial institutions
2. Financial Markets
3. Financial Instruments/Assets/Securities
4. Financial Services.

Financial institutions:Financial institutions are the intermediaries who facilitates smooth functioning of the financial system by making investors and borrowers meet. They mobilize savings of the surplus units and allocate them in productive activities promising a better rate of return. Financial institutions also provide services to entities seeking advises on various issues ranging from restructuring to diversification plans. They provide whole range of services to the entities who want to raise funds from the markets elsewhere. Financial institutions act as financial intermediaries because they act as middlemen between savers and borrowers. Were these financial institutions may be of Banking or Non-Banking institutions.

Financial Markets: Finance is a prerequisite for modern business and financial institutions play a vital role in economic system. It's through financial markets the financial system of an economy works. The main functions of financial markets are:

1. to facilitate creation and allocation of credit  and liquidity;
2. to serve as intermediaries for mobilization of savings;
3. to assist process of balanced economic growth;
4. to provide financial convenience

Financial InstrumentsAnother important constituent of financial system is financial instruments. They represent a claim against the future income and wealth of others. It will be a claim against a person or an institutions, for the payment of the some of the money at a specified future date.

Financial Services: Efficiency of emerging financial system largely depends upon the quality and variety of financial services provided by financial intermediaries. The term financial services can be defined as "activites, benefits and satisfaction connected with sale of money, that offers to users and customers, financial related value".

Pre-reforms Phase Until the early 1990s, the role of the financial system in India was primarily restricted to the function of channeling resources from the surplus to deficit sectors. Whereas the financial system performed this role reasonably well, its operations came to be marked by some serious deficiencies over the years. The banking sector suffered from lack of competition, low capital base, low Productivity and high intermediation cost. After the nationalization of large banks in 1969 and 1980, the Government-owned banks dominated the banking sector. The role of technology was minimal and the quality of service was not given adequate importance. Banks also did not follow proper risk management systems and the prudential standards were weak. All these resulted in poor asset quality and low profitability. Among non-banking financial intermediaries, development finance institutions (DFIs) operated in an over-protected environment with most of the funding coming from assured sources at concessional terms. In the insurance sector, there was little competition. The mutual fund industry also suffered from lack of competition and was dominated for long by one institution, viz., the Unit Trust of India. Non-banking financial companies (NBFCs) grew rapidly, but there was no regulation of their asset side. Financial markets were characterized by control over pricing of financial assets, barriers to entry, high transaction costs and restrictions on movement of funds/participants between the market segments. This apart from inhibiting the development of the markets also affected their efficiency.

Financial Sector Reforms in India It was in this backdrop that wide-ranging financial sector reforms in India were introduced as an integral part of the economic reforms initiated in the early 1990s with a view to improving the macroeconomic performance of the economy. The reforms in the financial sector focused on creating efficient and stable financial institutions and markets. The approach to financial sector reforms in India was one of gradual and non-disruptive progress through a consultative process. The Reserve Bank has been consistently working towards setting an enabling regulatory framework with prompt and effective supervision, development of technological and institutional infrastructure, as well as changing the interface with the market participants through a consultative process. Persistent efforts have been made towards adoption of international benchmarks as appropriate to Indian conditions. While certain changes in the legal infrastructure are yet to be effected, the developments so far have brought the Indian financial system closer to global standards.

The reform of the interest regime constitutes an integral part of the financial sector reform. With the onset of financial sector reforms, the interest rate regime has been largely deregulated with a view towards better price discovery and efficient resource allocation. Initially, steps were taken to develop the domestic money market and freeing of the money market rates. The interest rates offered on Government securities were progressively raised so that the Government borrowing could be carried out at market-related rates. In respect of banks, a major effort was undertaken to simplify the administered structure of interest rates. Banks now have sufficient flexibility to decide their deposit and lending rate structures and manage their assets and liabilities accordingly. At present, apart from savings account and NRE deposit on the deposit side and export credit and small loans on the lending side, all other interest rates are deregulated. Indian banking system operated for a long time with high reserve requirements both in the form of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). This was a consequence of the high fiscal deficit and a high degree of monetisation of fiscal deficit. The efforts in the recent period have been to lower both the CRR and SLR. The statutory minimum of 25 per cent for SLR has already been reached, and while the Reserve Bank continues to pursue its medium-term objective of reducing the CRR to the statutory minimum level of 3.0 per cent, the CRR of SCBs is currently placed at 5.0 per cent of NDTL.

As part of the reforms programme, due attention has been given to diversification of ownership leading to greater market accountability and improved efficiency. Initially, there was infusion of capital by the Government in public sector banks, which was followed by expanding the capital base with equity participation by the private investors. This was followed by a reduction in the Government shareholding in public sector banks to 51 per cent. Consequently, the share of the public sector banks in the aggregate assets of the banking sector has come down from 90 per cent in 1991 to around 75 per cent in2004. With a view to enhancing efficiency and productivity through competition, guidelines were laid down for establishment of new banks in the private sector and the foreign banks have been allowed more liberal entry. Since 1993, twelve new private sector banks have been set up. As a major step towards enhancing competition in the banking sector, foreign direct investment in the private sector banks is now allowed up to 74 per cent, subject to conformity with the guidelines issued from time to time.Conclusion: The Indian financial system has undergone structural transformation over the past decade. The financial sector has acquired strength, efficiency and stability by the combined effect of competition, regulatory measures, and policy environment. While competition, consolidation and convergence have been recognized as the key drivers of the banking sector in the coming years

Introduction to Accounting Principles

                                                                  Accounting Principles

There are general rules and concepts that govern the field of accounting. These general rules—referred to as basic accounting principles and guidelines—form the groundwork on which more detailed, complicated, and legalistic accounting rules are based, the basic accounting principles and guidelines as a basis for their own detailed and comprehensive set of accounting rules and standards.

The phrase "generally accepted accounting principles" (or "GAAP") consists of three important sets of rules: (1) the basic accounting principles and guidelines, (2) the detailed rules and standards issued by FASB and its predecessor the Accounting Principles Board (APB), and (3) the generally accepted industry practices.

If a company distributes its financial statements to the public, it is required to follow generally accepted accounting principles in the preparation of those statements. Further, if a company's stock is publicly traded, federal law requires the company's financial statements be audited by independent public accountants. Both the company's management and the independent accountants must certify that the financial statements and the related notes to the financial statements have been prepared in accordance with GAAP.

GAAP is exceedingly useful because it attempts to standardize and regulate accounting definitions, assumptions, and methods. Because of generally accepted accounting principles we are able to assume that there is consistency from year to year in the methods used to prepare a company's financial statements. And although variations may exist, we can make reasonably confident conclusions when comparing one company to another, or comparing one company's financial statistics to the statistics for its industry. Over the years the generally accepted accounting principles have become more complex because financial transactions have become more complex.

What is Accounting

Many of the people think that accounting is just understood and practiced by professional accountants and it is highly a technical field. But in reality, every person practices accounting in different forms on daily basis. Accounting is the art of measuring, communicating, and interpreting the results of different economic activities. It may be managing an international corporation, balancing your checkbooks, preparing your income tax return or paying different bills for example: electricity bills, telephone bills etc. In this way you are using basic accounting concepts and information.

It is also known as a language of business because many of the accounting terms are widely used in business world such as: earnings per share, cash flows, assets, liabilities and net income etc are major examples. The person stakeholders (decision makers, investors, managers) who participate and communicate in business world or community must have clear understanding of accounting concepts and terms. 

This is the era of accountability so, this information is not just limited to the business world. Every person must account for their income and tax returns. To qualify for any college scholarship, loan, to obtain credit card individual must provide personal accounting information. For controlling resources and measuring actions every one has to utilize accounting information such as: states, cities, districts, schools, and federal governments etc.  Accounting information is also important for smooth business operations. Every student should have understanding of accounting but it is not only limited to accounting students rather it important for the people engaged in business or economic activities. 

Importance Of Finance

Why Choose Us

Financial management is most important for a small and large size business or a persons, we care about is we will suggest you some tip of financial management on our website.

According to your financial condition, we will suggest some financial management tip, if you work according to our tips they are able to handle some of you financial management issues with confidence, and you can start you enjoy full life. Like you should pay you all types of bills like credit card, mobile phone, electricity and house rent etc. on the right time, if you’re committed to paying the balance in full each month, you should look into using reward cards for their benefits. Type habit save you late pay fee.

Now we are going to suggest you some great ways to avoid overspending, like you should wait 24 hours at last before you decide to purchase any costly things it may be gifts for your girlfriend, jewelry, new stylish mobile etc. before it you should compare your typical monthly expenses over time.

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