USN
PESIT Bangalore South Campus
Hosur road, 1km before Electronic City, Bengaluru -100
Department of MBA
Date : 19-08-15 Max Marks: 50
Subject & Code : INVESTMENT BANKING AND FINANCIAL SERVICES
-14MBAFM302
Name of faculty : Divya Mathur
Section: A
Time: 8:30-10:00 am
1 (a) Define a merchant banker? List out the category of merchant bankers.
 Ans-SEBI (Merchant Banker) Regulations, 1992, defines ‘merchant banker’ as: any person engaged in issue mgt.selling, buying or subscribing to securitiesacting as manager, consultant or advisor for such services mandatory in case of public issues, right issues, open
offers or buy-back cannot carry any fund based activity.
 (a) Category I, that is—
 (i) to carry on any activity of the issue management, which will, inter alia,consist of preparation of prospectus and other information relating to theissue, determining financial structure, tie up of financiers and final allotmentand refund of the subscriptions; and
 (ii) to act as adviser, consultant, manager, underwriter, portfolio manager;
(3 marks)
 (b) Category II, that is to act as adviser, consultant, co-manager, underwriter,portfolio manager;
 (c) Category III, that is to act as underwriter, adviser, consultant to an issue;
 (d) Category IV, that is to act only as adviser or consultant to an issue.
(7 marks) (b) What are the various services provided by the merchant banker?
AnsRaising Finance for Clients : Merchant Banking helps its clients to raise finance through issue of shares, debentures, bank loans, etc. It helps its clients
MBA III SEMESTER -FINANCE

USN
PESIT Bangalore South Campus
Hosur road, 1km before Electronic City, Bengaluru -100
Department of MBA to raise finance from the domestic and international market. This finance is used for starting a new business or project or for modernization or expansion of the business.
Broker in Stock Exchange : Merchant bankers act as brokers in the stock exchange. They buy and sell shares on behalf of their clients. They conduct research on equity shares. They also advise their clients about which shares to buy, when to buy, how much to buy and when to sell. Large brokers, Mutual
Funds, Venture capital companies and Investment Banks offer merchant banking services.
Project Management : Merchant bankers help their clients in the many ways.
For e.g. Advising about location of a project, preparing a project report, conducting feasibility studies, making a plan for financing the project, finding out sources of finance, advising about concessions and incentives from the government.
Advice on Expansion and Modernization : Merchant bankers give advice for expansion and modernization of the business units. They give expert advice on mergers and amalgamations, acquisition and takeovers, diversification of business, foreign collaborations and joint-ventures, technology up-gradation, etc.
Managing Public Issue of Companies : Merchant bank advice and manage the public issue of companies. They provide following services:
Advise on the timing of the public issue.
Advise on the size and price of the issue.
Acting as manager to the issue, and helping in accepting applications and allotment of securities.
Help in appointing underwriters and brokers to the issue.
Listing of shares on the stock exchange, etc.
MBA III SEMESTER -FINANCE

USN
PESIT Bangalore South Campus
Hosur road, 1km before Electronic City, Bengaluru -100
Department of MBA
Handling Government Consent for Industrial Projects : A businessman has to get government permission for starting of the project. Similarly, a company requires permission for expansion or modernization activities. For this, many formalities have to be completed. Merchant banks do all this work for their clients.
Special Assistance to Small Companies and Entrepreneurs : Merchant banks advise small companies about business opportunities, government policies, incentives and concessions available. It also helps them to take advantage of these opportunities, concessions, etc.
Services to Public Sector Units : Merchant banks offer many services to public sector units and public utilities. They help in raising long-term capital, marketing of securities, foreign collaborations and arranging long-term finance from term lending institutions.
Revival of Sick Industrial Units : Merchant banks help to revive (cure) sick industrial units. It negotiates with different agencies like banks, term lending institutions, and BIFR (Board for Industrial and Financial Reconstruction). It also plans and executes the full revival package.
Portfolio Management : A merchant bank manages the portfolios (investments) of its clients. This makes investments safe, liquid and profitable for the client. It offers expert guidance to its clients for taking investment decisions.
Corporate Restructuring : It includes mergers or acquisitions of existing business units, sale of existing unit or disinvestment. This requires proper negotiations, preparation of documents and completion of legal formalities. Merchant bankers offer all these services to their clients.
Money Market Operation : Merchant bankers deal with and underwrite shortterm money market instruments, such as:
Government Bonds.
Certificate of deposit issued by banks and financial institutions.
Commercial paper issued by large corporate firms.
MBA III SEMESTER -FINANCE

USN
PESIT Bangalore South Campus
Hosur road, 1km before Electronic City, Bengaluru -100
Department of MBA
Treasury bills issued by the Government (Here in India by RBI).
Leasing Services : Merchant bankers also help in leasing services. Lease is a contract between the lessor and lessee, whereby the lessor allows the use of his specific asset such as equipment by the lessee for a certain period. The lessor charges a fee called rentals.
Management of Interest and Dividend : Merchant bankers help their clients in the management of interest on debentures / loans, and dividend on shares.
They also advise their client about the timing (interim / yearly) and rate of dividend.
(c) Explain the pre-issue and post issue activities in issue management.
Ans-Pre issue management is time bound programme and concerned with following:
1.Issue of shares
2.Marketing,Coordination and underwriting of the issue.
3.Pricing of issues
Post issue management is concerned with following:
1.Collection of application forms and amount received
2.Scrutinising application
2 (a)
3..Deciding allotment procedure
4.Mailing of share certificates/refund or allotment orders
How is a depository similar to a bank?
Ans-
(10 marks)
(3 marks)
BANK
Holds funds in an account
Transfers funds between accounts on the instruction of the account holder
DEPOSITORY
Hold securities in an account
Transfers securities between accounts on the instruction of the account holder
MBA III SEMESTER -FINANCE

USN
PESIT Bangalore South Campus
Hosur road, 1km before Electronic City, Bengaluru -100
Department of MBA
(b)
Facilitates transfer without having to handle money
Facilitates safekeeping of money
Facilitates transfer of ownership without having to handle securities
Facilitates safekeeping of securities
Discuss in details various types of home loans.
Ans- Home Purchase Loans: Home Purchase Loans are the basic home loan you can opt for purchasing new home. This type of Home Loan is offered by all kinds of Banks and HFCs. ii. Home Construction Loans: Home Construction Loans are especially meant for the construction of a new home. Formality of availing this loan has a little different from the normal Housing Loan. The plot on which the construction is being erected is purchased within a period of one year, the cost of the plot is then also included as the component for the valuation of total cost of the property. iii. Home Extension Loans: Home Extension Loans is offered for meeting the operating cost of alteration to an existing building. Extension here means addition of an extra room etc.
(7 marks)
. Home Conversion Loans: Home Conversion Loans are offered to those who want finance for the purchase of another home by converting the already existing home and on which loan is already sanctioned. Through this loan, the existing loan is transferred to the new home including the extra amount required and there is no need for pre-payment of the previous loan. v. Land Purchase Loans: Land Purchase Loans can be availed for purchasing land for both home construction as well as investment purposes. vi. Stamp Duty Loans: Stamp Duty Loans is offered for the payment of stamp duty in the transaction of the property.
Bridge Loans: Bridge Loans are offered for selling the existing home and purchasing of another. The bridge loan assists in the finance of new home, until a buyer is found for the old home.
MBA III SEMESTER -FINANCE

USN
PESIT Bangalore South Campus
Hosur road, 1km before Electronic City, Bengaluru -100
Department of MBA viii. Balance-Transfer Loans: Balance Transfer of the loan is the transfer of the balance of an existing home loan at a higher rate of interest (ROI) to either the same company or another. ix. Re-finance Loans: Refinance loans are availed when a loan from an organization at a particular ROI is dropping leading to a loss. Then the option of swap of the loan can be availed. One can avail this from either the same HFI or other at the current rates of interest. x. NRI Home Loans: NRI Home Loans are meant for Non-Resident Indians who wish to build or buy a home .
(c) Write a brief note on the national housing bank as the apex housing finance institute in India.
Ans-Even though there were a large number of agencies/institutions providing direct finance to individuals for house construction, there was no organised housing finance system as such before the establishment of NHB in 1988.
The vacuum in the institutional finance for housing and other construction activities was felt due to inadequate flow of funds for such activities from existing institutions and absence of specialised credit institutions to provide funds for the purpose.
The need to have a specialised system stemmed from the fact that the housing sector was not only inadequately served in terms of finance for individual loans but also in terms of buildable or serviced land, building materials, effective lowcost technology and other related know-hows.
The National Housing Bank was established to create such a system.
The Bank has been mandated to establish a network of housing finance outlets across the vast span of the nation to serve different income and social groups in different regions.
The primary responsibility, of course, is to develop a healthy and self sustaining housing finance system in the country.
(10marks)
MBA III SEMESTER -FINANCE

USN
3
PESIT Bangalore South Campus
Hosur road, 1km before Electronic City, Bengaluru -100
Department of MBA
NHB was set up at a time when the local and regional level housing finance institutions were nearly absent and the banking sector had no pressing priority to do housing finance on any significant level.
As a result, the sector has been grossly capital -deficient and the housing shortage in the country has grown alarmingly.
The purpose of setting up more local and regional level specialised institutions is to have dedicated outlets for supply of housing credit.
NHB is of the opinion that intervention through institutional credit can be made more effective by adoption of different approaches to cater to the needs of different income groups.
The households above the average income could well be served by institutions which raises resources through the open market and deliver credit with minimum necessary prudential regulations by the regulator.
For the households below the poverty line, the institutional credit will have to take into account the employment and poverty alleviation programmes having an element of subsidy. It is the middle group which constitutes nearly half the total number of households that needs to be taken care of.
NHB is encouraging the financial institutions to lend to this segment through its refinance schemes. With the setting up of NHB in 1988, there has been sustained efforts at creating and supporting new set of specialised institutions to serve as dedicated centres for housing credit.
How can one open a Demat account and how trading is done through that?
Investor will choose a DP for the purposes of opening beneficiary account. The choice of the investor may be based on convenience, comfort, services offered, cost or any other reason.
(10 marks)
MBA III SEMESTER -FINANCE

USN
PESIT Bangalore South Campus
Hosur road, 1km before Electronic City, Bengaluru -100
Department of MBA
The investor will obtain the relevant account opening form from the chosen DP.
For the purpose of verification, investor has to submit the following documents along with the prescribed account opening form.
Proof of Identity(POI) (voter card, pan card, driving license etc.)
Proof of Address (POA) (ration card, ank pass book copy voter id card etc.)
Passport-size photograph
Copy of PAN card
The DP will also provide a copy of the DP-Client agreement.
The demat account cannot be operated on "either or survivor" basis like the bank account. In case of the joint account for the beneficial owners, all the joint holders have to sign the account opening form.
The investor will submit to his DP the duly filled in account opening form & DPclient agreement along with the documents.
On successful opening of the account, the DP will give:
Client Id - an eight digit number to be used along with DP Id for any future transactions.
Delivery Instruction slip book.
More than one demat account can be opened in the similar / identical name and order with the same DP or different DPs.
A periodical statement of holdings and transactions is provided by DP. This can also be asked for from the DP
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MBA III SEMESTER -FINANCE