Financial Services M.com Notes

8/4/2019 Financial Services M.com Notes

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Financial Services

Posted on October 03 2010byFarhad

FINANCIAL SERVICES

TEXT BOOKS TO BE FOLLOWED

For Unit II: Khan.M.Y., 2006, Financial Services, 3rd edition, TMH, New Delhi-8

For Unit III & IV: Gordon and Natarajan, 2006, Financial Markets and Services, 3rd edition,

Himalaya publishing House, Mumbai.

For Unit IV: Rejda.G.e., 2002, Principles of Risk Management and Insurance, 7th edition,

Pearson Education

BEST BOOK FOR ALL UNITS

FINANCIAL SERVICES BY GURUSAMY OR MERCHANT BANKING AND FINANCIALSERVICES BY GURUSAMY. Both the books have same content and you can take any one for your reading.

UNIT-I

Financial services:Concept and meaning. Classification Traditional and Modern activities;Fund-based and nonfund based activities. Financial Engineering Need for financial

innovation; Model for new product development; new financial products and services. Current

scenario and challenges to the financial services sector in India.

FINANCIAL SYSTEM

1

The economic development of any country depends on the existence of a well organized

Financial System (F.S). It is the F.S which supplies the necessary financial inputs for theproduction of goods and services, which in turn promote the well being and standard of living of

the people of the country. Thus, the F.S is a broader term which brings under its fold the

financial markets and the financial institutions which supports the system

The F.S comprises a variety of intermediary, markets and instruments that are shown in above

diagram. It provides the main means by which savings are transformed into investments. Given

its role in the allocation of resources, the efficient functioning of F.S is critical to a moderneconomy.

The economic development of a nation is reflected with the progress of various economic units,

broadly classified into corporate sector, Govt. and Household sector.

While the corporate has the surplus arising from the retained earnings, they need funds for

investment in new projects, for expansion/Diversification/modernization, etc. On the other hand,a Govt. which always faces a deficit budget needs funds for public expenditure to finance its
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developmental projects and other Public Sector Undertakings (PSUs), etc. along with these two

economic units, the household sector requires funds for varied purposes. Example, for acquiringassets. How ever the surplus funds of the household is normally more than the other units.

While an understanding of the financial system is useful to all informed citizen, it is particularly

relevant to the financial manager. He negotiates loans from financial intermediaries, raisesresources from the financial markets and invests surplus funds in financial instruments. In a very

significant way he manages the interface between the firm and its financial environment.

An overview of Financial Service (F.Sr)2

Financial services constitute an important component of the F.S. F.Sr through the network ofelements such as financial institutions, financial markets and financial instruments serve the need

of individuals, institutions and corporates.

It is through these elements that the functioning of the F.Sr is facilitated. In fact, an orderly

functioning of the F.S depends to a great deal on the range and the quality of the F.Sr extendedby the host of providers.

Concept of Financial Services

In general, services that are offered by the financial service companies are said to F.Services.

The term Financial services in a broad sense means mobilizing and allocating savings. Thus,it includes all activities involved in the transformation of saving into investment.

Financial Service companies include both Asset Management Companies (AMC) and LiabilityManagement Companies (LMC). AMC include leasing companies, Mutual Funds, Merchant

Bankers and Issue/Portfolio managers. LMC comprise of the Bill Discounting and Acceptance

Houses.

Objectives of Financial Services

1. Fund RaisingFinancial Services help to raise required fund from a host of investors,individuals, institutes and corporate.

2. Funds DeploymentAn array (variety/types/collection/group) of financial services are

available in the market which helps the players to ensure an effective deployment of thefunds raised. Services such as Bills Discounting, Factoring of debtors, parking of short term

funds in the money market, credit rating, etc. are provided by financial services firms in order

top ensure efficient management of funds.

3. Specialized servicesThe financial services sector provides specialized services such ascredit rating, venture capital financial, lease financing, factoring, mutual funds, merchant

banking, credit cards, housing finance, etc. besides banking and insurance.

4. RegulationIn India, Agencies such as Securities and Exchange Board of India (SEBI),RBI and the Dept. of Banking and Insurance of the Govt. of India, through a number of

legislations regulate the functioning of the financial services institutions.


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5. Economic Growth Financial services help in speeding up the process of economics

growth and development. This takes place through the mobilization of the savings of a crosssection of peoples, for the purpose of channeling then in the productive investments.

FINANCIAL ENGINEERING3

Financial Engineering (F.E) is the development and application of financial technology to solve

financial problems and the creation of value by the identification and exploitation of financial

opportunities. The term F.E means different things to different people.

F.E involves the design, the development and the implementation of innovative financial

instruments and processes, and the formulation of the creative solutions to the problems infinance.

In corporate finance, the financial engineers are often called upon to develop new instruments to

secure the funds necessary for the operation of large scale businesses.

Financial Innovation

Miller describes financial innovations as unanticipated improvements in the array of financial

products and instruments that are stimulated by unexpected tax or regulatory impulses.

Silber considers financial innovation as devices used by companies to reduce the financial

constraints faced by them

A financial innovation makes the market more efficient if it reduces transaction costs, diminisheslosses, etc, Van Horne

Financial Innovation in India1

Till the mid 1980s, the Indian financial system did not see much innovation. In the last 18 years,

financial innovation in India has picked up and it is expected to grow in the years to come, as a

more liberalized environment affords greater scope for financial innovation.

The important financial innovation that have taken place in India are listed below along with the

principal factor which motivated it or fuelled its growth.

New financial products and services are as follows

Innovation Principle motivation factor

1. Debt oriented schemes of MF Tax Benefits

2. Partially convertible debentures and fully

convertible debentures

Pricing and interest rate regulation obtaining

under the capital issues control act

3. Deep discount/zero coupon bonds Tax benefits

4. Puttable and callable bonds Perceived volatility of interest rates

5. Stock index futures Volatility of equity prices


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6. Badla Transaction Restriction on forward trading

7. Ready forwards Restrictions under the portfolio managementscheme

8. Havala transactions RBI restrictions

9. Interest rate Caps/floors/Collars Volatility of interest rates

10. Interest rate swaps Volatility of interest rates11. Currency swaps Volatility of foreign exchange rates

12. Forward rate agreements Volatility of interest rates

13. Automated teller machine Technology

14. Screen based trading Technology

15. Floating rate bonds Volatility of interest rates

16. Electronic funds transfer Technology

17. Money market mutual funds Volatility of interest rates

18. Specialized Mutual Funds Investor preferences

19. Exchange traded options Volatility of Stock prices

20. Project finance Risk Sharing

Source1. Prasanna Chandra, 2006, Financial Management, TMH2. Gurusamy, Merchant Banking and Financial Services, Thomson publication

3. Marshall and Bansal, Financial Engineering, PHI

Unit I

http://finance.wharton.upenn.edu/~allenf/download/Vita/indias%20financial%20system.pdf

BESThttp://www.indianmba.com/Faculty_Column/FC177/fc177.htmlBESThttp://www.indiaonestop.com/fdi-financial-services.htm http://ww.doleta.gov/Brg/pdf/Financial.pdfGeneral knowledge

http://www.profinvest.com.au/resources/files/pis_financial_services_guide.pdf Informative

http://www.bis.org/publ/joint09.pdfOutsourcing F.Serhttp://www.munichre-foundation.org/NR/rdonlyres/9488227A-EFC0-4D46-8948-

2615019A6FEE/0/Innovative_Financial_Services_for_Rural_India.pdfF.Ser Rural India

http://www.deloitte.com/assets/Dcom-

India/Local%20Assets/Documents/Global%20economic%20slowdown-Financial%20Services.pdfIndian Financial Services and Financial Crisis

http://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents/a%20Global%20Financial%20Crisis.pdf Impact of

Financial Crisishttp://www.ibef.org/industry/financialservices.aspx General information

http://en.wikipedia.org/wiki/Financial_services GOOD

http://www.surfindia.com/financial-services/
http://finance.wharton.upenn.edu/~allenf/download/Vita/indias%20financial%20system.pdfhttp://finance.wharton.upenn.edu/~allenf/download/Vita/indias%20financial%20system.pdfhttp://www.indianmba.com/Faculty_Column/FC177/fc177.htmlhttp://www.indianmba.com/Faculty_Column/FC177/fc177.htmlhttp://www.indiaonestop.com/fdi-financial-services.htmhttp://www.indiaonestop.com/fdi-financial-services.htmhttp://ww.doleta.gov/Brg/pdf/Financial.pdfhttp://ww.doleta.gov/Brg/pdf/Financial.pdfhttp://www.profinvest.com.au/resources/files/pis_financial_services_guide.pdfhttp://www.profinvest.com.au/resources/files/pis_financial_services_guide.pdfhttp://www.bis.org/publ/joint09.pdf%20-%20Outsourcing%20F.Serhttp://www.bis.org/publ/joint09.pdf%20-%20Outsourcing%20F.Serhttp://www.bis.org/publ/joint09.pdf%20-%20Outsourcing%20F.Serhttp://www.bis.org/publ/joint09.pdf%20-%20Outsourcing%20F.Serhttp://www.munichre-foundation.org/NR/rdonlyres/9488227A-EFC0-4D46-8948-2615019A6FEE/0/Innovative_Financial_Services_for_Rural_India.pdfhttp://www.munichre-foundation.org/NR/rdonlyres/9488227A-EFC0-4D46-8948-2615019A6FEE/0/Innovative_Financial_Services_for_Rural_India.pdfhttp://www.munichre-foundation.org/NR/rdonlyres/9488227A-EFC0-4D46-8948-2615019A6FEE/0/Innovative_Financial_Services_for_Rural_India.pdfhttp://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents/Global%20economic%20slowdown-Financial%20Services.pdfhttp://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents/Global%20economic%20slowdown-Financial%20Services.pdfhttp://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents/Global%20economic%20slowdown-Financial%20Services.pdfhttp://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents/Global%20economic%20slowdown-Financial%20Services.pdfhttp://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents/a%20Global%20Financial%20Crisis.pdfhttp://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents/a%20Global%20Financial%20Crisis.pdfhttp://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents/a%20Global%20Financial%20Crisis.pdfhttp://www.ibef.org/industry/financialservices.aspxhttp://www.ibef.org/industry/financialservices.aspxhttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Financial_serviceshttp://www.surfindia.com/financial-services/http://www.surfindia.com/financial-services/http://www.surfindia.com/financial-services/http://en.wikipedia.org/wiki/Financial_serviceshttp://www.ibef.org/industry/financialservices.aspxhttp://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents/a%20Global%20Financial%20Crisis.pdfhttp://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents/a%20Global%20Financial%20Crisis.pdfhttp://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents/Global%20economic%20slowdown-Financial%20Services.pdfhttp://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents/Global%20economic%20slowdown-Financial%20Services.pdfhttp://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents/Global%20economic%20slowdown-Financial%20Services.pdfhttp://www.munichre-foundation.org/NR/rdonlyres/9488227A-EFC0-4D46-8948-2615019A6FEE/0/Innovative_Financial_Services_for_Rural_India.pdfhttp://www.munichre-foundation.org/NR/rdonlyres/9488227A-EFC0-4D46-8948-2615019A6FEE/0/Innovative_Financial_Services_for_Rural_India.pdfhttp://www.bis.org/publ/joint09.pdf%20-%20Outsourcing%20F.Serhttp://www.profinvest.com.au/resources/files/pis_financial_services_guide.pdfhttp://ww.doleta.gov/Brg/pdf/Financial.pdfhttp://www.indiaonestop.com/fdi-financial-services.htmhttp://www.indianmba.com/Faculty_Column/FC177/fc177.htmlhttp://finance.wharton.upenn.edu/~allenf/download/Vita/indias%20financial%20system.pdf


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UNITII

Merchant Banking:Concept and evolution of merchant banking (MB) in India. SEBI (MB)

Regulations, 1992. Functions of MBsunderwriter, banker, broker, registrar, debenture trustee

and portfolio manager. MBs activities and SEBI guidelines related to issue management.

MERCHANT BANKING

The word Merchant Banking originated among the Dutch and the Scottish traders, and was

later on developed and professionalised in Britain.

Though Merchant banking is a non banking financial activity, it resembles banking function.

DEFINITION

According to Random House Dictionary,

Merchant bank is an organisation that underwrites securities for corporations, advises such

clients on mergers and is involved in the ownership of commercial ventures. These

organisations are some banks which are not merchants and sometimes merchants who are not

banks and sometimes houses which are neither merchants not banks.

MERCHANT BANKERS

A set of financial institutions that are engaged in providing specialist services, which generally

include the acceptance of bills of exchange, corporate finance, portfolio management and other

banking services, are known as Merchant bankers.

FUNCTIONS OF M.B

1. Corporate Counselling

2. Project Counselling

3. Pre-investment studies

4. Capital Restructuring

5. Credit Syndication and Project Finance

6. Issue management and Underwriting7. Portfolio management

8. Working capital finance

9. Bill discounting

10. Mergers, amalgamations and takeovers

11. Venture Capital

12. Lease Financing


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13. Foreign Currency Finance

14. Fixed Deposit Broking

15. Mutual Funds

16. Relief to Sick Industries

17. Project Appraisals

REGULATORY FRAMEWORK

The SEBI has the responsibility to protect the interest of the investors in securities, to promote

the development of the securities market and to regulate it.

To carry out its functions, the SEBI is empowered to make regulations with the prior approval of

the Government.

The SEBI has now full powers to regulate the new issue/primary market. It is also empowered

to impose penalties for default on securities market intermediaries.

The SEBI has laid down the legal framework for the operations of the intermediaries in the

primary market as well as the operating instructions and guidelines.

The major intermediaries for whom the framework is firmly in place are lead managers,

underwriters, bankers to issue, registrars and share transfer agents, debenture trustees,

brokers to issue and portfolio managers.

The main elements of their operations framework are

Compulsory registration, capital adequacy requirement and fee payable;

Obligation and responsibilities, code of conduct, number of lead managers, and

their responsibilities, due diligence certificate, submission of documents; and

Procedure for inspection, action in default, suspension and cancellation of

registration.

COMPULSORY REGISTRATION

Category I: To carry on any activity of the issue management and to act as adviser,consultant, manager, underwriter, portfolio manger.

Category II: To act as adviser, consultant, co-manger, underwriter, portfolio

manager

Category III: To act as underwriter, adviser, consultant to an issue

Category IV: To act only as adviser or consultant to an issue


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CAPITAL ADEQUACY REQUIREMENT

Category Minimum Amount

Category I Rs. 5,00,00,000 (5 Crore)

Category II Rs. 50,00,000 (0.5 Crore)

Category III Rs. 20,00,000 (0.2 Crore)

Category IV Nil

FEES

Registration Fee

Renewal Fee

OBLIGATIONS & RESPONSIBILITIES

CODE OF CONDUCT FOR MB A Merchant Banker should

Make efforts to protect interest of investors

Maintain high standard of integrity, dignity and fairness in the conduct of its

business

Fulfill its obligations in a prompt, ethical manner

Always exercise due diligence

Satisfy the Investors

Adequate disclosures are made

Not discriminate amongst its client

Make no misrepresentation

Always render best possible advice to the client

Not indulge in any unfair competition

Ensure good corporate policies and corporate governance are in place

NEW ISSUE VS. SECONDARY MARKETS OR PRIMARY MARKETS VS. SECONDARY MARKETS

MECHANICS OF PUBLIC ISSUE MANAGEMENT

Decision to Raise Capital Funds

Obtaining SEBI approval

Arranging Underwriting

Preparing and Finalization of Prospectus


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Selection of Registrars, Brokers, Bankers ,etc

Arranging Press and Investor Conference

Printing and Publicity of Public Issue Documents

SEBI Compliance

CATEGORIES OF SECURITIES ISSUE Public Issue

Right Issue

Private Placement

MARKETING OF NEW ISSUES METHODS OF MARKETING SECURITIES

Pure Prospectus Method

Offer for Sale Method Issue House, stock brokers

Private Placement Method Private Individual & inst

Initial Public Offer (IPOs) MethodRights Issue Method

Bonus Issue Method Accumulated R&S converted

Book-Building Method (Next Slide)

Stock-Option Method

Bought-out Deals Method Promoter make outright sale of equity share to sponsor.

BOOK-BUILDING METHOD

The B-b process involves the following steps

1. Appointment of book-runners

2. Drafting Prospectus

3. Circulating draft

4. Maintaining offer records

5. Intimation about aggregate orders

6. Bid analysis

7. Mandatory underwriting

8. Filing with ROC

9. Bank accounts

10. Collection of completed application

11. Allotment of securities12. Payment schedule and listing

13. Under-subscription

ELIGIBILITY NORMS OF PUBLIC ISSUE

1. Public Issue by Unlisted companies


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It has net tangible assets of at least Rs.3 crore in each of the preceding 3 full years

of which more than 50 % should be in monetary assets

It has a track record of distributed profits in terms of Sec.205 of the Companies Act

for at least 3 out of the immediately 5 years

It has net worth as per the audited balance sheet of at least Rs.1 crore in each ofpreceding 3 full years (of 12 months each)

The aggregate of the proposed issue and all previous issues made in the same

financial year in terms of size does not exceed 5 times its pre-issue networth as per the

audited balance sheet of the last financial year.

2. Public Issue by Listed Companies

All listed companies are eligible to make public issue of equity shares/securities convertible

into, or exchangeable with equity shares at a later date on the condition that the issue size in

terms of the aggregate of the proposed issue and all previous issues made in the same financialyear does not exceed 5 times its pre-issue networth as per the audited balance sheet of the last

year.

PRE-ISSUE OBLIGATIONS

1. Due diligence

2. Requisite fee

3. Submission of documents

4. Appointment of intermediaries

5. Underwriting

6. Making public the offer document

7. Dispatch of issue material

8. No-compliant certificate

9. Mandatory collection centres

10. Authorized collection agents

11. Advertisement for rights post-issues, appointment of compliance officer

POST-ISSUE OBLIGATIONS

1. To associate with allotment procedure

2. Post issue monitoring reports3. 3-day post issue monitoring report

4. Final post issue monitoring report (78 days)

5. Redressal of investors grievances

6. Coordination with intermediaries

7. Post-issue advertisements

8. Basis of allotment in over-subscribed issues

9. Other responsibilities


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UNIT-III

Leasing and Hire-Purchasing : (a) Leasing concept and classification. Financial rationale.Evolution of leasing industry in India. Product profile. Legal, tax and accounting aspects of

leasing in India. Funding and regulatory aspects of leasing in India. Financial evaluation of

leasingbreak-even lease rental. Gross yield based pricing. IRR based pricing. Negotiating leaserental. Assessment of lease related risks. Lease vs. buy decisions. (b) Hire-purchase concept and

characteristics. Legal and tax framework. Mathematics of hirepurchase. Financial evaluation of

hire-purchase deals.

LEASING

1. Concept of Leasing

2. Definition

3. Leasing as a source of finance4. Essential elements of leasing

5. Modes of terminating lease

6. Advantage of leasing

7. Disadvantage of leasing

8. Types of leasing

9. Legal aspects of leasing

10. Income tax provisions relating to leasing

11. Accounting treatment of lease

CONCEPT OF LEASING

Leasing, as a financing concept, is an arrangement between two parties, the leasing company or

lessor and the user or lessee, whereby the former arranges to buy capital equipment for theuse of latter for an agreed period of time in return for the payment of rent.

The rentals are pre-determined and payable at fixed intervals of time, according to the mutual

convenience of both the parties.

By resorting to leasing, the lessee Co. is able to use the economic value of the equipment by

using it as he owned it without having to pay for its capital cost.


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DEFINITION

Lease is a form of contract transferring use or occupancy of land, space, structure or

equipment, in consideration of a payment, usually in the form of a rent.

Lease is a contract whereby the owner of an asset (lessor) grants to another party (lessee) the

exclusive right to use the asset usually for an agreed period of time in return for the payment of

rent

LEASING AS A SOURCE OF FINANCE

1. Modernisation of business

2. Balancing equiment

3. Cars, scooters, and other vehicles and durables

4. Assets which are not being financed by banks/ institutions.

ESSENTIAL ELEMENTS OF LEASING

1. Parties to the contract

2. Asset

3. Ownership separated from user

4. Term of lease

5. Lease Rentals

MODES OF TERMINATING LEASE

1. The lease is terminated at the end of the lease period and various courses are

possible, namely2. The lease is renewed on a perpetual basis or a definite period, or

3. The asset reverts to the lessor, or

4. The asset reverts to the lessor and the lessor sells it to a third party, or

5. The lessor sells the asset to the lessee

6. The parties may mutually agree to, and choose any of the foresaid alternatives at

the beginning of the lease term.

ADVANTAGE OF LEASE

1. Permits alternative use of funds

2. Facilitates additional borrowings3. Protection against obsolescence

4. Hundred percent financing

5. Boon to small firms

DISADVANTAGE OF LEASE


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1. Lease is not suitable mode of project finance.

2. Tax benefits/ incentives such as subsidy may not be available on leased equipment

3. The value of asset might increase during lease period

4. Cost of financing is higher than debt financing

5. Default in rentals

TYPES OF LEASE

1. Financial Lease

It is also known as capital lease, long term lease, net lease and close lease.

In financial lease, the lessee selects the equipment, settles the price and terms of sale and

arranges with a leasing company to but it. He enters into non-cancellable contractual

agreement with the leasing company.

The lessee uses the equipment exclusively, maintains it, insures and avails the after sales-

services and warranty backing it.

This lease could also be with purchase option, where at the end of the predetermined period,

the lessee has the option to buy the equipment at a pre-determined value or at a nominal value

or at fair market price.

In a large number of cases, the financial leases are used as financing-come-tax planning tool.

The Financial lease is very popular in India as in other countries such as USA, UK, and Japan.

In India, at present, around a lease worth Rs.75 to 100 crores is transacted as a tax planning

device.

The high cost equipments such as office equipment, diesel generators, machine tools, textile

machinery, containers, ships, aircrafts, etc are leased under financial lease.

In short, in a Financial lease, the lessor transfers to the lessee, substantially all risks and reward

incidental to ownership of the asset whether or not the title is eventually transferred.

OPERATING LEASE

2. Operating Lease

It is also known as service lease, short term lease or true lease.

In this lease, the contractual period between lessor and lessee is less than the full

economic life of equipment.


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This means the lease may be for a limited period such as a month, six months or a year

or few years. The risk of obsolescence is enforced on the lessor who will also bear the cost of

maintenance and other relevant expenditure.

This lease is suitable for computers, copy machines, vehicles, material handling equipment,

etc which are sensitive to obsolescence, and where the lessee is interested in tiding overtemporary problem.

LEGAL ASPECTS OF LEASING

As there is no separate statute for equipment leasing in India, the provisions relating to

BAILMENT in the Indian Contract Act govern equipment leasing agreements.

Provisions of Se.148, 150 and 168 have to be fulfilled

INCOME TAX PROVISIONS RELATING TO LEASING

The lessee can claim lease rentals as tax-deductible expenses

The lease rentals received by the lessor are taxable under the head of Profits and

Gains of Business and Profession.

The lessor can claim investment allowance and depreciation on the investment

made in leased assets.

ACCOUNTING TREATMENT OF LEASE

The leased asset is shown on the balance sheet of the lessor

Depreciation and other tax shields associated with the leased asset are claimed by

the lessor

The entire lease rental is treated as income in the books of the lessor and as

expense in the books of the lessee.

http://india-financing.com/indo1.html

HIRE PURCHASE
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1. Introduction

2. History of H.P

3. H.P Institutions

4. Features of H.P

5. Legal Position

6. H.P Agreement7. H.P and Credit sales

8. H.P and Installment sale

9. H.P vs. Leasing

INTRODUCTION

It is a method of selling goods. In Hire Purchase (H.P) transaction the goods are let out on hire

by a finance company. The buyer is required to pay an agreed amount in periodical installments

during a given period. The ownership of the property remains with creditor and passes on to

hirer on the payment of last installment

HISTORY OF H.P

The growth and development of H.P system can be traced back to the advent of

industrial development in the U.K

Henry Moore, a piano maker introduced H.P system in 1846 in the U.K

Cowperwait & Sons, a furniture dealer introduced H.P system in U.S.A in 1807.

Earlier all H.P transactions were financed by manufacturers or dealers themselves.

Later, independent finance house came into existence

In India , H.P finance started only after World War I.

The concept of H.P was not quite popular in the pre-independence period.

With the increase in economic activity, many NBFCs entered the market in the 50s

& 60s

Wide variety of consumer articles, automobiles and industrial machinery were

offered on H.P

Apart from consumer vehicles, purchase of consumer articles such as household

appliance, air conditioners, refrigerators, office furniture and equipment is financed

presently through hire purchase.


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The Indian H.P market is registering a staggering growth rate of around 20 percent

per annum.

H.P. INSTITUTIONS

1. The Institutions engaged in the H.P business in organised sector include2. Commercial Banks

3. Co-operative Banks

4. State Financial Corporations

5. National Small Industries Corporations

6. In the unorganised sector they comprise a large number of partnership firms and

individuals.

FEATURES OF HIRE PURCHASE

1. Buyer takes possession of goods immediately and agrees to pay total price in

installments.

2. Each installment is treated as hire charges

3. The ownership of goods passes from the seller to the buyer on the payment of theinstallment.

4. If buyer makes default in the payment of any installment, the seller has right to

repossess the goods from the buyer and forfeit the amount already received treating it

as hire charged

5. The hirer has right to terminate the agreement any time before the property

passes.

LEGAL POSITION

The Hire Purchase Act,1972 defines a Hire Purchase as an agreement under which goods are

let on hire and under which the hirer has an option to purchase them in accordance with theterms of agreement as under

1. Payment is to be made in installments over a specified period.

2. The possession is delivered to the purchaser at the time of entering into a contract

3. The property in the goods passes to the purchaser on payment of the last installment.


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4. Each installment is treated as hire charge so that if default is made in payment of anyone

installment, the seller is entitled to take away the goods.

5. The hirer/purchaser is free to return the goods without being required to pay further

installments falling due after the return

HIRE PURCHASE AGREEMENT

1. The description of goods in a manner sufficient to identity them

2. The H.P price of the goods3. The date of commencement of the agreement

4. The number of installments in which H.P price is to be paid, the amount, and due

date

H.P & CREDIT SALE

Hire purchase is different from Credit Sale

In credit sale, the ownership and possession is transferred to the purchaser

simultaneously.

In H.P, the ownership remains with the seller until last installment is paid

H.P & INSTALLMENT SALE

H.P transaction is different from Installment System (I.S).

In case of I.S the possession and ownership is transferred to the buyer immediately.

When the buyer stops payment of dues (installments), the seller has no right to re-

possess the goods.

He has the only right to sue the buyer for the non-payment by returning the goods.

HP Vs. LEASING


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CHARACTERISTICS LEASING HIRE PURCHASE

Ownership It rests with lessor It is transferred on payment of last installmen

Depreciation Lessor, not the lessee is entitled to claim The hirer is entitled to claim

Tax Benefits Lease rent is tax deductible Interest of H.P installment is tax deductible

Salvage Value It can be claimed by the lessor & not the lessee It can be claimed by the hirer as he is the own

Down Payment Not required It is required to the extent of 20 to 25% of ma

Reporting Shown in foot note only In Balance sheet as asset

UNITIV

Insurance: Definition and basic characteristics of insurance. Requirements of an insurable risk.Types of insurance. Benefits and Costs of insurance to society. Fundamental legal principles of

insurance. Functions of insurer. IRDA and recent trends in insurance sector in India.

INSURANCE

1. INTRODUCTION2. DEFINITION

3. INSURANCE VS. M.F

4. ROLE OF INSURANCE IN ECONOMIC GROWTH

5. HISTORY OF INSURANCE

6. HISTORY OF INSURANCE IN INDIA

7. OPENING UP OF THE INDIAN INSURANCE SECTOR

8. IRDA INTRODUCTION

9. IRDA MISSION

10. IMPORTANT WEBSITES INSURANCE

INTRODUCTION


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An age-old method of sharing of risk through economic cooperation led to the

development of the concept of Insurance.

Insurance spreads the risks and losses of few people among a large number of people,

as people prefer small fixed liability instead of big uncertain and changing liability. The risks which can be insured against include fire, the perils (damage) of sea,

death, accident, and burglary.

The members of the community subscribe to a common pool or fund which is

collected by the insurer to indemnify the losses arising out of risks.

Insurance cannot prevent the occurrence but it provides for the losses of risk. It is a

scheme which covers large risks by paying small amount of capital.

Insurance is also a means of savings and investment

Example

1. In a town, there are 2,000 persons who are all aged 60 and are healthy. It is

expected that of these, 20 persons may die during the year. If the economic value of the

loss suffered by the family of each dying person were taken to be Rs.50,000, the totalloss would work out to Rs.10,00,000. If each person of the group contributes Rs.500 a

year, the common fund would be of the 20 dying persons. Thus, the risks in cases of 20

persons are shared by 2000 persons.

2. In a village, there are 250 houses, each valued at Rs.2,00,000. Every year one house

gets burnt, resulting into a total loss of 2,00,000. If all the 250 owners come together

and contribute Rs.800 each, the common fund would be Rs.2,00,000. This is enough to

pay Rs.2,00,000 the owner whos house got burnt. Thus, the risk of one owner is spread

over 250 house-owners of the village.

DEFINITION

Insurance can be defined as legal contract between two parties whereby one party

called the insurer undertakes to pay a fixed amount of money on the happening of a

particular event, which may be certain or uncertain.

The other party called the insured pays in exchange a fixed sum known as premium.


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The insurer and the insured are also known as assurer, or underwriter, and assured,

respectively.

The document which embodies the contract is called the policy.

INSURANCE Vs M.F

Insurance and mutual funds are fundamentally different in their objectives. The objective of

insurance is to cover the eventuality of death and therefore, is more long-term in its outlook

while, mutual funds are purely investment gain vehicles

ROLE OF INSURANCE IN ECONOMIC GROWTH

Insurance frees industries from the worries of unforeseen losses and uncertainties. Insurance

helps the process of the countrys growth in various ways

1. Insurance covers many economic risks. It protects entrepreneurs against the risk of

damage to or loss of the goods and other assets, which they employ in manufacturing,

marketing, transport and other related activities. This protection offers a kind of stability

to business.2. With the cover of insurance on their assets, businessmen and industrialists are able

to take bold decisions in enlarging their field of activity, and take financial risks, which

they cannot otherwise take. Hence, insurance plays a promotional role in national-

building and also increasing the number of jobs for the people.

3. Life insurance offers economic safety at reasonable cost to millions of families in

the country. In a way, this helps the government also as it lightens the governments

burden of providing social welfare to affected families

4.

Insurance companies collect premium from policyholders and invest this money in government

bonds, corporate securities and other approved channels of investment. In this way, insurancecompanies are helpful in providing capital for new ventures or expansion of old units.


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Thus insurance aids in the growth of modern economy. By promoting safety against personal

losses it not only improves the individuals quality of life but also provides smoothness in theworking of affairs of business and industry.

HISTORY OF INSURANCE

The concept of insurance is believed to have emerged almost 4,500 years ago in theancient land of Babylonia where traders used to bear risk of the caravan by giving loans,

which were later repaid with interest when the goods arrived safely.

The first insurance contract was entered into by European nations in 1347 to accept

marine insurance as a practice

The concept of insurance as we know today took shape in 1688 at a place called

Lloyds Coffee House in London where risk bearers used to meet to transact business.

This coffee house became so popular that Lloyds became the one of the first

modern insurance companies by the end of the eighteenth century.

The Great Fire of London in 1966 caused huge loss of property and life. With a view

to providing fire insurance facilities, Dr. Nicholas Barbon set up in 1967 the first fire

insurance company known as the Fire Office.

The oldest life insurance company in existence today is the Society for the Equitable

Assurance of Lives and Survivorship, known as Old Equitable. It was established in

England in 1756.

The infamous New York Fire and the great Chicago Fire in 1835 and 1871, respectively,

created an awareness and need for insurance. The concept of re-insurance emerged to

deal specifically for such situations.

Industrialisation and urbanisation popularised the concept of insurance and growth

in insurance led to the development of new insurance products.

HISTORY OF INSURANCE IN INDIA

The early history of insurance in India can be traced back to the Vedas.

Some form of community insurance was practiced by the Aryans around 1000 B.C.

Life insurance in its modern form came to India from England in 1818.


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The Oriental Life Insurance Company was the first insurance company to set up in

India to help the widows of the European community.

The first Indian insurance company, the Bombay Mutual Life Assurance Society,

came into existence in 1870 to cover Indian lives.

Moreover, in 1870, the British Government enacted for the first time the Insurance

Act,1870. Other companies, such as the Oriental Government Security Life Assurance

Company, the Bharat Insurance Company, and the Empire of India Life Insurance

Company Limited, were set up between 1870 and 1900.

In 1912, the first legislation regulating insurance, the Life Insurance Companies

Act,1912, was enacted.

By the mid 1950s, there were 154 Indian insurers, 16 foreign insurers, and 75

provident societies carrying on life insurance business in India

The Life Insurance Corporation of India (LIC) was set up in 1956 to take over 245 life

companies.

The nationalisation of life insurance was followed by general insurance in 1972. The General Insurance Corporation of India and its subsidiaries were set up in 1973.

OPENING UP OF THE INDIAN INSURANCE SECTOR

The Insurance industry till august 2000 had only two nationalised players: LIC and

GIC. These two players had a monopolistic control over the market.

These nationalised insurance companies performed well BUT were not consumer-

oriented, unwilling to adopt modern practices and technology to upgrade technical

skills, and inefficient in operations.

The growth in volume was mainly driven by income tax consideration and hence amajor portion of the vast rural area was untapped.

With population of more than one billion and savings rate of around 24%, India has

a vast market which is untapped.

The foreign insurance companies external influence and pressure to open up the

Indian insurance sector was high.

In 1993, the committee under the chairmanship of R.N. Malhotra, set up to

evaluate the Indian Insurance Industry and recommend its future direction, submitted

its report in 1994. Its major recommendations revolved around the structure and

regulation of insurance industry. The main recommendations were as follows:

o The government should bring down its stake in the insurance companies to

50%

o Private companies with a minimum paid-up capital of Rs.100 crore should be

allowed to enter the industry

o The number of entrant should be controlled

o Foreign companies may be allowed to enter industry in collaboration with

domestic companies. The committee did not favour foreign companies operating

in India through branches.


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o The GIC and its subsidiaries should not hold more than 5 percent in any

company.

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRDA)

IRDA was constituted as an autonomous body to regulate and develop the businessof insurance and reinsurance in India.

The IRDA Act, 1999 was enacted by parliament in the fiftieth year of the Republic

India to provide for the establishment of an authority to protect the interests of holders

of insurance policies, to regulate, promote and ensure orderly growth of the insurance

industry.

The Act was approved in the parliament in December 1999 and the insurance sector was

opened for private licensees on 15 August 2000.

IRDA MISSION

1. To protect the interest of and secure fair treatment to policyholders

2. To bring about speedy and orderly growth of the insurance industry

3. To set, promote, monitor, and enforce high standards of integrity, financialsoundness, fair dealing, and competence of those it regulates.

4. To ensure that insurance customers receive precise, clear and correct information

about products and services and make them aware of their responsibilities and duties in

this regard.

5. To promote fairness, transparency, and orderly conduct in financial markets dealing

with insurance and to build a reliable MIS to enforce high standard of financial

soundness amongst market players.

6. To take action where such standards are inadequate or ineffectively enforced.

IMPORTANT WEBSITES

http://en.wikipedia.org/wiki/Insurance

http://www.irdaindia.org/

http://economictimes.indiatimes.com/Personal_Finance/Insurance/Analysis/Indian_general_in

surance_industry_to_grow_at_18_in_2008/articleshow/3120969.cms

http://www.insurancejournal.com/news/international/2008/02/08/87186.htm

http://www.licindia.com/


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http://www.economywatch.com/indianeconomy/indian-insurance-industry.html (Good)

http://www.cerc.com/pdfs/insurance.pdf

http://www.webpages.ttu.edu/sbaugues/fin3323/11.%20Insurance.pdf

http://www.aspira.org/ins_new/auto%20pdfs/auto_teen_rev.ppt

http://www.lifeinscouncil.org/presentations/Indian%20Life%20Insurance%20Industry%20and%

20Taxation.pdfhttp://www.lifeinscouncil.org/presentations/Contribution%20of%20Life%20Insurance%20Sect

or%20in%20the%20Economy.pdf

http://www.ficci.com/media-room/speeches-presentations/2004/oct/indian-

insurance/Janmejaya_Sinha%20.ppt

http://www.actuaries.jp/eaac14th/pdf/session/01S_SubrahmanyamK.pdf

http://www.ifc.org/ifcext/che.nsf/AttachmentsByTitle/Healthpres_2007_DeepakMendiratta/$F

ILE/Healthpres_2007_Deepak+Mendiratta.pdf

http://www.researchandmarkets.com/reports/313125/indian_insurance_industry_an_analysis.

pdf

http://www.guycarp.com/portal/extranet/pdf/ExtPub/Clive_Baker_June_2004.pdf

http://business.mapsofindia.com/insurance/

http://www.ficci.com/media-room/speeches-presentations/2004/oct/oct18-ins-csrao.htm

http://unpan1.un.org/intradoc/groups/public/documents/apcity/unpan002873.pdf

http://www.icra.in/aspx/Insurance-ICRA-Moodys-200704.pdf

http://www.pri-center.com/documents/south_south/India.pdf

http://www.indiaprwire.com/pressrelease/insurance/200701091526.htm

http://www.ifc.org/ifcext/enviro.nsf/Content/InsuranceServices_Highlights_Delhi

http://www.indiainsuranceresearch.com/lifeinsurance_update/AnnualBusinessReview2005_06

.pdf

http://www.nottingham.ac.uk/business/cris/papers/2002-10.pdf (Good)

http://www.indianembassy.org/enews/econews(dec99).pdfhttp://www.expresshealthcaremgmt.com/20041015/conversation02.shtml

http://newdelhi.usembassy.gov/amboct062005.html

http://more4you.ws/articles/launch/02-11-2006Future-of-Indian-Insurance-Industry-

Completely-Insured-.htm

http://www.welcome-nri.com/Industryreport/Insurancereport.htm

http://www.welcome-nri.com/Industryreport/Insurance7.htm




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UNITV

Other financial services: (a) Factoring and bill discounting concept, process and forms.

Functions of a factor. Legal aspects of factoring and bill discounting. Financial evaluation offactorial servicescost of factoringdecision analysis for factor services. Factoring scenario in

India. (b) Credit rating concept and utility. Credit rating agencies in India and their performance.Financial dimensions of crediting rating methodology. Types of ratings and symbols.

FACTORING

The word Factor has been derived from the Latin word Facere which means to

make or to do.

Factoring, basically involves transfer of the collection of receivables and the related

book-keeping functions from the firm to a financial intermediary called the factor.

Factoring provides the firm with a source of financing its receivables and facilitatesthe process of collecting the receivables.

FUNCTIONS OF A FACTOR

1. Purchase and collection of debts

2. Sales ledger management

3. Credit investigation and undertaking of credit risk

4. Provision of finance against debts

5. Rendering consultancy services

FORMS OF FACTORING

1. Recourse and Non-recourse factoring

2. Advance and Maturity factoring

3. Full Factoring

4. Disclosed and Undisclosed factoring

5. Domestic and International factoring

COST OF FACTORING


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Finance Charge

It is computed on the payment outstanding in the clients account at monthly

intervals.

Finance charges are only for financing that has been availed. These charges are

similar to the interest levied on the cash credit facilities in a bank.

Service Fee

It is a nominal charge levied at monthly intervals to cover the cost of services such

as collection, sales ledger management, and periodical MIS reports.

Service fee is determined on thee basis of criteria such as the gross sales value, the

number of customers, the number of invoice and credit notes, and the degree of credit

risk represented by the customer or the transactions.

ADVANTAGES OF FACTORING1. Cost Savings reduction in administrative cost

2. Liquidity Promotes efficient WC mgt

3. Credit Discipline

4. Cash Flows

5. Prompt payment

6. Boon to SSI sector helps in financing WC

7. Efficient Production

8. Reduced Risk

9. Export Promotion

FACTORING IN INDIA

Factoring is of recent origin in the Indian context and is still in a nascent stage. According to the

recommendation of the Kalyanasundaram Committee,1988, RBI amended the Banking

Regulation Act and permitted subsidiaries of banks to start factoring companies

FACTORING OBSTACLES IN INDIA

Factoring deals in India encounter serious obstacles which stand in the way of growth of suchservices


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1. Lack of specialised credit information agency

2. Legal hassles

3. Funding Limitations

4. Limited coverage

If factoring is to grow, a solution to these problems is urgently needed

IMPORTANT WEBSITES

http://en.wikipedia.org/wiki/Factoring_(finance)

http://www.languages.ind.in/factoring.htm (GOOD)

http://www.euindiachambers.com/Events/HSBC-India.pdf

http://www.bized.co.uk/learn/accounting/financial/sources/factor.htm

http://www.1stcommercialcredit.com/

http://www.factoringfinance.org/

http://www.factoring.ru/eng/commercial/finance/

http://www.ocf.com/factoring/factoring-financial-services.htm

http://www.factoringhouse.com/index1.htm

http://www.hsbc.co.in/1/2/business/factoring-solutionshttp://www.thehindubusinessline.com/2008/06/10/stories/2008061050910600.htm

http://www.jcrenterprise.com/factoring_accounts_receivable_india.htm

http://lnweb18.worldbank.org/ECA/eca.nsf/abdf2b83e74f58ef852567d10011a8ba/3d06c90df9

4b22e685256dca007be1b7/$FILE/World%20Bank%20GTF%20Case%20Study.ppt

http://www.pharmexcil.com/v1/docs/5_MsShrutiSingh_Global_Trade_Finance_Ltd.pdf

http://www.ficci.com/media-room/speeches-presentations/2003/Feb/feb7-dupont-

amitmitra.ppt

CREDIT RATING


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1. INTRODUCTION TO CREDIT RATING (C.R)

2. DEFINITION OF C.R

3. HISTORY OF C.R

4. REASONS FOR GROWTH OF C.R SYSTEM

5. GROWTH OF C.R AGENCIES WORLDWIDE6. FUNCTIONS OF C.R

7. ESSENTIALS OF RATING SERVICE

8. BENEFITS OF C.R

9. BENEFITS TO RATED COMPANIES

10. CREDIT RATING IN INDIA

11. RATING PROCESS

12. RATING METHODOLOGY

13. RATING SYMBOLS

INTRODUCTION

As the number of companies borrowing directly from the capital market increases, and as the

industrial environment becomes more and more competitive and demanding, investors find

that borrowers net worth or name are no longer sufficient to ensure successful raising of funds

from the market. In such a scenario, to enable the investors to take informed decisions, Credit

Rating has emerged as one of the most important financial services.

A Credit rating is not a general evaluation of the issuing organisation. It essentially reflects the

probability of timely repayment of principal and interest by a borrower company.

DEFINITION

According to Moodys Investor Service (USA) Rating is designed exclusively for the purpose of

grading bonds according to their investment qualities.

According to Credit Rating Information Services of India Ltd. (CRISIL) Credit rating is an

unbiased, objective and independent opinion as to issuers capacity to meet its financial

obligations. It does not constitute a recommendation to buy/sell or hold a particular Security

HISTORY

The concept of credit rating dates back to 1840s

Mercantile Credit Agency (MCA) was set up in New York after the financial crisis of

1837.

The agency (MCA) rated the ability of merchants to pay their financial obligations.

The first rating guide was published in 1859.

In 1909, John Moody founded Moodys Investors Agency, which gave a new

direction to the concept of credit rating.


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In 1970, Penn Central, the then largest Railroad company in the world went

bankrupt with just under $100 million in outstanding commercial paper.

This forced the investors to ask for rating for commercial papers

Today, almost 100% of the commercial paper and 99% of the corporate bond are

rated in the U.S.A

REASONS FOR GROWTH OF C.R SYSTEM

1. The increasing role of capital and money markets

2. Increase in corporate borrowing and lending

3. The continuing growth of Information Technology

4. The growth of confidence in the efficiency of the market functioning

GROWTH OF CREDIT RATING AGENCIES WORLDWIDE

Missing info

FUNCTIONS OF CREDIT RATINGS

1. Superior Information

2. Low Cost Information

3. Proper risk-return trade off

4. Healthy discipline on Corporate Borrowers

5. Formulation of public policy guidelines on institutional investment

ESSENTIALS OF RATING SERVICE

Critical investment decisions may be taken based on the ratings offered by the credit rating

agency. In order to ensure that ratings lead to good investment decisions it is essential that therating service has the following two important factors

1. The quality of rating should be such that it wins the confidence and trust of the

users of such ratings

2. Rating agencies should be unbiased to both the investors and the corporate.

BENEFITS OF CREDIT RATING

1. Low cost information

2. Quick investment decision

3. Independent investment decision4. Investors protection

BENEFITS TO RATED COMPANIES

1. Sources of additional certification

2. Increase the investors population

3. Fore-warns risks


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4. Encourages financial discipline

5. Merchant bankers job made easy

6. Foreign collaboration made easy

7. Benefits the industry as a whole

8. Low cost of borrowing

9. Rating as a marketing tool

CREDIT RATING IN INDIA

The stupendous growth of Indian Capital Market necessitated setting up of Credit rating

agencies in India.

As the average size of debenture issued by the company, the number of companies issuing

debentures and the number of investors were growing substantially, the need for

establishment of independent credit rating agency was felt in the country

This growth led the establishment of

1. Credit Rating Information Services of India Limited (CRISIL) in 1987.

2. Investment Information and Credit Rating Agency of India (ICRA) in 1991

3. Credit Analysis and Research Limited (CARE) in 1993.

All the three credit rating agencies have been approved by the Reserve Bank of India.

CRISIL

It is the first credit agency started on January 1,1988 It was started jointly by ICICI and UTI with an Equity Capital of Rs.4 crores

It is the most important rating agency in the country.

Its major objective is to rate the debt obligations of Indian Companies

Apart from rating debentures, commercial papers, LPG/Kerosene dealers, its rating

services also extend to preference shares, real estate developers/builders, banks, etc.

Its rating guides investors about the risk of timely payment of interest and principal

on particular debt instrument.

It has used its information base and expertise in credit rating to provide counselling

to governments, banks, financial institutions on aspects such as privatization of PSUs,

credit evaluation and so on.

ICRA

It was set up by IFCI on 16th

Jan1991

It focuses on rating of instruments for which credit rating is mandatory, suhc as

debentures/bonds, commercial papers, Kerosene/LPG dealers.


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It also rates banks

It also provides credit assessment and general assessment services

During 1994-95, ICRA rates 212 debt instruments covering a debt volume of

Rs.5,343 crores.

The cumulative number of instruments rated since its inception till March 1995 has

been 485 covering a total debt volume of Rs.17,638 crores.

CARE

It is credit rating and information services company promoted by IDBI jointly with

investment institutions, banks, and fianance companies.

It commenced its credit rating operation in October1993. CARE is offering a wide

range of products & services in the fields of credit information and equity research.

CARE confines to normal rating business only and has not diversified its operations

the instruments credit-rated by CARE are debentures, Fixed deposits, Commercial

papers, etc CARE also undertakes general credit analysis of companies for the use of bankers,

other lenders and business counterparties

CAREs rating methodology and rating process are much similar to CRISIL

Since its inception till the end of March 1995, CARE has rated249 instruments

covering a total debt volume of Rs.9,729 crores.

RATING PROCESS

The credit rating process adopted by leading credit rating agencies in India and the world over

is depicted below1. Contract between Rater and Client

2. Sending expert team to clients Place

3. Data collection

4. Data analysis

5. Discussion

6. Credit report preparation

7. Submission to grading committee

8. Grade communication to client

RATING METHODOLOGY

In India, the rating exercise starts at the request of the company the process of obtaining a

rating is quite lengthy and time consuming. Ratings are assigned after an in-depth study of

various factors related to Business, Financial Management, and so on. The analytical framework

for rating consists of the following four broad areas.

1. Business Analysis


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2. Financial Analysis

3. Management Evaluation

4. Fundamental Analysis

1. Business Analysis

Industry Risk Market Position

Operating Efficiency

Legal Position

2. Financial Analysis

Accounting Quality

Earnings Protection

Cash Flow Adequacy

Financial Flexibility

3. Management Evaluation

Study of the track record

Managements capacity to overcome adverse or negative situations

Goals

Philosophy, and

Strategies

4. Fundamental Analysis

Liquid management

Asset management Profitability and interest

Tax sensitivity

RATING SYMBOLS

Since the rating of the agencies will be used by lay investors, the outcome of the

rating should be delivered in an understandable manner.

To facilitate the rating, symbols are provided

These rating symbols can be easily understood by investors and enable them to

take decisions on investments. The investor will not have to wholly depend on the

brokers advice as the rating symbols gives a clue to the credibility of the issuer.

CRISIL Fixed Deposit Rating Symbols