Final Document of Assignment of Section C & D2

7/31/2019 Final Document of Assignment of Section C & D2

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Q. Describe the role of commercial banks in industrial development.

The banks play a vital role in economic development of a country. The development of sound commercial bankinghas helped underdeveloped countries join the ranks of advanced countries.

The following are the important services rendered by commercial banks in the economic development of a country:

1. Promote Capital Formation: Capital occupies a very important position in any plan of economicdevelopment. Economic development is almost impossible, in the absence of adequate degree of capital formation.

Inadequate saving made by the community are the cause for deficiency of capital. Banks remove this deficiency of capital by stimulating savings and investment. A sound banking system mobilizes the small and scattered savingsof the people and makes them available for investment in productive enterprises. In this connection, the banks

perform two important functions: (a) They attract deposits by offering attractive rates of interest, thus convertingsavings into active capital. (b) They distribute these savings through loans among enterprises which are connectedwith economic development.

2. Optimum Utilization of Resources: Banks play an important role in developing trade and industry by providing timely financial assistance. It is through the agency of the banks that the communitys savingsautomatically flow into productive channels.

3. Financing the Priority Sectors: The banks and financial institutions operate in such a manner as toconform to the priorities of development and not in terms of return on their capital. The small scale industry has

been recognized as a very important productive sector of the economy deserving special support from the bankinginstitutions. Therefore, various concessions and facilities have been made available to this sector from the banks.The following are the important facilities granted to small-scale industries:

The banks have set up special cells for providing guidance to this sector.

The repayment periods are not fixed on an adhoc basis but are related to the surplus generating capacity of the unit.

The sector has been covered by a credit guarantee scheme under which the advances to this sector are protected by a guarantee from the Deposit Insurance and Credit Guarantee Corporation (DICGC).

4. Promote Balanced Regional Development: Banks help in distributing funds between regions. Theytransfer funds from less needed regions to more needed regions. In this way, they bring about more balancedregional development.

5. Expansion of Credit: Expansion of credit is inevitable to maintain a high level of economic actively. In anera of economic developments, banks create credit more liberally and make funds available for the development of various projects.

The Reserve Bank and Industrial Finance:

Speedy industrialization was an urgent need for India. But the lack of adequate facilities in the domestic capitalmarket was standing in the way of industrialization. This pointed out the need for adopting and enlarging theinstitutional structure so as to meet the medium and long term credit requirements of the industrial sector. TheReserve Bank created its Industrial finance Department in 1957. This department entrusted with all matters

pertaining to industrial finance. Ever since, the Bank has extended substantial financial and organizational helps tothe special agencies catering to the needs of industry and trade. Some are as follows:


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1. Nearly one-fifth of the paid-up capital of the Industrial Finance Corporation (IFCI) was subscribed by theReserve Bank.

2. The Bank is authorized to grant loans and advances, both short and medium term, to the Corporation.

3. Another important development in the field of industrial finance is the establishment of the IndustrialDevelopment Corporation of India (IDBI) in 1964 at the initiative of the Reserve Bank of India at its wholly ownedsubsidiary.

4. The bank also helps various special agencies established to meet medium and long term credit requirementsof industries.

Q . Risk Management for Banks:

Risk : For the purpose of these guidelines financial risk in banking organization is possibility that the outcome of anaction or event could bring up adverse impacts. Such outcomes could either result in a direct loss of earnings /capital or may result in imposition of constraints on banks ability to meet its business objectives. Such constraints

pose a risk as these could hinder a bank's ability to conduct its ongoing business or to take benefit of opportunitiesto enhance its business.

Regardless of the sophistication of the measures, banks often distinguish between expected and unexpected losses.Expected losses are those that the bank knows with reasonable certainty will occur (e.g., the expected default rateof corporate loan portfolio or credit card portfolio) and are typically reserved for in some manner. Unexpectedlosses are those associated with unforeseen events (e.g. losses experienced by banks in the aftermath of nuclear tests,Losses due to a sudden down turn in economy or falling interest rates). Banks rely on their capital as a buffer toabsorb such losses.

Risks are usually defined by the adverse impact on profitability of several distinct sources of uncertainty. While the

types and degree of risks an organization may be exposed to depend upon a number of factors such as its size,complexity business activities, volume etc, it is believed that generally the banks face Credit, Market, Liquidity,Operational, Compliance / legal / regulatory and reputation risks. Before overarching these risk categories, given

below are some basics about risk Management and some guiding principles to manage risks in bankingorganization.

Risk Management: Risk Management is a discipline at the core of every financial institution and encompasses allthe activities that affect its risk profile. It involves identification, measurement, monitoring and controlling risks toensure thata) The individuals who take or manage risks clearly understand it.

b) The organizations Risk exposure is within the limits established by Board of Directors.c) Risk taking Decisions are in line with the business strategy and objectives set by BOD.d) The expected payoffs compensate for the risks takene) Risk taking decisions are explicit and clear.f) Sufficient capital as a buffer is available to take risk The acceptance and management of financial risk is inherent to the business of banking and banks roles asfinancial intermediaries. Risk management as commonly perceived does not mean minimizing risk; rather the goalof risk management is to optimize risk-reward trade -off. Notwithstanding the fact that banks are in the business of taking risk, it should be recognized that an institution need not engage in business in a manner that unnecessarilyimposes risk upon it: nor it should absorb risk that can be transferred to other array of banks services.


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In every financial institution, risk management activities broadly take place simultaneously at following differenthierarchy levels.

a) Strategic level: It encompasses risk management functions performed by senior management and BOD. For instance definition of risks, ascertaining institutions risk appetite, formulating strategy and policies for managingrisks and establish adequate systems and controls to ensure that overall risk remain within acceptable level and thereward compensate for the risk taken.

b) Macro Level : It encompasses risk management within a business area or across business lines. Generally therisk management activities performed by middle management or units devoted to risk reviews fall into thiscategory.c) Micro Level : It involves On-the-line risk management where risks are actually created. This is the risk management activities performed by individuals who take risk on organizations behalf such as front office andloan origination functions. The risk management in those areas is confined to following operational procedures andguidelines set by management.

Risk Management framework :A risk management framework encompasses the scope of risks to be managed, the process/systems and procedures to manage risk and the roles and responsibilities of individuals involved in risk management. The framework should be comprehensive enough to capture all risks a bank is exposed to and haveflexibility to accommodate any change in business activities. An effective risk management framework includesa ) Clearly defined risk management policies and procedures covering risk identification, acceptance, measurement,monitoring, reporting and control.b ) A well constituted organizational structure defining clearly roles and responsibilities of individuals involved inrisk taking as well as managing it. Banks, in addition to risk management functions for various risk categories mayinstitute a setup that supervises overall risk management at the bank. Such a setup could be in the form of aseparate department or banks Risk Management Committee (RMC) could perform such function*. The structureshould be such that ensures effective monitoring and control over risks being taken. The individuals responsible for

review function (Risk review, internal audit, compliance etc) should be independent from risk taking units andreport directly to board or senior management who are also not involved in risk taking.c ) There should be an effective management information system that ensures flow of information from operationallevel to top management and a system to address any exceptions observed. There should be an explicit procedureregarding measures to be taken to address such deviations.d ) The framework should have a mechanism to ensure an ongoing review of systems, policies and procedures for risk management and procedure to adopt changes.TYPES OF RISKS:

1. Credit risk

2. Market risk 3. Liquidity risk 4. Operational risk

1. Credit risk: Credit risk arises from the potential that an obligor is either unwilling toperform on an obligation or its ability to perform such obligation is impaired resultingin economic loss to the bank.

2. Market risk: It is the risk that the value of on and off-balance sheet positions of afinancial institution will be adversely affected by movements in market rates or pricessuch as interest rates, foreign exchange rates, equity prices, credit spreads and/orcommodity prices resulting in a loss to earnings and capital.


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3. Liquidity risk: Liquidity risk is the potential for loss to an institution arising fromeither its inability to meet its obligations or to fund increases in assets as they falldue without incurring unacceptable cost or losses.

4. Operational risk: Operational risk is the risk of loss resulting from inadequate orfailed internal processes, people and system or from external events.

IDBI: MEASURE & MANAGE RISK

IDBI Bank uses SAS Credit Risk Management Solution to measure, manage and mitigate credit risk acrossits retail assets by using its superior data mining and statistical analysis capabilities.

With an ever-changing financial service marketplace in an environment of continued turbulence, disruptivecompetitors, dynamic markets and demanding customers, reaching out to the customers effectively is becoming atremendous challenge. With over million transactions in a day, alongside comes the challenge of understanding thecredit worthiness of customers, and therefore to proactively mitigate, measure and monitor credit risk.

With technology deployment seen as the key solution to fuel growth, IDBI Bank, one of India's fastest growing private sector banks, needed a solution that could help the Bank meet the new regulatory framework and also

ascertain the credit portfolio of its customers. IDBI Bank needed a solution that would assist in understanding thecredit worthiness of its customers, generating superior Portfolio Analysis and enhancing its risk managementinitiative in retail banking in line with the Bank's plans on being Basel II compliant by 2006.

At IDBI Bank we were looking at enhancing our risk management initiative in retail banking in line with our plans on being Basel II compliant by 2006. For this we needed a solution that would assist in understanding thecredit worthiness of customers and define pre-approved credit lines for individuals. In addition to the above,facilitate the development of analytical models using superior statistical techniques and intelligence, says PramodVaidya, Head - Risk Management, IDBI Bank .

Keeping these underlying objectives in mind, IDBI Bank decided to implement the SAS Credit Risk ManagementSolution across its Retail Assets division. Commenting on why IDBI Bank chose SAS, Vaidya said SAS clearlyscored over the other contenders in terms of understanding our requirements. The company demonstrated superior delivery capabilities, analytical prowess, high level of GUI and technical and domain skills.

Currently IDBI Bank uses the SAS Credit Risk Management solution for the performance monitoring of HomeLoan Score Card which has been recently implemented in the bank and has been developed by an analyticsconsultant. In addition to this the bank uses SAS for its superior Data Mining and Statistical analysis capabilitiesfor generating the monthly Portfolio Quality Report. In the near future IDBI Bank envisages using SAS for developing and recalibrating the statistical models internally.

According to Supratik Gupta Head Retail Risk Management, IDBI Bank , With increasing over-leveragingrisk these days, SAS tools will help us achieve our objective with respect to Customer Relationship Management(CRM) to have more profitable customer relationships

IDBI Bank looks confidently into the future to face and thrive in the intense competitive environment that isemerging. The bank has now gained experience and has in place the strategies required for gaining a leadership

position. With cutting edge relevant technology, aggressive marketing, innovation, tight control over costs and withits motivated workforce, the bank is all set to emerge as a model global corporate citizen in the days ahead.


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Q. Differentiate Life Insurance and General Insurance. Explain Current trend in insurance in India.

General Insurance: Insurance other than Life Insurance falls under the category of General Insurance. GeneralInsurance comprises of insurance of property against fire, burglary etc, personal insurance such as Accident andHealth Insurance, and liability insurance which covers legal liabilities. There are also other covers such as Errorsand Omissions insurance for professionals, credit insurance etc.

Non-life insurance companies have products that cover property against Fire and allied perils, flood storm andinundation, earthquake and so on. There are products that cover property against burglary, theft etc. The non-lifecompanies also offer policies covering machinery against breakdown, there are policies that cover the hull of shipsand so on. A Marine Cargo policy covers goods in transit including by sea, air and road. Further, insurance of motor vehicles against damages and theft forms a major chunk of non-life insurance business. In respect of insurance of property, it is important that the cover is taken for the actual value of the property toavoid being imposed a penalty should there be a claim. Where a property is undervalued for the purposesof insurance, the insured will have to bear a rate able proportion of the loss. For instance if the value of a propertyis Rs.100 and it is insured for Rs.50/-, in the event of a loss to the extent of say Rs.50/-, the maximum claimamount payable would be Rs.25/- (50% of the loss being borne by the insured for underinsuring the property by

50%). This concept is quite often not understood by most insureds. Personal insurance covers include policies for Accident, Health etc. Products offering Personal Accident cover are

benefit policies. Health insurance covers offered by non-life insurers are mainly hospitalization covers either onreimbursement or cashless basis. The cashless service is offered through Third Party Administrators who havearrangements with various service providers, i.e., hospitals. The Third Party Administrators also provide servicefor reimbursement claims. Sometimes the insurers themselves process reimbursement claims. Accident and health insurance policies are available for individuals as well as groups. A group could be a group of employees of an organization or holders of credit cards or deposit holders in a bank etc. Normally when a group iscovered, insurers offer group discounts.

Liability insurance covers such as Motor Third Party Liability Insurance, Workmens Compensation Policy etcoffer cover against legal liabilities that may arise under the respective statutes Motor Vehicles Act, TheWorkmens Compensation Act etc. Some of the covers such as the foregoing (Motor Third Party and WorkmensCompensation policy) are compulsory by statute. Liability Insurance not compulsory by statute is also gaining

popularity these days. Many industries insure against Public liability. There are liability covers available for Products as well. There are general insurance products that are in the nature of package policies offering a combination of the coversmentioned above. For instance, there are package policies available for householders, shop keepers and also for

professionals such as doctors, chartered accountants etc. Apart from offering standard covers, insurers also offer

customized or tailor-made ones. Suitable general Insurance covers are necessary for every family. It is important to protect ones property, whichone might have acquired from ones hard earned income. A loss or damage to ones property can leave oneshattered. Losses created by catastrophes such as the tsunami, earthquakes, cyclones etc have left many homelessand penniless. Such losses can be devastating but insurance could help mitigate them. Property can be covered, soalso the people against Personal Accident. A Health Insurance policy can provide financial relief to a personundergoing medical treatment whether due to a disease or an injury. Industries also need to protect themselves by obtaining insurance covers to protect their building, machinery,stocks etc. They need to cover their liabilities as well. Financiers insist on insurance. So, most industries or

businesses that are financed by banks and other institutions do obtain covers. But are they obtaining the right


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covers? And are they insuring adequately are questions that need to be given some thought. Also organizations or industries that are self-financed should ensure that they are protected by insurance. Most general insurance covers are annual contracts. However, there are few products that are long-term. It is important for proposers to read and understand the terms and conditions of a policy before they enter into aninsurance contract. The proposal form needs to be filled in completely and correctly by a proposer to ensure thatthe cover is adequate and the right one.

Life Insurance: Life insurance or life assurance is a contract between the policy owner and the insurer, where theinsurer agrees to pay a designated beneficiary a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness. In return, the policy owner agrees to paya stipulated amount (at regular intervals or in lump sums). There may be designs in some countries where bills anddeath expenses plus catering for after funeral expenses should be included in Policy Premium. In the United States,the predominant form simply specifies a lump sum to be paid on the insured's demise.

The value for the policyholder is derived, not from an actual claim event, rather it is the value derived from the'peace of mind' experienced by the policyholder, due to the negating of adverse financial consequences caused bythe death of the Life Assured.

Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specificexclusions are often written into the contract to limit the liability of the insurer; for example claims relating tosuicide, fraud, war, riot and civil commotion.

Life-based contracts tend to fall into two major categories:

Protection policies - designed to provide a benefit in the event of specified event, typically a lump sum payment. A common form of this design is term insurance.

Investment policies - where the main objective is to facilitate the growth of capital by regular or single premiums. Common forms (in the US anyway) are whole life, universal life and variable life policies.

Types of life insurance

Life insurance may be divided into two basic classes temporary and permanent or following subclasses - term,universal, whole life and endowment life insurance.

Term Insurance

Term assurance provides life insurance coverage for a specified term of years in exchange for a specified premium.The policy does not accumulate cash value. Term is generally considered "pure" insurance, where the premium

buys protection in the event of death and nothing else.

Permanent Life Insurance

Permanent life insurance is life insurance that remains in force (in-line) until the policy matures (pays out), unlessthe owner fails to pay the premium when due (the policy expires OR policies lapse). The policy cannot be canceled

by the insurer for any reason except fraud in the application, and that cancellation must occur within a period of time defined by law (usually two years). Permanent insurance builds a cash value that reduces the amount at risk tothe insurance company and thus the insurance expense over time. This means that a policy with a million dollar face value can be relatively expensive to a 70 year old. The owner can access the money in the cash value bywithdrawing money, borrowing the cash value, or surrendering the policy and receiving the surrender value.

The four basic types of permanent insurance are whole life, universal life, limited pay and endowment.

Whole life coverage

Whole life insurance provides for a level premium, and a cash value table included in the policy guaranteed by thecompany. The primary advantages of whole life are guaranteed death benefits; guaranteed cash values, fixed andknown annual premiums, and mortality and expense charges will not reduce the cash value shown in the policy.


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The primary disadvantages of whole life are premium inflexibility, and the internal rate of return in the policy maynot be competitive with other savings alternatives. Also, the cash values are generally kept by the insurancecompany at the time of death, the death benefit only to the beneficiaries. Riders are available that can allow one toincrease the death benefit by paying additional premium. The death benefit can also be increased through the use of

policy dividends. Dividends cannot be guaranteed and may be higher or lower than historical rates over time.Premiums are much higher than term insurance in the short term, but cumulative premiums are roughly equal if

policies are kept in force until average life expectancy.

Cash value can be accessed at any time through policy "loans" and are received "income-tax free". Since theseloans decrease the death benefit if not paid back, payback is optional. Cash values support the death benefit so onlythe death benefit is paid out.

Dividends can be utilized in many ways. First, if Paid up additions is elected, dividend cash values will purchaseadditional death benefit which will increase the death benefit of the policy to the named beneficiary. Another alternative is to opt in for 'reduced premiums' on some policies. This reduces the owed premiums by theunguaranteed dividends amount. A third option allows the owner to take the dividends as they are paid out.(Although some policies provide other/different/less options than these - it depends on the company for somecases)

Universal life coverage

Universal life insurance (UL) is a relatively new insurance product intended to provide permanent insurancecoverage with greater flexibility in premium payment and the potential for greater growth of cash values. There areseveral types of universal life insurance policies which include "interest sensitive" (also known as "traditional fixeduniversal life insurance"), variable universal life (VUL), guaranteed death benefit, and equity indexed universal lifeinsurance.

A universal life insurance policy includes a cash values. Premiums increase the cash values, but, the cost of insurance (along with any other charges assessed by the insurance company) reduces cash values. However, withthe exception of VUL, interest is credited on cash values at a rate specified by the company and may also increasecash values. With VUL, cash values will ebb and flow relative to the performance of the investment subaccountsthe policy owner has chosen. The surrender value of the policy is the amount payable to the policy owner after applicable surrender charges, if any.

Universal life insurance addresses the perceived disadvantages of whole life - namely that premiums and death benefit are fixed. With universal life, both the premiums and death benefit are flexible. Except with regards toguaranteed death benefit universal life, this flexibility comes at a price: reduced guarantees.

Depending on how interest is credited, the internal rate of return can be higher because it moves with prevailinginterest rates (interest-sensitive) or the financial markets (Equity Indexed Universal Life and Variable UniversalLife). Mortality costs and administrative charges are known. And cash value may be considered more easilyattainable because the owner can discontinue premiums if the cash value allows it.

Flexible death benefit means the policy owner can choose to decrease the death benefit. The death benefit couldalso be increased by the policy owner but that would (typically) require that the insured go through newunderwriting. Another example of flexible death benefit is the ability to choose option A or option B death benefits- and to be able to change those options during the life of the insured.

Option A is often referred to as a level death benefit. Generally speaking, the death benefit will remain level for thelife of the insured and premiums are expected to be lower than policies with an Option B death benefit.

Option B pays the face amount plus the cash value. If cash values grow over time, so would the death benefitwhich is payable to the insured's beneficiaries. If cash values decline, the death benefit would also decline.Presumably option B death benefit policies require greater premium than option a policies.

Limited-pay

Another type of permanent insurance is Limited-pay life insurance, in which all the premiums are paid over aspecified period after which no additional premiums are due to keep the policy in force. Common limited pay

periods include 10-year, 20-year, and paid-up at age 65.


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Endowments

Endowments are policies in which the cash value built up inside the policy, equals the death benefit (face amount)at a certain age. The age this commences is known as the endowment age. Endowments are considerably moreexpensive (in terms of annual premiums) than either whole life or universal life because the premium paying periodis shortened and the endowment date is earlier.

In the United States, the Technical Corrections Act of 1988 tightened the rules on tax shelters (creating modifiedendowments). These follow tax rules as annuities and IRAs do.

Endowment Insurance is paid out whether the insured lives or dies, after a specific period (e.g. 15 years) or a

specific age (e.g. 65).

Insurance Trends in India:

With the de-regulation in Indian Insurance industry, the monopoly of public sector companies in life insurance andgeneral insurance has come to an end. This has augmented the innovative practices initiated by the private players.Growth in the interactive technology such as internet has further created a wave of excitement in the insurancemarket. Indian economy and Indian Insurance sector is committed to a double digit growth. Heres a glimpse of Insurance Industry over 190 years.

Background:Insurance is an Rs 450 billion industry in India. The value of the market is determined by gross premium incomes.The life insurance segment writes about 80% of the overall market value. Indian Insurance market was at its alltime high in 2003 with a growth of about 17.4% over the previous year. Since 2001 Insurance is growing at the rateof 15-20 % annually. The growth in the insurance industry is affected by volatility in real estate rates, GDP ratesand long term interest rates. Fluctuations in exchange rates also affect the growth in this sector. The gross premiumas a percentage of the GDP has gone up from 2.3 in the year 2000 to 4.8 in 2006. Together with banking services, itadds about 7% to the countrys GDP.

History of Indian Insurance:

A] Ancient Historical Times:Insurance is as old as human society itself. The ancient origin of insurance is Emerigon, whose brilliant and learnedTrait des Assurances, first published in 1783, is still read with respect and admiration. The result shows thatinsurances were known to the ancients such as Romans, Phoenicians Rhodians, although the business of underwriting commercial risks was probably not highly developed. The histories of Livy and Suetonius shows thatthe contractors who undertook to transport provisions and military stores to the troops in Spain stipulated that thegovernment should assume all risk of loss by reason of perils of the sea or capture and this was probably the firsttime when insurance process was known. There were friendly societies organized, for the purpose of extending aidto their unfortunate members from a fund made up of contributions from all. These societies undoubtedly existed inChina and India in the earliest times. The earliest traces of Insurance in the ancient Indian history was in the formof marine trade loans or carriers contracts, which can be found in Kautilyas Arthashastra, Yajnyavalkyas

Dharmashastra and Manus Smriti. These works show that the system of credit and the law of interest were welldeveloped in India. They were based on clear appreciation of hazard involved and the means of safeguardingagainst it.

B] British-India Period:Insurance in India without any regulations started in the nineteenth century. It was a typical story of a colonial erawhere a few British insurance companies dominated the market serving mostly large urban centers. Companystarted by Europeans in Calcutta was the first life insurance company on Indian Soil.Bombay Mutual Life Assurance Society indicated the birth of first Indian life insurance company in the year 1870,and covered Indian lives at normal rates. 1930s was the last of the old-style crises in the Indian economy because itmarked the beginning of the end of the colonial state and an acceleration of the pace of industrialization as

entrepreneurs moved their capital out of the countryside. Independent India reduced its vulnerability to external


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economic shocks by close control of foreign exchange and by promoting a massive change in the export schedule.Till the end of nineteenth century insurance business was almost entirely in the hands of overseas companies.

C] Post Independence era of Indian Insurance:The insurance business grew at a faster pace after independence. Indian companies strengthened their hold on this

business but despite the growth that was witnessed, insurance remained an urban phenomenon. During Mrs.Gandhis tenure (from 1966-1968), there was a split within the business community of protectionists and thosewho wanted more open trade. But what maintained the momentum was the commitment of Two Ministers, Ashok Mehta and Subramaniam towards liberalization of the economy. This was seconded with high hope of getting

increased foreign aid.Deregulation actually helped the poorest in India as it would eventually create more employment and faster growth.Yet the intense fears of liberalization in the lower middle class and among working class employees of the statesector, pose serious risks in freeing the economy. It might be preferable to introduce liberalization during aneconomic upswing when the risk of switching jobs is less traumatic. The three liberalization episodes in Indianeconomic policy have followed clear cyclical patterns. Economic policy has swung broadly between controls andgreater openness, with a tendency toward decontrolling larger and more important segments of the economy.

D] Nationalization Phase of Indian Insurance:1944: The Nationalization of insurance industry gathered momentum in 1944 when a bill to amend the LifeInsurance Act 1938 was introduced in the Legislative Assembly.

1956: 154 Indian insurance companies, 16 non-Indian companies and 75 provident societies were taken over by thecentral government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capitalcontribution of Rs. 5 Crore from the Government of India.1972: The General Insurance Business (Nationalization) Act, which nationalized the general insurance business inIndia with effect from 1st January 1973. 107 insurers amalgamated and grouped into four companies viz. the

National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd.and the United India Insurance Company Ltd.

Nationalization was accomplished in two stages; initially the management of the companies was taken over bymeans of an Ordinance, and later, the ownership too was taken by means of a comprehensive bill. However, it wasonly in 1956, LIC was nationalized, with the objective of spreading life insurance much more widely and in

particular to the rural areas with a view to reach all insurable persons in the country, providing them adequate

financial cover at a reasonable cost. And as of 2007, LIC is Indias leading Insurance Company, with 2000 branches, which probably is the highest number of branches across India insurance sector.

E] Liberalization of Indian Insurance:1994: Insurance sector invited private participation to induce a spirit of competition amongst the various insurersand to provide a choice to the consumers.1997: Insurance regulator IRDA was set up as there felt the need:a) To set up an independent regulatory body, that provides greater autonomy to insurance companies in order toimprove their performance,

b) To enable them to act as independent companies with economic motives.c) To protect the interest of holders of insurance policies.

d) To Amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the General insuranceBusiness (Nationalization) Act, 1972e) To end the monopoly of the Life Insurance Corporation of India and General Insurance Corporation and itssubsidiaries.In the first year of insurance market liberalization (2001) as much as 16 private sector companies including jointventures with leading foreign insurance companies have entered the Indian insurance sector. Of this, 10 were under the life insurance category and six under general insurance. Thus in all there are 25 players (12-life insurance and13-general insurance) in the Indian insurance industry till date.

F] Indian Insurance in 21st Century:


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2000: IRDA starts giving licenses to private insurers: ICICI prudential and HDFC Standard Life insurance first private insurers to sell a policy2001: Royal Sundaram Alliance first non life insurer to sell a policy2002: Banks allowed selling insurance plans. As TPAs enter the scene, insurers start setting non-life claims in thecashless mode2007: First Online Insurance portal, www.insurancemall.in set up by an Indian Insurance Broker, Bonsai InsuranceBroking Pvt Ltd.

The Government of India liberalized the insurance sector in March 2000 with the passage of the Insurance

Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowingforeign players to enter the market with some limits on direct foreign ownership.Minimum capital requirement for direct life and Non-life Insurance company is INR1000 million and that for reinsurance company is INR 2000 million. In the 2004-05 budgets, the Government proposed for increasing theforeign equity stake to 49%, this is yet to be effected. Under the current guidelines, there is a 26 percent equity capfor foreign partners in direct insurance and reinsurance Company. (World Bank Economic Review-2000).

Online Insurance in India:Internet access in India has doubled every year over the last five years and forecasts predict this growth toquadruple every year over the next three years. According to emarketer report on India online, in 2007, about 33.2million people in India accessed internet and thats about 2.9% of Indian population. This figure is going to be 71.6

million people, which will be about 6% of population by 2011. Considering limited access of human-insuranceagents in rural areas, there will more demand of purchasing insurance online from these areas, followed by semi-urban areas. The insurance portals that are active in online distribution are www.icicilombard.com,www.bajajallianz.co.in, www.insurancemall.in, www.bimaonline.com, www.insurancepandit.com. Recently,Compare Choose Buy portals like Bonsai Insurance Brokers www.insurancemall.in, have been developed for

providing comparison of different types of insurance policies, their premiums and their purchase online. The policydetails are stored digitally and all transactions are made over secure channels. E-insurance offers a new gateway of incomes and provides additional market penetration, which is a need of an hour for Indian Insurance Segment.The First Movers in eDistribution of Insurance goes to 3 companies in India:1. ICICI Lombard General Insurance2. Bajaj Allianz General Insurance

3. www.insurancemall.in (Created by Bonsai Insurance Broking.)

Q. Explain role of merchant banker in primary market.Role of Merchant Banking in Primary Market: Merchant banking is- a financial intermediation that matchesentities that need capital and those that have capital. Hence they facilitate the flow of capital in the market.Changing role of a merchant banker in the past The role of the merchant banker was to arrange the necessarycapital and ensure that the transaction would be implemented i.e. a financial intermediary facilitating the flow of capital among the concerned parties. Today A merchant banker plays multiple roles which include those of anentrepreneur, a management advisor, an investment banker, and a transaction broker.

This shows that the breadth and depth of a merchant bankers activity has changed over the years.

Services offered: The wide gamut of services offered by a merchant banker include: Issue management- this formsthe Bread and Butter operations for most merchant bankers. The main area of service involves:

Instrument designing

Pricing of the issue

Registration process for the issue of shares

Underwriting of the issue


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Marketing efforts

Final allotment to investors

Listing details on stock exchanges

Corporate advisory services Merchant bankers offer customized solutions to solve the financial problems of their clients. Advice is sought in areas of financial structuring. Merchant bankers study the working capital practices thatexist within the company and suggest alternative policies. They also advise the company on rehabilitation and

turnaround strategies, which would help companies to recover from their current position. They also provide adviceon appropriate risk management strategies like hedging strategies. Project advisory services Merchant bankers helpclients to conceptualize the project idea, to carry out feasibility studies to find out the viability of the project, andalso to appraise their project. Loan syndication these financial intermediaries arrange loans, for their clients, byanalyzing their cash flow pattern, so that the terms of borrowing meet the clients cash requirements. They alsooffer assistance in loan documentation procedures. Restructuring strategies Merchant bankers assist themanagement of the client company to successfully restructure various activities, which include mergers andacquisitions, divestitures, management buyouts, joint venture among others.

To help companies achieve the objectives of these restructuring strategies, the merchant banker participates in

different activities at various stages which include understanding the objectives behind the strategy (objectivescould be either to obtain financial, marketing, or production benefits), and help in searching for the right partner inthe strategic decision and financial valuation of the proposal.

The merchant banker plays a vital role in channelizing the financial surplus of the society into productiveinvestment avenues. Hence before selecting a merchant banker, one must decide what the services for which he is

being approached are. Selecting the right intermediary who has the necessary skills to meet the requirements of theclient will ensure success.

Merchant Bankers play a significant role in the Indian Capital market, especially in placing equity in the primarymarket through the Public offers route. Public money or savings constitute thousands of rupees every year, which israised through equity or debt from market. Merchant bankers help corporate to raise capital from market. Theyought to possess knowledge and information about the various aspects of capital market, trends prevailing and the

psychology of the investors. The must have the ability to evaluate and analyze various aspects concerning theformulation of Industrial project and affecting the viability of the project.

Merchant Bankers helps corporate to raise money from capital market through the issue of shares, debentures, bonds etc. They are designated as managers to the issue. Their main business is to attract public money to capitalissue. They also help the companies to determine the capital structure. The pricing of the issue esp. in the publicissue is very important.

The pricing has to be such that:

Investors will be attracted to invest at that price and get suitable returns. And the Company at the same time shouldget the premium they are looking for, as larger the premium lesser is the requirement for borrowed funds.

All issues should be managed by at least one merchant banker functioning as the lead merchant banker. Providedthat, in an issue of offer of rights to the existing members with or without the right of renunciation the amount of the issue of the body corporate does not exceed rupees fifty lakhs, the appointment of a lead merchant banker shallnot be essential. No merchant banker, other than a bank or a public financial institution, who has been granted acertificate of registration under these regulations, shall after June 30th, 1998 carry on any business other than that

in the securities market.


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The Merchant Bankers offers following services and activities during the public issue:

Preparing the action plan and Budget for the total expenses for the issue

Drafting of prospectus and application for SEBI.

Obtaining consent from SEBI.

Selection of the Underwriter, Brokers, Bankers to the issue, Advertising agency, Printers etc.

Holding the road shows to sell the issue for the analyst, Brokers and institutional investors.

Deciding the pattern for advertising

Deciding the branches where application money should be collected.

Fixing the Dates for opening and Closing the issue.

Obtaining the daily report of application money collected in various branches.

Obtaining the subscription of the issue.

(Underwriting minimum 5% of the issue price)

After the closer of issue, Obtaining the consent of SEBI for

Deciding basis of allotment etc.

Companies are free to allot one or more agencies as managers to an issue. SEBI guidelines insist that there should be at least one authorized Merchant Banker for an issue less than Rs 100 crore and not more than two merchant bankers should be associated as lead managers, advisors and consultants to public issues over Rs 100 crore. Thisnumber could be up to max 4.

The prime responsibilities of the Merchant Bankers in the Management of public issues are listed below:

The merchant bankers should satisfy themselves with the viability of the projects (Technical, financial,managerial, market etc) before promoting it to the invertors. Also this helps him to sell the issue with confidence.They should associate themselves with good issues for maintaining high professional standards and reputation inthe market.

They should act as the custodians of the investors money and this puts a lot of responsibility on them. Todischarge this function they need to exercise due diligence independently by verifying the content of prospectus

and the reasonableness of the views expressed there in. Though they dont have to sign the prospectus, but theyhave to give a certificate to that effect to SEBI.

They are responsible to get the securities listed on all the stock exchanges mentioned in the prospectus. It can beespecially true of companies who cannot list their shares on either NSE or BSE but promise listing in severalregional stock markets but actually they list the in one/two exchanges.

Non-receipt of the refund orders and allotment advice within the stipulated period to the investors should be takencare. Introduction of DEMAT accounts the allotment complaints have considerably reduced. But the timely refundsand allotment of securities is the responsibility of lead/merchant bankers.


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The Merchant bankers have to certify that they have verified everything and they believe it to be true. This assuresthe investing public about the safety of their investment. The precautions taken by merchant bankers would ensurethat the fake companies, whose intention is to defraud investors, do not access market.

Every merchant banker shall keep and maintain the following books of accounts, records and documents namely:

A copy of balance sheet as at the end of each accounting period;

A copy of profit and loss account for that period;

A copy of the auditor's report on the accounts for that period; and

(d) A statement of financial position.

Q. What is book building process? Write about the green shoe option.

What is full, partial and reverse green shoe?

WHAT IS BOOK BUILDING PROCESS?

MEANING OF BOOK BUILDING:

Book building means a process by which a demand for the securities proposed to be issued by a body corporate iselected and built up and the price for such securities is assessed.

A company proposing to issue capital through book building has to comply with the following requirements:

BOOK BUILDING PROCESS

The option of book building is available to all body corporate that are otherwise eligible to make an issue of capitalto the public as an alternative to, and to the extent of, the percentage of the issue, which can be reserved for firmallotment.

The requirement of minimum 25% of the securities to be offered to the public is also applicable to the book building process. The securities available to the public should be separately identified as net offer to the public.

Offer to public through book building process

An issuer company may make an issue of securities to the public through a prospectus in two ways:

100% of the net offer to the public through the book building process 75% of the net offer to the public through the book building process and 25% at the price determined

through book building.The issuer company should appoint eligible merchant banker as book runner.

The primary responsibility of book building is that of book runner.

The issue company should enter in to an agreement with stock exchange which have online system for offer of securities.

The draft containing all the disclosure, as laid down by SEBI in respect of securities to be offered to the public,should be field by the lead merchant banker with the SEBI.

Additional disclosures

o The particulars of syndicate members, brokers, registrars, bankers to the issue and as on.


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The book runner should maintain a final book of demand showing the result of the allocation process.

GREEN SHOE OPTION: Companies that want to venture out and start selling their shares to the public haveways to stabilize their initial share prices. One of these ways is through a legal mechanism called the green shoeoption.

A green shoe is a clause contained in the underwriting agreement of an IPO that allows under writer to buy up to anadditional 15% of company shares at the offering price. The investment banks and brokerage agencies (theunderwriters) that take part in the green shoe process have the ability to exercise this option if public demand for the shares exceeds expectations and the stock trades above the offering price.

How the green shoe option works?

The underwriter works as a liaison (like a dealer), finding buyers for the shares that their client is offering. A price for the shares is determined by the sellers (company owners and directors) and the buyers

(underwriters and clients). When the price is determined, the shares are ready to publicly trade. The underwriter has to ensure that

these shares do not trade below the offering price. If the underwriter finds there is a possibility of the shares trading below the offering price, they can exercise

the green shoe option.

Full, partial and reverse green shoe option

The number of shares the underwriter buys back determines if they will exercise a full green shoe or a partial greenshoe.

A full green shoe occurs when they are unable to buy back any shares before the price goes higher. At this point,the underwriter needs to exercise the full option and buy at the offering price. The option can be exercised any timethroughout the first 30 days of IPO trading.A partial green shoe is when underwriters are only able to buy back some shares before the price of the shares

increases.There is also the reverse green shoe option This option has the same effect on the price of the shares as the regular green shoe option but instead of buying the shares, the underwriter is allowed to sell shares back to the issuer. If theshare price falls below the offering price, the underwriter can buy shares in the open market and sell them back.

Q. Call Money Market.Call money are overnight funds in the banking system, which aregenerally borrowed or advanced for not more than one day. For banks which need short term money to adjust their liquidity needs or have surplus funds, call money market provides an avenue to borrow or lend funds. Thetransactions are not collateralized, meaning, no security is offered or taken for borrowing or lending respectively. If

the period of borrowing is longer than it is called notice money or term money. Call money rates are negotiated between the parties and are ruled by purely demand and supply of funds in the system on a given date. Call ratesare barometer of short term liquidity in the economy and hence watched very closely by the Central Bank of acountry. Too much volatility in call rates is indicative of liquidity mismatches in the banking system and improper fund management which is not advisable from the point of stability of economy. In our Indian market, ReserveBank of India keeps a tight control over call money operations and has placed mechanism in place to ensure curbsand controls over the rates by creating several avenues for the banks so that they resort to call money borrowingsonly in the emergent circumstances.

Participants in the CALL MONEY MARKET


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The call money market was predominantly an interbank market till 1971 when UTI & LIC were allowed to operateas lenders. Until March 1978, Brokers were also allowed to participate in the call money market who would affecttransactions between lenders & borrowers for a brokerage. In the 1990s the participation was gradually widened toinclude DFHL, STCI, GIC, NABARD, IDIBI, money market mutual funds, corporate, & private sector mutualfunds as lender in this market.

The participation in the call money market as both lenders & borrowers are scheduled & non-scheduledcommercial banks, foreign banks, state, district,& urban cooperative bank & DFHI. Other borrowing participantsare the brokers & dealers in securities/bullion/bills market, & sometimes individuals of high financial status.

In 1996-97, the Reserve Bank permitted primary dealers to participate in this market as both borrowers & lenders.Entities that could provide evidence of surplus funds have been permitted to route their lending through primarydealers. The minimum size of operation for routing transaction has been reduced from rs20crore to rs3crore, witheffect from May 9, 1998.

List of Institutions Permitted to Participate in the Call/NoticeMoney Market both as Lenders and Borrowers as on July 1, 2004

a) All Scheduled Commercial Banks (excluding RRBs).

b) All Co-operative Banks other than Land Development Banks.

c) All Primary Dealers (PDs)

1. Discount and Finance House of India Ltd.2. Securities Trading Corporation of India Ltd.3. PNB Gilts Ltd.4. Gilt Securities Trading Corporation Ltd.5. ICICI Securities and Finance Company Ltd.,6. ABN Amro Securities (India) Pvt. Ltd.7. J.P. Morgan Securities India Pvt. Ltd.8. Kotak Mahindra Capital Company (Unlimited)9. DSP Merrill Lynch Ltd.

10. Deutsche Securities (India) Pvt. Ltd.11. IDBI Capital Markets Services Ltd.12. Corpbank Securities Ltd.13. HSBC Primary Dealership (India) Pvt. Ltd.14. Bank of America Securities Pvt. Ltd.15. Standard Chartered - UTI Securities India Pvt. Ltd.16. BoB Capital Markets Ltd.17. Citicrop Capital Markets Ltd.

II. List of Institutions Permitted to Participate in the Call/Notice

Money Market only as Lenders as on July 1, 2004

A. Financial Institutions

1. Export Credit Guarantee Corporation of India Ltd.2. Export Import Bank of India3. Industrial Development Bank of India4. Industrial Finance Corporation of India Ltd.5. Industrial Investment Bank of India6. National Bank for Agriculture and Rural Development7. National Housing Bank


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8. Small Industries Development Bank of India9. Special Undertaking of Unit Trust of India

10. Tourism Finance Corporation of India B. Insurance Companies

1. General Insurance Corporation of India2. ICICI Prudential Life Insurance Co.3. Life Insurance Corporation of India

4. National Insurance Co.5. New India Assurance Co.6. Oriental Insurance Co.7. Royal Sundaram Alliance Insurance Co. Ltd.8. United India Insurance Co.9. IFFCO -TOKIO General Insurance Co. Ltd.

C. Mutual Funds

1. Alliance Capital Mutual Fund2. BOB Mutual Fund

3. BOI Mutual Fund4. Birla Mutual Fund5. Canbank Mutual Fund6. Chola Mutual Fund7. DSP Merrill Lynch Mutual Fund8. Escort Mutual Fund9. GIC Mutual Fund

10. HDFC Asset Management Co. Ltd.11. IDBI Mutual Fund12. IL and FS AMC Mutual Fund13. ING Assets Management

14. JM Capital Management15. Jardine Fleming Mutual Fund16. Kotak Mahindra Mutual Fund17. LIC Mutual Fund18. Morgan Stanley Mutual Fund19. PNB Mutual Fund20. Prudential ICICI Mutual Fund21. Reliance Capital Mutual Fund22. SBI Mutual Fund23. Sriram Mutual Fund24. Sun F & C Mutual Fund

25. Sundaram Mutual Fund26. Tata Mutual Fund27. Tauras Mutual Fund28. Templeton Mutual Fund29. UTI Mutual Fund30. Standard Chartered Mutual Fund31. SBI Offshore Mutual Fund

Functions of call money market:The major function of the money market is to facilitate the raising of short-term funds from the surplus sectors tothe deficit sectors of the economy. The deficit units, which could be public or private, obtain funds from the

market to bridge budgetary gaps by either engaging in inter-bank taking or trading in short-term securities


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To fill the gaps or temporary mismatches in funds To meet the CRR & SLR mandatory requirements as stipulated by the Central bank To meet sudden demand for funds arising out of large outflows.

The Importance of a Call Money Market

Call money in some form is indispensable to every important financial centre. There must be not only an outlet for the employment of funds temporarily idle, but a large volume of call and short-time money is essential to thesuccessful and economical conduct of business. It is particularly essential to the international and domestic

commercial business, but the diversion of the use of the major portion of such money to the securities markets isnot in accordance with sound banking principles. It is to be noted that in no great world market, other than NewYork, is the call-money market so dependent upon investment securities and so susceptible to speculativeinfluences. In other markets the reverse is true, as their call money is based principally on commercial paper uponwhich realization can be had at the central bank, at a price, in case of need. We have seen that in these country callloans on securities lack this essential quality of liquidity required for quick and certain realization, and that this facthas now been more generally taken into consideration by our lenders. But the safe and successful divorce in thiscountry of the use of call money from dependence upon investment securities as a basis requires careful study inorder that safe and adequate methods may be substituted for the present methods of the securities market.

Q. Explain NSDL and CDSL. What is the process and benefits of depository system?

A major reform of Indian stock markets has been the introduction of the depository system and scripless tradingmechanisms, since 1996. The system of trading based on physical transfer/ custody of securities militated againstthe efficient functioning of markets, particularly in the context of the large scale entry of Foreign InstitutionalInvestors (FIIs).

Depository system:

It is a system of dematerialisation of share certificates through scripless trading in which transactions in securitiestake place by a book entry method without the physical delivery of securities or movement of cheques for payment.

Problems of Physical transfer: Inordinate delays in transfer of securities

Return of share certificates as bad deliveries on account of forged signatures/ mismatch of signatures or fake/ forged transfer deed

Delay in the receipt / non receipt of securities after allotment/ refund orders to non allottees

Delay in getting duplicate shares/ debentures certificates

Inadequate infrastructure in banking and postal segments to handle a large volume of application andstorage of share certificates

However, physical dealing in securities had to be completely eliminated to bring the Indian stock markets at par with the international markets, through scripless trading in which transactions in securities take place by a book entry method, without the physical delivery of securities or movement of cheques for payment.

The depository system in India operates within the framework of Depositories Act, 1996 and the SEBIDepositories and Participants Regulation, 1996.

Rights/ Obligations of Depositories, Participants, Issuers and Beneficial Owners:


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OR

Process of Depository System:

A depository should enter into an agreement with Depository Participant (DPs) as its agent. Any person can availof depository services connected with the recording of allotment or transfer of securities in the record of adepository, through a DP, by surrendering the certificate of security to the issuer company in the specified manner.The issuer would cancel the certificate and substitute, in its records, the name of the depository as a registeredowner in respect of that security. The depository would record the name of the person surrendering the certificateas the beneficial owner.

On receipt of information from any DP, a depository would register the transfer of security in the name of thetransferee. If a beneficial owner/ transferee seeks to have the custody of such security, the depository would informthe issuer company. Persons subscribing to securities have the option either to receive the certificates or hold themwith a depository. In the later case, the company should inform the depository about the details of allotment and thedepository should enter in its record the names of the allottees as the beneficial owners of that security. Allsecurities held by the depository would be dematerialised and would be in fungible form. A depository would bedeemed to be the registered owner for the purposes of transfer of ownership of a security on behalf of a beneficial,though he would not have any voting rights in respect of the securities held. The beneficial owner is entitled to allrights/ benefits and subjected to all liabilities in respect of such securities. Every depository should maintain aregister and an index of beneficial owners in the manner provided by the companies act.

Existing Depositories in India:

Presently there are two depositories in the country, namely, National Securities Depositories Limited (NSDL) andCentral Depositories Services Ltd (CDSL). We discuss the depository system in India with reference to the NSDL.

NSDL:

It is the first depository company in the country. It has been sponsored by the Unit Trust of India, NSE, SBI,

HDFC Bank and Citybank. As public limited co., it is managed by Board of Directors. It is governed by its byelaws and business operations are regulated by its business rules.

FUNCTIONS:

Enables the surrender and withdrawal of securities to, and from, the depository (dematerialization andrematerialization)

Maintains investor holdings in the electronic form

Effects settlement of securities traded on the exchanges

Carries out settlement of trades not done on the stock exchange (off market trades)

Transfer of securities

Pledging/ Hypothecation of dematerialised securities

Electronic credit in electronic form

Stock lending and borrowing

NOTE: Please refer to the diagram of structure of NSDL from text book.


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SERVICES OFFERED BY NSDL:

As a depository, it offers a host of services to the investors through its network of depository participants (DPs):

(i) Maintenance of beneficial holdings through DPs:

The NSDL maintains accounts of investor holdings through its DPs. However it has a record of theaccounts of individual investors to ensure proper flow of information to companies.

(ii) Dematerialisation:

Conversion of physical certificates into dematerialised holdings at the request of the investors is calleddematerialization. Only shares registered in the name of account holder are accepted for dematerialization at NSDL.

Steps for Dematerialization:

(a) The investor surrenders defaced certificates along with the dematerialization request from (DRF) tohis DP

(b) The DP intimates the NSDL of the request through the system

(c) The DP submits the certificates along with the DRF to the registrar

(d) The registrar confirms the dematerialization request from the NSDL

(e) The registrar validates the request, updates records and informs the NSDL

(f) The NSDL credits the DPs account and informs the DP

(g) The DP updates the investors account and informs the investor

NOTE: Please refer the diagram from text book

(iii) Trading and Settlement in Dematerialised securities:

An investor who has sold securities in the physical market can deliver either physical or dematerialisedsecurities. But physical securities cannot be delivered against obligations in the market for dematerialised securities

(iv) Receipt of Allotment in the Dematerialised Form:

In the case of public issues, the applicant can specify upfront the manner in which he wishes to receivehis allotment, that is, in the form of physical certificates or in the form of electronic credit in an accountmaintained with a DP.

(v) Receipt of Corporate benefits:

On the record dates the company calculates the benefits (like rights or bonus) with the help of NSDL.The owners have the option of receiving it in physical certificates or dematerialised holdings. If hechooses demate form he can get a direct credit to his account, thereby avoiding the risk of loss of certificates in transit.


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(vi) Rematerialization:

The conversion of dematerialised holdings back into physical certificates is called rematerialization.

Steps of rematerialization:

(a) The beneficial owner submits a rematerialization request form (RRF) to the DP

(b) The DP intimates the NSDL of the request through the system

(c) The DP submits the RRF to the registrar

(d) The NSDL confirms rematerialization request to the registrar

(e) The registrar updates accounts and prints certificates and inform the NSDL

(f) The NSDL updates accounts and downloads details to the DP

(g) The registrar despatches the certificates to the investor

NOTE: Please refer to the book for diagram

(vii) Pledging and Hypothecation facilities:

The NSDL provides beneficial owners with the facility to pledge/ hypothecate securities held indematerialised form. The securities lying in the beneficiary account of the investor borrower (pledger)can be pledged in favour of a lender (pledgee). The pledeged securities are blocked in favour of thelender/ pledgee, who can release the pledge once its loan is repaid by the borrower. On invoking the

pledge, the securities would be transferred to the lenders account and hence changed in its nameimmediately

(viii) Freezing/ locking of an invertors account:

An investor can freeze/ lock his account for any given period of time. During this period, no debit can be made to the investors account

(ix) Market Trade:

The investor can purchase and sell securities following the required procedure.

(x) Off market trades:

These are the trades that are not cleared and settled through the CC/CH of the stock exchange. The buyer and seller negotiate the trade with each other. The seller then gives his DP, a delivery instructionslip, authorising the DP to debit his account with the sold securities.

(xi) Bye laws:

The bye laws of NSDL have been formed by powers conferred by Section 26 of the Depositories Act,1996 and approved by the SEBI. They contain inter-alia provisions relating to BOD, Executivecommittee, Business rules, participants, safeguards to protect interest of clients, etc.

(xii) Business Rules:


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The business rules of the NSDL are applicable to all the users of depository and clients. These relate tothe following aspect of the depository: code of ethics for participants, hardware and softwarerequirements, fee and deposits, transaction in accounts, etc.

Question : A detailed note on Reforms in Capital Market from history to current time.

Answer: The capital market is an important constituent of the financial system. It is a market for long term funds- both equity and debt. The capital market comprises the primary and the secondary market.

The capital market in India was not well organised and developed during the British rule. Many foreign companiesdepended on the London capital market for funds rather than on the Indian capital market. The Bombay Stock Exchange was recognised in May 1927 under the Bombay Securities Contracts Control Act,1925.

Major capital market scams took place in the 1990s shook the capital market. The 1991-92nsecurities scamrevealed the inadequacies and the inefficiencies in the financial system.

Reforms in the capital market:

The SEBI was given statutory powers in January 1992 through the enhancement of the SEBI Act, 1992 for regulating the securities market.

The requirement to issue shares at a par value of rs.10 and rs.100 was withdrawn. This gave companies thefreedom to determine a fixed value per share. This facility is available to companies which havedematerialised their shares .

Companies are required to disclose all material facts, specific risk factors associated with their projectswhile launching public issue and give justification for pricing on their prospectus.

One of the significant steps towards integrating the Indian capital market with the International capitalmarkets was the permission given to foreign institutional investors to operate the Indian market.

Indian companies have been allowed to raise capital from the international capital markets through issue of GDR, ADR, FCCBs and ECBs.

The entry norms for IPOs have been tightened by modifying the Disclosure and Investor protection (DIP)guidelines.

The issuer can make a public or rights offer of shares in demat form only.

Every public listed company making an IPO of any securities for rs. 10 crore or more is required to makean offer only in a dematerialised form.

The SEBI introduced the green-shoe option facility in IPOs as a stabilisation tool for the post listing priceof newly issued shares.

In order to ensure availability of floating stocks on a continuous basis and maintain uniformity for the purpose of continuous listing, maintain public shareholding of 25 per cent prescribed by SEBI in case of alllisted companies barrying a few exceptions.

The open outcry trading system , prevalent till 1995, was replaced by the on-line screen based electronictrading .


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Trading and settlement cycles were uniformly trimmed from 14 days to 7 days in all stock exchanges inaugust 1996. Rolling settlement (T+5) was introduced in January 1998 for the dematerialised segmentof all companies. With effect from December 31,2001, all scripts have come under rolling settlement .

The NSE set up a separate clearing corporation- The NSCC to act as a counter party to all trades executedin the capital market of the exchange.

Badla-the carry forward trading mechanism was reinsistated in January 1996.

One of the most significant reforms in the secondary market is the measure to improve corporategovernance .

Since June 2000, trading of futures has begun. Both the NSE and the BSE have created proper facilitiesfor derivatives trading. Trading of index-based and stock based options started in June and July 2001respectively while trading of stock based futures began in November 2001.

The central government has notified the establishment of the IEPF with effect from October 1,2001 whichwill be utilized for the promotion of awareness amongst investors and promotion of their interests .

Interest rate futures contracts were introduced in June 2003 and futures and options contracts on sectoralindices were introduced in August 2003.

Stock brokers were allowed to trade in commodity derivatives.

Functions of Custodians & Depositories

CUSTODIAN

Meaning:

A custodian is an entity which holds the documentary evidence of the title to property belonging like share

certificates, etc for safekeeping.

Functions:

(1) Holding control over the asset of the fund that were entrusted to him by the investors;(2) Making sure that the investment policies provided in the Trust Deed and the laws governing the fund areobserved by the investment manager;(3) Ensuring that the assets are segregated from the managers assets;(4) Undertaking activities as a domestic depository in relation to issue of IDRs;(5) Collecting the benefits/rights accruing to him in respect of securities; and

(6) Keeping him informed of the actions taken by the issuer of securities, having a bearing on the benefits/rightsaccruing to him.

The Custodian exercises a direct control over the assets of the scheme and has the main mission to hold, safeguardand operate them in accordance with the managers investment decisions.

DEPOSITORIES

Meaning:


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A depository is an entity where the securities of an investor are held in electronic form. Depositories help in thesettlement of the dematerialized securities. Each custodian/clearing member is required to maintain a clearing poolaccount with the depository. He is required to make available the required securities in the designated account onsettlement day.

There are two main depositories in India.

1.National Securities Depository Ltd ( NSDL )

2.Central Depository Services Ltd ( CDSL ) NSDL is the first and largest depository in India. It established in August 1996.

Functions:

i) Maintaining dematerialized accounts

ii) Transfer of shares across Depositories Participants accounts and iner-depository transfers

iii) Crediting Accounts in case of Corporate Actions like Dividend issue, Rights issue etc.

iv) Some other value added services like managing intermediary accounts for SLB (Stock Lending and

Borrowing), IPOs, National Savings Certificates etc.v) Maintains investors holdings in electronic formvi) Effects settlement of securities traded on exchangevii) Transfer of securitiesviii) Pledging of dematerialized securitiesix) Receipt of non-cash corporate benefits in electronic formxi) The preservation of the assets of the fund (the depositary holds the title of the assets when they are transferableinstruments such as equities, or operates as a mere book-keeper complementing a Prime-Brokers job when itcomes to derivatives);xii)The day-to-day administration of the assets of the fund (the depositary receives the income produced by the

assets);xiii) The control of the fundss operation (compliance with investment policies, notably proper

creation/redemption/cancellation of the units/shares issued to the investors)

Summary:Trustee = control onlyCustodian = custody onlyDepositary = custody (frequent delegation) + control

Q. What is Insider Trading? Write down SEBI rules for insider trading.

Trading in a companys Shares by Directors and Employees who enjoy a special status when compared with thegeneral investor, on the basis of price sensitive information and who as a result thereof are able to use their specialstatus for individual benefit, is commonly known as Insider Trading.In Order to prohibit such practice, the market regulator, the Securities and Exchange Board of India (SEBI) hadcome out with regulations known as SEBI (Prohibition of Insider Trading) Regulations, 1992.Under these regulations, as amended, it is mandatory for every listed company to lay down a Code of Conductto be observed by its Directors and employees while dealing with Shares of the Company. In line with the said regulations a Code of Conduct had been adopted by Board of Directors of the Company at itsmeeting held on 29.10.2007.


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This Code will be called C & C Code on Prevention of Insider Trading. This code will come into effect on07.01.2008


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APPLICABILITY

Part A - Applicable to all Directors (Including independent Directors), all Employees and person who aredeemed to be connected with the Company.

Part C & Part D (Relating to Disclosure) - Applicable only to Directors and DesignatedEmployees and to their dependent family members

Part E - Applicable to all Directors (Including independent Directors), all Employees

DEFINITIONS

i) Designated Employees : Means a person occupying any of the following position in the Company

DirectorsExecutive Director (Not being member of the Board), Chief Financial Officer or any such

equivalent positionVice President or any such equivalent PositionChief General Manager, General Manager or any such equivalent position.Company SecretaryEmployees upto Manager Level in Accounts, Secretarial & Legal department at head office

of the CompanySuch Other employees as may be determined on case to case basis, who could be reasonably

expected to have access to unpublished price sensitive information relating to the company to bedecided by Compliance officer.

ii) Dependent Family Members: Dependent Spouse, Dependent parents, Dependent Children under the age of 21 years and any other person dependent on DesignatedEmployee.

iii) Person deemed to be Connected: Following persons shall be deemed to be with Companyconnected with the Company:

Company under same management or group or any subsidiary Company thereof Merchant Banker, Registrar to the issue, Share Transfer Agent, Debenture Trustee or anyemployees of these entities. Statutory Auditors Internal Auditors including their employees. Banker of the Company. Relatives of Directors and employees of the Company. Firm, Trust, Hindu undivided family, Company or Association of Persons wherein any of the Directors and Employees have more than 10% of the holding interest.

iv) Price Sensitive Information : Any information that relates directly or indirectly to Company, if published, is likely to materially affect the price of Shares of Company.

The following shall be deemed to be price sensitive information: Periodical Financial Results Intended declaration of interim of final dividend Issue of Shares or Buy-back of Shares Major expansion plans Execution of new projects Amalgamation, mergers or takeovers Disposal of whole or substantial part of the undertaking


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Significant changes in policies, plans or operations Any other information which, considering its materiality and bearing on the Companysoperations/ performance will be considered as price sensitive information

v) Trading Window: Trading Window means a trading periods for trading in the Companys Shares All days shall be the trading periods excepts when trading window is closed.

vi) Unpublished Information: means information which is not published by the company or its agents and is not specific in nature.

Speculative Reports in print or electronic media shall not be considered as Published information.

viii) Compliance Officer : Company Secretary of C & C Construction LtdWords and phrases not specifically defined herein shall have the same meaning as defined in the CompaniesAct, 1956 and/ or any SEBI Regulation.


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PART ACONFIDENTIALITY OF PRICE SENSITIVE INFORMATION

(Applicable to all Directors including Independent Directors, all Employees and person who are deemed tobe connected with the Company)

Confidentiality of Price Sensitive InformationDirectors including Independent Directors, all Employees and persons who are deemed to be connectedwith the Company, are required to maintain confidentiality of price sensitive information with respect toacquisition/ purchase/ sale of the Companys Shares and should adhere to the following:

i) they should not acquire/ purchase/ sell the Companys Shares either on behalf of themselves or otherswhen in possession of unpublished price sensitive informationii) they shall not communicate, counsel or procure directly or indirectly any unpublished price sensitive

information to any person and pass on such information to any person, directly or indirectly byway of making recommendations for acquisition/ purchase/ sale of the Companys Shares;

Communication and Security Guidelines for Confidentialityi) Communication of unpublished price sensitive information should be only to those Employees who

need the same for discharge of their duties

ii) Unpublished price price sensitive information should not be communicated in a situation in which

there would be an uncertainty as regards conflict of interest of the possibility of misuse of theinformation.

iii) Adequate measures should be taken to ensure that all confidential information in paper or electronicform is kept secure through adequate security mechanics.

PART BDUTIES OF THE COMPLIANCE OFFICER

Duties of the Compliance OfficerThe Compliance Officer shall be responsible for establishing policies, procedure and monitoring

adherence to this code under the overall supervision of the Board of Director.Without prejudice to the aforesaid, he shall be responsible of the following:1) Pre-clearance of trades of Director, Officer and Designated Employees.

2) Clarifications and improvements as regards policies and procedures with respect to this code andensure effective implementation of this code.

3) Intimation to any individual or class of Designated Employees to whom this code may be madeapplicable form time to time.

4) Maintenance of records / declarations of all Directors, Officers and Designated Employees as

required under this code and any changes therein for a minimum period of 3 years.5) Placement before the Chairman/ Managing Director for information, the details of acquisitions/

purchases/ Sales of Shares pre-cleared by the Company in respect of acquisitions/ purchases/ Salesabove the pre-cleared limit on a monthly basis, if any transaction has taken place during the month.

6) Initiation of disciplinary action and implementation of punitive measures e.g. suspension formservices, wage freeze, for any non-adherence to this code and also informing SEBI of the same.

PART CDISCLOSURE OF HOLDINGS IN SHARES


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(Applicable only to Directors, Designated Employees & their dependent family members)The following disclosures shall be made to the Compliance Officer:

Initial Disclosures By Whom What to bedisclosed

When to bedisclosed

Form

Directors, Officers and DesignatedEmployees

Number of Sharesheld by them andtheir dependentfamily members

Within 4 workingdays of appointment/

joining or applicability of the

code, whichever islater.

Form A

Continual Disclosures By Whom What to bedisclosed

When to bedisclosed

Form

Directors, Officers and DesignatedEmployees

a) Number of Shares held and

b) CumulativeChanges (whether

by acquisition or by

sale) in holdingsexceeds Rs. 5 lacsin market value or 25000 shares or 1%of total paid upcapital, which ever is lower since thedate of lastdisclosure.

Within 4 workingdays of :a) Receipt of intimation of allotment of Shares

or

b) Acquisition/ purchase of Sharesor

c) Sale of Shares

Form B

The information received as per above disclosure shall be intimated to all stock exchanges on which the Shares of the company are listed within 5 days of receiving the same.

PART DTRADING RESTRICTIONS

(Applicable only to Directors, Designated Employees & their dependent family members)Trading Window

a) All Directors and Designated Employees and their dependent family members shall acquire/ purchase/ sellShares only when trading window is open and shall not enter into any transaction in the Company Sharesduring the Trading window in closed.

b) The Trading window shall be closed commencing seven exclusive days before and two exclusive days after the Board meeting at which quarterly/ annual financial results will be considered and such other period asmay be informed from time to time by Compliance Officer.

The dates of such Board Meeting will be informed by the Compliance Officer. Further any DesignatedEmployees who proposes to acquire/ purchase/ sell Companys Shares has an obligation to verify about thetrading window.

Pre-clearance of TradesFor any transaction during the Trading Window

a) Directors and Designated Employees are required to pre-clear their acquisition/ purchase/ sale transactionseither in their name or in the name of their dependent family members as per the pre-clearance procedure


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described hereunder only if acquisition/ purchase/ sale of Shares of the company in excess of 5000 sharesor Rupees 5,00,000 in market value, which ever is lower.

b) In such cases, an application has to be made in Form D to the Compliance Officer. In case of ComplianceOfficer, the pre-clearance will be done by the Chairman/ Managing Director.

c) The Compliance Officer shall scrutinize the pre-clearance application within 3 working days and convey hisapproval or refusal of clearance along with reasons therefor. The decision of Compliance Officer in thisrespect will be final.

d) All orders in respect of Shares for which pre-clearance has been obtained shall be executed within 7 days after the approval of pre-clearance is given otherwise fresh approval will be required.


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PART EMISCELLANEOUS

(Applicable to all Directors including Independent Directors and all Employees)Penalty for Non-adherence to the CodeAction for non-adherence to the code observed by any Director or Employee shall be brought to the notice of theBoard of Directors, Chairman, Managing Director or the Compliance Officer.If any non-adherence is observed, the Compliance Officer shall cause an internal enquiry to be conducted and if non-adherence is established, take actions including:

Suspension of employees from service:

Wage freeze; Any other suitable action to facilitate the implementation of the spirit of the code.

In addition, non-adherence to the code shall also be reported to SEBI by the Compliance Officer.The disciplinary action taken by the Company will be irrespective of action that may be taken by SEBI under theregulations which includes imprisonment for a term which may extend to 10 years or fine which may extend to Rs.25 crores or both.GeneralA copy of the SEBI (Prohibition of Insider Trading) Regulations, 1992 is enclosed. All concerned are advised to

peruse the same and acquaint them

Date post:	04-Apr-2018
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Final Document of Assignment of Section C & D2

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