P a g e| 0Downloaded from a2zmba.blogspot.comINITIALPUBLICOFFERP a g e| 1Downloaded from a2zmba.blogspot.comTopics Covered Executive Summary----------------------------------------------------- I!troductio!----------------------------------------------------------------- " #$at Is A! IPO---------------------------------------------------------------- % #$y &o Pu'(ic ----------------------------------------------------------------- ) &etti!* I! A! IPO ----------------------------------------------------------- + IPO Adva!ta*es , -isadva!ta*es ---------------------- .. Parameters To /ud*e A! IPO -----------------------------------." U!dersta!di!* T$e Ro(e O0 I!termediaries -- .1 Re*istratio! Process ----------------------------------------------- .) IPO Scams ------------------------------------------------------------------------- .+P a g e| 2Downloaded from a2zmba.blogspot.com Sa(ie!t Features O0 IPO Scams ------------------------------ 21 Operatio!a( -e3cie!cies --------------------------------------- 24 5easures To Preve!t Scams ---------------------------------- 2) Rece!t IPO6s ------------------------------------------------------------------ 2+ -EFINITIONS AN- ABBRE7IATIONS --------------------------- 8 Bi'(io*rap$y --------------------------------------------------------------- "P a g e| 3Downloaded from a2zmba.blogspot.comE9ECUTI7E SU55AR:As we all know IPO INITIAL PUBLIC OFFERING is thehottest topic in the current industry, mainly because of India being adeveloping country and lot of growth in various sectors which leads acountry to ultimate success. And when we talk about countrys growthwhich is dependent on the kind of work and how much importance towhich sector is given. And when we say or talk about industries growthwhich leads the economy of country has to be balanced and given properfnance so as to reach the levels to fulfll the needs of the society. Andindustries which have massive outfow of work and a big portfolio then itsvery difcult for any company to work with limited fnance and this iswhere IPO plays an important role.This report talks about how IPO helps in raising fund for thecompanies going public, what are its pros and cons, and also it gives usdetailed idea why companies go public. How and what are the stepstaken by the companies before going for any IPO and also the role of(SEBI) Securities and Exchange Board of India the BSE and NSE , whatare primary and secondary markets and also the important terms relatedto IPO. It gives us idea of how IPO is driven in the market and what arevarious factors taken into consideration before going for an IPO. And italso tells us how we can more or less judge a good IPO. Then we all knowthat scams have always been a part of any sector you go in for which arecovered in it and also few recommendations are given for the same. Italso gives us some idea about what are the expenses that a companyundertakes during an IPO. IPO has been one of the most important generators of fundsfor the small companies making them big and given a new vision in pastand it is still continuing its work and also for many coming years. P a g e| 4Downloaded from a2zmba.blogspot.comINTRO-UCTIONIPO stands for Initial Public Ofering and means the newofer of shares from a company which was previously unlisted. This isdone by ofering those shares to the public, which were held by thepromoters or the private investors prior to the IPO. In the case whenother investors or Promoter held the shares the stake holding comesdown to the extent their shares are ofered to the public. In other casesnew shares are issued to the public and the shares, which are with thepromoters stay with them. In both cases the share of the promoters inthe total capital comes down. For example say there are 100 shares in a company and 50of these are ofered to the public in an IPO then in such a case thepromoters stake in the company comes down from 100% to 50%. Inanother case the company issues 50 additional shares to the public andthe stake of the promoter comes down from 100% to 67%. Normally in an IPO the shares are issued at a discount towhat is considered their intrinsic value and thats why investors keenlyawait IPOs and make money on most of them. IPO are generally priced ata discount, which means that if the intrinsic value of a share is perceivedP a g e| 5Downloaded from a2zmba.blogspot.comto be Rs.100 the shares will be ofered at a price, which is lesser thanRs.100 say Rs.80 during the IPO. When the stock actually lists in themarket it will list closer to Rs.100. The diference between the two pricesis known as Listing Gains, which an investor makes when investing inIPO and making money at the listing of the IPO. A Bullish Market givesIPO investors a clear opportunity to achieve long term targets in a shortterm phase.#$at is a! IPOAn IPO is the frst sale of stock by a company to the public. Acompany can raise money by issuing either debt or equity. If thecompany has never issued equity to the public, it's known as an IPO.Companies fall into two broad categories: private and public. A privately held company has fewer shareholders and its owners don'thave to disclose much information about the company. Anybody can goout and incorporate a company: just put in some money, fle the rightlegal documents and follow the reporting rules of your jurisdiction. Mostsmall businesses are privately held. But large companies can be privatetoo. Did you know that IKEA, Domino's Pizza and Hallmark Cards are allprivately held?It usually isn't possible to buy shares in a private company.You can approach the owners about investing, but they're not obligatedto sell you anything. Public companies, on the other hand, have sold atleast a portion of themselves to the public and trade on a stock exchange.This is why doing an IPO is also referred to as "going public." Public companies have thousands of shareholders and aresubject to strict rules and regulations. They must have a board ofdirectors and they must report fnancial information every quarter. In theUnited States, public companies report to the Securities and ExchangeCommission (SEC). In other countries, public companies are overseen bygoverning bodies similar to the SEC. From an investor's standpoint, themost exciting thing about a public company is that the stock is traded inP a g e| 6Downloaded from a2zmba.blogspot.comthe open market, like any other commodity. If you have the cash, you caninvest. The CEO could hate your guts, but there's nothing he or shecould do to stop you from buying stock.The frst sale of stock by a private company to the public,IPOs are often issued by smaller, younger companies seeking capital toexpand, but can also be done by large privately-owned companies lookingto become publicly traded. In an IPO, the issuer obtains the assistance ofan underwriting frm, which helps it determine what type of security toissue (common or preferred), best ofering price and time to bring it tomarket. IPOs can be a risky investment. For the individual investor, it istough to predict what the stock will do on its initial day of trading and inthe near future since there is often little historical data with which toanalyze the company. Also, most IPOs are of companies going through atransitory growth period, and they are therefore subject to additionaluncertainty regarding their future value.Primary a!d Seco!dary mar;etsIn the primary market securities are issued to the public andthe proceeds go to the issuing company. Secondary market is term usedfor stock exchanges, where stocks are bought and sold after they areissued to the public.PRIMARY MARKET The frst time that a companys shares are issued to thepublic, it is by a process called the initial public ofering (IPO). In an IPOthe company ofoads a certain percentage of its total shares to thepublic at a certain price.Most IPOS these days do not have a fxed ofer price. Insteadthey follow a method called BOOK BUILDIN PROCESS, where the oferprice is placed in a band or a range with the highest and the lowest value(refer to the newspaper clipping on the page). The public can bid for theshares at any price in the band specifed. Once the bids come in, thecompany evaluates all the bids and decides on an ofer price in thatrange. After the ofer price is fxed, the company allots its shares to thepeople who had applied for its shares or returns them their money. P a g e| 7Downloaded from a2zmba.blogspot.comSECONDRY MARKETOnce the ofer price is fxed and the shares are issued to thepeople, stock exchanges facilitate the trading of shares for the generalpublic. Once a stock is listed on an exchange, people can start trading inits shares. In a stock exchange the existing shareholders sell their sharesto anyone who is willing to buy them at a price agreeable to both parties.Individuals cannot buy or sell shares in a stock exchange directly; theyhave to execute their transaction through authorized members of thestock exchange who are also called STOCK BROKERS.P a g e| 8Downloaded from a2zmba.blogspot.com#$y &o Pu'(icud*e a! IPOGood investing principles demand that you study theminutes of details prior to investing in an IPO. Here are some parametersyou should evaluate:- PromotersIs the company a family run business or is it professionallyowned? Even with a family run business what are the credibility andprofessional qualifcations of those managing the company? Do the toplevel managers have enough experience (of at least 5 years) in the specifctype of business? I!dustry Out(oo;The products or services of the company should have a gooddemand and scope for proft.P a g e| 16Downloaded from a2zmba.blogspot.com Busi!ess P(a!sCheck the progress made in terms of land acquisition,clearances from various departments, purchase of machinery, letter ofcredits etc. A higher initial investment from the promoters will lead to ahigher faith in the organization. Fi!a!cia(sWhy does the company require the money? Is the companyfoating more equity than required? What is the debt component? Keep atrack on the profts, growth and margins of the previous years. A steadygrowth rate is the quality of a fundamentally sound company. Check theassumptions the promoters are making and whether these assumptionsor expectations sound feasible. Ris; FactorsThe ofer documents will list our specifc risk factors such asthe companys liabilities, court cases or other litigations. Examine howthese factors will afect the operations of the company. ?ey NamesEvery IPO will have lead managers and merchant bankers.You can fgure out the track record of the merchant banker through theSEBI website. Prici!*P a g e| 17Downloaded from a2zmba.blogspot.comCompare the companys PER with that of similar companies.With this you can fnd out the P/E Growth ratio and examine whether itsearning projections seem viable. Listi!*You should have access to the brokers of the stock exchangeswhere the company will be listing itself.U!dersta!di!* t$e ro(e o0 i!termediaries Who are the intermediaries in an issue?Merchant Bankers to the issue or Book Running LeadManagers (BRLM), syndicate members, Registrars to the issue, Bankersto the issue, Auditors of the company, Underwriters to the issue,Solicitors, etc. are the intermediaries to an issue. The issuer disclosesthe addresses, telephone/fax numbers and email addresses of theseintermediaries. In addition to this, the issuer also discloses the details ofthe compliance ofcer appointedby the company for the purpose of theissue. Who is eligible to be a BRLM?P a g e| 18Downloaded from a2zmba.blogspot.comA Merchant banker possessing a valid SEBI registration inaccordance with the SEBI (Merchant Bankers) Regulations, 1992 iseligible to act as a Book Running Lead Manager to an issue. What is the role of a Lead Manager? (pre and post issue)In the pre-issue process, the Lead Manager (LM) takes upthe due diligence of companys operations/ management/ businessplans/ legal etc. Other activities of the LM include drafting and design ofOfer documents, Prospectus, statutory advertisements andmemorandum containing salient features of the Prospectus. The BRLMsshall ensure compliance with stipulated requirements and completion ofprescribed formalities with the Stock Exchanges, RoC and SEBIincluding fnalization of Prospectus and RoC fling. Appointment of otherintermediaries viz., Registrar(s), Printers, Advertising Agency andBankers to the Ofer is also included in the pre-issue processes. The LMalso draws up the various marketing strategies for the issue.The post issue activities including management of escrowaccounts, co-ordinate non-institutional allocation, intimation ofallocation and dispatch of refunds to bidders etc are performed by theLM. The post Ofer activities for the Ofer will involve essential follow-upsteps, which include the fnalization of trading and dealing ofinstruments and dispatch of certifcates and demat of delivery of shares,with the various agencies connectedwith the work such as theRegistrar(s) to the Ofer and Bankers to the Ofer and the bank handlingrefund business. The merchant banker shall be responsible for ensuringthat these agencies fulfll their functions and enable it to discharge thisresponsibility through suitable agreements with the Company. What is the role of a registrar?The Registrar fnalizes the list of eligible allottees afterdeleting the invalid applications and ensures that the corporate actionfor crediting of shares to the demat accounts of the applicants is doneand the dispatch of refund orders to those applicable are sent. The LeadP a g e| 1Downloaded from a2zmba.blogspot.commanager co-ordinates with the Registrar to ensure follow up so that thatthe fow of applications from collecting bank branches, processing of theapplications and other matters till the basis of allotment is fnalized,dispatch security certifcates and refund orders completed and securitieslisted. What is the role of bankers to the issue?Bankers to the issue, as the name suggests, carries out allthe activities of ensuring that the funds are collected and transferred tothe Escrow accounts. The Lead Merchant Banker shall ensure thatBankers to the Issue are appointed in all the mandatory collectioncenters as specifed in DIP Guidelines. The LM also ensures follow-upwith bankers to the issue to get quick estimates of collection and advisingthe issuer about closure of the issue, based on the correct fgures. Question on Due diligenceThe Lead Managers state that they have examined variousdocuments including those relating to litigation like commercial disputes,patent disputes, disputes with collaborators etc. and other materials inconnection with the fnalization of the ofer document pertaining to thesaid issue; and on the basis of such examination and the discussionswith the Company, its Directors and other ofcers, other agencies,independent verifcation of the statements concerning the objects of theissue, projected proftability, price justifcation, etc., they state that theyhave ensured that they are in compliance with SEBI, the Governmentand any other competent authority in this behalf.What is the Registration Process?Going public requires a Registration Statement which is acarefully crafted document that is prepared by your attorneys andP a g e| 20Downloaded from a2zmba.blogspot.comaccountants. It requires detailed discussions on information pertainingto: Business product/service/markets Company Information Risk Factors Proceeds Use (How are you going to use the money) Ofcers and Directors Related party transactions Identifcation of your principal shareholders Audited fnancials After your registration statement is prepared, it is submittedto the Securities and Exchange Commission and various other regulatorybodies for their detailed review. When this process is completed, you andyour management team will do a "road show" to present your company tothe stock brokers who will then sell your stock to the public investors.Assuming they can successfully sell your issue, youll receive yourmoney. Then it's simple, all you have to do is make a lot more money withthe proceeds so as to increase the value of your, your teams and thepublic investors stock.IPO SCA5S:ES BAN? Ltd@ CASEP a g e| 21Downloaded from a2zmba.blogspot.comThe modus operandi adopted in manipulating the YES BankLtd (YBL)'s initial public ofering (IPO) allotment involved opening of over7,500 benami dematerialised accounts. These accounts were with the National Securities DepositoryLtd (NSDL) through Karvy Stockbroking Ltd (Karvy-DP). Of the 13 erringentities, the chief culprits identifed by SEBI were Ms Roopalben Panchaland Sugandh Estates and Investments Pvt Ltd. While Ms Panchal opened 6,315 benami DP accounts,another entity Sugandh opened 1,315 benami accounts. Each of theseaccounts applications were made for 1,050 shares, paying applicationmoney of Rs 47,250 each. By applying for small lots (1,050 sharesthrough each accounts), they misused the retail allotment quotastipulated for IPOs. The shares allotted in IPO to the benamis of MsPanchal and Sugandh would have otherwise gone to genuine retailapplicants. The IPO of YBL opened on June 15, 2005 and its shareswere listed on the BSE and the NSE on July 12, 2005. It was observed that Ms Panchal had transferred 9,31,600shares to various entities in seven of-market transactions on July 11 - aday prior to the listing and commencement of trading on the stockexchanges. In order to get an allotment of 9,31,600 shares, Ms Panchalwould have had to apply for crores of shares involving many crores ofrupees in application money. However, Ms Panchal's name did not appear in the list of top100 public issue allottees. Thus, it was suspected that Ms Panchal musthave made multiple applications or that other applicants were acting as afront for her. Ms Panchal had applied for only 1,050 shares in the YESBank IPO, paying the application money of Rs 47,250. And she did notreceive any allotment in the IPO. On July 6, Ms Panchal received 150P a g e| 22Downloaded from a2zmba.blogspot.comshares each from 6,315 allottees through of-market transactionsaggregating 9,47,250 YBL shares. Curiously, as per the dematerialised account data furnishedby NSDL, of the above 6,315 entities as many as 6,221 entities have asame address in Ahmedabad. There are three more addresses oflocations in Ahmedabad, which have been linked to Ms Panchal. All the6,315 entities have their bank accounts with Bharat Overseas Bank anddemat accounts with Karvy-DP. By applying for the maximum possible number of shares perapplicant while being categorised as retail applicant and by putting inlarge number of applications in the lot of 1,050 shares, Ms Panchal andher associates (real or fctitious) have attempted to corner the maximumpossible number of shares in the IPO allotment. This tantamounts to an abuse of IPO allotment process, theSEBI order said.A similar modus operandi was adopted by Sugandh, whichreceived 150 shares each from1,315 dematerialised accountsaggregating 1,97,250 shares in of market transactions. According to SEBI fndings, Ms Panchal and others bookedprofts to the tune of about Rs 1.70 crore on the day of the listing of YESBank shares.P a g e| 23Downloaded from a2zmba.blogspot.comSEBI u!eart$s a!ot$er IPO scam i! I-FCSEBI on Thursday 12th Jan 06 unearthed yet another abuseof IPO norms in the IDFC's initial public ofering (IPO) where a fewinvestors opened over 14,000 dematerialised accounts to corner largenumber of shares of the company. This is the second such incident, aftera similar such violations were detected in the YES Bank's IPO. SEBI said in IDFC's IPO too four investors opened as manyas 14,807 dematerialized accounts with Karvy-DP and "strangely", allthese account holders have their bank accounts with Bharat OverseasBank Ltd, Ahmedabad. SEBI order said: "further probe is required forexamining the systemic fault, if any, of the registrar Karvy-RTI i.e. KarvyComputer Shares P Ltd, and the lead managers Kotak Mahindra CapitalCompany Ltd, DSP Merrill Lynch Ltd and SBI Capital Markets Ltd inidentifying and weeding out the benami applications." Reference is being made to the RBI to examine the role ofBhOB, HDFC Bank, Indian Overseas Bank, ING Vysya Bank and VijayaBank in opening the bank accounts of these benami entities andapparently funding them. According to SEBI, Karvy-DP, which was also named in theYES Bank IPO case, has not adhered to `Know-your-Client' norms, as perthe reports of inspection submitted by NSDL and CDSL on the DP. Also,some of the documents collected by CDSL during the course ofinspection show that Karvy-DP has obtained letters purportedly issuedby the banks' concerned such as BhOB as proof of identity and proof ofaddress of the person for the purpose of opening dematerialisedaccounts. "It is seen that one branch manager has on the same datesigned as authorized signatory of diferent branches of the bank. Thisraises a doubt as to the authenticity of the bank documents obtained byKarvy-DP for opening dematerialised accounts," the SEBI order by itsWhole-time Director Mr G. Anantharaman said. SEBI also banned fourinvestors (in whose names the multiple accounts were opened) viz., MsRoopalben Nareshbhai Panchal (who was also named in the YES BankIPO scam), Sugandh Estates & Investments P Ltd, Mr PurshottamP a g e| 24Downloaded from a2zmba.blogspot.comGhanshyam Budhwani and Mr Manojdev Seksaria from doing any kindof transactions in the securities market, till further directions. Another 35 frms were also barred from participating in the IPOs in thefuture, till further orders, the SEBI order said.5ARUTI CaseFictitious -emat AAc6s ope!ed i! 288 itse(0 `First IPO in which key players took part was Maruti'T$e C$ar*esDPs have been accused by SEBI of not fully implementingthe `maker-checker' concept, data entry errors, scanning of ofcials'signatures, and appointing themselves as the second holder. -escriptio!Some of the demat accounts that were used to manipulateallotments in the initial public ofer of Yes Bank and IDFC were openedduring 2003, and not in the last year as was earlier believed. The frstIPO in which the key operators have participated was that of MarutiUdyog Ltd, in June 2003, though the numbers of fctitious demataccounts were not very high then, the interim order from Securities andExchange Board of India has said. SEBI's investigations have now pegged that a "total of 24 keyoperators have indulged in abusive practices in respect of 21 IPOs". The evidence against Karvy DP has stemmed from the factthat almost all the demat accounts which served as conduits for thesemaster account holders were held with Karvy DP, according to the order.These 24 operators have 34 demat accounts; of which 16 demat accountsare held with Karvy DP. P a g e| 25Downloaded from a2zmba.blogspot.comDue Diligence Not TakenThe market regulator's investigations have pointed out that,while opening demat accounts the depository participants were notexercising due diligence. Persons involved in the scam have collectedproofs of identity and addresses from groups of persons and used this toopen bogus bank accounts. Inter-linkages The master account holders were found to have made of-market transfer of the IPO shares to various common groups of entitieswho appear to be their principals. It is seen that some of the masteraccount holders have also made of-market transfers amongstthemselves. This shows that there are inter-linkages amongst the masteraccount holders as well as between groups of master account holdersand their principals, the order said. Depository participants have been accused by SEBI of notfully implementing the `maker-checker' concept, data entry errors,scanning of ofcials' signatures, and appointing themselves as thesecond holder. With some of the DPs also acting as brokers, stockexchanges have been advised to examine the role and involvement ofbrokers and sub-brokers by way of participation in IPOs either directly orindirectly and their dealings in the shares subsequent to listing.Exchanges are to submit a report on this within a month.SEBI 'ars ?arvyB 2 ot$er e!titiesAlleged involvement in IPO allotment scamIn the dockP a g e| 26Downloaded from a2zmba.blogspot.comBan on several entities including HDFC Bank, IDBI Bank,ING Vysya Bank and Motilal Oswal Securities from opening fresh demataccounts.The regulator also pulled up NSDL and CDSL for `grave managementlapses'.DescriptionSEBI on Thursday 27th April 2006 came down heavily onstock market intermediaries by banning several entities including Karvygroup of companies, Pratik DP and Indiabulls Securities, for their allegedinvolvement in the IPO allotment scam. SEBI has also barred severalentities including HDFC Bank, IDBI Bank, ING Vysya Bank and MotilalOswal Securities from opening fresh demat accounts. In an interim order issued today after the second round ofinvestigations, the capital market regulator has banned 24 entities frombuying and selling securities till further orders. Common address SEBI also said 15 Depository Participants at NationalSecurities Depository Ltd (NSDL) including Kotak Securities, Citibank,ICICI Bank, Bank Paribas and IndusInd Bank had more than 500 demataccount holders sharing the common address. It asked NSDL to conduct inspection on whether all thedemat account holders are genuine. NSDL has also been asked to checkwhether the Know Your Customer norms of SEBI have been dulycomplied with and take action against suspect accounts on verifcation. Analysts felt the SEBI order was akin to capital punishmentfor the entities involved in the securities market scam. "In view of the detailed fndings, Karvy DP and Pratik DPprima facie do not appear to be ft to deal in securities market as SEBI-P a g e| 27Downloaded from a2zmba.blogspot.comregistered intermediaries. Appropriate quasi-judicial proceedings arebeing initiated against the two DPs," the 252-page order issued late inthe evening said. SEBI said the other business groups of Karvy appear to haveacted in concert in the gamut of IPO manipulations. "I further directKarvy Stock Broking Ld, Karvy Computer Share PVT Ltd, Karvy InvestorServices and Karvy Consultants not to undertake fresh business asregistrar to the issue and share transfer agent," Mr G Anantharaman,Whole-Time Member, SEBI, said. NSDL, CDSL pulled up The regulator also pulled up NSDL and CDSL for `gravemanagement lapses'. The fndings revealed "contributory negligence" onthe part of the depositories and their managements. "The promoters of NSDL and CDSL are directed to take allappropriate actions including revamping of management which clearlyhas allowed matters to come to such a sorry pass," the order said. The order, to be treated as a `show-cause notice', has given15 days time to the parties named for fling objections.IPO scamC D-FC Ba!;B 2 ot$ers 3!edThe Reserve Bank of India on Monday 27th Feb 2006 fnedHDFC Bank, IDBI and ING Vysya Bank for violation of Know YourCustomer norms and other irregularities in relation to the recent IPOscam. HDFC Bank has been slapped with the highest penalty of Rs25 lakh; ING Vysya Bank - Rs 10 lakh and IDBI Ltd Rs 5 lakh. P a g e| 28Downloaded from a2zmba.blogspot.comThis is the second time HDFC Bank has been fned forviolation of KYC norms. In January, the bank was imposed a penalty ofRs 5 lakh. According to an RBI release, these banks have been fned,"for violation of regulations on KYC norms, for breach of prudent bankingpractices and for not adhering to its directives/guidelines relating toloans against shares/ IPO." Sa(ie!t Features o0 IPO scam5odus opera!di Current account opened in the name of multiple companies on thesame date in the same branch of a bank Sole person authorized to operate all these accounts who was alsoa Director in all the companies Identity disguised by using diferent spelling for the same name indiferent companiesP a g e| 2Downloaded from a2zmba.blogspot.com Multiple accounts opened in diferent banks by the same group ofjoint account holders Huge funds transferred fromcompanies accounts to theindividuals account which was invested in IPOs Loans/ overdrafts got sanctioned in multiple names to bypass limitimposed by RBI Loans sanctioned to brokers violating guidelines Multiple DP accounts opened to facilitate investment in IPO Large number of cheques for the same value issued from a singleaccount on the same day Multiple large value credits received by way of transfer from otherbanks Several accounts opened for funding the IPO on the request ofbrokers, some were in fctitious names Refunds received got credited in brokers a/cs Margin money provided by brokers through single cheque Nexus between merchant banker, brokers and banks suspectedOperatio!a( de3cie!ciesFactors t$at 0aci(itated t$e scam Photographs not obtained Proper introductions not obtained Signatures not taken in the presence of bank ofcialP a g e| 30Downloaded from a2zmba.blogspot.com Failure to independently verify the identity and address of all jointaccount holders Directors identity/ address not verifed Customer Due Diligence done by a subsidiary Objective of large number of jt. account holders opening accountnot ascertained Purpose of relationship not clearly established Customer profling based on risk classifcation not done Poor monitoring and reporting system due toinadequateappreciation of ML issues Absence ofinvestigation about use and sources of funds Unsatisfactory training of personnel No system of fxing accountability of bank ofcials responsible foropening of accounts and complying with KYC procedures Inefective monitoring and control 5easures to preve!t scams An analysis of IPO scam clearly brings out the laxity on the part ofbanks to scrupulously implement the KYC/AML guidelines issuedfrom time to time. It also raises serious concerns about theintegrity of the systems & systemic risks.P a g e| 31Downloaded from a2zmba.blogspot.com While scams may still happen despite best of preventivemeasures, it should not undermine the eforts being made toinsulate the fnancial sector from money laundering. It is going tobe a long fght with constant need to improve and innovate newstrategies. It is important to understand that the risks banks run as a resultof non-compliance with regulatory and statutory guidelines cancause severe reputational and fnancial damage to individualbanks and the Indian banking system as a whole Need for comprehensive operational framework implementingimportant aspects of KYC instructions e.g. Documentation procedure for opening of all types of customeraccounts; Clarity in understanding of risk classifcation of accounts andproper customer profling Ongoing monitoring of medium and high risk accounts Enhanced due diligence in respect of accounts with benefcialownership, non-face to face transactions, group companies, highrisk businesses and wire transfers etc. Prompt reporting of cash and suspicious transactions to PrincipalOfcer by branches An efective audit machinery Good understanding of regulatory and statutory prescriptions inletter and spirit Clear demarcation of duties and responsibilities Violations to be dealt with sternlyRece!t IPOsP a g e| 32Downloaded from a2zmba.blogspot.comIPORating Offer Price Open Date Close DateSeptemberRicha Knits30 13 Sep 2006 19 Sep 2006Gwalior Chem71-85 11 Sep 2006 14 Sep 2006sher !"ro15 05 Sep 2006 11 Sep 2006!tlanta150 01 Sep 2006 07 Sep 2006#$% Ser&ices200-240 04 Sep 2006 07 Sep 2006!ction Const110-130 01 Sep 2006 07 Sep 2006'eep (n)*stries36 29 !*" 2006 04 Sep 2006K+, (n)*stries30 28 !*" 2006 01 Sep 2006August %oltamp -rans345 24 !*" 2006 29 !*" 2006-ech .ahin)ra365 01 !*" 2006 04 !*" 2006G.R (n/ra210 31 0*l 2006 04 !*" 2006July Shir)i (n)67-78 29 0*n 2006 08 0*l 2006June %i"neshwara110-124 07 0*n 2006 16 0*n 20061l*plast (n)32 05 0*n 2006 09 0*n 2006!llcar"o Glo2al675 01 0*n 2006 06 0*n 20063rime 4oc*s417 25 .a5 2006 03 0*n 2006-EFINITIONS AN- ABBRE7IATIONSP a g e| 33Downloaded from a2zmba.blogspot.comI. CONVENTIONAL/ GENERAL TERMSTermDescription/*0/nn%al *eneral 0eet"ng of Prat"b&a 'nd%str"es 1"m"ted /rt"cles 2 /rt"cles of/ssoc"at"on 2 /(//rt"cles of /ssoc"at"on of Prat"b&a 'nd%str"es 1"m"ted3ompan"es /ct 2 /ct 4&e 3ompan"es /ct# 156 as amended from t"me to t"meDepos"tor$/ 3ompan$ formed and reg"stered %nder t&e 3ompan"es /ct# 156and w&"c& &as been granted a cert"f"cate of reg"strat"on %nder s%b5sect"on 61/7 of 8ect"on 12 of t&e 8ec%r"t"es and 9+c&ange !oard of'nd"a /ct# 12Depos"tor"es /ct 4&e Depos"tor"es /ct# 16# as amended from t"me to t"meDepos"tor$ Part"c"pant / depos"tor$ part"c"pant reg"stered as s%c& %nder s%b5sect"on 61/7 of8ect"on 12 of t&e 8ec%r"t"es and 9+c&ange !oard of 'nd"a /ct# 12:90/ :ore"gn 9+c&ange 0anagement /ct# 1# as amended from t"me to t"me# and t&e reg%lat"ons framed t&ere %nder:D' :ore"gn D"rect 'n,estment :'' :ore"gn 'nst"t%t"onal 'n,estor ;as def"ned %nder :90/ 64ransfer or'ss%e of 8ec%r"t$ b$ a Person