Tuesday 28 February 2017

Initial public offering


Initial public offering is the process by which a private company can go public by sale of its stocks to general public. It could be a new, young company or an old company which decides to be listed on a stock exchange and hence goes public.
The company which offers its shares, known as an ‘issuer’, does so with the help of investment banks. After IPO, the company’s shares are traded in an open market. When the shares trade freely in the open market, money passes between public investors.

The company which wants to raise its funds generally goes for an IPO. So it is simply a money making process. The money can be used in various ways, such as re-investing in the company’s infrastructure or expanding the business.
A public company can always issue more stocks and they get better rates also when they issue debt.

A company going for an IPO needs an investment bank to serve a number of purposes.
  • One of the primary roles of an investment bank is to serve as a sort of intermediary between corporations and investors through initial public offerings (IPOs).
  • They do the required asset management for large investment funds.
  • The bank evaluates the company and determines a price at which to offer the stock shares.
  • It also advises the company to whether go public or raise funds through any alternative means.
  • It also advises the company for mergers and acquisitions and to evaluate the fair price of acquisitions.
  • There can be more than one investment bank.

Apart from the various advantages
, there are some disadvantages too of going for an IPO.
  • The cost associated with the process is the first factor.
  • Private companies do not have to disclose their information to anyone, but being after IPO they will have to disclose certain business and financial information which can prove helpful to their competitors.
  • For the management, efficient attention and effort is required.
  • There is also a risk that required funds will not be raised.
  • There is also a loss of control over the company because of the addition of new shareholders.

Monday 27 February 2017


Quadratic Equation



aX2+bX +c =0
a = coefficient of X2
b = coefficient of X
c = constant term
There will be five problems from this topic. It is the easiest one, so you can solve all problems within 5 to 7 minutes.
In this kind of problems two equations will be given as question, you have to solve the equation and find the relation between them
1.P > Q
2.P < Q
3.P ≥ Q
4.p ≤ Q
5.P = Q or relationship cannot be established
Example 1:P2+13P+40=0
                  Q2+7Q+12=0
Step1: let us take equ 1. P2+13P+40=0 in this equation coefficient of p, 13 should be split into two numbers in such a way that multiplication of both numbers should be equal to constant term 40 and addition of numbers should be equal to 13
13 can be split into (1,12) (2,11) (3,10) (4,9) (5,8) (6,7)
In these combination 5 and 8 only can give 40 while multiplying, so this is the number we are searching for,and since the coefficient of P2 is 1 and there is no negative sign in the equation, we can directly write value of P by simply changing the sign
 P= -5,-8
( just for reference Actual procedure is  P2+5P+8P+40=0
P(P+5)+8(P+5)=0
(P+5)(P+8)=0
P=-5,-8 )
Step 2: Now equ2. Q2+7Q+12=0 similar process applicable for this equation to find Q, here coefficient of Q should be split into two numbers and multiplication of the numbers should give 12
7 can be split up into (1,6) (2,5) (3,4)
Combination of 3 and 4 alone satisfy our need i.e. giving 7 and 12 while adding and multiplying the numbers respectively, since there is no negative sign in the equation,we can directly write value of Q by changing sign .
Q=-3, -4
P= -5,-8
Obviously P < Q
Example 2: 2p2+12p+16=0
                   2q2+14q+24=0
Step 1: let us take equ1 since coefficient of p2 is 2,we have to multiply 2 with constant number 16 , now as usual 12 should be split up into two numbers and multiplication of the numbers should give ( 2*16=) 32 .
4+8 =12
4*8=32
 12 can be split up into 4 and 8,
 now change the sign of numbers and divide it by 2 since the coefficient of p2 is 2 ,
Thus the value of  p = -2,-4
Step 2: now take equ2. And follow the same procedure multiply 2 with constant number 24 . So addition of two numbers should be 14 and multiplication of numbers should be 48 (24*2)
6+8 =14  ;  6*8=48
Numbers are 6 and 8, now divide by 2, since the coefficient of q2 is 2 so the value of q is -3,-4
here, one of the numbers of p and q are same but other number of p is greater than other number of q 
so ans is p ≥ q
If you have doubt in finding which one is greater, use this technique.
Number which is 1st from right hand side is greater one.
Example 3:  x2-x-6=0
                    2y2+13y+21
Step1: Here constant number and coefficient of x are negative so the combination of numbers will be positive and negative.
Combination is 2,-3
Value of x=-2 , 3
Step2: proceed with equation 2
Combination is (6,7) ,
since the coefficient of y2 is 2 divide the value of y by 2  
Y=  -(6/2) , -(7/2)
Y= -3 , -3.5
Relation is X > Y
Example 412x2+11x+12=10x2+22x
                  13y2-18y+3=9y2-10y
Step1: convert this into normal quadratic equation form
2x2-11x+12=0
4y2-8y+3=0
Step2: now as usual normal procedure , here coefficient of x is negative and constant term is positive so both numbers will be negative
 Combination is -8,-3
And value of x= 4, 3/2
 Step3: proceed with equ 2
Combination is (-2,-6)
since coefficient of yis 4 divide the value of y by 4 ,
And value of y = ½ , 3/2
 Relation is x ≥ y
 Example 5: 18/x2 + 6/x -12/x2 = 8/x2
                    Y3+9.68+5.64 =16.95
Multiply x2 in equ1 it becomes 18+6X -12 =8
Solving this equations we get x = 1/3 = 0.33
Solving equ2 we get y3 = 1.63
          Y = 1.17
Relation is x < y
Example 6: (x+18)1/2 = (144)1/2 – (49)1/2
                   Y2 +409 = 473
By solving equ1, we get x = 7
Solving equ2 we get y = ± 8
Relation cannot be formed between x and y since x is both highest and lowest one.
TIPS to find combination:
  1. If the coefficient of x or y and constant term is negative, then one number will be positive and other will be negative.
  2. If the coefficient of x or y and constant term is positive, combination will be positive.
  3. If the coefficient of x or y and constant term are positive and negative then the combination of numbers will be both positive and negative.

Sunday 26 February 2017

Different codes used in Banking Context

IFSC (Indian Financial System Code)

Is is an alphanumeric code that uniquely identifies a bank-branch participating in the two main Electronic Funds Settlement Systems in India: the Real Time Gross Settlement (RTGS) and the National Electronic Funds Transfer (NEFT) Systems. It is an 11-character code assigned by Reserve Bank of India for the identification of the bank branches.

The components of IFS code are:

  • The first four alphabetic characters representing the bank name,
  • The fifth character is 0 (zero) and reserved for future use, and
  • The last six characters (usually numeric, but can be alphabetic) representing the branch.
A list of IFS Code for all the banks can be find out on the RBI website. It is also generally available on your bank account passbook, cheque book.
Example: IFS Code of a branch of Punjab National Bank in Delhi is PUNB0614800.

MICR (Magnetic Ink Character Recognition) Code

A unique code used to identify the particular branch of a particular bank. It is used mainly by the banking industry to ease the processing and clearance of cheques and other documents. The technology allows MICR readers to scan and read the information directly into a data-collection device. Unlike barcodes and similar technologies, MICR characters can be read easily by humans. It is a 9-digit code.

The components of MICR code are:

  • The first three digits represent the city code of the bank branch – generally the pin code initials,
  • The next three digits represent the bank code, and
  • The last three digits represent the bank branch.
Example: MICR-No of a branch of Punjab National Bank in Delhi is 110024490
The MICR encoding, called the MICR line, is at the bottom of cheques and other vouchers as shown below:

BSR (Basic Statistical Returns) Code

BSR code  is used by the Income Tax department in order to identify a bank branch for submission of returns to the RBI. It is allotted to banks by Reserve Bank of India. While filling TDS/TCS (tax deducted at source/ tax collected at source) returns, BSR code is used in details related to challan and deductee. It is a 7-digit code.
Example: BSR Code of a branch of Punjab National Bank in Delhi is 305066.

SWIFT (Society for Worldwide Interbank Financial Telecommunication) Code

It is a unique identification code for both financial and non-financial institutions approved by the International Organization for Standardization (ISO). SWIFT Standards, a division of The Society for Worldwide Interbank Financial Telecommunication, handles the registration of these codes. It is an 11-character code.
SWIFT Codes are used when transferring money between banks, particularly for international wire transfers, and also for the exchange of other messages between banks in a secure standardized and reliable environment.
So to do Overseas funds transfer, the SWIFT Code of the particular bank is required.

The components of SWIFT code are:

  • The first four alphabetic characters representing the bank name,
  • The next two alphabetic characters represent the country name
  • The next two letters or digits represent the location code, and
  • The last 3 letters or digits represent the branch code.
Example:  SWIFT Code of a branch of Punjab National Bank in Delhi is PUNBINBBDRG
*Note: Not all bank branches have individual SWIFT codes, so if it is not available for your branch, you can use the SWIFT code of a nearby branch of same bank. SWIFT code is also known as Bank Identifier Code (BIC).

Saturday 25 February 2017

 Types of Cards in Banking System


Cards can be classified on the basis of their issuance, usage and payment by the card holder. There are three types of cards: Debit cards, Credit cards and Prepaid cards.
These cards can be issued by banks or other entities too. We will discuss each type of card and the issuance authority for particular type of card.

Debit Card

  • Debit Card means the card which can be used to withdraw cash up to the limit present in customer’s bank account.
  • So to get issue a debit card, one should have a bank account.
  • This means that debit cards are only issued by banks which are linked to the customer’s bank account number.
  • So, in the case to use a debit card, one should have enough balance in his bank account.
  • They are used to withdraw cash from ATM, purchase of goods and services at Point of Sale (POS)/E-commerce (online purchase) both domestically and internationally (provided it is enabled for international use).
  • It can also be used only for domestic fund transfer from one person to another.

Credit Card

  • Unlike debit cards, in case of credit cards, a customer can also withdraw beyond the amount of money present in his bank account.
  • But there is a limit for each credit card up to which extra money can be withdrawn.
  • And also there is a time limit up to which the extra money withdrawn should be paid back. This amount of money is paid back along with interest charges as applied by the issuer of card.
  • They are issued by banks / other entities approved by RBI.
  • The credit cards are used for purchase of goods and services at Point of Sale (POS) and E-commerce (online purchase)/ through Interactive Voice Response (IVR)/Recurring transactions/ Mail Order Telephone Order (MOTO).
  • These cards can be used domestically and internationally (provided it is enabled for international use).
  • The credit cards can be used to withdraw cash from an ATM and for transferring funds to bank accounts, debit cards, credit cards and prepaid cards within the country.

Prepaid Card

  • The usage of prepaid cards depends on who has issued these cards. They can be issued by banks/non-banks.
  • To get issue a prepaid card, the customer has to pay the amount in advance which is then stored in his prepaid card to be used whenever required.
  • So a prepaid card is never linked to an account.
  • The maximum value that can be stored in a prepaid card at any point of time is Rs 50,000.
  • The prepaid cards issued by the banks can be used to withdraw cash from an ATM, purchase of goods and services at Point of Sale (POS)/E-commerce (online purchase) and for domestic fund transfer from one person to another. Such prepaid cards are known as open system prepaid cards.
  • However, the prepaid cards issued by authorised non-bank entities can be used only for purchase of goods and services at Point of Sale (POS)/E-commerce (online purchase) and for domestic fund transfer from one person to another. Such prepaid cards are known as semi-closed system prepaid cards.
  • These cards can be used only domestically.

Debit card and Credit card

  • Both can be used to withdraw cash from ATM, purchase of goods and services at Point of Sale (POS) and online purchase.
  • Debit card only issued by banks and linked to bank account while credit cards can be issued by banks/other entities approved by RBI. If issued by banks, can be linked to account
  • By debit card one cannot withdraw extra money than available in his account while by use of credit card one can withdraw extra money as permitted by the issuer.

Debit card and Prepaid card

  • Both are used for withdrawing up to the amount present in these cards.
  • Both can be used for purchasing goods and services at Point of Sale (POS) and online purchases.
  • Debit card can store any amount (i.e. amount present in bank account) while Prepaid card at a time can store only up to Rs 50,000.
  • Debit cards are only issued by banks while prepaid cards by both banks and non-bank entities.
  • Debit cards can be used at ATMs to withdraw cash while prepaid cards cannot be used at ATMs.

Credit card and Prepaid card

  • Both can be issued by banks/non-banks.
  • Both can be used for purchasing goods and services at Point of Sale (POS) and online purchases.
  • Crdit card can store any amount (i.e. amount present in bank account + extra amount permitted to be drawn) while Prepaid card at a time can store only up to Rs 50,000.
  • Credit cards can be used at ATMs to withdraw cash while prepaid cards cannot be used at ATMs.
  • If one withdraws extra amount by use of credit card, then he has to pay back the amount afterwards with rate of interest while in case of prepaid cards, amount is paid in advance and no rate of interest is to be paid.
  • Credit cards can be linked to account when issued by bank while prepaid cards are never linked to account.

Thursday 23 February 2017

Tricks to solve Train Problems


Introduction
Problems on Trains
A train is said to have crossed an object (stationary or moving) only when the last coach (end) of the train crosses the said object completely. It implies that the total length of the train has crossed the total length of the object.

In case of Train, The Distance covered by the Train = Length of Train + Length of Object

You have to keep in mind some Formulae which are given below:


Problems on Trains

Conversion of  km/hr into meter/sec

Following formula is used in this case
Problems on Trains

Conversion of meter/sec into km/h 

The formula is:
Problems on Trains

We can find the basic formula for the time required for a train to cross different type of objects.

Problems on Trains

Problems on Trains

Different types of Objects

On the basis of various types of objects that a train has to cross, we find the following different cases:
Problems on Trains

Question
A train 110 meter long travels at 60 km/h. How long does it take to cross,
a) a telegraph post
b) a man running at 6 km/h in the same direction
c) a man running at 6 km/h in the opposite direction
d) a platform 240 meter long
e) another train 170 meter long standing on another parallel track
f) another train 170 meter long, running at 54 km/h in same direction
g) another train 170 meter long, running at 80 km/h in opposite direction
Solution
a) We have to convert the speed of train from km per hour to meter per second by applying following formula:
Speed of Train = 60 km/h × 5/18 m/sec 
The telegraph post is a stationary object with negligible length  so following formula will be applied:
t = Length of Train/Speed of Train
Crossing Time =
        Problems Based on Trains

b) The man is running in the same direction that means object is moving but of negligible length. Hence, formula will be:
Time = Length of Train / Speed of Train - Speed of Man
Crossing Time = 
Problems Based on Trains
c) The man is running in the opposite direction so following formula will be applied:
Crossing Time = Length of Train / Speed of Train + Speed of Man
Crossing Time = 
Problems Based on Trains
d) The platform is stationary but of some length so, following formula will be applied:
Crossing Time = Length of Train + Length of Platform / Speed of Train
Problems Based on Trains
e) Another Train is standing (stationary), so following formula will be applied:
Crossing Time = Length of First Train + Length of Second (Stationary) Train / Speed of Train
Problems Based on Trains
f) Another train is running in the same direction, then following formula will be applied:
Crossing Time = (Length of First Train + Length of Second Train) / (Speed of First Train - Speed of Second Train)
Crossing Time = 
Problems on Trains
168 Seconds = 2 minutes 48 seconds
g) Another train is running in opposite direction so following formula will be applied
Crossing Time = Length of First Train + Length of Second Train / Speed of 
Problems on Trains

Tricky Question 

You have to learn the basic formulae only then you can easily solve any question from this chapter.
Question
A train passes a platform in 36 seconds and a man standing on the platform in 20 seconds. If the speed of the train is 54 km/h, find the length of the platform.
Solution
Speed = Distance /Time
Because Time is given in seconds so we have to convert the speed into meter/second.
Speed (Velocity) = 54 × 5/18 = 15 meter per second
Problems Based on Trains

Tuesday 21 February 2017

Formula used in Mensuration


Mensuration is one of the topics in Quants. Now a days questions coming from this chapter also. Here we are providing you Some important formulas which is used in mensuration which are useful in SSC, Railways and other exams.

Rectangle :

  • Area = lb
  • Perimeter  = 2(l+b)

Square :

  • Area = a×a
  • Perimeter = 4a

Parallelogram

  • Area = l × h
  • Perimeter = 2(l+b)

Triangle :

  • Area =b×h/2 or √s(s-a)(s-b)(s-c)…………….where s=a+b+c/2

Right angle Triangle :

  • Area =1/2(bh)
  • Perimeter = b+h+d

Isosceles right angle triangle :

  • Area = ½. a2
  • Perimeter = 2a+d……………………….where d=a√2

Equilateral Triangle :

  • Area = √3. a2/4 or  ½(ah)….where h = √3/2
  • Perimeter = 3a

Trapezium :

  • Area = 1/2h(a+b)
  • Perimeter = Sum of all sides

Rhombus :

  • Area = d1 × d2/2
  • Perimeter = 4l

Quadrilateral

  • Area =1/2 × Diagonal × (Sum of offsets)

Kite :

  • Area  = d1×d2/2
  • Perimeter  = 2 × Sum on non-adjacent sides

Circle :

  • Area =  πr^2 or πd^2/4
  • Circumference = 2πr  or πd
  • Area of sector of a circle = (θπr^2 )/360

Frustum :

  • Curved surface area = πh(r1+r2)
  • Surface area = π( r12+ h(r1+r2) + r22)

Cube :

  • Volume: V = l3
  • Lateral surface area = 4a2
  • Surface Area: S = 6s2
  • Diagonal (d) = √3l

Cuboid :

  • Volume of cuboid: lbh
  • Total surface area = 2 (lb + bh + hl) or 6l2
  • Length of diagonal =√(l^2+b^2+h^2)

Right Circular Cylinder :

  • Volume of Cylinder = π r2 h
  • Lateral Surface Area (LSA or CSA) = 2π r h
  • Total Surface Area = TSA = 2 π r (r + h)
  • Volume of hollow cylinder = π r h(R2 – r2)

Right Circular cone :

  • Volume = 1/3 π r2h
  • Curved surface area: CSA=  π r l
  • Total surface area = TSA = πr(r + l )

Sphere

  • Volume: V = 4/3 πr3
  • Surface Area: S = 4πr2

Hemisphere :

  • Volume = 2/3 π r3
  • Curved surface area(CSA) = 2 π r2
  • Total surface area = TSA = 3 π r2

Prism :

  • Volume = Base area x h
  • Lateral Surface area = perimeter of the base x h

Pyramid:

  • Volume of a right pyramid = (1/3) × area of the base × height.
  • Area of the lateral faces of a right pyramid = (1/2) × perimeter of the base x slant height.
  • Area of whole surface of a right pyramid = area of the lateral faces + area of the base.

Tetrahedron :

  • Area of its slant sides = 3a2√3/4
  • Area of its whole surface = √3a2 
  • Volume of the tetrahedron = (√2/12) a 3

Regular Hexagon :

  • Area =  3√3 a2 / 2
  • Perimeter  = 6a

Some other Formula :

  • Area of Pathway running across the middle of  a rectangle = w(l+b-w)
  • Perimeter of Pathway around a rectangle field = 2(l+b+4w)
  • Area of Pathway around a rectangle field =2w(l+b+2w)
  • Perimeter of Pathway inside a rectangle field =2(l+b-4w)
  • Area of Pathway inside a rectangle field =2w(l+b-2w)
  • Area of four walls = 2h(l+b)

Participatory Notes (P Notes)

 

P Notes

Financial instruments used by investors or hedge funds that are not registered with the Securities and Exchange Board of India to invest in Indian securities. Indian-based brokerages buy India-based securities and then issue participatory notes to foreign investors. Any dividends or capital gains collected from the underlying securities go back to the investors.
* Note –> P-notes are no need to register with SEBI , they are derivates of FIIs

P-NOTES working

Participatory notes are instruments used for making investments in the stock markets. However, they are not used within the country. They are used outside India for making investments in shares listed in the Indian stock market. That is why they are also called offshore derivative instruments.
In the Indian context, foreign institutional investors (FIIs) and their sub-accounts mostly use these instruments for facilitating the participation of their overseas clients, who are not interested in participating directly in the Indian stock market.
For example, Indian-based brokerages buy India-based securities and then issue participatory notes to foreign investors. Any dividends or capital gains collected from the underlying securities go back to the investors.
* p-notes pool the individuals into derivate of FIIs
Example — P-NOTES — applicants are 100 people with short investments
Example of each 10 lakh can make into pool and investment in stock market as combined form
* overseas clients showing interest on buying shares like blue chip companies

INFOSYS, WIPRO, HCL, TCS  etc….

they will invest in the p-notes –> It leads to money laundering & black money curbs into the stock market ( As it having no  registration to sebi and participants details )

RECENT P-NOTES in news & SIT clarification

  • P-notes are popular as it allows the idenity of the investor to be kept anonymous. FIIs are required to register with SEBI, but P-notes who trade through them are not.
  • No wonder P-notes have been controversial instruments from the start and every time the government wants to regulate them, market start falling preventing the government to take the harsh step. The government fears that P-notes are being used as instruments for money laundering.
  • Even listed company promoters are believed to re-route their investments in their own companies through the P-note route. This allows them to flout the stringent insider trading norms that regulate such proprietary investments.
  • P-notes however, have other inherent advantages. They are easy to operate rather than the cumbersome rules that India has for its foreign investors. P-notes are like contract notes transferrable by endorsement and delivery. This nature of P-notes has attracted the SIT’s attention and rightly so.
  • P-notes are freely traded overseas, and is done without any jurisdiction or control of SEBI over it. This nature of P-note is like that of an informal ADR (American Depository Receipt) where the stocks are held by brokerages for their foreign investors.
  • Since P-notes are opaque and the identity of the owner is known only to the FII, trading them freely makes it very difficult to find the original owner of these P-notes.
  • However, SIT’s decision to seek a clarification is a welcome move. For the markets, knowing the identity of the participant is healthy, but the initial reaction to the news seems to be a knee-jerk reaction. Further, SIT has asked for stricter compliance norms of P-notes and has said nothing on banning them.
  • Share of P-notes has already come down from 50 per cent in 2007 to around 11.5 per cent presently. However, memories of the sharp 1744 point fall on October 17, 2007 and subsequent volatilities on following days when SEBI first proposed curbs on P-notes is enough to spread fear in the mind of investors and government alike.

What are Participatory Notes (or P-Notes, as they are commonly referred to)   

In 1992, India allowed Foreign Institutional Investors (FIIs) to buy stocks listed on Indian exchanges. However, all investors, whether institutions or individuals, were required to register themselves with the capital markets regulator, Sebi. To get around these restrictions, FIIs started to issue so-called participatory notes (or PNs) to investors who, for various reasons, wanted to remain anonymous
Since PNs tracked the value of Indian stocks, their values rose or fell according to the movement of the markets.
Initially, nobody complained, as FIIs generated a lot of business from monies routed through them and their accounts. These monies fuelled the market boom from the early period of liberalisation. At their peak during 2007, the value of PNs constituted well over 50 per cent of the outstanding assets in the custody of FIIs

Participatory Notes Crisis of 2007

On the 16th of October, 2007, SEBI (Securities & Exchange Board of India) proposed curbs on participatory notes which accounted for roughly 50% of FII investment in 2007. SEBI was not happy with P-Notes because it is not possible to know who owns the underlying securities and hedge funds acting through PNs might therefore cause volatility in the Indian markets.
However the proposals of SEBI were not clear and this led to a knee-jerk crash when the markets opened on the following day (October 17, 2007). Within a minute of opening trade, the Sensex crashed by 1744 points or about 9% of its value – the biggest intra-day fall in Indian stock-markets in absolute terms. This led to automatic suspension of trade for 1 hour. at that time –>Finance Minister P.Chidambaram

What has the SIT on black money said?

Why is the stock market worried?

In its third report, contents of which were released on Friday, the SIT recommended that the government should obtain details of beneficial ownership — or identity of the final holder or investor — of P-Notes, and make it non-transferable. The SIT wants investors due diligence — or KYC — details to be known to the regulator. It has also made the point that a bulk of P-Notes investments were from overseas jurisdictions such as the Cayman Islands, a tax haven that accounted for 31 per cent of all foreign inflows from offshore derivative instruments. The worry is on account of the fact that the outstanding value of PNs at the end of February 2015 was  2.85 lakh crore — which, if unwound, can lead to carnage in a market where local institutional investors are not as influential. Finance Minister Arun Jaitley has, however, assured that there would be no kneejerk reaction.
“kneejerk reaction” –> By finance minister —Arun Jaitley
To soothe nerves of foreign investors after an SIT on black money suggested stricter norms for P-Notes, the government today said it will not take any “knee-jerk” reaction that will will adversely impact country’s investment climate.
With markets tanking on the recommendations of the Supreme Court-appointed SIT on black money last week that Sebi should tighten norms related to Participatory Notes (P-Notes) investments into India, Finance Minister Arun Jaitley said the government will study the suggestions before taking a stand.
Finance minister, Arun Jaitley, who was heavily criticised on the issue of application of MAT on FIIs, seems to be a quick learner. His ministry has issued statements assuring investors that the government will not take steps that will affect investments, following the SIT report.

U.K.SINHA –> on P-notes

  • Sebi has progressively tightened rules governing participatory notes (PN) and is aware of the identity of their owners, the market regulator’s chairman UK Sinha has said.
  • Sinha pointed out that both issuers and buyers of PNs have to be from countries compliant with regulations of the financial action task force (FATF). FATF is an inter-governmental body tasked with curbing illicit finance at a global level.

What are the broad concerns about P-Notes?

Concerns have been expressed over anonymous investors who are beyond the reach of Indian regulators or taxmen, and over indications that wealthy Indians, including promoters of Indian companies, have been using this route to bring back unaccounted funds and to rig their stocks. The concerns were first flagged by the Joint Parliamentary Committee on the 2001 securities market scam, which said that P-Notes enabled their holders to conceal their identities. The committee also pointed to the links that stock market player Ketan Parekh had with foreign entities, which allowed him to allegedly rig stocks, and to the role of Overseas Corporate Bodies or OCBs owned predominantly by Indians in the stock market crash. The JPC wanted action on these issues.

What has Sebi done so far to regulate P-Notes?  

In 2004, Sebi tightened rules to ensure PNs were issued — and transferred — only to regulated entities. On October 16, 2007, against the backdrop of a surge in capital flows and excess liquidity, the regulator banned P-Notes. M Damodaran was Sebi chief then, and
P.Chidambaram was Finance Minister. The markets crashed immediately, but recovered after the regulator unveiled rules a week later, saying FIIs could not take any fresh exposure, and their existing investments would have to be wound up in 18 months. But exactly a year later, during the tenure of Damodaran’s successor, C B Bhave, all restrictions on PNs were removed in the wake of the global financial crisis, amid fears of capital outflows. But rules were tightened again subsequently.

Why is it difficult to ban P-Notes?

The RBI may be pushing hard, but the government, which has the final say in foreign investment rules, appears to be reluctant to impose a full ban, presumably because of a fear that the stock markets would tank, and there would be a flight of capital.
With FIIs now controlling 20 per cent of the free float in listed Indian companies, policymakers would want to think several times, especially in a country which runs a current account deficit and needs foreign investment to bridge the gap in savings.
During the UPA government’s tenure, a committee headed by the then Chief Economic Advisor, Ashok Lahiri,  released a report in November 2005 on encouraging FII flows and checking the vulnerability of capital markets to speculative flows.
The committee suggested measures such as greater broadbasing of foreign entities investing in the Indian market, and a ceiling on FIIs and their sub-accounts. The majority view, however, was that the existing dispensation for PNs ought to continue. In a move that was rare for a situation in which a government-led panel was involved, the RBI dissented, arguing that PNs should not be permitted because it remained difficult to identify their final holders.

 So, what policy options are available on PNs?

With more broadbased flows and greater global pressure now on checking illicit fund flows, it should be possible to phase out PNs over the medium term. That is, if it is grandfathered — or, in other words, spread out over a specified period with a sunset clause. That should go hand in hand with reforms in taxation, including greater clarity, easier norms, lowering of transaction costs, and encouraging more local institutional investors — especially pension funds and FDI — to reduce reliance on volatile flows.

Sunday 19 February 2017

Negotiable Instruments


Negotiable instrument is a document which guarantees the payment of a specific amount of money, either on demand, or at a set time, with the payer named on the document. A negotiable instrument can be transferred from one person to another.
Negotiable Instruments Act, 1881 is an Act to define and Law relating to negotiable instruments. The act gives the definitions of all the related terms. The act also deals with the offence pertaining to dishonor of cheque on account of insufficiency of funds in the drawer’s account.
According to Section 13 of the Negotiable Instruments Act, 1881, “A Negotiable Instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.”
A “promissory note” is an instrument in writing that promises to pay a definite sum of money from one party to another party either on demand or at a specified future date. The person who makes the Promissory Note and promises to pay is called the drawer or maker and the person to whom the payment is to be done is called the drawee or payee. So there are two parties in a promissory note.
  • It bears the sign of the drawer.
  • It contains a date
  • It contains a definite amount plus the rate of interest and this total sum will be paid to the payee.
  • It contains the required stamp.
  • The promise to pay should be unconditional. For e.g. if I have written in the promissory note that it will be payable after my marriage, then addition of this condition does not make it a promissory note.
  • It should be returned back to drawer after the payment.

An example of promissory note:


A “bill of exchange” is an instrument in writing that contains an order to pay a definite sum of money from one party to another party either on demand or at a specified future date with an intermediary to pay the sum. So there are three parties in a bill of exchange. But all may not be distinct persons as a drawer may pay on himself payable to his own order.
  • It is primarily used in international trade.
  • It bears the sign of the drawer.
  • The order to pay should be unconditional.
  • It contains a date
  • It contains a definite amount that is to be paid unlike in promissory note which contains rate of interest also.
  • It contains the required stamp.
  • In case of dishonor, a notice is sent to the drawer which is in contrast with promissory note.

An example of bill of exchange:


A “cheque” is bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and cheque also includes the electronic image of a truncated cheque and a cheque in the electronic form.
  • ‘a cheque in the electronic form’ means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature and asymmetric crypto system.
  • ‘a truncated cheque’ means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment. After the generation of an electronic image for transmission, the image substitutes the physical movement of the cheque in writing.

An example of cheque:


The government has notified the Negotiable Instruments (Amendment) Bill, 2015 which allows filing cheque bounce cases in a court at a place where the cheque was presented for clearance and not the place of issue so that there is a fast prosecution of offenders.

Masala Bonds


When any entity wants to raise money or we can say want to borrow money, it can issue bonds worth that value. So, now when an Indian company wants to borrow money from a foreign company, there are many methods like FDI, ECB, etc. and one of them is issuing bonds. All methods of borrowing have their own advantages and disadvantages. In the same way are Masala bonds which are named by the International Finance Corporation (IFC), the investment arm of the World Bank. We will read later that how the word masala attached with these bonds.

Now what are these Masala Bonds?

Masala bonds are the rupee-denominated bonds which can be issued by the Indian entities to raise money from overseas markets. By rupee-denominated bonds, it meansthat the money borrowed will be in Indian rupees and not any foreign currency. Let’s take an example: Suppose an Indian entity issues masala bonds worth Rs 10 crores with a promise to pay Rs 11 crores the next year. Now the foreign investor will lend the dollar equivalent of Rs 10 crores. Now after a year, the Indian entity will return the dollar equivalent of Rs 11 crores.
Now what is the advantage of using these new masala bonds over the initial methods?
The advantage is that that of the currency risk. Since the Indian entity will return the dollar equivalent of Rs 11 crores, this means that if in a year if there is any fluctuation in the currencies whether large or small, the risk lies with the overseas investor and not the Indian entity.

How the name came?

  • IFC issued a Rs 1,000 crore bond to fund infrastructure projects in India. These bonds were listed on the London Stock Exchange (LSE).
  • IFC then named them Masala bonds to give a local flavour by calling to mind Indian culture and cuisine.
  • This kind of naming has been done before also. IFC’s Chinese yuan-denominated bonds are called Dim sum bonds, Japanese yen-denominated bonds are called Samurai.
  • Before the word masala, some names like Samosa, Ganga, and Peacock were also in line to be attached to these rupee-denominated bonds.

The Reserve Bank of India has issued certain guidelines allowing the Indian entities to issue masala bonds:

  • Any corporate or body corporate as well as Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) can issue such off-shore rupee denominated bonds.
  • Banks incorporated in India will not have access to these bonds.
  • Indian banks, however, can act as arranger and underwriter.
  • The minimum maturity period is 3 years.
  • Companies can raise under the automatic route (i.e., without prior approval) an amount equivalent to USD 50 billion (till April 2016 it was USD 750 million) per annum.
  • Cases beyond this limit would require prior approval of the Reserve Bank.

Some facts:

  • Masala bonds are a step to help internationalize the Indian rupee and also deepen the Indian financial system.
  • They are the first rupee bonds listed on the London Stock Exchange.
  • They can be issued for three or five or seven-year maturities.
  • The first Masala bonds were issued on 10 November 2014 under IFC’s $2 billion offshore rupee program.
  • They are different from External Commercial Borrowings (ECB) in a way that in ECB the currency risk lies with the Indian issuer while in case of masala bonds, the currency risk lies with the overseas investor.
  • Like ECB, masala bonds also provide cheaper funding as compared to domestic markets.
  • Though currency risk lies with the investor, but then also the overseas investor has many advantages like they have very few investment options in other countries due to weak economic conditions globally.
  • Coinciding with Prime Minister Narendra Modi’s visit to the UK last year, organisations such as HDFC, Yes Bank, and the Railways had announced they were going to raise funds through this route from the London market.

Electronic Clearing Service (ECS)


The Reserve Bank of India offers the Electronic Clearing System (ECS) for faster payments and collections. ECS is an electronic mode of payment / receipt for transactions that are repetitive and periodic in nature. By repetitive and periodic, it is meant that the transactions occur repetitively and after a fixed time interval.ECS is used by institutions for making bulk payment of amounts or for bulk collection of
amounts
. Examples for bulk payment of amounts include paying of interest, salary, pension, etc. Examples for bulk collection of amounts includes telephone / electricity / water bills, cess / tax collections, loan installment repayments, periodic investments in mutual funds, insurance premium, etc.

Variants of ECS:

We studied above that ECS is used for either making bulk payment of amounts or for bulk collection of amounts. Based on that there are two variants:
  • ECS Credit: ECS Credit is for making bulk payment of amounts. Under this scheme, a single account is debited and then multiple accounts are credited. Example: A company has 50 employees and at the start of month it gives salary to all the employees so instead of crediting each account separately, the company can use the ECS Credit Scheme.
  • ECS Debit: ECS Debit is for bulk collection of amounts. Under this scheme, multiple accounts are debited and then a single account is credited. Example: Many people go for insurance policies and they have allowed the payment of their premiums from their account.  Now it is possible that on a single day, many customer accounts are to be debited to have the premium from them. So in the case where multiple accounts are going to be debited and then a single account is to be credited, ECS Debit scheme can be used.

ECS scheme is distributed based on the geographical location of branches as:

  • Local ECS – this is operating at 81 centres / locations across the country generally covering one city and/or satellite towns and suburbs adjoining the city.
  • Regional ECS – this is operating at 9 centres / locations at various parts of the country and covers a State or group of States and can be used by institutions desirous of reaching beneficiaries within the State / group of States.
  • National ECS – this is the centralized version of ECS Credit which was launched in October 2008. The Scheme is operated at Mumbai and facilitates the coverage of all core-banking enabled branches located anywhere in the country.
So if an institution opted for Local ECS service, it can credit to or debit from the same accounts in same geographical location. The institutional User has to register with an ECS Centre.
The RBI has deregulated the charges to be levied by sponsor banks from user institutions. However, in case banks apply any charges they should keep it transparent.

Some of the benefits of ECS scheme:

  • ECS Credit and Debit schemes can be initiated by institutions who apply for it.
  • There is no need to go to bank branches/ collection centres after all formalities are completed while applying.
  • Freedom from paper handling as all credits and debits are done electronically.
  • So it avoids the loss and fraudulent of papers in transit.
  • Cost effective.
  • Customers need not keep track of due date for payments.

Types of Bank Account


Bank Accounts are classified into four different types. They are,
1) Current Account
2) Savings Account
3) Recurring Deposit Account
4) Fixed Deposit Account

What is Current Account?

Current account is mainly for business persons, firms, companies, public enterprises etc and are never used for the purpose of investment or savings.These deposits are the most liquid deposits and there are no limits for number of transactions or the amount of transactions in a day. While, there is no interest paid on amount held in the account, banks charges certain  service charges, on such accounts. The current accounts do not have any fixed maturity as these are on continuous basis accounts.

What is Savings Account? 

Savings Account is meant for saving purposes. Any individual either single or jointly can open a savings account. Most of the salaried persons, pensioners and students use Savings Account. The advantage of having Savings Account is Banks pay interest for the savings. The saving account holder is allowed to withdraw money from the account as and when required.
The rate of interest ranges between 4% to 6% per annum in India. There is no restriction on the number and amount of deposits. But withdrawals are subjected to certain restrictions. Some banks recommend to maintain a minimum amount to keep it functioning.

What is Recurring Deposit Account?

Recurring deposit account or RD account is opened by those who want to save certain amount of money regularly for a certain period of time and earn a higher interest rate. In RD account a fixed amount is deposited every month for a specified period and the total amount is repaid with interest at the end of the particular fixed period. 
The period of deposit is minimum six months and maximum ten years. The interest rates vary for different plans based on the amount one saves and the period of time and also on banks. No withdrawals are allowed from the RD account. However, the bank may allow to close the account before the maturity period.
These accounts can be opened in single or joint names. Banks are also providing the Nomination facility to the RD account holders. 

What is Fixed Deposit Account?

In Fixed Deposit Account (also known as FD Account), a particular sum of money is deposited in a bank for specific period of time. It’s one time deposit and one time take away (withdraw) account. The money deposited in this account can not be withdrawn before the expiry of period. 
However, in case of need,  the depositor can ask for closing the fixed deposit prematurely by paying a penalty. The penalty amount varies with banks.
A high interest rate is paid on fixed deposits. The rate of interest paid for fixed deposit vary according to amount, period and also from bank to bank.

 

Deposit Schemes for NRIs and PIOs


Not only the Indians living in India can have their accounts in the banks of India, but the people who leave India and reside in some other country or become NRIs (Non-Resident Indian) and PIOs (Person of Indian Origin) can also maintain their accounts in India enjoying the various benefits of the accounts as applicable.

Three forms of such bank accounts in India are:


NRO

Non Resident Ordinary (NRO) account is a Savings Account or Current Account or Fixed Deposit Account or Recurring Deposit account opened by NRIs and PIOs.
It is a rupee denominated account i.e. the amount in the account is maintained in Indian Rupees.


Facilities and Advantages of NRO account:

  • The NRIs and PIOs who transfer from India and have funds gathered in India like rent income, pension, etc. can enjoy the benefits of NRO account.
  • If the residents who leave India have account in India, then that account can be converted to NRO account with the same account number.
  • So the account is efficient for maintaining local rupee earnings in India while living abroad.
  • Joint account facility and nomination facility is available with Indian residents.
  • Cheque book and ATM card facility is available for joint accountee in India.
  • The credit balances in NRO account are subject to respective income tax bracket.
  • The funds are not repatriable except for the following:
    (i) all current income and
    (ii) up to USD 1 (one) million per financial year (April-March), by A NRI/ PIO.

NRE

Non Resident External (NRE) account is a rupee denominated account which can be Savings Account or Current Account or Fixed Deposit Account or Recurring Deposit account opened by NRIs and PIOs.

Facilities and Advantages of NRE account:

  • The NRIs and PIOs who want to transfer their foreign earnings to India can enjoy the benefits of NRE account.
  • So the account is efficient to use foreign earnings in India while living abroad.
  • It is a safe and simple online money transfer service.
  • Joint account facility and nomination facility is available with other NRIs or Indian Residents.
  • Loan facility is also available against funds in NRE account.
  • The principal amount and the interest paid on the amount are not taxable in India.
  • It is a repatriable account i.e. the funds in account can be converted to any foreign currency.

FCNR

Foreign Currency Non Resident (FCNR) account is a term deposit account that can be maintained by NRIs and PIOs in foreign currency. So this means it is not a savings account. Authorized dealer banks in India can allow deposits in any of the permitted currency (currency freely convertible).

Facilities and Advantages of FCNR account:

  • The NRIs and PIOs who want to keep their savings as fixed deposits in Indian banks can apply for FCNR account. They can gain more rate of interest in India than abroad.
  • The maturity period of term deposit ranges from 1 year to 5 years.
  • The account is maintained in foreign currency so the money is not converted to Indian Rupees as in case of NRO account.
  • So there is no Foreign Exchange risk, for example: if you deposited $100 in the account with 1% rate of interest, after 1 year on maturity you will get $ 101 irrespective of what the previous or current currency rates are.
  • Funds in FCNR account can be used for making local payments in India.
  • Joint account facility and nomination facility is available with other NRIs or Indian Residents.
  • Loan facility is also available against funds in FCNR account.
  • The principal amount and the interest paid on the amount are not taxable in India.
  • It is a repatriable account i.e. the funds in account can be converted to any foreign currency.

Simple notes on Demat Account


Demat account is an account in which the shares and securities are held in dematerialized form i.e. electronically without any physical papers held.
It is not like your savings or current account in which the cash is held and cards are issued.
For getting a demat account open, one needs to go to one of the Depository Participants or DPs. DPs could be banks, brokers or financial institution that have been allowed to provide this service. The Dps act as intermediary between central depository and the investor.

Some facts about Demat Account:

  • To carry out transactions in the stock market, one should get open a demat account.
  • To open a demat account, KYC procedure is also followed.
  • Multiple demat accounts can be opened.
  • Demat accounts are held by a single person i.e. no joint accounts can be operated.
  • There is no need of any minimum balance in demat account.

Benefits of having Demat Account:

  • When the transactions are done, like buying or selling securities in the market, they get automatically updated.
  • It provides paperless transactions.
  • It provides security in holding securities in the account.
  • Provides reduction in transaction cost.
  • No stamp duty on transfer of securities.
  • Traders can work from anywhere

Basic Saving Bank Deposit Account 


A Basic Savings Bank Deposit Account (BSBDA) can be opened with simplified KYC document and also with nil balance.
It is like a Savings account with some modifications in it. A person having BSBDA in a bank cannot have a Savings Account in the same bank. But he can have other accounts such as fixed deposit and recurring deposit accounts.
A person having savings account can open a BSBDA in the same bank. But he will have to close the savings account within 30 days from the date of opening of BSBDA.
With the introduction of BSBDA, ‘no-frills’ account with ‘nil’ or very low minimum balances have been converted to BSBDA.

Highlights of BSBDA:

  • All types of customers can open a Basic Savings Bank Deposit Account having age above 10 years.
  • There is no requirement for any initial deposit for opening a BSBDA.
  • The services available free in the ‘Basic Savings Bank Deposit Account’ include deposit and withdrawal, transfer funds, cheque facility, passbooks, ATM cards and number of withdrawals to 4 using any mode in a month.
  • The respective banks can also offer other services as free apart from mentioned above.
  • Accounts enjoying additional facilities under the reasonable pricing structure for value added services, exclusively for BSBDA customers should not be treated as BSBDAs.
  • BSBDAs can be opened in any commercial banks and also in foreign banks.
  • Opening these accounts is a part of Financial Inclusion.
If a customer want to get open an account without KYC norms, then also a bank account can be opened for him but that will be treated as BSBDA-Small Account with conditions as:
  • Total credits in such accounts should not exceed one lakh rupees in a year.
  • Maximum balance in the account should not exceed fifty thousand rupees at any time.
  • In a month, the total of cash withdrawals and transfers cannot exceed Rs 10,000.
  • Foreign remittances cannot be credited to Small Accounts without completing normal KYC formalities.
  • Small accounts are valid for a period of 12 months initially which may be extended by another 12 months if the person provides proof of having applied for an Officially Valid Document.
  • Small Accounts can only be opened at Core Banking System (CBS) linked branches of banks or at such branches where it is possible to manually monitor the fulfillments of the conditions.

Difference between Cheque and Demand Draft

Cheque and Demand Drafts both are used for the purpose of payments. Since it is not always possible to give the money in cash to another person or party, they are popular for doing the payments. Since the banks are involved in between the payment process, the currency paid is considered to be authentic.

 Cheque

A cheque is a negotiable instrument drawn on a specified banker and not expressed to be payable otherwise than on demand and cheque also includes the electronic image of a truncated cheque and a cheque in the electronic form.
  • a cheque in the electronic form‘ means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature and asymmetric crypto system.
  • a truncated cheque‘ means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment. After the generation of an electronic image for transmission, the image substitutes the physical movement of the cheque in writing.

Demand Draft

Also known as DD, it is kind of a pre-paid negotiable instrument that is used to direct payments from one bank to another bank or one of its own branches to pay a certain sum to the specified party.
  • When a bank gets request for the issue of a DD by any individual or party, it either deducts the money from the bank account (if the individual/party has bank account in that bank) or individual/party has to give the amount in cash not exceeding Rs 50,000. In case of amount exceeding Rs 50,000, the payment is to be made by cheque along with giving the PAN No.
  • Like a cheque, DD also contains DD number and MICR No. at the bottom. DDs can also be used for making payments abroad by issuing a draft in foreign currency.




Cheque
Demand Draft (DD)
It is issued by an individual It is issued by a bank
So they are orders of payment from an account holder to the bank They are orders of payment by a bank to another bank
Payment is made after presenting cheque for encashing Payment is paid before presenting DD for encashing
Three parties are involved – Drawer, Drawee, Payee Two parties are involved – Drawer, Payee
Drawer and Drawee are different persons, can be same also if cheque is drawn on self Drawer and Drawee are same bank with different branches
Drawer is  customer of the bank Drawer is the bank itself
In case of insufficient balance in the account, it can be dishonoured It cannot be dishonoured because payment is already done for it
They can be paid to either bearer  (who presents the cheque to bank) or order (whose name is specified on the cheque) They are always payable to the specified party
It is defined in the Negotiable Instrument Act, 1881 Although a type of negotiable instrument only, it is not defined in the act.
It requires a sign of individual/party It requires a sign of banking authority and stamp of bank
There are no bank charges to issue a cheque Different banks can charge differently for the issue of DD.
Individual/Party issuing cheque muct have a savings or current account in the bank Individual/Party getting issued a DD may not necessarily have bank account in the bank