Credit rating is a codified rating assigned to an issue by authorized credit rating agencies. These agencies have been promoted by well-established financial Institutions and reputed banks/finance companies. Credit rating is a relative ranking arrived at by a systematic analysis of the strengths and weaknesses of a company and debt instrument issued by the company, based on financial statements, project analysis, creditworthiness factors and future prospectus of the project and the company appraised at a point of time. Objectives of Credit Rating Credit rating aims to: Provide superior information to the investors at a low cost; Provide a sound basis for proper risk-return structure; Subject borrowers to a healthy discipline, and Assist in the framing of public policy guidelines on institutional investment. Thus, credit rating in financial services represent an exercise in faith building for the development of a healthy financial system. Approaches to Credit Rating As a technique for Continue reading
Financial Institutions
Introduction to Merchant Banking
Definition of Merchant Banking The Notification of the Ministry of Finance defines merchant banker as; “Any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities as manager-consultant, adviser or rendering corporate advisory services in relation to such issue management” The Amendment Regulation specifies that issue management consist of prospectus and other information relating to issue, determining financial structure, tie-up of financiers and final allotment and refund of the subscriptions, underwriting and portfolio management services. In the words of Skully “A Merchant Bank could be best defined as a financial institution conducting money market activities and lending, underwriting and financial advice, and investment services whose organization is characterized by a high proportion of professional staff able to able to approach problems in an innovative manner and to make and implement decisions rapidly.” Nature of Merchant Banking Merchant banking is Continue reading
Introduction to Investment Banking
‘Investment Banking‘ as term suggests, is concerned with the primary function of assisting the capital market in its function of capital intermediation, i.e., the movement of financial resources from those who have them (the Investors), to those who need to make use of them for generating GDP (the Issuers). Banking and financial institution on the one hand and the capital market on the other are the two broad platforms of institutional that investment for capital flows in economy. Therefore, it could be inferred that investment banks are those institutions that are counterparts of banks in the capital markets in the function of intermediation in the resource allocation. Nevertheless, it would be unfair to conclude so, as that would confine investment banking to very narrow sphere of its activities in the modem world of high finance. Over the decades, backed by evolution and also fuelled by recent technologies developments, an investment Continue reading
8 Risks Faced by Modern Banks at the Present Competitive Business World
The unanticipated part of the return, that portion resulting from surprises is the true risk of any investment. If we always receive what we expect, than the investment is perfectly predictable and, by definition, risk-free. In other words, the risk of owning an asset comes from surprises-unanticipated events. RISK is a concept that denotes the precise probability of specific eventualities. It is simply the future uncertainty and not only the incidents of predictable outcomes but also the unpredictable favorable outcomes. All the firms or companies whether it is in real or providing service are facing some sort of risk at present competitive business world to run its business. Banks are one of them in these regard and it is facing possibility of risk in terms of money and their achieved reputation. Bank is a financial institution that primarily deals with borrowing and lending money from the people by the people Continue reading
The National Stock Exchange of India Limited (NSE)
The National Stock Exchange of India Limited (NSE) was set up by leading institutions to provide a modern, fully automated screen-based trading system with national reach. The Exchange has brought about unparalleled transparency, speed & efficiency, safety and market integrity. It has set up facilities that serve as a model for the securities industry in terms of systems, practices and procedures. The National Stock Exchange of India Limited has played a catalytic role in reforming the Indian securities market in terms of micro-structure, market practices and trading volumes. The market today uses state-of-art information technology to provide an efficient and transparent trading, clearing and settlement mechanism, and has witnessed several innovations in products & services viz. demutualisation of stock exchange governance, screen based trading, compression of settlement cycles, dematerialisation and electronic transfer of securities, securities lending and borrowing, professionalization of trading members, fine-tuned risk management systems, emergence of clearing Continue reading
Investment Banking in India
For more than three decades, the investment banking activity was mainly confined to merchant banking services. The foreign banks were the forerunners of merchant banking in India. The erstwhile Grindlays Bank began its merchant banking operations in 1967 after obtaining the required license from RBI. Soon after Citibank followed through. Both the banks focused on syndication of loans and raising of equity apart from other advisory services. In 1972, the Banking Commission report asserted the need for merchant banking activities in India and recommended a separate structure for merchant banks totally different from commercial banks structure. The merchant banks were meant to manage investments and provide advisory services. The SBI set up its merchant banking division in 1972 and the other banks followed suit. ICICI was the first financial institution to set up its merchant banking division in 1973. The advent of SEBI in 1992 was a major boost to Continue reading