The core function of a debt recovery agent is to collect dues/receivables from specified debtors of the bank as per agency agreement entered with the principal. Remitting the collected funds to principal, keeping account of the receivables collected and yet to be collected and reporting the position and developments to the principal are essential but ancillary to the core function. All these functions will be specified in most agency agreement and would require to be accordingly discharged by the debt recovery agent. Apart from the easily collectible receivables, most banks have on their books over due receivables from debtors who are not traceable, or who show unwillingness pay or who resist surrendering the security charged. In such cases, the recovery process is difficult and requires handling by specialized collection agencies to process the required expertise. The functions of re-processing the security, initial legal action and tracing Continue reading
Financial System
Case Study on Financial Ethics: The Bernie Madoff Case
On December 11, 2008, as the arrest of Benard Madoff, the former non-executive chairman of NASDAQ and chairman of Bernard L. Madoff Investment Securities LLC, many investors, big firms, banks, charities, universities and even governments were in panic, realizing that they were involved in a giant financial fraud, ‘all just one big lie’. According to an official document on March 12, 2009 from the Department of Justice of United States, Madoff pleaded guilty to eleven felony counts related to a massive Ponzi scheme and faced a statutory maximum sentence of 150 years in prison. Actually, what Mr. Madoff did was simple; He continually paid high returns to existing clients with the funds injected by new investors without engaging in any form of legitimate investment activity and this is what people call ‘the Ponzi scheme’, named after Charles Ponzi who did such kind of financial fraud in 1920’s. However, it is Continue reading
Basel Committee On Banking Supervision
The Basel Committee on Banking Supervision (BCBS) was formed in response to the messy liquidation of a Cologne-based bank in 1974. On 26 June 1974, a number of banks had released Deutsche Mark (German Mark) to the Bank Herstatt in exchange for dollar payments deliverable in New York. On account of differences in the time zones, there was a lag in the dollar payment to the counter-party banks, and during this gap, and before the dollar payments could be effected in New York, the Bank Herstatt was liquidated by German regulators. This incident prompted the G-10 nations to form towards the end of 1974, the Basel Committee on Banking Supervision, under the auspices of the Bank of International Settlements (BIS) located in Basel, Switzerland. The Committee was established to facilitate information sharing and cooperation among bank regulators in major countries. The Basel Committee was constituted by the Central Bank Governors Continue reading
Concepts and Process of Book Building
Book building is a method of price discovery. In this method, offer price of securities is determined on the basis of real demand for the shares at various price levels in the market. As defined by SEBI guidelines, 1995, “book building is a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda of offer document.” In book building method, the final issue price is not known in advance. Only a price band is determined and made public before opening of the bidding process. The spread of price between floor price and cap in the price band should not be more than 20%. It means that the Continue reading
Types of Investors in the Stock Market
There is a wide diversity among investors, depending on their investment styles, mandates, horizons, and assets under management. Primarily, investors are either individuals, in that they invest for themselves or institutions, where they invest on behalf of others. Risk appetites and return requirements greatly vary across investor classes and are key determinants of the investing styles and strategies followed as also the constraints faced. Primarily investors can be categorized into two groups: Individual Investors: While in terms of numbers, individuals comprise the single largest group in most markets, the size of the portfolio of each investor is usually quite small. Individuals differ across their risk appetite and return requirements. Those averse to risk in their portfolios would be inclined towards safe investments like government securities and bank deposits, while others may be risk takers who would like to invest and/or speculate in the equity markets. Requirements of individuals also evolve Continue reading
Mergers and Amalgamations
The terms merger and amalgamation are used interchangeably as a form of business organization to seek external growth of business. A merger is a combination of two or more firms in which only one firm would survive and the other would cease to exist, its asset/ liabilities being taken over by surviving firm. Amalgamation is an arrangement in which the asset/liability of to or more firm to form a new entity or absorption of one/more firm with another. The out come of this arrangement is that the amalgamating firm is dissolved/wound-up and losses it identity and its shareholders become shareholders of the amalgeted firm. Although the merger/amalgamation of firm in India is governed by he provision of the companies act, 1956, it does not defined this term. The income tax act , 1961, stipulates to pre-requisite for amalgamation through which the amalgeted company seeks to avail the benefit of set Continue reading