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IPO FAQs

What is an Initial Public Offering?Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of securities or anoffer for sale of its existing securities or both for the first time to the public. This paves way for listing and

trading of the issuers securities.

What is a Follow on Public Offering?A follow on public offering (FPO) is when an already listed company makes either a fresh issue ofsecurities to the public or an offer for sale to the public, through an offer document. An offer for sale insuch scenario is allowed only if it is made to satisfy listing or continuous listing obligations.

What is a Rights Issue?Rights Issue (RI) is when a listed company which proposes to issue fresh securities to its existingshareholders as on a record date. The rights are normally offered in a particular ratio to the number ofsecurities held prior to the issue. This route is best suited for companies who would like to raise capitalwithout diluting stake of its existing shareholders unless they do not intend to subscribe to theirentitlements.

What is a Preferential Issue?A preferential issue is an issue of shares or of convertible securities by listed companies to a selectgroup of persons under Section 81 of the Companies Act, 1956 which is neither a rights issue nor apublic issue. This is a faster way for a company to raise equity capital. The issuercompany has to comply with the Companies Act and the requirements contained in Chapter pertaining topreferential allotment in SEBI (DIP) guidelines which inter-alia include pricing, disclosures in notice etc.

What is SEBIs Role in an Issue?Any company making a public issue or a listed company making a rights issue of value of more thanRs.50 lakhs is required to file a draft offer document with SEBI for its observations. The company canproceed further on the issue only after getting observations from SEBI. The validity period of SEBIs

observation letter is three months only ie. the company has to open its issue within three months period.

Does it mean that SEBI recommends an issue? SEBI does not recommend any issue nor does take any responsibility either for the financial soundnessof any scheme or the project for which the issue is proposed to be made or for the correctness of thestatements made or opinions expressed in the offer document.

Does SEBI approve the contents of the issue? It is to be distinctly understood that submission of offer document to SEBI should not in any way bedeemed or construed that the same has been cleared or approved by SEBI. The Lead manager certifiesthat the disclosures made in the offer document are generally adequate and are in conformity with SEBIguidelines for disclosures and investor protection in force for the time being. This requirement is tofacilitate investors to take an informed decision for making investment in the proposed issue.

Does SEBI tag make my money safe? The investors should make an informed decision purely by themselves based on the contents disclosedin the offer documents. SEBI does not associate itself with any issue/issuer and should in no way beconstrued as a guarantee for the funds that the investor proposes to invest through the issue. However,the investors are generally advised to study all the material facts pertaining to the issue including the riskfactors before considering any investment. They are strongly warned against any tips or news throughunofficial means.

What are Disclosures and Investor protection guidelines?

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The primary issuances are governed by SEBI in terms of SEBI (Disclosures and Investor protection)guidelines. SEBI framed its DIP guidelines in 1992. Many amendments have been carried out in thesame in line with the market dynamics and requirements. In 2000, SEBI issued Securities andExchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 which is compilation ofall circulars organized in chapter forms. These guidelines and amendments thereon are issued by SEBIIndia under section 11 of the Securities and Exchange Board of India Act, 1992. SEBI (Disclosure andinvestor protection) guidelines 2000 are in short called DIP guidelines. It provides a comprehensiveframework for issuances buy the companies.

How does SEBI ensure compliance with Disclosures and Investor protection?The Merchant Banker are the specialized intermediaries who are required to do due diligence andensure that all the requirements of DIP are complied with while submitting the draft offer document toSEBI. Any non compliance on their part, attract penal action from SEBI, in terms of SEBI (MerchantBankers) Regulations. The draft offer document filed by Merchant Banker is also placed on the websitefor public comments. Officials of SEBI at various levels examine the compliance with DIP guidelines andensure that all necessary material information is disclosed in the draft offer documents.

With the presence of the Central Listing Authority, what would be the role of SEBI in theprocessing of Offer documents for an issue? The Central Listing Authoritys , CLA, functions have been detailed under Regulation 8 of SEBI (CentralListing Authority) Regulations, 2003 (CLA Regulations) issued on August 21, 2003 and amended up toOctober 14, 2003. In brief, it covers processing applications for letter precedent to listing fromapplicants;to make recommendations to the Board on issues pertaining to the protection of the interest of theinvestors in securities and development and regulation of the securities market, including the listingagreements, listing conditions and disclosures to be made in offer documents; and; to undertake anyother functions as may be delegated to it by the Board from time to time. SEBI as the regulator of thesecurities market examines all the policy matters pertaining to issues and will continue to do so evenduring the existence of the CLA. Since the CLA is not yet operational, the reply to this question would beupdated thereafter.

What is the difference between an offer document, Red Herring Prospectus, a prospectus andan abridged prospectus? What does it mean when someone says draft offer doc?

Offer document means Prospectus in case of a public issue or offer for sale and Letter of Offer incase of a rights issue, which is filed Registrar of Companies (ROC) and Stock Exchanges. An offerdocument covers all the relevant information to help an investor to make his/her investment decision.Draft Offer document means the offer document in draft stage. The draft offer documents are filed withSEBI, atleast 21 days prior to the filing of the Offer Document with ROC/ SEs. SEBI may specifieschanges, if any, in the draft Offer Document and the issuer or the Lead Merchant banker shall carry outsuch changes in the draft offer document before filing the Offer Document with ROC/ SEs. The DraftOffer document is available on the SEBI website for public comments for a period of 21 days from thefiling of the Draft Offer Document with SEBI.

What is a Red Herring Prospectus?Red Herring Prospectus is a prospectus, which does not have details of either price or number ofshares being offered, or the amount of issue. This means that in case price is not disclosed, the number

of shares and the upper and lower price bands are disclosed. On the other hand, an issuer can state theissue size and the number of shares are determined later. An RHP for and FPO can be filed with theRoC without the price band and the issuer, in such a case will notify the floor price or a price band byway of an advertisement one day prior to the opening of the issue. In the case of book-built issues, it is aprocess of price discovery and the price cannot be determined until the bidding process is completed.Hence, such details are not shown in the Red Herring prospectus filed with ROC in terms of theprovisions of the Companies Act. Only on completion of the bidding process, the details of the final priceare included in the offer document. The offer document filed thereafter with ROC is called a prospectus.

What is an Abridged Prospectus?

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Abridged Prospectus means the memorandum as prescribed in Form 2A under sub-section (3) ofsection 56 of the Companies Act, 1956. It contains all the salient features of a prospectus. Itaccompanies the application form of public issues.

What does one mean by Lock-in?Lock-in indicates a freeze on the shares. SEBI (DIP) Guidelines have stipulated lock-in requirements on

shares of promoters mainly to ensure that the promoters or main persons who are controlling thecompany, shall continue to hold some minimum percentage in the company after the public issue.

How the word Promoter has been defined? The promoter has been defined as a person or persons who are in over-all control of the company, whoare instrumental in the formulation of a plan or programme pursuant to which the securities are offered tothe public and those named in the prospectus as promoters(s). It may be noted that a director / officer ofthe issuer company or person, if they are acting as such merely in their professional capacity are not beincluded in the definition of a promoter.

'Promoter Group' includes the promoter, an immediate relative of the promoter (i.e. any spouse of thatperson, or any parent, brother, sister or child of theperson or of the spouse). In case promoter is acompany, a subsidiary or holding company of that company; any company in which the promoter holds10% or more of the equity capital or which holds 10% or more of the equity capital of the Promoter; anycompany in which a group of individuals or companies or combinations thereof who holds 20% or moreof the equity capital in that company also holds 20% or more of the equity capital of the issuer company.

In case the promoter is an individual, any company in which 10% or more of the share capital is held bythe promoter or an immediate relative of the promoter' or a firm or HUF in which the 'Promoter' or anyone or more of his immediate relative is a member; any company in which a company specified in (i)above, holds 10% or more, of the share capital; any HUF or firm in which the aggregate share of thepromoter and his immediate relatives is equal to or more than 10% of the total, and all persons whoseshareholding is aggregated for the purpose of disclosing in the prospectus "shareholding of the promotergroup".

Who decides the price of an issue?Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines have

provided that the issuer in consultation with Merchant Banker shall decide the price. There is no priceformula stipulated by SEBI. SEBI does not play any role in price fixation. The company and merchantbanker are however required to give full disclosures of the parameters which they had considered whiledeciding the issue price. There are two types of issues one where company and LM fix a price (calledfixed price) and other, where the company and LM stipulate a floor price or a price band and leave it tomarket forces to determine the final price (price discovery through book building process).

What is Fixed Price offers?An issuer company is allowed to freely price the issue. The basis of issue price is disclosed in the offerdocument where the issuer discloses in detail about the qualitative and quantitative factors justifying theissue price. The Issuer company can mention a price band of 20% (cap in the price band should not bemore than 20% of the floor price) in the Draft offer documents filed with SEBI and actual price can bedetermined at a later date before filing of the final offer document with SEBI / ROCs.

What does price discovery through book building process mean?Book Building means a process undertaken by which a demand for the securities proposed to beissued by a body corporate is elicited and built up and the price for the securities is assessed on thebasis of the bids obtained for the quantum of securities offered for subscription by the issuer. Thismethod provides an opportunity to the market to discover price for securities.

How does Book Building work?

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Book building is a process of price discovery. Hence, the Red Herring prospectus does not contain aprice. Instead, the red herring prospectus contains either the floor price of the securities offered throughit or a price band along with the range within which the bids can move. The applicants bid for the sharesquoting the price and the quantity that they would like to bid at. Only the retail investors have the optionof bidding at cut-off. After the bidding process is complete, the cut-off price is arrived at on the lines ofDutch auction. The basis of Allotment (Refer Q. 15.j) is then finalized and letters allotment/refund isundertaken. The final prospectus with all the details including the final issue price and the issue size isfiled with ROC, thus completing the issue process.

What is a price band?The red herring prospectus may contain either the floor price for the securities or a price band withinwhich the investors can bid. The spread between the floor and the cap of the price band shall not bemore than 20%. In other words, it means that the cap should not be more than 120% of the floor price.The price band can have a revision and such a revision in the price band shall be widely disseminatedby informing the stock exchanges, by issuing press release and also indicating the change on therelevant website and the terminals of the syndicate members. In case the price band is revised, thebidding period shall be extended for a further period of three days, subject to the total bidding period notexceeding thirteen days.

Who decides the price band?It may be understood that the regulatory mechanism does not play a role in setting the price for issues. Itis up to the company to decide on the price or the price band, in consultation with Merchant Bankers.The basis of issue price is disclosed in the offer document. The issuer is required to disclose in detailabout the qualitative and quantitative factors justifying the issue price.

What is firm allotment?A company making an issue to public can reserve some shares on allotment on firm basis for somecategories as specified in DIP guidelines. Allotment on firm basis indicates that allotment to the investoris on firm basis. DIP guidelines provide for maximum % of shares, which can be reserved on firm basis.The shares to be allotted on firm allotment category can be issued at a price different from the price atwhich the net offer to the public is made provided that the price at which the security is being offered tothe applicants in firm allotment category is higher than the price at which securities are offered to public.

What is reservation on competitive basis?Reservation on Competitive Basis is when allotment of shares is made in proportion to the sharesapplied for by the concerned reserved categories. Reservation on competitive basis can be made in apublic issue to the Employees of the company, Shareholders of the promoting companies in the case ofa new company and shareholders of group companies in the case of an existing company, Indian MutualFunds, Foreign Institutional Investors (including non resident Indians and overseas corporate bodies),Indian and Multilateral development Institutions and Scheduled Banks.

Is there any preference while doing the allotment?The allotment to the Qualified Institutional Buyers (QIBs) is on a discretionary basis. The discretion is leftto the Merchant Bankers who first disclose the parameters of judgment in the Red Herring Prospectus.There are no objective conditions stipulated as per the DIP Guidelines. The Merchant Bankers are freeto set their criteria and mention the same in the Red Herring Prospectus.

Who is eligible for reservation and how much? (QIBs, NIIs, etc.,)In a book built issue allocation to Retail Individual Investors (RIIs), Non Institutional Investors (NIIs) andQualified Institutional Buyers (QIBs) is in the ratio of 35: 15: 50 respectively. In case the book built issuesare made pursuant to the requirement of mandatory allocation of 60% to QIBs in terms of Rule 19(2)(b)of SCRR, the respective figures are 30% for RIIs and 10% for NIIs. This is a transitory provision pendingharmonization of the QIB allocation in terms of the aforesaid Rule with that specified in the guidelines.

How is the Retail Investor defined as?

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Retail individual investor means an investor who applies or bids for securities of or for a value of notmore than Rs.1,00,000.

Can a retail investor also bid in a book-built issue?Yes. He can bid in a book-built issue for a value not more than Rs.1,00,000. Any bid made in excess ofthis will be considered in the HNI category.

Where can I get a form for applying/ bidding for the shares?The form for applying/bidding of shares is available with all syndicate members, collection centers, thebrokers to the issue and the bankers to the issue.

What is the amount of faith that I can lay on the contents of the documents? And whom shouldI approach if there are any lacunae?The document is prepared by an independent specialized agency called Merchant Banker, which isregistered with SEBI. They are required to do through due diligence while preparing an offer document.The draft offer document submitted to SEBI is put on website for public comments. In case, you haveany information about the issuer or its directors or any other aspect of the issue, which in your view is notfactually reflected, you may send your complaint to Lead Manager to the issue or to SEBI, Division ofIssues and Listing.

Is it compulsory for me to have a Demat Account?As per the requirement, all the public issues of size in excess of Rs.10 crore, are to made compulsorily inthe demat more. Thus, if an investor chooses to apply for an issue that is being made in a compulsorydemat mode, he has to have a demat account and has the responsibility to put the correct DP ID andClient ID details in the bid/application forms.

What is the procedure for getting a demat account?The FAQs relating to demat have been covered in the Investor Education section of the SEBI website ina separate head. They are available on the http://investor.sebi.gov.in/faq/dematfaq.html.

What are the dos and donts for bidding / applying in the issue?The investors are generally advised to study all the material facts pertaining to the issue including therisk factors before considering any investment. They are strongly warned against any tips or relying on

news obtained through unofficial means.

How many days is the issue open?As per Clause 8.8.1, Subscription list for public issues shall be kept open for at least 3 working days andnot more than 10 working days. In case of Book built issues, the minimum and maximum period forwhich bidding will be open is 37 working days extendable by 3 days in case of a revision in the priceband. The public issue made by an infrastructure company, satisfying the requirements in Clause 2.4.1(iii) of Chapter II may be kept open for a maximumperiod of 21 working days. As per clause 8.8.2., Rights issues shall be kept open for at least 30 days andnot more than 60 days.

Can I change/revise my bid?Yes. The investor can change or revise the quantity or price in the bid using the form for

changing/revising the bid that is available along with the application form. However, the entire process ofchanging of revising the bids shall be completed within the date of closure of the issue.

What proof can bidder request from a trading member or a syndicate member for enteringbids?The syndicate member returns the counterfoil with the signature, date and stamp of the syndicatemember. The investor can retain this as a sufficient proof that the bids have been taken into account.

Can I know the number of shares that would be allotted to me?

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In case of fixed price issues, the investor is intimated about the CAN/Refund order within 30 days of theclosure of the issue. In case of book built issues, the basis of allotment is finalized by the Book Runninglead Managers within 2 weeks from the date of closure of the issue. The registrar then ensures that thedemat credit or refund as applicable is completed within 15 days of the closure of the issue. The listingon the stock exchanges is done within 7 days from the finalization of the issue.

Which are the reliable sources for me to get information about response to issues?In the case of book-built issues, the exchanges (BSE/NSE) display the data regarding the bids obtained

(on a consolidated basis between both these exchanges). The data regarding the bids is also availablecategorywise. After the price has been determined on the basis of bidding, thestatutory public advertisement containing, inter alia, the price as well as a table showing the number ofsecurities and the amount payable by an investor, based on the price determined, is issued.

How do I know if I am allotted the shares? And by what timeframe will I get a refund if I am notallotted?The investor is entitled to receive a Confirmatory Allotment Note (CAN) in case he has been allottedshares within 15 days from the date of closure of a book Built issue. The registrar has to ensure that thedemat credit or refund as applicable is completed within 15 days of the closure of the book built issue.

How long will it take after the issue for the shares to get listed?The listing on the stock exchanges is done within 7 days from the finalization of the issue. Ideally, itwould be around 3 weeks after the closure of the book built issue. In case of fixed price issue, it wouldbe around 37 days after closure of the issue.

How does one come to know about the issues on offer? And from where can I get copies of thedraft offer document?SEBI issues press releases every week regarding the draft offer documents received and observationsissued during the period. The draft offer documents are put up on the website under Reports/Documentssection. The final offer documents that are filed with SEBI/ROC are alsoput up for information under the same section. Copies of the draft offer documents in hard copy formmay be obtained from the office of SEBI, Mittal Court, A wing, Ground Floor, 224, Nariman Point,Mumbai 400021 on a payment of Rs.100 or from SES, LMs etc. The soft copies can be downloadedfrom the SEBI website under Reports/Documents section. Some LMs also make it available on their web

sites for download. The final offer documents that are filed with SEBI/ROC can also be downloaded fromthe same section of the website.

Who are the intermediaries in an issue?Merchant Bankers to the issue or Book Running Lead Managers (BRLM), syndicate members,Registrars to the issue, Bankers to the issue, Auditors of the company, Underwriters to the issue,Solicitors, etc. are the intermediaries to an issue. The issuer discloses the addresses, telephone/faxnumbers and email addresses of these intermediaries. In addition to this, the issuer also discloses thedetails of the compliance officer appointed by the company for the purpose of the issue.

Who is eligible to be a BRLM?A Merchant banker possessing a valid SEBI registration in accordance with the SEBI (Merchant

Bankers) Regulations, 1992 is eligible 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 up the due diligence of companys operations/management/ business plans/ legal etc. Other activities of the LM include drafting and design of Offerdocuments, Prospectus, statutory advertisements and memorandum containing salient features of theProspectus. The BRLMs shall ensure compliance with stipulated requirements and completion ofprescribed formalities with the Stock Exchanges, RoC and SEBI including finalisation of Prospectus andRoC filing. Appointment of other intermediaries viz., Registrar(s), Printers, Advertising Agency and

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Bankers to the Offer is also included in the pre-issue processes.

The LM also draws up the various marketing strategies for the issue. The post issue activities includingmanagement of escrow accounts, coordinate non-institutional allocation, intimation of allocation anddispatch of refunds to bidders etc are performed by the LM. The post Offer activities for the Offer willinvolve essential follow-up steps, which include the finalization of trading and dealing of instruments anddispatch of certificates and demat of delivery of shares, with the various agencies connected with thework such as the Registrar(s) to the Offer and Bankers to the Offer and the bank handling refundbusiness. The merchant banker shall be responsible for ensuring that these agencies fulfill theirfunctions and enable it to discharge this responsibility through suitable agreements with the Company.

What is the role of a registrar?The Registrar finalizes the list of eligible allottees after deleting the invalid applications and ensures thatthe corporate action for crediting of shares to the demat accounts of the applicants is done and thedispatch of refund orders to those applicable are sent. The Lead manager coordinates with the Registrarto ensure follow up so that that the flow of applications from collecting bank branches, processing of theapplications and other matters till the basis of allotment is finalized, dispatch security certificates andrefund orders completed and securities listed.

What is the role of bankers to the issue?Bankers to the issue, as the name suggests, carries out all the activities of ensuring that the funds arecollected and transferred to the Escrow accounts. The Lead Merchant Banker shall ensure that Bankersto the Issue are appointed in all the mandatory collection centers as specified in DIP Guidelines. The LMalso ensures follow-up with bankers to the issue to get quick estimates of collection and advising theissuer about closure of the issue, based on the correct figures.

What is the recourse available to the investor in case of issue complaints?Most of the issue complaints pertain to non-receipt of refund or allotment, or delay in receipt of refund orallotment and payment of interest thereon. These complaints shall be made to the post issue LeadManager, who in turn will take up the matter with registrar to redress the complaints. In case the investordoes not receive any reply within a reasonable time, investor may complain to SEBI, Office of investorsAssistance

Where do I get data on primary issues? (issuer, total issues, issue size, the intermediaries, etc.,during a given period)SEBI brings out a monthly bulletin that is available off the shelf at bookstores. A digital version of thesame is available on the SEBI website under the News/Publications section. The Bulletin contains allthe relevant historical figures of intermediary issue and intermediary particulars during the given periodplaced against historical figures.

What are the relevant regulations and where do I find them?The SEBI Manual is SEBI authorized publication that is a comprehensive databank of all relevant Acts,Rules, Regulations and Guidelines that are related to the functioning of the Board. The details pertainingto the Acts, Rules, Regulations, Guidelines and Circulars are placed on the SEBI website under theLegal Framework section. The periodic updates are uploaded onto the SEBI website regularly.

What are Risk Factors?Here, the issuers management gives its view on the Internal and external risks faced by the company.Here, the company also makes a note on the forward-looking statements. This information is disclosed inthe initial pages of the document and it is also clearly disclosed in the abridged prospectus. It is generallyadvised that the investors should go through all the risk factors of the company before making aninvestment decision.

What is an Introduction?

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The introduction covers a summary of the industry and business of the issuer company, the offeringdetails in brief, summary of consolidated financial, operating and other data. General Information aboutthe company, the merchant bankers and their responsibilities, the details of brokers/syndicate membersto the Issue, credit rating (in case of debt issue), debenture trustees (in case of debt issue), monitoringagency, book building process in brief and details of underwriting Agreements are given here. Importantdetails of capital structure, objects of the offering, funds requirement, funding plan, schedule ofimplementation, funds deployed, sources of financing of funds already deployed, sources of financing forthe balance fund requirement, interim use of funds, basic terms of issue, basis for issue price, taxbenefits are covered.

What is About us?This presents a review of on the details of the business of the company, business strategy, competitivestrengths, insurance, industry-regulation (if applicable), history and corporate structure, main objects,subsidiary details, management and board of directors, compensation, corporate governance, relatedparty transactions, exchange rates, currency of presentation dividend policy and management'sdiscussion and analysis of financial condition and results of operations are given.

What is a Financial Statements?Financial statement, changes in accounting policies in the last three years and differences between theaccounting policies and the Indian Accounting Policies (if the Company has presented its FinancialStatements also as per Either US GAAP/IAS are presented.

What are Legal and other information?Outstanding litigations and material developments, litigations involving the company and its subsidiaries,promoters and group companies are disclosed. Also material developments since the last balance sheetdate, government approvals/licensing arrangements, investment approvals (FIPB/RBI etc.), allgovernment and other approvals, technical approvals, indebtedness, etc. are disclosed.

What is a Green-shoe Option?Green Shoe option means an option of allocating shares in excess of the shares included in the publicissue and operating a post-listing price stabilizing mechanism for a period not exceeding 30 days inaccordance with the provisions of Chapter VIIIA of DIP Guidelines, which is granted to a company to be

exercised through a Stabilizing Agent. This is an arrangement wherein the issue would be over allottedto the extent of a maximum of 15% of the issue size. From an investors perspective, an issue with greenshoe option provides more probability of getting shares and also that post listing price may showrelatively more stability as compared to market.

What is an e-IPO?A company proposing to issue capital to public through the on-line system of the stock exchange for offerof securities can do so if it complies with the requirements under Chapter 11A of DIP Guidelines. Theappointment of various intermediaries by the issuer includes a prerequisite that such members/registrarshave the required facilities to accommodate such an online issue process.

What is Safety Net?Any safety net scheme or buy-back arrangements of the shares proposed in any public issue shall be

finalized by an issuer company with the lead merchant banker in advance and disclosed in theprospectus. Such buy back or safety net arrangements shall be made available only to all originalresident individual allottees limited up to a maximum of 1000 shares per allottee and the offer is keptopen for a period of 6 months from the last date of dispatch of securities. The details regarding SafetyNet are covered under Clause 8.18 of DIP Guidelines.

Who is a Syndicate Member?The Book Runner(s) may appoint those intermediaries who are registered with the Board and who arepermitted to carry on activity as an Underwriter as syndicate members. The syndicate members are

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mainly appointed to collect and entire the bid forms in a book built issue.

What is Open book/closed book?Presently, in issues made through book building, Issuers and merchant bankers are required to ensureonline display of the demand and bids during the bidding period. This is the Open book system of bookbuilding. Here, the investor can be guided by the movements of the bids during the period in which the

bid is kept open. Under closed book building, the book is not made public and the bidders will have totake a call on the price at which they intend to make a bid without having any information on the bidssubmitted by other bidders.

What is Hard underwriting?Hard underwriting is when an underwriter agrees to buy his commitment at its earliest stage. Theunderwriter guarantees a fixed amount to the issuer from the issue. Thus, in case the shares are notsubscribed by investors, the issue is devolved on underwriters and they have to bring in the amount bysubscribing to the shares. The underwriter bears a risk which is much higher in soft underwriting.

What is Soft underwriting?Soft underwriting is when an underwriter agrees to buy the shares at later stages as soon as the pricingprocess is complete. He then, immediately places those shares with institutional players. The risk facedby the underwriter as such is reduced to a small window of time. Also, the soft underwriter has the optionto invoke a force Majeure (acts of God) clause in case there are certain factors beyond the control thatcan affect the underwriters ability to place the shares with the buyers.

What is a Cut Off Price?In Book building issue, the issuer is required to indicate either the price band or a floor price in the redherring prospectus. The actual discovered issue price can be any price in the price band or any priceabove the floor price. This issue price is called Cut off price. This is decided by theissuer and LM after considering the book and investors appetite for the stock. SEBI (DIP) guidelinespermit only retail individual investors to have an option of applying at cut off price.

What is Differential pricing?Pricing of an issue where one category is offered shares at a price different from the other category iscalled differential pricing. In DIP Guidelines differential pricing is allowed only if the securities to

applicants in the firm allotment category is at a price higher than the price at which the net offer to thepublic is made. The net offer to the public means the offer made to the Indian public and does notinclude firm allotments or reservations or promoters contributions.

What is Basis of Allocation/Basis of Allotment? After the closure of the issue, the bids received are aggregated under different categories i.e., firmallotment, Qualified Institutional Buyers (QIBs), Non-Institutional Buyers (NIBs), Retail, etc. Theoversubscription ratios are then calculated for each of the categories as against the shares reserved foreach of the categories in the offer document. Within each of these categories, the bids are thensegregated into different buckets based on the number of shares applied for. The oversubscription ratiois then applied to the number of shares applied for and the number of shares to be allotted for applicantsin each of the buckets is determined. Then, the number of successful allottees is determined. Thisprocess is followed in case of proportionate allotment. In

case of allotment for QIBs, it is subject to the discretion of the post issue lead manager.

Who is Qualified Institutional Buyer (QIBs)? Qualified Institutional Buyers are those institutional investors who are generally perceived to possessexpertise and the financial muscle to evaluate and invest in the capital markets. In terms of clause2.2.2B (v) of DIP Guidelines, a Qualified Institutional Buyer shall mean:a. Public financial institution as defined in section 4A of theCompanies Act, 1956;b. Scheduled commercial banks;c. Mutual funds;

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d. Foreign institutional investor registered with SEBI;e. Multilateral and bilateral development financial institutions;f. Venture capital funds registered with SEBI.g. Foreign Venture capital investors registered with SEBI.h. State Industrial Development Corporations.i. Insurance Companies registered with the Insurance Regulatoryand Development Authority (IRDA).

j. Provident Funds with minimum corpus of Rs.25 croresk. Pension Funds with minimum corpus of Rs. 25 crores)

These entities are not required to be registered with SEBI as QIBs. Any entities falling under thecategories specified above are considered as QIBs for the purpose of participating in primary issuanceprocess.

Source:http://www.sebi.gov.in

RIGHT ISSUES

Rights issue is a method used by companies to raise funds by issuing additional stocks to the existing share holders

of the company. Share holders may or may not exercise their right of acquiring new shares issued by the company.

Companies fix up a price for rights issue, usually less than the market price to make sure entire issue will besubscribed. The share holders can apply for more number of shares than they are entitled to. If some of the share

holders dont exercise their right the shareholders who have applied for additional shares are allotted the same.

Its important for a shareholder to know the reason behind the rights issue i.e. whether the company is raising funds

to acquire another company or to expand the existing business or to meet the obligations of the existing business.

Usually the share price comes down proportionately. This is because the companys equity base goes up with the

additional shares and hence the EPS (Earnings Per Share, Total Net Profit / No of shares outstanding; As the

denominator increases keeping numerator at the same value the ratio comes down) comes down. Considering the

same market conditions, to maintain the same P/E ratio before and after the issue, price comes down.

If the company is going to acquire another company or to expand the existing business which would bring bright

future for the company and yield returns in short term the price would be more than the proportionate value. But if

the company is struggling to meet the obligations of the existing business and not able to raise funds in the debtmarket at lower interest rate and has chosen the rights issue to raise funds then the price comes down less than the

proportionate value

Underwriting refers to the process that a large financial service provider (bank, insurer, investment house) uses to

assess the eligibility of a customer to receive their products (equity capital, insurance,mortgage, or credit). The

name derives from theLloyd's of Londoninsurance market. Financial bankers, who would accept some of the risk

on a given venture (historically asea voyage with associated risks of shipwreck) in exchange for apremium, would

literally write their names under the risk information that was written on a Lloyd's slip created for this purpose.

Contents

[hide]

1 Securities underwritingo 1.1 Risk, exclusivity, and reward

2 Bank underwriting

3 Insurance underwriting

4 Other forms of underwriting

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o 4.1 Real estate underwritingo 4.2 Forensic underwritingo 4.3 Sponsorship underwritingo 4.4 Thomson Financial League Tables

5 See also

6 References

7 External links

[edit] Securities underwriting

Securitiesunderwriting refers to the process by whichinvestment banksraise investment capital from investors on

behalf of corporations and governments that are issuing securities (bothequityanddebt capital).

This is a way of selling a newly issued security, such as stocks or bonds, to investors. Asyndicateof banks (the lead

managers) underwrite the transaction, which means they have taken on the risk of distributing the securities. Should

they not be able to find enough investors, they will have to hold some securities themselves. Underwriters make

their income from the price difference (the "underwriting spread") between the price they pay the issuer and what

they collect from investors or from broker-dealers who buy portions of the offering.

[edit] Risk, exclusivity, and reward

Once the underwriting agreement is struck, the underwriter bears the risk of being able to sell the underlying

securities, and the cost of holding them on its books until such time in the future that they may be favorably sold.

If the instrument is desirable, the underwriter and the securities issuer may choose to enter into an exclusivity

agreement. In exchange for a higher price paid upfront to the issuer, or other favorable terms, the issuer may agree to

make the underwriter the exclusive agent for the initial sale of the securities instrument. That is, even though third-

party buyers might approach the issuer directly to buy, the issuer agrees to sell exclusively through the underwriter.

In summary, the securities issuer gets cash up front, access to the contacts and sales channels of the underwriter, and

is insulated from the market risk of being unable to sell the securities at a good price. The underwriter gets a niceprofit from the markup, plus possibly an exclusive sales agreement.

Also, if the securities are priced significantly below market price (as is often the custom), the underwriter also

curries favor with powerful end customers by granting them an immediate profit (seeflipping), perhaps in aquid pro

quo. This practice, which is typically justified as the reward for the underwriter for taking on the market risk, is

occasionally criticized as unethical, such as the allegations thatFrank Quattroneacted improperly in doling out hot

IPOstock during thedot com bubble.

RBI Governor announces Mid-term Review of Annual Policy for 2006-07

The central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935 with a

share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission. The

share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private

shareholders in the begining. The Government held shares of nominal value of Rs. 2,20,000.

Reserve Bank of India was nationalised in the year 1949. The general superintendence and direction of

the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy

http://en.wikipedia.org/wiki/Underwriting#Real_estate_underwritinghttp://en.wikipedia.org/wiki/Underwriting#Real_estate_underwritinghttp://en.wikipedia.org/wiki/Underwriting#Forensic_underwritinghttp://en.wikipedia.org/wiki/Underwriting#Forensic_underwritinghttp://en.wikipedia.org/wiki/Underwriting#Sponsorship_underwritinghttp://en.wikipedia.org/wiki/Underwriting#Sponsorship_underwritinghttp://en.wikipedia.org/wiki/Underwriting#Thomson_Financial_League_Tableshttp://en.wikipedia.org/wiki/Underwriting#Thomson_Financial_League_Tableshttp://en.wikipedia.org/wiki/Underwriting#See_alsohttp://en.wikipedia.org/wiki/Underwriting#See_alsohttp://en.wikipedia.org/wiki/Underwriting#Referenceshttp://en.wikipedia.org/wiki/Underwriting#Referenceshttp://en.wikipedia.org/wiki/Underwriting#External_linkshttp://en.wikipedia.org/wiki/Underwriting#External_linkshttp://en.wikipedia.org/w/index.php?title=Underwriting&action=edit&section=1http://en.wikipedia.org/w/index.php?title=Underwriting&action=edit&section=1http://en.wikipedia.org/w/index.php?title=Underwriting&action=edit&section=1http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Investment_bankinghttp://en.wikipedia.org/wiki/Investment_bankinghttp://en.wikipedia.org/wiki/Investment_bankinghttp://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Debt_capitalhttp://en.wikipedia.org/wiki/Debt_capitalhttp://en.wikipedia.org/wiki/Debt_capitalhttp://en.wikipedia.org/wiki/Syndicatehttp://en.wikipedia.org/wiki/Syndicatehttp://en.wikipedia.org/wiki/Syndicatehttp://en.wikipedia.org/wiki/Underwriting_spreadhttp://en.wikipedia.org/wiki/Underwriting_spreadhttp://en.wikipedia.org/wiki/Underwriting_spreadhttp://en.wikipedia.org/w/index.php?title=Underwriting&action=edit&section=2http://en.wikipedia.org/w/index.php?title=Underwriting&action=edit&section=2http://en.wikipedia.org/w/index.php?title=Underwriting&action=edit&section=2http://en.wikipedia.org/wiki/Flippinghttp://en.wikipedia.org/wiki/Flippinghttp://en.wikipedia.org/wiki/Flippinghttp://en.wikipedia.org/wiki/Quid_pro_quohttp://en.wikipedia.org/wiki/Quid_pro_quohttp://en.wikipedia.org/wiki/Quid_pro_quohttp://en.wikipedia.org/wiki/Quid_pro_quohttp://en.wikipedia.org/wiki/Frank_Quattronehttp://en.wikipedia.org/wiki/Frank_Quattronehttp://en.wikipedia.org/wiki/Frank_Quattronehttp://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Dot_com_bubblehttp://en.wikipedia.org/wiki/Dot_com_bubblehttp://en.wikipedia.org/wiki/Dot_com_bubblehttp://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/73633.pdfhttp://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/73633.pdfhttp://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/73633.pdfhttp://en.wikipedia.org/wiki/Dot_com_bubblehttp://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Frank_Quattronehttp://en.wikipedia.org/wiki/Quid_pro_quohttp://en.wikipedia.org/wiki/Quid_pro_quohttp://en.wikipedia.org/wiki/Flippinghttp://en.wikipedia.org/w/index.php?title=Underwriting&action=edit&section=2http://en.wikipedia.org/wiki/Underwriting_spreadhttp://en.wikipedia.org/wiki/Syndicatehttp://en.wikipedia.org/wiki/Debt_capitalhttp://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Investment_bankinghttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/w/index.php?title=Underwriting&action=edit&section=1http://en.wikipedia.org/wiki/Underwriting#External_linkshttp://en.wikipedia.org/wiki/Underwriting#Referenceshttp://en.wikipedia.org/wiki/Underwriting#See_alsohttp://en.wikipedia.org/wiki/Underwriting#Thomson_Financial_League_Tableshttp://en.wikipedia.org/wiki/Underwriting#Sponsorship_underwritinghttp://en.wikipedia.org/wiki/Underwriting#Forensic_underwritinghttp://en.wikipedia.org/wiki/Underwriting#Real_estate_underwriting

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Governors, one Government official from the Ministry of Finance, ten nominated Directors by the

Government to give representation to important elements in the economic life of the country, and four

nominated Directors by the Central Government to represent the four local Boards with the headquarters

at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central

Government appointed for a term of four years to represent territorial and economic interests and the

interests of co-operative and indigenous banks.

The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of 1934)

provides the statutory basis of the functioning of the Bank.

The Bank was constituted for the need of following:

To regulate the issue of banknotes

To maintain reserves with a view to securing monetary stability and

To operate the credit and currency system of the country to its advantage.

Functions of Reserve Bank of India

The Reserve Bank of India Act of 1934 entrust all the important functions of a central bank the Reserve

Bank of India.

Bank of Issue

Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all

denominations. The distribution of one rupee notes and coins and small coins all over the country is

undertaken by the Reserve Bank as agent of the Government. The Reserve Bank has a separate Issue

Department which is entrusted with the issue of currency notes. The assets and liabilities of the Issue

Department are kept separate from those of the Banking Department. Originally, the assets of the Issue

Department were to consist of not less than two-fifths of gold coin, gold bullion or sterling securities

provided the amount of gold was not less than Rs. 40 crores in value. The remaining three-fifths of the

assets might be held in rupee coins, Government of India rupee securities, eligible bills of exchange and

promissory notes payable in India. Due to the exigencies of the Second World War and the post-was

period, these provisions were considerably modified. Since 1957, the Reserve Bank of India is required to

maintain gold and foreign exchange reserves of Ra. 200 crores, of which at least Rs. 115 crores should

be in gold. The system as it exists today is known as the minimum reserve system.

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8/3/2019 IFS Pramod

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Your Card, Your Design

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Banker to Government

The second important function of the Reserve Bank of India is to act as Government banker, agent andadviser. The Reserve Bank is agent of Central Government and of all State Governments in Indiaexcepting that of Jammu and Kashmir. The Reserve Bank has the obligation to transact Governmentbusiness, via. to keep the cash balances as deposits free of interest, to receive and to make payments onbehalf of the Government and to carry out their exchange remittances and other banking operations. TheReserve Bank of India helps the Government - both the Union and the States to float new loans and tomanage public debt. The Bank makes ways and means advances to the Governments for 90 days. Itmakes loans and advances to the States and local authorities. It acts as adviser to the Government on allmonetary and banking matters.

Bankers' Bank and Lender of the Last Resort

The Reserve Bank of India acts as the bankers' bank. According to the provisions of the Banking

Companies Act of 1949, every scheduled bank was required to maintain with the Reserve Bank a cashbalance equivalent to 5% of its demand liabilites and 2 per cent of its time liabilities in India. By anamendment of 1962, the distinction between demand and time liabilities was abolished and banks havebeen asked to keep cash reserves equal to 3 per cent of their aggregate deposit liabilities. The minimumcash requirements can be changed by the Reserve Bank of India.

The scheduled banks can borrow from the Reserve Bank of India on the basis of eligible securities or getfinancial accommodation in times of need or stringency by rediscounting bills of exchange. Sincecommercial banks can always expect the Reserve Bank of India to come to their help in times of bankingcrisis the Reserve Bank becomes not only the banker's bank but also the lender of the last resort.

Controller of Credit

The Reserve Bank of India is the controller of credit i.e. it has the power to influence the volume of creditcreated by banks in India. It can do so through changing the Bank rate or through open marketoperations. According to the Banking Regulation Act of 1949, the Reserve Bank of India can ask anyparticular bank or the whole banking system not to lend to particular groups or persons on the basis ofcertain types of securities. Since 1956, selective controls of credit are increasingly being used by theReserve Bank.

The Reserve Bank of India is armed with many more powers to control the Indian money market. Everybank has to get a licence from the Reserve Bank of India to do banking business within India, the licencecan be cancelled by the Reserve Bank of certain stipulated conditions are not fulfilled. Every bank willhave to get the permission of the Reserve Bank before it can open a new branch. Each scheduled bankmust send a weekly return to the Reserve Bank showing, in detail, its assets and liabilities. This power ofthe Bank to call for information is also intended to give it effective control of the credit system. TheReserve Bank has also the power to inspect the accounts of any commercial bank.

As supereme banking authority in the country, the Reserve Bank of India, therefore, has the followingpowers:(a) It holds the cash reserves of all the scheduled banks.

(b) It controls the credit operations of banks through quantitative and qualitative controls.

(c) It controls the banking system through the system of licensing, inspection and calling for information.

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(d) It acts as the lender of the last resort by providing rediscount facilities to scheduled banks.

Custodian of Foreign Reserves

The Reserve Bank of India has the responsibility to maintain the official rate of exchange. According tothe Reserve Bank of India Act of 1934, the Bank was required to buy and sell at fixed rates any amount ofsterling in lots of not less than Rs. 10,000. The rate of exchange f ixed was Re. 1 = sh. 6d. Since 1935 theBank was able to maintain the exchange rate fixed at lsh.6d. though there were periods of extremepressure in favour of or against

the rupee. After India became a member of the International Monetary Fund in 1946, the Reserve Bankhas the responsibility of maintaining fixed exchange rates with all other member countries of the I.M.F.

Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as the custodian ofIndia's reserve of international currencies. The vast sterling balances were acquired and managed by theBank. Further, the RBI has the responsibility of administering the exchange controls of the country.

Supervisory functions

In addition to its traditional central banking functions, the Reserve bank has certain non-monetary

functions of the nature of supervision of banks and promotion of sound banking in India. The ReserveBank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervisionand control over commercial and co-operative banks, relating to licensing and establishments, branchexpansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction,and liquidation. The RBI is authorised to carry out periodical inspections of the banks and to call forreturns and necessary information from them. The nationalisation of 14 major Indian scheduled banks inJuly 1969 has imposed new responsibilities on the RBI for directing the growth of banking and creditpolicies towards more rapid development of the economy and realisation of certain desired socialobjectives. The supervisory functions of the RBI have helped a great deal in improving the standard ofbanking in India to develop on sound lines and to improve the methods of their operation.

Promotional functions

With economic growth assuming a new urgency since Independence, the range of the Reserve Bank'sfunctions has steadily widened. The Bank now performs a varietyof developmental and promotionalfunctions, which, at one time, were regarded as outside the normal scope of central banking. TheReserve Bank was asked to promote banking habit, extend banking facilities to rural and semi-urbanareas, and establish and promote new specialised financing agencies. Accordingly, the Reserve Bankhas helped in the setting up of the IFCI and the SFC; it set up the Deposit Insurance Corporation in 1962,the Unit Trust of India in 1964, the Industrial Development Bank of India also in 1964, the AgriculturalRefinance Corporation of India in 1963 and the Industrial Reconstruction Corporation of India in 1972.These institutions were set up directly or indirectly by the Reserve Bank to promote saving habit and tomobilise savings, and to provide industrial finance as well as agricultural finance. As far back as 1935, theReserve Bank of India set up the Agricultural Credit Department to provide agricultural credit. But onlysince 1951 the Bank's role in this field has become extremely important. The Bank has developed the co-operative credit movement to encourage saving, to eliminate moneylenders from the villages and to route

its short term credit to agriculture. The RBI has set up the Agricultural Refinance and DevelopmentCorporation to provide long-term finance to farmers.

Classification of RBIs functions

The monetary functions also known as the central banking functions of the RBI are related to control andregulation of money and credit, i.e., issue of currency, control of bank credit, control of foreign exchangeoperations, banker to the Government and to the money market. Monetary functions of the RBI aresignificant as they control and regulate the volume of money and credit in the country.

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Equally important, however, are the non-monetary functions of the RBI in the context of India's economicbackwardness. The supervisory function of the RBI may be regarded as a non-monetary function (thoughmany consider this a monetary function). The promotion of sound banking in India is an important goal ofthe RBI, the RBI has been given wide and drastic powers, under the Banking Regulation Act of 1949 -these powers relate to licencing of banks, branch expansion, liquidity of their assets, management andmethods of working, inspection, amalgamation, reconstruction and liquidation. Under the RBI'ssupervision and inspection, the working of banks has greatly improved. Commercial banks havedeveloped into financially and operationally sound and viable units. The RBI's powers of supervision havenow been extended to non-banking financial intermediaries. Since independence, particularly after itsnationalisation 1949, the RBI has followed the promotional functions vigorously and has been responsiblefor strong financial support to industrial and agricultural development in the country.

Main functions

Reserve Bank of India regional office, Delhi entrance with theYakshinisculpture depicting "Prosperity through

agriculture".[25]

The RBI Regional Office inDelhi.

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The regional offices ofGPO(in white) and RBI (in sandstone) atDalhousie Square,Kolkata.

[edit] Bank of Issue

Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all

denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by

the Reserve Bank as agent of the Government. The Reserve Bank has a separate Issue Department which is

entrusted with the issue of currency notes. The assets and liabilities of the Issue Department are kept separate fromthose of the Banking Department. Originally, the assets of the Issue Department were to consist of not less than two-

fifths of gold coin, gold bullion or sterling securities provided the amount of gold was not less than Rs. 40 crores in

value. The remaining three-fifths of the assets might be held in rupee coins, Government of India rupee securities,

eligible bills of exchange and promissory notes payable in India. Due to the exigencies of the Second World War

and the post-was period, these provisions were considerably modified. Since 1957, the Reserve Bank of India is

required to maintain gold and foreign exchange reserves of Rs. 200 crores, of which at least Rs. 115 crores should be

in gold. The system as it exists today is known as the minimum reserve system.

[edit] Monetary authority

The Reserve Bank of India is the main monetary authority of the country and beside that the central bank acts as the

bank of the national and state governments. It formulates, implements and monitors the monetary policy as well as it

has to ensure an adequate flow of credit to productive sectors. Objectives are maintaining price stability andensuring adequate flow of credit to productive sectors. The national economy depends on the public sector and the

central bank promotes an expansive monetary policy to push the private sector since the financial market reforms of

the 1990s.[26]

The institution is also the regulator and supervisor of the financial system and prescribes broad parameters of

banking operations within which the country's banking and financial system functions. Objectives are to maintain

public confidence in the system, protect depositors' interest and provide cost-effective banking services to the

public. TheBanking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for effective

addressing of complaints by bank customers. The RBI controls the monetary supply, monitors economic indicators

like thegross domestic productand has to decide the design of the rupee banknotes as well as coins.[27]

[edit] Manager of exchange control

The central bank manages to reach the goals of the Foreign Exchange Management Act, 1999. Objective: to

facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market

in India.

[edit]

[edit] Issuer of currency

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The bank issues and exchanges or destroys currency and coins not fit for circulation. The objectives are giving the

public adequate supply of currency of good quality and to provide loans tocommercial banksto maintain or

improve the GDP. The basic objectives of RBI are to issue bank notes, to maintain the currency and credit system of

the country to utilize it in its best advantage, and to maintain the reserves. RBI maintains the economic structure of

the country so that it can achieve the objective of price stability as well as economic development, because both

objectives are diverse in themselves.

[edit] Minimum Reserve System - Principle of Currency Note Issue

RBI can issue currency notes as much as the country requires, provided it has to make a security deposit of Rs. 200

crores, out of which Rs. 115 crores must be in gold and Rs. 85 crores must be FOREX Reserves. This principle of

currency notes issue is known as the 'Minimum Reserve System'.

[edit] Developmental role

The central bank had to perform a wide range of promotional functions to support national objectives and

industries.[6]

The RBI faces a lot of inter-sectoral and local inflation-related problems. Some of this problems are

results of the dominant part of the public sector.[28]

[edit] Related functions

The RBI is also a banker to the government and performs merchant banking function for the central and the state

governments. It also acts as their banker. TheNational Housing Bank(NHB) was established in 1988 to promote

private real estate acquisition.[29]

The institution maintains banking accounts of all scheduled banks, too.

There is now an international consensus about the need to focus the tasks of a central bank upon central banking.

RBI is far out of touch with such a principle, owing to the sprawling mandate described above.

[edit] Policy rates and Reserve ratios

Policy rates, Reserve ratios, lending, and deposit rates as of 25 October, 2011

Bank Rate 6.0%

Repo Rate 8.50%

Reverse Repo Rate 7.50%

Cash Reserve Ratio (CRR) 6.0%

Statutory Liquidity Ratio (SLR) 24.0%

Base Rate 10.00%10.75%

Reserve Bank Rate 4%

Deposit Rate 8.50%9.50%

Bank Rate: RBI lends to the commercialbanks through its discount window to help the banks meet depositors

demands and reserve requirements. The interest rate the RBI charges the banks for this purpose is called bank rate. If

the RBI wants to increase the liquidity and money supply in the market, it will decrease the bank rate and if it wantsto reduce the liquidity and money supply in the system, it will increase the bank rate. As of 5 May, 2011 the bank

rate was 6%.

Cash Reserve Ratio(CRR): Every commercial bank has to keep certain minimum cash reserves with RBI. RBI can

vary this rate between 3% and 15%. RBI uses this tool to increase or decrease the reserve requirement depending on

whether it wants to affect a decrease or an increase in the money supply. An increase in Cash Reserve Ratio (CRR)

will make it mandatory on the part of the banks to hold a large proportion of their deposits in the form of deposits

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