SYMPTOMS OF SICKNESS The different types of industrial sickness in Small Scale Industry (SSI) fall under two important

categories. They are as follows: Internal causes for sickness We can say pertaining to the factors which are within the control of management. This sickness arises due to internal disorder in the areas justified as following: a) Lack of Finance: This including weak equity base, poor utilization of assets, inefficient working capital management, absence of costing & pricing, absence of planning and budgeting and inappropriate utilization or diversion of funds. b) Bad Production Policies : The another very important reason for sickness is wrong selection of site which is related to production, inappropriate plant & machinery, bad maintenance of Plant & Machinery, lack of quality control, lack of standard research & development and so on. c) Marketing and Sickness : This is another part which always affects the health of any sector as well as SSI. This including wrong demand forecasting, selection of inappropriate product mix, absence of product planning, wrong market research methods, and bad sales promotions. d) Inappropriate Personnel Management: The another internal reason for the sickness of SSIs is inappropriate personnel management policies which includes bad wages and salary administration, bad labour relations, lack of behavioural approach causes dissatisfaction among the employees and workers. e) Ineffective Corporate Management: Another reason for the sickness of SSIs is ineffective or bad corporate management which includes improper corporate planning, lack of integrity in top management, lack of coordination and control etc. External causes for sickness a) Personnel Constraint: The first for most important reason for the sickness of small scale industries are non availability of skilled labour or manpower wages disparity in similar industry and general labour invested in the area. b) Marketing Constraints: The second cause for the sickness is related to marketing. The sickness arrives due to liberal licensing policies, restrain of purchase by bulk purchasers, changes in global marketing scenario, excessive tax policies by govt. and market recession. c) Production Constraints: This is another reason for the sickness which comes under external cause of sickness. This arises due to shortage of raw material, shortage of power, fuel and high prices, import-export restrictions. d) Finance Constraints: The another external cause for the sickness of SSIs is lack of finance. This arises due to credit restrains policy, delay in disbursement of loan by govt., unfavorable investments, fear of nationalization.

REVIVAL OF SICK INDUSTRIES Revival of Sick Industrial Units The recent intensification of industrial activities in the State provides significant growth opportunity for the existing MSMEs including those which have become sick for various reasons. More emphasis is being given for revival of sick industrial units by providing direct and indirect employment.

Initiatives Undertaken:
Potentially viable sick units shall be identified and placed in fast track mode for assistance. Existing institutional mechanism of DLC, Sub-SLllC and SLllC shall be suitably reinforced, SLllC shall be empowered to extend need-based incentives Assisted unit shall be treated at par with new industrial unit State Government shall liaise with GO1 for setting up of a body in the line of BlFR for rehabilitation of sick MSEs. Empowered Committee on SME has been constituted to review the progress in financing and rehabilitation of sick SME. Credit flow to MSMEs Rapid industrialization has taken place in the state. 79 MOUs have been signedby Government. Depending on the existing and upcoming Large I Mega Projects, large number of Ancillary and Down Stream lndustries will be coming up. Keeping in view the SLBC has decided for doubling the credit flow in MSME sector by2009-10. Recently, MOU has been signed between Govt. of Orissa and Central Bank Of India to provide adequate flow of credit to MSME Sector Similarly. MOU has been signed among Govt of Orissa, OSFC and SIDBI for availing refinance from SIDBI and other concession for steady flow of funds to MSME sector. Panchayat Samity Industries (PSI) Panchayat Samity lndustries (PSI) programme was initiated during the year 1961-62. All the PSI units were incorporated as industrial cooperative under Orissa Co-Operative Societies Act. These units are located in Gram Panchayat areas. The aim and objective of the programme was to provide cost effective building material and allied items. These units utilize local resources, skills and raw-material. These units are governed by a Board of management consisting of local artisans headed by one officer from Industries Department.

OBJECTIVES AND FUNCTION OF SEBI

Securities and exchange board of india (SEBI) on 12 april 1988, the government of india established securities and exchange board of india as an interim administrative body to promote orderly and healty growth of securities market and for investor protection. SEBI was to function under the overall administrative control of the ministry of finance of the government of india.

The SEBI was given a statuatory status on 30 january 1992 through an ordinance. The ordinance was later replaced by an act of parliament known as the securities and exchange board of india act, 1992. Objectives of SEBI 1. To regulate stock exchanges and the securities industry to promote their orderly functioning. 2. To protect the rights and interests of investors. 3. To prevent trading malpracties and achieve a balance between self regulation by the securities industry and its statutory regulation. 4. To regulate and develop a code of conduct and fair practices by intermediaries...like brokers , merchant bankers with a view to make them competitive and professional Functions of SEBI sebi performs regulatory as well as development functions -SEBI registers brokers, sub brokers and underwriters in the securities market. -SEBI regiters collective investment schemes and mutual funds. -SEBI regulates stock bankers and portfolio exchanges and merchant bankers. -SEBI prohibits fraudent and unfair trade practices -SEBI controls insider trading and takeover bids and imposes penalties for such practices. -SEBI calls for information by undertaking inspection, conducts enquiries and audits of stock echange and intermediaries. -SEBI levies fees or other charges to carry out the purposes of act For the development of securities market-SEBI facilitates education to investors -SEBI facilitates training to intermediaries -SEBI promotes fair practices and code of conduct of all self-regualtory organisations. -SEBI conducts research and publishes information useful to all market participants Organisational Structure of SEBI SEBI has been restructed and rationalised due to considerable expansion in the range and scope of its activities. SEBI performs its activities through 8 divisions and departments. each deprtment is headed by an executive director. The head office of SEBI is in mumbai with regional offices in kolkatta, chennai and delhi. The regional offices attend o investor complaints and liaise with the issuers, intermediaries and stock exchange in their respective region SEBI also formed two advisory committee - the primary market advisory committee and secondary market advisory committee these committees advice SEBI:..on varous matters lets have a quick look at dem.. -on matters relating to the regulation of intermediaries for ensuring investors protection in the primary market. -on issues relate to the development of primary market in india -on disclosure requirements for companies -for changes in legal framework to introduce simplification and transparency in the primary market -in matters relating to the development, regulation of the secondary market in the country

The committee are non-statutory n nature and SEBI is not bound by the advice of the committees.

Limitation of Credit Rating

(1) Biased rating and misrepresentations: In the absence of quality rating, credit rating is a curse for the capital market industry, carrying out detailed analysis of the company, should have no links with the company or the persons interested in the company so that the reports impartial and judicious recommendations for rating committee. The companies having lower grade rating do not advertise or use the rating while raising funds from the public. In such cases the investor cannot get information about the riskness of instrument and hence is at loss. (2) Static study: Rating is done on the present and the past historic data of the company and this is only a static study. Prediction of the companys health through rating is momentary and anything can happen after assignment of rating symbols to the company. Dependence for future results on the rating, therefore defeats the very purpose of risk indicativeness of rating. Many changes take place in economic environment, political situation, government policy framework which directly affect the working of a company. (3) Concealment of material information: Rating Company might conceal material information from the investigating team of the credit rating company. In such cases quality of rating suffers and renders the rating unreliable. (4) Rating is no guarantee for soundness of company: Rating is done for a particular instrument to assess the credit risk but it should not be construed as a certificate for the matching quality of the company or its management. Independent views should be formed by the user public in general of the rating symbol. (5) Human bias: Finding off the investigation team, at times, may suffer with human bias for unavoidable personal weakness of the staff and might affect the rating. (6) Reflection of temporary adverse conditions: Time factor affects rating, sometimes, misleading conclusions are derived. For example, company in a particular industry might be temporarily in adverse condition but it is given a low rating. This adversely affects the companys interest. (7) Down grade: Once a company has been rated and if it is not able to maintain its working results and performance, credit rating agencies would review the grade and down grade the rating resulting into impairiring the image of the company. (8) Difference in rating of two agencies:

Rating done by the two different credit rating agencies for the same instrument of the same issuer company in many cases would not be identical. Such differences are likely to occur because of value judgement differences on qualitative aspects of the analysis in tow different agencies.

PROJECT APPRAISAL TECHNIQUES Project appraisal methodologies are methods used to access a proposed project's potential success and viability. These methods check the appropriateness of a project considering things such as available funds and the economic climate. A good project will service debt and maximize shareholders' wealth.

Net Present Value

A project's net present value is determined by summing the net annual cash flow, discounted at the project's cost of capital and deducting the initial outlay. Decision criteria is to accept a project with a positive net present value. Advantages of this method are that it reflects the time value of money and maximizes shareholder's wealth. Its weakness is that its rankings depend on the cost of capital; present value will decline as the discount rate increases.

Payback Method
A company chooses the expected number of years required to recover an original investment. Projects will only be selected if initial outlay can be recovered within a predetermined period. This method is relatively easy since the cash flow doesn't need to be discounted. Its major weakness is that it ignores the cash inflows after the payback period, and does not consider the timing of cash flows.

Internal Rate of Return

This method equates the net present value of the project to zero. The project is evaluated by comparing the calculated Internal rate of return to the predetermined required rate of return. Projects with Internal rate of return that exceed the predetermined rate are accepted. The major weakness is that when evaluating mutually exclusive projects, use of Internal rate of return may lead to selecting a project that does not maximize the shareholders' wealth.

Profitability Index
This is the ratio of the present value of project cash inflow to the present value of initial cost. Projects with a Profitability Index of greater than 1.0 are acceptable. The major disadvantage in this method is that it requires cost of capital to calculate and it cannot be used when there are unequal cash flows. The advantage of this method is that it considers all cash flows of the project.

REFORMS OF BANKING SECTOR

FINANCIAL AND BANKING SECTOR REFORMS : The last two decades witnessed the maturity of India's financial markets. Since 1991, every governments of India took major steps in reforming the

financial sector of the country. The important achievements in the following fields, is discussed under separate heads:

Non-banking finance companies

The details of the above segments have been explained separately as under. 4.2.1 FINANCIAL MARKETS In the last decade, Private Sector Institutions played an important role. They grew rapidly in commercial banking and asset management business. With the openings in the insurance sector for these institutions, they started making debt in the market. Competition among financial intermediaries gradually helped the interest rates to decline. Deregulation added to it. The real interest rate was maintained. The borrowers did not pay high price while depositors had incentives to save. It was something between the nominal rate of interest and the expected rate of inflation. 4.2.2 REGULATORS The Finance Ministry continuously formulated major policies in the field of financial sector of the country. The Government accepted the important role of regulators. The Reserve Bank of India (RBI) has become more independent. Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA) became important institutions. Opinions are also there that there should be a super-regulator for the financial services sector instead of multiplicity of regulators.

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4.2.3 THE BANKING SYSTEM Almost 80% of the businesses are still controlled by Public Sector Banks (PSBs). PSBs are still dominating the commercial banking system. Shares of the leading PSBs are already listed on the stock exchanges. The RBI has given licenses to new private sector banks as part of the liberalization process. The RBI has also been granting licenses to industrial houses. Many banks are successfully running in the retail and consumer segments but are yet to deliver services to industrial finance, retail trade, small business and agricultural finance. The PSBs will play an important role in the industry due to its number of branches and foreign banks facing the constraint of limited number of branches. Hence, in order to achieve an efficient banking system, the onus is on the Government to encourage the PSBs to be run on professional lines.

4.2.4 DEVELOPMENTOF FINANCIAL INSTITUTIONS

capital market for debt and equity funds.

sanctioned by term-lending institutions.

services such as commercial banking, asset management and insurance through separate ventures. The move to universal banking has started. 4.2.5 NON-BANKING FINANCE COMPANIES In the case of new NBFCs seeking registration with the RBI, the requirement of minimum net owned funds, has been raised to Rs.2 crores. Until recently, the money market in India was narrow and circumscribed by

tight regulations over interest rates and participants. The secondary market was underdeveloped and lacked liquidity. Several measures have been initiated and include new money market instruments, strengthening of existing instruments and setting up of the Discount and Finance House of India (DFHI). The RBI conducts its sales of dated securities and treasury bills through its open market operations (OMO) window. Primary dealers bid for these securities and also trade in them. The DFHI is the principal agency for developing a secondary market for money market instruments and Government of India treasury bills. The RBI has introduced a liquidity adjustment facility (LAF) in which liquidity is injected through reverse repo auctions and liquidity is sucked out through repo auctions. On account of the substantial issue of government debt, the gilt- edged market occupies an important position in the financial set- up. The Securities Trading Corporation of India (STCI), which started operations in June 1994 has a mandate to develop the secondary market in government securities. Long-term debt market: The development of a long-term debt market is crucial to the financing of infrastructure. After bringing some order to the equity market, the SEBI has now decided to concentrate on the development of the debt market. Stamp duty is being withdrawn at the time of dematerialization of debt instruments in order to encourage paperless trading. 4.2.6 THE CAPITAL MARKET The number of shareholders in India is estimated at 25 million. However, only an estimated two lakh persons actively trade in stocks. There has been a dramatic improvement in the country's stock market trading infrastructure during the last few years. Expectations are that India will be an attractive emerging market with tremendous potential. Unfortunately, during recent times the stock markets have been constrained by some unsavoury developments, which has led to retail investors deserting the stock markets. 4.2.7 MUTUAL FUNDS The mutual funds industry is now regulated under the SEBI (Mutual Funds) Regulations, 1996 and amendments thereto. With the issuance of

SEBI guidelines, the industry had a framework for the establishment of many more players, both Indian and foreign players.

The Unit Trust of India remains easily the biggest mutual fund controlling a corpus of nearly Rs.70,000 crores, but its share is going down. The biggest shock to the mutual fund industry during recent times was the insecurity generated in the minds of investors regarding the US 64 scheme. With the growth in the securities markets and tax advantages granted for investment in mutual fund units, mutual funds started becoming popular. The foreign owned AMCs are the ones which are now setting the pace for the industry. They are introducing new products, setting new standards of customer service, improving disclosure standards and experimenting with new types of distribution. The insurance industry is the latest to be thrown open to competition from the private sector including foreign players. Foreign companies can only enter joint ventures with Indian companies, with participation restricted to 26 per cent of equity. It is too early to conclude whether the erstwhile public sector monopolies will successfully be able to face up to the competition posed by the new players, but it can be expected that the customer will gain from improved service. The new players will need to bring in innovative products as well as fresh ideas on marketing and distribution, in order to improve the low per capita insurance coverage. Good regulation will, of course, be essential.

PRIMARY AND SECONDARY MARKET REFORMS

a) Increasing the reach of IPOs through nation-wide broker network of stock exchanges in electronic form b) Enhancing the reach of Applications Supported by Blocked Amount (ASBA) c) Review of the public issue processes and regulatory framework d) (This portion has been excised) e) Putting in place a framework for rejection of offer documents

f) Evolving an appropriate mechanism for effective monitoring of issue proceeds g) Reduction of the time taken from issue closure to the date of listing from T+12 days to T+5 days, in a phased manner h) Rationalisation of disclosures in the offer document

FUNCTIONS OF CRISIL 1. Credit Rating Services 2. Advisory Services 3. Research and Information Services. I. Credit Rating Services. Credit rating services include the rating of long, medium and short term credit instruments such as debentures, preference shares, deposits, certificates of deposits, commercial papers and structured obligations of manufacturing/finance companies, banks, financial institutions, builders, insurance companies in addition to the debt obligations. In addition. CRISIL also assigns rating to the real estate builders/developers, chit funds, bank loans etc. II. Advisory Services. CRISIL offers advisory services in the form of consultancy to various state governments in the matters relating to private sectcr participation in infrastructure development, disinvestment plans, assistance in privatisation process. It helps the clients in identifying and reducing risk an; formulating strategies and implementing the same. III. Research and Information Services. CRISIL undertakes in-depth studies in areas like Indian economy, Indian capital markets, Indian industries and Indian corporate sector. Clients include institutional investors, investment bankers, commercial banks, financial institutions, corporate planners mutual funds and asset management companies. (a) CRISIL Sector wise analysis includes the brief history of industry. structure, nature, major players, demand and supply position, constraints, cos: govt, policies etc. (b) CRISIL View is based on CRISILs in-depth understanding of the industry in which company operates and study of qualitative and quantitative factors affecting the companys performance. It gives opinion on the business and financial performance of company. The investors can take decisions on the basis of view given by CRISIL.

FINANCIAL DERIVATIVES

Financial derivatives are financial instruments that are linked to a specific financial instrument or indicator or commodity, and through which specific financial risks can be traded in financial markets in their own right. Transactions in financial derivatives should be treated as separate transactions rather than as integral parts of the value of underlying transactions to which they may be linked. The value of a financial derivative derives from the price of an underlying item, such as an asset or index. Unlike debt instruments, no principal

amount is advanced to be repaid and no investment income accrues. Financial derivatives are used for a number of purposes including risk management, hedging, arbitrage between markets, and speculation. Financial derivatives enable parties to trade specific financial risks (such as interest rate risk, currency, equity and commodity price risk, and credit risk, etc.) to other entities who are more willing, or better suited, to take or manage these riskstypically, but not always, without trading in a primary asset or commodity. The risk embodied in a derivatives contract can be traded either by trading the contract itself, such as with options, or by creating a new contract which embodies risk characteristics that match, in a countervailing manner, those of the existing contract owned. This latter is termed offsetability, and occurs in forward markets. Offsetability means that it will often be possible to eliminate the risk associated with the derivative by creating a new, but "reverse", contract that has characteristics that countervail the risk of the first derivative. Buying the new derivative is the functional equivalent of selling the first derivative, as the result is the elimination of risk. The ability to replace the risk on the market is therefore considered the equivalent of tradability in demonstrating value. The outlay that would be required to replace the existing derivative contract represents its valueactual offsetting is not required to demonstrate value. Financial derivatives contracts are usually settled by net payments of cash. This often occurs before maturity for exchange traded contracts such as commodity futures. Cash settlement is a logical consequence of the use of financial derivatives to trade risk independently of ownership of an underlying item. However, some financial derivative contracts, particularly involving foreign currency, are associated with transactions in the underlying item.

ADJUSTED BOOK VALUE APPROACH Refer Prassana Chandra- Pg 755 MAJOR PROBLEMS ASSOCIATED WITH DISINVESTING OF PSUS IN INDIA Definition of Disinvestment At the very basic level, disinvestment can be explained as follows: Investment refers to the conversion of money or cash into securities, debentures, bonds or any other claims on money. As follows, disinvestment involves the conversion of money claims or securities into money or cash. Disinvestment can also be defined as the action of an organisation (or government) selling or liquidating an asset or subsidiary. It is also referred to as divestment or divestiture. In most contexts, disinvestment typically refers to sale from the government, partly or fully, of a government-owned enterprise. A company or a government organisation will typically disinvest an asset either as a strategic move for the company, or for raising resources to meet general/specific needs. Objectives of Disinvestment The new economic policy initiated in July 1991 clearly indicated that PSUs had shown a very negative rate of return on capital employed. Inefficient PSUs had become and were continuing to be a drag on the Governments resources turning to be more of liabilities to the Government than being assets. Many undertakings traditionally established as pillars of

growth had become a burden on the economy. The national gross domestic product and gross national savings were also getting adversely affected by low returns from PSUs. About 10 to 15 % of the total gross domestic savings were getting reduced on account of low savings from PSUs. In relation to the capital employed, the levels of profits were too low. Of the various factors responsible for low profits in the PSUs, the following were identified as particularly important: Price policy of public sector undertakings Underutilisation of capacity Problems related to planning and construction of projects Problems of labour, personnel and management Lack of autonomy Hence, the need for the Government to get rid of these units and to concentrate on core activities was identified. The Government also took a view that it should move out of noncore businesses, especially the ones where the private sector had now entered in a significant way. Finally, disinvestment was also seen by the Government to raise funds for meeting general/specific needs. In this direction, the Government adopted the 'Disinvestment Policy'. This was identified as an active tool to reduce the burden of financing the PSUs. The following main objectives of disinvestment were outlined: To reduce the financial burden on the Government To improve public finances To introduce, competition and market discipline To fund growth To encourage wider share of ownership To depoliticise non-essential services Importance of Disinvestment Presently, the Government has about Rs. 2 lakh crore locked up in PSUs. Disinvestment of the Government stake is, thus, far too significant. The importance of disinvestment lies in utilisation of funds for: Financing the increasing fiscal deficit Financing large-scale infrastructure development For investing in the economy to encourage spending For retiring Government debt- Almost 40-45% of the Centres revenue receipts go towards repaying public debt/interest For social programs like health and education Disinvestment also assumes significance due to the prevalence of an increasingly competitive environment, which makes it difficult for many PSUs to operate profitably. This

leads to a rapid erosion of value of the public assets making it critical to disinvest early to realize a high value.

PROCEDURE OF IPO The IPO process in India consists of the following steps: Appointment of merchant banker and other intermediaries Registration of offer document Marketing of the issue Post- issue activities Appointment of Merchant Banker and Other Intermediaries One of the crucial steps for successful implementation of the IPO is the appointment of a merchant banker. A merchant banker should have a valid SEBI registration to be eligible for appointment. A merchant banker can be any of the following lead manager, co-manager, underwriter or advisor to the issue. Certain guidelines are laid down in Section 30 of the SEBI Act, 1992 on the maximum limits of intermediaries associated with the issue: Size of the Issue 50 cr. 50 100 cr. 100 200 cr. 200 - 400 cr. Above 400 cr. No. Of lead Managers 2 3 4 5 5 or more as agreed by the board

The number of co- managers should not exceed the number of lead managers. There can only be one advisor/consultant to the issue. There is no limit on the number of underwriters. Other Intermediaries Registrar to the Issue: Registration with SEBI is mandatory to take on responsibilities as a registrar and share transfer agent. The registrar provides administrative support to the issue process. The registrar of the issue assists in everything from helping the lead manager in the selection of Bankers to the Issue and the Collection Centres to preparing the allotment and application forms, collection of application and allotment money, reconciliation of bank accounts with application money, listing of issues and grievance handling.

Bankers to the Issue: Any scheduled bank registered with SEBI can be appointed as the banker to the issue. There are no restrictions on the number of bankers to the issue. The main functions of bankers involve collection of application forms with money, maintaining a daily report , transferring the proceeds to the share application money account maintained by the controlling branch, and forwarding the money collected with the application forms to the registrar. Underwriters to the Issue: Underwriting involves a commitment from the underwriter to subscribe to the shares of a particular company to the extent it is under subscribed by the public or existing shareholders of the corporate. An underwriter should have a minimum net worth of 20 lakhs, and his total obligation at any time should not exceed 20 times the underwriters net worth. A commission is paid to the writers on the issue price for undertaking the risk of under subscription. The maximum rate of underwriting commission paid is as follows: Nature of Issue On amount On amounts Devolving On subscribed by public Underwriters 2.5%

Equity shares, 2.5% preference shares and debentures Issue amount 2.5% upto Rs.5 lakhs Issue amount 2.0% exceeding %

1.5% 1.0%

Broker To the Issue: Any member of a recognised stock exchange can become a broker to the issue .A broker offers marketing support, underwriting support, disseminates information to investors about the issue and distributes issue stationery at retail investor level. Registration Of The Offer Document For registration,10 copies of the draft prospectus should be filed with SEBI. The draft prospectus filed is treated as a public document. The lead manger also files the document with all listed stock exchanges. Similarly, SEBI uploads the document on its website www.sebi.com. Any amendments to be made in the prospectus should be done within 21days of filing the offer document. Thereafter the offer document is deemed to have been cleared by SEBI. Promoters Contribution: In the public issue of an unlisted company, the promoters shall contribute not less than 20% of the post issue capital as given in Chapter- IV of the SEBI Act, 1992.The entire contribution should have been made before the opening of the issue. Lock-in Requirement The minimum promoters contribution will be locked in for a period of 3 years. The lock-in period commences from the date of allotment or from the date of commencement of commercial production, whichever is earlier. Marketing of the Issue Timing of the Issue

Retail distribution Reservation of the Issue Advertising Campaign Timing of the Issue An appropriate decision regarding the timing of the IPO should be made, keeping in mind the general sentiments prevailing in the investor market. For example, if recession is prevailing in the economy (the investors are pessimistic in their approach), then the firm will not be able to get a good pricing for its IPO, as investors may not be willing to put their money in stocks. Retail distribution: Retail distribution is the process through which an attempt is made to increase the subscription. Normally, a network of brokers undertakes retail distribution. The issuer company organises road shows in which conferences are held, which are attended by high networth investors, brokers and sub-brokers. The company makes presentations and solves queries raised by participants. This is one of the best ways to raise subscription. Reservation in the Issue Sometimes reservations are tailored to a specific class of investors. This reduces the amount to be issued to the general public. The following are the classes of investors for whom reservations are made: Mutual Funds Banks and Financial Institutions; Non-resident Indians (NRI) and Overseas Corporate Bodies (OCB) The total reservation for NRI/OCB should not exceed 10% of the post-issue capital, and individually it should not exceed 5% of the post issue capital. Foreign Institutional Investors (FII): The total reservation for FII cannot exceed 10% of the post-issue capital, and individually it should not exceed 5% of the post issue capital. Employees: Reservation under this category should not exceed 10% of the post issue capital. Group Shareholders: Reservation in this category should not exceed 10% of the post issue capital. The net offer made to the public should not be less then the 25% of the total issue at any point of time. Post-Issue Activities Principles of Allotment: After the closure of the subscription list, the merchant banker should inform, within 3 days of the closure, whether 90% of the amount has been subscribed or not. If it is not subscribed up to 90%, then the underwriters should bring the shortfall amount within 60 days. In case of over subscription, the shares should be allotted on a pro-rata basis, and the excess amount should be refunded with interest to the shares holders within 30 days from the date of closure. Formalities Associated With Listing: The SEBI lists certain rules and regulations to be followed by the issuing company. These rules and regulations are laid down to protect the interests of investors. The issuing company should disclose to the public its profit and loss

account, balance sheet, information relating to bonus and rights issue and any other relevant information.

Due diligence
Due diligence is the process of evaluating a business situation from all aspects before making a decision. Due diligence is often performed when buying a business, but there are many other situations in which due diligence might be performed. Due diligence is not a general investigation but it includes specific elements which may vary based on the situation. Due diligence is performed to protect both parties, but primarily the purchaser, in uncovering potential liabilities and financial matters, to make sure nothing is hidden. Answer: What does the due diligence process involve? The process involves both the principal (buyer or investor) and an accountant and attorney. In a business purchase, it is usually performed after the intent to purchase documents have been signed but before the formal purchase agreement. During due diligence, you should: Examine all records and documents, as described below Spend time at the business location, talking to managers, executives, employees. Check sales against customer lists to verify that the business has the customers it says it does Look at potential future plans for expansion, condition of facilities, equipment, furniture and fixtures to verify that they are as reported Look at all documents which might incur liability for the company, including sales agreements, purchase agreements, liens on assets With the assistance of your attorney, examine documents relating to any ongoing or potential lawsuits, and recent litigation that has concluded. Most important in the due diligence process is to take note of discrepancies between what is reported and what is actually going on. Ask lots of questions; if you don't get satisfactory answers, ask why. It's sometimes necessary to prove the negative as well as the positive. Remember, if it doesn't seem right, it probably isn't. What subjects are included in the due diligence process? Although the subjects involved in the due diligence may change based on the situation, most of the time the due diligence process includes the following: General company information A history of the company, its original and any succeeding business plans, the company's mission statement and shot-term and long-term goals and objectives would be necessary here. Company management and employees Legal matters An investigation of the legal structure of the business might include viewing copies of the

articles of incorporation, by laws, minutes of meetings, and formation documents filed with the state. Other legal documents would be copies of contracts and agreements binding the company, and warranties/service agreements on company products and any product liability documents. A discussion of current or pending litigation should be included, as well as any relationships with regulatory agencies like OSHA, ADA, or industry-specific organizations. A listing of all employees, along with an organization chart, is necessary, including the resumes of executives and board members, and copies of employment contracts. Information about company advisors - legal, financial, insurance, and other - should be disclosed. Background checks should be performed on all top executives and board members. The employee handbook and other documents relating to employee pay and benefits need to be reviewed. Review employment tax reports (Form 941, Form 940 and others), both federal and state. Check the status of independent contractors to make sure they are correctly classified. Products and services If the company sells products, a catalog or listing of products is needed, along with information about competitiveness of these products. Brochures and price listings for products and services also must be reviewed. Pricing strategies, service availability and terns if sake are needed, Documents relating to company patents, copyrights, andtrademarks must be provided, as well as licenses owned by the company and agreements with licensees. Marketing and Competition information Documents needed include the company's marketing plan, market analysis, growth opportunities, a SWOT analysis, and purchase agreements. Information about the competition might include lists of major competitors, and analysis of the competition present and future. Customers. Information about customers includes review of agreements with major customers and accounts receivable aging reports. Operations The due diligence process includes review of fixed assets, facilities, and equipment, product quality assurance and safety, suppliers and contracts. Inventory is often taken and inventory costing (LIFO and FIFO)is considered. Financial matters Most important to the due diligence process are financial records. Records reviewed include balance sheets and income statements for past years, projected financial statements, insurance coverage, tax filings, and sources and uses of funds statements. Verify profitability and check company financial data against common financial ratios. Check owner income against business profits; if the business is a corporation, verify shareholder dividends and K1 forms.

The Long-Term Finance may be Raised by the Companies from the following Sources :Capital Market Capital market denotes an arrangement whereby transactions involving the procurement and supply of long-term funds takes place among individuals and various organisations. In the capital market, the companies raise funds by issuing shares and debentures of different

types. When long-term capital is initially raised by new companies or by existing companies by issuing additional shares or debentures, the transactions are said to take place in the market for new capital called, as 'New Issue Market'. But, buying and selling of shares and debentures already issued by companies takes place in another type of market called as 'the Stock market'. Individuals and institutions which contribute to the share capital of the company become its shareholders. They are also known as members of the company. Before shares are issued, the directors of the company have to decide on the following matters:The amount of capital which is to be raised by issue of shares. The types of shares which will be issued. The time of issuing shares. When a company decides to issue additional shares at any time after its formation or after one year of the first allotment of shares, it is required under law that such shares must be first offered to the existing shareholders of the company. If the offer is declined by the existing shareholders, only then shares can be issued to the public. Such an issue is called 'rights issue' and these shares are known as 'right shares'. The Government controls the issue of shares and debentures under the Capital Issues (Control) Act, 1947. Special Financial Institutions A large number of financial institutions have been established in India for providing long-term financial assistance to industrial enterprises. There are many all-India institutions likeIndustrial Finance Corporation of India (IFCI); Industrial Credit and Investment Corporation of India (ICICI); Industrial Development Bank of India(IDBI) , etc. At the State level, there are State Financial Corporations (SFCs) and State Industrial Development Corporations (SIDCs). These national and state level institutions are known as 'Development Banks'. Besides the development banks, there are several other institutions called as 'Investment Companies' or 'Investment Trusts' which subscribe to the shares and debentures offered to the public by companies. These include the Life Insurance Corporation of India (LIC); General Insurance Corporation of India (GIC); Unit Trust of India (UTI) , etc. Leasing Companies Manufacturing companies can secure long-term funds from leasing companies. For this purpose a lease agreement is made whereby plant, machinery and fixed assets may be purchased by the leasing company and allowed to be used by the manufacturing concern for a specified period on payment of an annual rental. At the end of the period the manufacturing company may have the option of purchasing the asset at a reduced price. The lease rent includes an element of interest besides expenses and profits of the leasing company. Foreign Sources Funds can also be collected from foreign sources which usually consists of :Foreign Collaborators :- If approved by the Government of India, the Indian companies may secure capital from abroad through the subscription of foreign collaborator to their share capital or by way of supply of technical knowledge, patents, drawings and designs of plants or supply of machinery.

International Financial Institutions :- like World Bank and International Finance Corporation (IFC) provide long-term funds for the industrial development all over the world. The World Bank grants loans only to the Governments of member countries or private enterprises with guarantee of the concerned Government. IFC was set up to assist the private undertakings without the guarantee of the member countries. It also provides them risk capital.

Non-Resident Indians :- persons of Indian origin and nationality living abroad are also permitted to subscribe to the shares and debentures issued by the companies in India. Retained Profits or Reinvestment of Profits An important source of long-term finance for ongoing profitable companies is the amount of profit which is accumulated as general reserve from year to year. To the extent profits are not distributed as dividend to the shareholders, the retained amount can be reinvested for expansion or diversification of business activities. Retained profit is an internal source of finance. Hence it does not involve any cost of floatation which has to be incurred to raise finance from external sources.

KEY FINANCIAL INTERMEDIARIES A lot of initiatives have been undertaken over the years both by central and state governments to reduce the adverse impact. Some of these initiatives are: All India Development Financial Institutions [DFIs] State level Financial Corporations [SFCs] Insurance Companies Mutual Funds [MFs] Non Banking Finance Corporations [NBFCs] All India Development Financial Institutions The following are the various institutions covered under all India DFIs: Industrial Finance Corporation of India [IFCI] Industrial Development Bank of India [IDBI], which merged with IDBI Bank in 2004 Industrial Credit and Investment Corporation of India [ICICI], which merged with ICICI Bank in 2002 Industrial Investment Bank of India [IIBI]. The former Industrial Reconstruction Corporation of India was converted into Industrial Reconstruction Corp of India [IRCI] and was later converted into IIBI in 1995 Small Industries Development Bank of India [SIDBI], which is a wholly owned subsidiary of IDBI curved out through an act of parliament in 1990. State Level Financial Corporations These are state level bodies that mainly concentrate on industrial development in a state. They are legal bodies created under the State Finance Corporations Act, 1951 and are funded through an issue of shares in which the state governments, banks, financial institutions, and private investors participate. SFCs are also permitted to raise funds through the issue of bonds and debentures. The main focus of SFCs is financing the local industrial units, which are usually small and medium units, situated in backward regions of the state. Insurance Companies Insurance companies concentrate on fulfilling the insurance needs of the community, both for life and non life insurance. With the globalization of the Indian economy, a large number of private players have entered into this field, offering products that allow investors to select the kind of policies to suit their financial planning needs. Many of these organizations are formed as subsidiaries of banks that enable the banks to cross sell insurance

products to their existing customers. Banks benefit by way of fee income through referrals and enhanced relationships with insurance companies for their banking needs. Mutual Funds These organizations satisfy the needs of individual investors through pooling resources from a large number with similar investment goals and risk appetite. The resources collected are invested in the capital market and money market securities and the returns generated are distributed to investors. The fund managers of MFs are specialists in the fields of investment analysis and are able to diversify and even out risks through portfolio mix. MFs offer a wide variety of schemes, such as, growth funds, income funds, balanced funds, money market funds and equity related funds designed to cater to the different needs of investors. Non Banking Finance Corporations NBFCs are commonly known as finance companies and are corporate bodies, which concentrate mainly on lending activities in a well defined area. The Reserve bank of India [RBI] Amendment Act, 1997 defines an NBFC as a financial institution or non banking institution, which has its principal business of receiving deposits under any scheme or arranging and lending in any manner. There are 4 broad categories of NBFCs: Finance Companies Leasing Companies Loan finance companies Investment finance companies