04.

The capital issue are managed are category-1 merchant banker and constitutes the most important aspects
of their services. The public issue of corporate securities involves marketing of capital issues of new and existing companies,
additional issues of existing companies including rights issue and dilution of shares by letter of offer,. The public issues are
managed by the involvement of various agencies i.e. underwriters, brokers, bankers, advertising agency, printers, auditors,
legal advisers, registrar to the issue and merchant bankers providing specialized services to make the issue of the success. The
procedure of the managing a public issue by a merchant banker is divided into two phases, viz;
(a)Pre-issue management:Steps required to be taken to manage pre-issue activity is as follows:-
 Obtaining stock exchange approvals to memorandum and articles of associations.
 Taking action as per SEBI guide lines
 Finalizing the appointments of the following agencies:
 Advise the company to appoint auditors, legal advisers and broad base Board of Directors
 Drafting of prospectus
 Obtaining consent from parties and agencies acting for the issue to be enclosed with the prospectus.
 Approval of prospectus from Securities and Exchange Board of India.
 Filing of the prospectus with Registrar of Companies.
 Making an application for enlistment with Stock Exchange along, with copy of the prospectus.
(b) Post-issue Management:-Steps involved in post-issue management are:-
 To verify and confirm that the issue is subscribed to the extent of 90% including devolvement from underwriters in case of
under subscription
 To supervise and co-ordinate the allotment procedure of registrar to the issue as per prescribed Stock Exchange guidelines
 To ensure issue of refund order, allotment letters / certificates within the prescribed time limit of10 weeks after the
closure of subscription list
 To report periodically to SEBI about the progress in the matters related to allotment and refund.
 To ensure he listing of securities at Stock Exchanges.
 To attend the investors grievances regarding the public issue
Role of merchant bankersThey provide the following services in the above-mentioned process:
 Managing public issue
 the timing of the public issue
 the size of the issue
 the price of the issue
 acting in the capacity of manager to the issue
 assisting in receiving applications as well as allotment of securities
 appointment of brokers as well as underwriters of the issue
 listing of the shares on the relevant stock exchange.
Other roles are
Raising finance: Merchant Bankers help their clients in raising finance by way of issue of a debenture, shares, bank
loans, etc.
Promotional activities :They help entrepreneurs in conceiving ideas, identifying projects, preparation of feasibility
reports, getting Government approvals as well as incentives, etc.
Brokers in stock exchanges: Mutual funds offer merchant banking services, large brokers, investment banks, and
venture capitals.
Project management :Merchant bankers offer help to clients in several ways in the process of project management.
Credit syndication:A merchant banker provides specialized services in the stages of preparation of a project, the loan
applications required for the raising of short-term and long- term credit from various banks and financials institutions, etc.
Portfolio management of sick units: Merchant bankers offer revival services to companies that issue the securities as
well as investors. These bankers advise clients, which are usually institutional investors, on investment decisions.
Corporate restructuring:These services of merchant bankers include mergers, acquisitions (about existing units), the
sale of units and disinvestment.
Money market operations: A merchant bank deals with as well as underwrites short-term instruments like:
 government bonds
 certificate of deposit issued by banks and financial institutions
 commercial paper issued by large corporate firms
 treasury bills issued by the government (in India by the Reserve Bank of India)
Leasing and finance services: Merchant banks also assist leasing and financing services. A lease refers to a contract that
exists between a lessor and a lessee, by which the lessor permits the use of a specific asset that belongs to him or her(like
equipment, land) by the lessee for a specified period.
Management of dividend and interest: Merchant banks help the clients in the management of the interest on the
debentures or loans, as well as the dividend on the shares.

However merchant banker is the agency at the apex level than that plan, coordinate and control the entire issue activity and
direct different agencies to contribute to the successful marketing of securities.
05. Credit Rating is an assessment of the borrower (be it an individual, group or company) that determines whether the
borrower will be able to pay the loan back on time, as per the loan agreement. Needless to say, a good credit rating depicts a good
history of paying loans on time in the past. This credit rating influences the bank’s decision of approving your loan application at a
considerate rate of interest.
Importance of Credit Rating: Here are the benefits of credit rating:
(a) For The Money Lenders (i) Better Investment Decision: No bank or money lender companies would like to give
money to a risky customer. With credit rating, they get an idea about the credit worthiness of an individual or
company (who is borrowing the money) and the risk factor attached with them. By evaluating this, they can make a
better investment decision. (ii)Safety Assured: High credit rating means an assurance about the safety of the money
and that it will be paid back with interest on time.
(b) For Borrowers(i) Easy Loan Approval: With high credit rating, you will be seen as low/no risk customer. Therefore,
banks will approve your loan application easily. (ii) Considerate Rate of Interest: You must be aware of the fact every
bank offers loan at a particular range of interest rates. One of the major factors that determine the rate of interest on
the loan you take is your credit history. Higher the credit rating, lower will the rate of interest.

Methodology of Credit Rating: The process of credit rating begins with the prospective issuer approaching the rating agency
for evaluation. The experts in analyzing banks should be given a free hand and they will collect data and informant and will
investigate the business strength and weaknesses in detail. The entire process of rating stands on the for of confidentiality and
hence even the most confidential business strategies, marketing plans, future outlook etc., are revealed to the steam of
analysis.The rating is based on the investigation analysis, study and interpretation of various factors.
1. Business Analysis or Company Analysis
This includes an analysis of industry risk, market position of the company, operating efficiency of the company and legal
position of the company.
 Industry risk: Nature and basis of competition, key success factors; demand supply position; structure of industry;
government policies, etc.
 Market position of the company within the Industry: Market share; competitive advantages, selling and
distribution arrangements; product and customer diversity etc.
 Operating efficiency of the company: Locational advantages; labor relationships; cost structure and manufacturing
as compared to those of competition.
 Legal Position: Terms of prospectus; trustees and then responsibilities; system for timely payment and for protection
against forgery/fraud, etc.
2. Economic AnalysisIt will be an error to ignore these factors as the individual companies are always exposed to changing
environment and the economic activates affect corporate profits, attitudes and expectation of investors and the price of the
instrument.
3. Financial Analysis:This includes an analysis of accounting, quality, earnings, protection adequacy of cash flows and
financial flexibility.Accounting Quality: Earnings Protection:
Sources of future earnings growth; profitability ratios; earnings in relation to fixed income changes.Adequacy of cash
flows,Financial Flexibility:
4. Management Evaluation: Track record of the management planning and control system, depth of managerial talent,
succession plans.
5. Geographical Analysis: Location advantages and disadvantages ,Backward area benefit to the company/division/unit
6. Fundamental Analysis: Fundamental analysis is essential for the assessment of finance companies. This includes an
analysis of liquidity management, profitability and financial position and interest and tax sensitivity of the company.
 Liquidity Management: Capital structure; term matching of assets and liabilities policy and liquid assets in relation to
financing commitments and maturing deposits.
 Asset Quality: Quality of the company’s credit-risk management; system for monitoring credit; sector risk; exposure to
individual borrower; management of problem credits etc.
 Profitability and financial position: Historic profits, spread on fund deployment revenue on non-fund based services
accretion to reserves etc.
 Interest and Tax sensitivity: Exposure to interest rate changes, hedge against interest rate and tax low changes, etc.

Credit Rating Agencies in India :The concept of credit rating has been widely discussed and debated in India in recent times.
Since the setting up of the first credit rating agency. Credit Rating and Information Services of India Ltd. (CRISIL) in India in
1987, there has been a rapid growth of credit rating agencies in India. The major players in the Indian market, apart from
CRISIL include Investment Information and Credit Rating agency of India Ltd. (ICRA), promoted by IDBI in 1991 and Credit
Analysis and Research Ltd. (CARE), promoted by IFCI in 1994. Duff and Phelps has tied up with two Indian NBFCs to set up
Duff and Phelps Credit Rating India (P) Limited in 1996.