PRESTIGE INSTITUTE OF MANAGEMENT

AND RESEARCH, INDORE (M.P)

ASSIGNMENT

FINANCIAL SERVICES

SUBMITTED TO: SUBMITTED BY:

Dr. NITIN TANTED KAPIL RANE

MBA (FT) – IV Semester

Q.1:- Explain the Tax aspects of leasing and hire purchase?

ANS:-

CONCEPT 0F LEASE FINANCING

Lease financing denotes procurement of assets through lease. The subject of leasing falls in the category
of finance. Lease as a concept involves a contract whereby the ownership, financing and risk taking of
any equipment or asset are separated and shared by two or more parties. Thus, the lessor may finance and
lessee may accept the risk through the use of it while at third party may own it. Alternatively the lessor
may finance and own it while the
lessee enjoys the use of it and bears the risk. There are various combinations in which the above
characteristics are shared by the lessor and lessee.

MEANING 0F LEASE FINANCING

A lease transaction is a commercial arrangement whereby an equipment owner or Manufacturer conveys

to the equipment user the right to use the equipment in return for a rental. In other words, lease is a
contract between the owner of an asset (the lessor) and its user (the lessee) for the right to use the asset
during a specified period in return for a mutually agreed periodic payment (the lease rentals). The
important feature of a lease contract is separation of the ownership of the asset from its usage. Lease
financing is based on the observation made by Donald B. Grant:
“Why own a cow when the milk is so cheap? All you really need is milk and not the cow.”

IMPORTANCE 0F LEASE FINANCING

Leasing industry plays an important role in the economic development of a country by providing money
incentives to lessee. The lessee does not have to pay the cost of asset at the time of signing the contract of
leases. Leasing contracts are more flexible so lessees can structure the leasing contracts according to their
needs for finance. The lessee can also pass on the risk of obsolescence to the lessor by acquiring those
229 appliances, which have high technological obsolescence. Today, most of us are familiar with leases
of houses, apartments, offices, etc.

TYPES OF LEASE AGREEMENTS

Lease agreements are basically of two types. They are (a) Financial lease and (b) Operating lease. The
other variations in lease agreements are (c) Sale and lease back (d) Leveraged leasing and (e) Direct
leasing.

(a) FINANCIAL LEASE:-

Long-term, non-cancellable lease contracts are known as financial leases. The essential point of financial
lease agreement is that it contains a condition whereby the lessor agrees to transfer the title for the asset at
the end of the lease period at a nominal cost. At lease it must give an option to the lessee to purchase the
asset he has used at the expiry of the lease. Under this lease the lessor recovers 90% of the fair value of
the asset as lease rentals and the lease period is 75% of the economic life of the asset. The lease
agreement is irrevocable.
(b) OPERATING LEASE:-
An operating lease stands in contrast to the financial lease in almost all aspects. This lease agreement
gives to the lessee only a limited right to use the asset. The lessor is responsible for the upkeep and
maintenance of the asset. The lessee is not given any uplift to purchase the asset at the end of the lease
period.

(c) SALE AND LEASE BACK:-

It is a sub-part of finance lease. Under this, the owner of an asset sells the asset to a party (the buyer), who
in turn leases back the same asset to the owner in consideration of lease rentals. However, under this
arrangement, the assets are not physically exchanged but it all happens in records only. This is nothing
but a paper transaction. Sale and lease back transaction is suitable for those assets, which are not
subjected depreciation but appreciation, say land.

(d) LEVERAGED LEASING:-

Under leveraged leasing arrangement, a third party is involved beside lessor and lessee. The lessor
borrows a part of the purchase cost (say 80%) of the asset from the third party i.e., lender and the asset so
purchased is held as security against the loan. The lender is paid off from the lease rentals directly by the
lessee and the surplus after meeting the claims of the lender goes to the lessor. The lessor, the owner of
the asset is entitled to depreciation allowance associated with the asset.

(e) DIRECT LEASING:-

Under direct leasing, a firm acquires the right to use an asset from the manufacturer directly. The
ownership of the asset leased out remains with the manufacturer itself. The major types of direct lessor
include manufacturers, finance companies, independent lease companies, special purpose leasing
companies etc

ADVANTAGES OF LEASING
There are several extolled advantages of acquiring capital assets on lease:
(1) SAVING OF CAPITAL: Leasing covers the full cost of the equipment used in the business by
providing 100% finance. The lessee is not to provide or pay any margin Manufacturer Lessor Lessee
Lender money as there is no down payment. In this way the saving in capital or financial resources can be
used for other productive purposes e.g. purchase of inventories.
(2) FLEXIBILITY AND CONVENIENCE: The lease agreement can be tailor- made in respect of lease
period and lease rentals according to the convenience and requirements of all lessees.
(3) PLANNING CASH FLOWS: Leasing enables the lessee to plan its cash flows properly. The rentals
can be paid out of the cash coming into the business from the use of the same assets.
(4) IMPROVEMENT IN LIQUADITY: Leasing enables the lessee to improve their liquidity position by
adopting the sale and lease back technique.

CONCEPT AND MEANING OF HIRE-PURCHASE

Hire purchase is a type of instalment credit under which the hire purchaser, called the hirer, agrees to take
the goods on hire at a stated rental, which is inclusive of the repayment of principal as well as interest,
with an option to purchase. Under this transaction, the hire purchaser acquires the property (goods)
immediately on signing the hire purchase agreement but the ownership or title of the same is transferred
only when the last instalment is paid. The hire purchase system is regulated by the Hire Purchase Act
1972. This Act defines a hire purchase as “an agreement under which goods are let on hire and under
which the hirer has an option to purchase them in accordance with the terms of the agreement and
includes an agreement under which:

1) The owner delivers possession of goods thereof to a person on condition that such person pays the
agreed amount in periodic instalments.
2) The property in the goods is to pass to such person on the payment of the last of such installments, and
3) Such person has a right to terminate the agreement at any time before the property so passes”.
Hire purchase should be distinguished from installment sale wherein property passes to the purchaser
with the payment of the first installment. But in case of HP (ownership remains with the seller until the
last installment is paid) buyer gets ownership after paying the last installment. HP also differs form
leasing.

DIFFERENCE BETWEEN LEASE FINANCING AND HIRE PURCHASE

BASIS LEASE FINANCING HIRE PURCHASE

Meaning A lease transaction is a
commercial arrangement,
whereby an equipment
owner or manufacturer
conveys to the equipment
user the right to use the
equipment in return for a
Rental.
Option to user No option is provided to
the lessee (user) to purchase the
goods.
Nature of expenditure Lease rentals paid by the
lessee are entirely revenue
expenditure of the lessee
Components Lease rentals comprise of
2 elements (1) finance
charge and (2) capital recovery.
Hire purchase is a type of
installment credit under
which the hire purchaser
agrees to take the goods on hire
at a stated rental, which is
inclusive of the repayment of
principal as well as interest, with
an option to purchase.
Option is provided to the hirer
(user).
Only interest element included in
the HP installments is revenue
expenditure by nature.
HP installments comprise
of 3 elements (1) normal
trading profit (2) finance charge
and (3) recovery of cost of
goods/assets.

Q.2. Define venture Capital? Stages in Venture Capital Financing?

Ans:-
“Money provided by investors to startup firms and small businesses with perceived long-term growth
potential. This is a very important source of funding for startups that do not have access to capital
markets. It typically entails high risk for the investor, but it has the potential for above-average returns”.
Venture capital can also include managerial and technical expertise. Most venture capital comes from a
group of wealthy investors, investment banks and other financial institutions that pool such investments
or partnerships. This form of raising capital is popular among new companies or ventures with limited
operating history, which cannot raise funds by issuing debt. The downside for entrepreneurs is that
venture capitalists usually get a say in company decisions, in addition to a portion of the equity.

Stages in Venture Capital Financing

There are many stages in venture capital financing. Defining the current stage of your project is important
so you don't waste your time or the time of potential venture capitalists.

Early Stage Financing:

Seed Financing--A small amount of money is involved (usually $50,000 or less). Funds are used to
develop a concept. This is the earliest stage of venture capital financing. The investor (often referred to as
an angel) is expecting to reap a large percentage ownership should the concept prove to be feasible and
marketable.
R&D Financing--This is a tax-advantaged partnership set up to finance product development. Investors
secure tax write-offs for their investments. If the product becomes successful, they share in the profits.
Startup--Money is used for product development and initial marketing. While startup companies are
organized, they typically have not yet sold their products commercially.
First Stage--The entrepreneur usually has developed a prototype. Funds are used to initiate full-scale
manufacturing and sales.
Expansion Stage Financing:

Second Stage--In this stage, working capital is for the initial expansion of a company that is shipping
products but may not yet be showing a profit.
Third Stage--This is also called "Mezzanine" financing. Capital at this stage is used for major expansion
including physical plant expansion, marketing, and working capital.
Fourth Stage--This is also referred to as "bridge" financing. This is financing for a company expecting to
go public within six months to a year. Often bridge financing is structured so that it can be repaid from
the proceeds of a public underwriting.
Acquisition/Buyout Financing:

Acquisition Financing--Funds are provided to a firm to finance its acquisition of another company.

Management LBO--Funds are provided to enable an operating management group to acquire a product
line from either a public or private company concern, often the very company they work for. (LBO means
leveraged buy-out.)

Public Market--This is the purchase of over-the-counter stock. The venture capital investor is typically
directly involved with improving the company.

Q.3. Types of Debit and Credit card?

Ans:-

Credit Card Types

There are so many different types of charge and credit cards, how you find the card that is right for you?
Begin by thinking about how you are likely to use credit and then comparing the types of charge cards
and credit cards available. Some of them offer excellent value, while others may cost more to use but
provide special services you may find helpful. The best approach is to carefully research card rates, fees
and benefits—perhaps even creating a chart for easy comparison.
Credit cards:- provide you with a revolving loan—or credit limit—based on your agreement to pay at
least the minimum amount due on the amount of credit you use by the payment date. A finance charge is
applied to the outstanding balance—the amount you do not pay by the due date. For example, if you
purchase $200 in one month and you pay the minimum amount due of $15, you will pay a finance charge
on the outstanding balance the next month. The American Express Credit Card for Students (the blue
Card) is an example of a credit card.

You can avoid paying finance charges by paying your balance in full—that is, paying off the outstanding
revolving loan balance. However, revolving credit cards give you the flexibility of making minimum
payments when that is most convenient for you. The cost of this convenience is the finance charge.

Typically, credit cards have a revolving credit limit. That means that as soon as you pay for credit you
have used, it becomes available again. For example, if you had a credit limit of $500, then spent $100,
your available credit would be $400 until you repaid the outstanding $100, when your available credit
would be $500 again.

General-purpose credit cards:- are credit cards that can be used to pay for just about anything, any
where from clothes at department stores to meals at restaurantsas well as to get cash advances. American
Express, Visa, MasterCard and Discover cards are examples. Many people prefer a general-purpose card
because they can use it in many different establishments. Another advantage of using this type of card is
that it combines many different types of expenses in a single bill, making payment easier.

Single or limited-purpose credit cards:- are credit cards that can be used only in a specific store or
group of stores, or for a specific purpose. The JCPenney Regular Charge Card and the Radio Shack
Answer Plus are examples. Some people prefer to have separate credit accounts, such as a gasoline credit
card, a credit card at a chain or specialty store, plus other cards.

Premium cards :- such as Platinum or Gold Cards are charge or credit cards that offer additional benefits
such as travel upgrades, special insurance or exclusive seating for concerts. Generally, premium cards
require a substantial income and an excellent credit history, offer a higher credit limit, and may charge
higher fees. To find out if you qualify for one of these cards, call the company's toll-free number to learn
about application requirements and costs. Apply only if you fulfill the application requirements, and if the
card provides you with benefits and services you believe to be worthwhile.

Affinity credit cards:- are associated with specific organizations and offered to people affiliated with
those organizations. Generally, an affinity credit card is co-sponsored by the organization it is associated
with, and the organization receives a percentage of the sales or profits generated by the card. The Penn
State MBNA Visa Card is an example. Rates, fees and benefits of affinity cards vary widely, and may
make these cards more expensive to use than similar, non-affiliated cards. People who use them generally
do so to help support an organization or cause they care about

Co-branded credit cards:- are co-sponsored by two companies and have benefits and rewards designed
specifically for their joint customers. For example, the American Express Delta SkyMiles Card is a co-
branded credit card for people who travel frequently on Delta Airlines that offers Card members
exclusive travel discounts and other benefits. Other popular co-branded cards are available to owners or
prospective owners of automobiles, investors in mutual funds and credit union members.

Secured cards:- are credit cards guaranteed by a bank account or deposit made by the applicant. The
credit limit is based on the amount of deposit and may be the same amount or larger. Secured credit cards
are useful to establish or improve a credit record, particularly if someone has never had credit or has a
poor credit history. The APR on a secured credit card is usually higher than on an unsecured credit card.
Application and processing fees may also be required. Interest may or may not be paid on your deposit.

Stored-value or "smart" cards:- look like credit cards but are actually prepaid cards. A stored-value
card has a set value which decreases as the card is used. For example, a $10 phone card is programmed to
provide $10 worth of service. When the card value is depleted, you buy another card.

Smart cards are more flexible because they contain an integrated microship that can be programmed to
provide information codes as well as financial information. The prepaid value of a smart card decreases
as you use the card but can be increased by paying for additional value. Many colleges issue smart cards
that give students access to food services, vending, photocopying, laundry, telephone and other purchases
as well as access to the library, laboratories and other secured areas on campus.

ATM cards:- are used to get cash and complete other transactions at a bank machine or automatic teller
machine (ATM). Many ATM cards can be used in selected computer networks, such as Cirrus, HONOR,
NYCE and STAR. For example, your ATM may work in any bank, supermarket or other store that is part
of the Cirrus network.

Charge cards:- provide you with the convenience of purchasing power based on your agreement to pay
the full amount of the charges due each month, so there is no finance charge. The American Express Card
for Students (the green Card) is an example of a charge card.
.

Debit Card Types

There are two types of debit card categories. These are the virtual debit cards and the physical debit cards.
A wide range of debit card products are offered under these categories. These cards are provided with a
number of features.

Virtual Debit Cards

These cards have been designed as a measure to check the fraudulent activities that are done through the
Internet. There are a number of virtual credit cards offered by the companies. Some of these cards are as
follows:

• Gift Cards
• Payroll Cards
• Merchant Cards
• Incentive Cards
• Student Cards

Services Offered by Different Types of Virtual Debit Cards

Payments Through Internet

• SMS Transfers
• Offline Payments
• Money Transfer
• Depository Services
 •
• Physical Debit Cards

These cards are similar to other plastic cards but the main difference is that the cardholders should put the
money in the card account before using the card. Different types of Physical Debit Cards are provided by
the card companies. Some of these are the following:

• Re-Loadable Debit Cards: There are a number of cards that are provided as Re-Loadable Debit
Cards. These are Payment Cards, Merchant Cards, Student Cards, Payroll Cards, Government
Payment Cards and so on
• Disposable Debit Cards: Some of these cards are Incentive Cards, Gift Cards and so on
•
•
• Services Offered by Physical Debit Cards

• ATM Services
• Money Transfer Services
• Online/Offline Payments
• Depository Services
• POS Terminals

Q.4. Credit rating process & its methodology? Mandatory provision for Credit Rating?

Ans:-

Credit Rating Process

The rating process begins with the receipt of formal request from a company desirous of having its issue
obligations rated by credit rating agency. A credit rating agency constantly monitors all ratings with
reference to new political, economic and financial developments and industry trends. The
process/procedure followed by all the major credit rating agencies in the country is almost similar and
usually comprises of the following steps.

1. Receipt of the request: The rating process begins, with the receipt of formal request for rating from a
company desirous of having its issue obligations under proposed instrument rated by credit rating
agencies. An agreement is entered into between the rating agency and the issuer company.
The agreement spells out the terms of the rating
assignment and covers the following aspects:

i. It requires the CRA (Credit Rating Agency) to keep the information confidential.
ii. It gives right to the issuer company to accept or not to accept the rating.
iii. It requires the issuer company to provide all material information to the CRA for rating and
subsequent surveillance.

2. Assignment to analytical team: On receipt of the above request, the CRA assigns the job to an
analytical team. The
Team usually comprises of two members/analysts who have expertise in the relevant business area and
are responsible for carrying out the rating assignments.

3. Obtaining information:. The analytical team obtains the requisite information from the client
company. Issuers are usually provided a list of information requirements and broad framework for
discussions. These requirements are derived from the experience of the issuers business and broadly
confirms to all the aspects which have a bearing on the rating. The analytical team analyses the
information relating to its financial statements, cash flow projections and other relevant information.

4. Plant visits and meeting with management: To obtain classification and better understanding of the
client’s operations, the team visits and interacts with the company’s executives. Plants visits facilitate
understanding of the production process, assess the state of equipment and main facilities, evaluate the
quality of technical personnel and form an opinion on the key variables that influence level, quality and
cost of production. A direct dialogue is maintained with the issuer company as this enables the CRAs to
incorporate non-public information in a rating decision and also enables the rating’ to be forward looking.
The topics discussed during the management meeting are wide ranging including competitive position,
strategies, financial policies, historical performance, risk profile and strategies in addition to reviewing
financial data.

5. Presentation of findings: After completing the analysis, the findings are discussed at length in the
Internal
Committee, comprising senior analysts of the credit rating agency. All the issue having a bearing on
rating are identified. An opinion on the rating is also formed. The findings of the team are finally
presented to Rating Committee.

6. Rating committee meeting: This is the final authority for assigning ratings. The rating committee
meeting is the only aspect of the process in which the issuer does not participate directly. The rating is
arrived at after composite assessment of all the factors concerning the issuer, with the key issues getting
greater attention.

7. Communication of decision: The assigned rating grade is communicated finally to the issuer along
with reasons or rationale supporting the rating. The ratings which are not accepted are either rejected or
reviewed in the light of additional facts provided by the issuer. The rejected ratings are not disclosed and
complete confidentiality is maintained.

8. Dissemination to the public: Once the issuer accepts the rating, the credit rating agencies disseminate
it through printed reports to the public.

9. Monitoring for possible change: Once the company has decided to use the rating, CRAs are obliged
to monitor the accepted ratings over the life of the instrument. The CRA constantly monitors all ratings
with reference to new
Political, economic and financial developments and industry trends. All this information is reviewed
regularly to find companies for, major rating changes. Any changes in the rating are made public through
published reports by CRAs.

Rating Methodology:-

Rating methodology used by the major Indian credit rating agencies is more or less the same. The rating
methodology involves an analysis of all the factors affecting the creditworthiness of an issuer company
e.g. business, financial and industry characteristics, operational efficiency, management quality,
competitive position of the issuer and commitment to new projects etc. A detailed analysis of the past
financial statements is made to assess the performance and to estimate the future earnings. The
company’s ability to service the debt obligations over the tenure of the instrument being rated is also
evaluated.
In fact, it is the relative comfort level of the issuer to service obligations that determine the rating. While
assessing the instrument, the following are the main factors that are analyzed into detail by the credit
rating agencies.
1. Business Risk Analysis
2. Financial Analysis
3. Management Evaluation
4. Geographical Analysis
5. Regulatory and Competitive Environment 6. Fundamental Analysis

These are explained as under:

I. Business Risk Analysis
Business risk analysis aims at analyzing the industry risk, market position of the company, operating
efficiency and legal position of the company. This includes an analysis of industry risk, market position
of the company, operating efficiency of the company and legal position of the company.

a. Industry risk: The rating agencies evaluates the industryrisk by taking into consideration various
factors like strengthof the industry prospect, nature and basis of competition,demand and supply position,
structure of industry, patternof business cycle etc. Industries compete with each other onthe basis of
price, product quality, distribution capabilitiesetc. Industries with stable growth in demand and
flexibilityin the timing of capital outlays are in a stronger positionand therefore enjoy better credit rating.

b. Market position of the company: Rating agencies evaluatethe market standing of a company taking
into account:
i. Percentage of market share
ii. Marketing infrastructure
iii. Competitive advantages
iv. Selling and distribution channel
v. Diversity of products
vi. Customers base
vii. Research and development projects undertaken toidentify obsolete products
viii. Quality Improvement programs etc.
c. Operating efficiency: Favorable location advantages, management and labor relationships, cost
structure, availability of raw-material, labor, compliance to pollution control programs, level of capital
employed and technological advantages etc. affect the operating efficiency of every issuer company and
hence the credit rating.

d. Legal position: Legal position of a debt instrument is assessed by letter of offer containing terms of
issue, trustees and their responsibilities, mode of payment of interest and principal in time, provision for
protection against fraud etc.

e. Size of business: The size of business of a company is a relevant factor in the rating decision. Smaller
companies are more prone to risk due to business cycle changes as compared to larger companies.
Smaller companies operations are limited in terms of product, geographical area and number of
customers. Whereas large companies enjoy the benefits of diversification owing to wide range of
products, customers spread over larger geographical area. Thus, business analysis covers all the important
factors related to the business operations over an issuer company under credit assessment.
II. Financial Analysis
Financial analysis aims at determining the financial strength of the issuer company through ratio analysis,
cash flow analysis and study of the existing capital structure. This includes an analysis of four important
factors namely:
a. Accounting quality
b. Earnings potential/profitability
c. Cash flows analysis
d. Financial flexibility
Financial analysis aims at determining the financial strength of the issuer company through quantitative
means such as ratio analysis. Both past and current performance is evaluated to comment the future
performance of a company. The areas considered are explained as follows.

a. Accounting quality: As credit rating agencies rely on the audited financial statements, the analysis of
statements begins with the study of accounting quality. For the purpose, qualification of auditors,
overstatement/ understatement of profits, methods adopted for recognizing income, valuation of stock
and charging depreciation on fixed assets are studied.

b. Earnings potential/profitability: Profits indicate company’s ability to meet its fixed interest
obligation in time. A business with stable earnings can withstand any adverse conditions and also
generate capital resources internally. Profitability ratios like operating profit and net profit ratios to sales
are calculated and compared with last 5 years figures or compared with the similar other companies
carrying on same business. As a rating is a forward-looking exercise, more emphasis is laid on the future
rather than the past earning capacity of the issuer.

c. Cash flow analysis: Cash flow analysis is undertaken in relation to debt and fixed and working capital
requirements of the company. It indicates the usage of cash for different purposes and the extent of cash
available for meeting fixed interest obligations. Cash flows analysis facilitates credit rating of a company
as it better indicates the issuer’s debt servicing capability compared to reported earnings.

d. Financial flexibility: Existing Capital structure of a company is studied to find the debt/equity ratio,
alternative means of financing used to raise funds, ability to raise funds, asset deployment potential etc.
The future debt claims on the issuer’s as well as the issuer’s ability to raise capital is determined in order
to find issuer’s financial flexibility.

III. Management Evaluation

Any company’s performance is significantly affected by the management goals, plans and strategies,
capacity to overcome unfavorable conditions, staff’s own experience and skills, planning and control
system etc. Rating of a debt instrument requires evaluation of the management strengths and weaknesses.

IV. Geographical Analysis

Geographical analysis is undertaken to determine the locational advantages enjoyed by the issuer
company. An issuer company having its business spread over large geographical area enjoys the benefits
of diversification and hence gets better credit rating. A company located in backward area may enjoy
subsidies from government thus enjoying the benefit of lower cost of operation. Thus geographical
analysis is undertaken to determine the locational advantages enjoyed by the issuer company.

V. Regulatory and Competitive Environment

Credit rating agencies evaluate structure and regulatory framework of the financial system in which it
works. While assigning the rating symbols, CRAs evaluate the impact of regulation/ deregulation on the
issuer company.

VI. Fundamental Analysis

Fundamental analysis includes an analysis of liquidity management, profitability and financial position,
interest and tax rates sensitivity of the company. This includes an analysis of liquidity management,
profitability and financial position, interest and tax rates sensitivity of the company.
1. Liquidity management involves study of capital structure, availability of liquid assets corresponding to
financing commitments and maturing deposits, matching of assets and liabilities.
2. Asset quality covers factors like quality of company’s credit risk management, exposure to individual
borrowers and management of problem credits etc.
3. Profitability and financial position covers aspects like past profits, funds deployment, revenues on non-
fund based activities, addition to reserves.
4. Interest and tax sensitivity reflects sensitivity of company following the changes in interest rates and
changes in tax law.

Provision For Credit Rating

The SEC in July 1996 made rules, titled, Credit Rating Companies Rules, 1996. But the Rules have many
gaps and holes. Only recently, the Commission has re-drafted the rules and published the same through
a gazette notification. Under the existing rules, credit rating is not mandatory for any company willing to
go public. Section 3 of the rating rules, which was inserted in April 2006, rating has been made
mandatory for public issues (including issuance of right shares) that offer shares at premium. However,
the Commission enjoys the right to exempt such requirement in the 'interest of the capital market’.
Submission of credit rating reports to the Commission has to be made mandatory for any company
willing to go public. It should also be mandatory for all listed issues to publish their individual credit
rating annually. This would help the investors make right investment choice. A few listed companies,
having strong fundamentals, get voluntarily their individual ratings done by the credit rating agencies.
But most companies listed on the bourses and the private firms do not bother about ratings since they are
under no obligation to do that. Some companies, both listed and unlisted, seek credit rating only when
banks ask them to do so. The finance ministry has now appreciated the need to know the ratings of big
corporate houses and other companies to analyze their prospects and whether they comply with tax and
auditing requirements. The ministry has, reportedly, taken the move to examine the financial
accountability of private companies, increase their efficiency and promote corporate culture in the
country. The government decision to make ratings by investors and companies, listed or otherwise,
mandatory is the right one. Getting the decision implemented might prove easy in the case of listed
companies. But it could prove difficult as far as private firms and companies are concerned.

Q.5. Products and services provided by Non Banking Financial Services?

Products & Services:

IPO Funding

The company started its financing activities with IPO financing and is an active player in the IPO
financing segment catering to the high networth individuals category. The business draws upon JM
Financial Group’s expertise of successfully lead managing several public issues. Further, JM Financial
Group is among the top two distributors of public issues to corporates, high networth individuals and
retail investors in India. JM Financial Group also ties up sub-syndicate members to market the public
issues.
Security Backed Financing - Loan Against Shares/Margin Funding (LAS)

The business of loan against shares plays an important role in the company’s business strategy along with
IPO Funding.

Mutual Fund Financing

JM Financial Group is one of the largest distributors of mutual funds. Given the Group’s large HNI
customer base which invests in mutual funds as a natural progression, the company also does funding
towards purchase of mutual fund units.

ESOP Financing
The company also leverages on the Group’s strong corporate relations and investment banking expertise
that help identify business opportunities for ESOP financing.

Promoter Funding and Acquisition Financing

JM Financial Consultants, the investment banking arm of JM Financial Group advises several clients on
mergers and acquisitions thereby presenting a plethora of business opportunities for JM Financial
Products Limited.