(1) (a) Role of RBI as a Regulator

RBI plays a critical role in

maintaining the financial stability and public confidence in the system. As the regulator and supervisor of the banking system RBI protect depositors' interest and provide costeffective banking services to the public. It Prescribes broad parameters of banking operations within which the country's banking and financial system functions. The RBI performs this function under the guidance of the Board for Financial Supervision (BFS). The RBIs Regulatory Role Aas the nations financial regulator, the Reserve Bank handles a range of activities, including: Licensing Prescribing capital requirements Monitoring governance Setting prudential regulations to ensure solvency and liquidity of the banks Prescribing lending to certain priority sectors of the economy Regulating interest rates in specific areas Setting appropriate regulatory norms related to income recognition, asset classification, provisioning, investment valuation, exposure limits and the like Initiating new regulation

(b) Role of SEBI as a Regulator of Financial Market

The Securities and Exchange Board of India (SEBI) is the regulatory authority in India established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of Securities and Exchange Board of India (SEBI) with statutory powers for (a) protecting the interests of investors in securities (b) promoting the development of the securities market and (c) regulating the securities market. Its regulatory jurisdiction extends over corporates in the issuance of capital and transfer of securities, in addition to all intermediaries and persons associated with securities market. SEBI has been obligated to perform the aforesaid functions by such measures as it thinks fit. In particular, it has powers for: y y y y Regulating the business in stock exchanges and any other securities markets Registering and regulating the working of stock brokers, sub-brokers etc. Promoting and regulating self-regulatory organizations Prohibiting fraudulent and unfair trade practices Calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, intermediaries, self regulatory organizations, mutual funds and other persons associated with the securities market.

(2) PROCESS OF CREDIT RATING

1) Primary or initial stages 2) Fact finding and analysis stage 3) Rating finalization stage

Mandatory provision for credit rating:

1) Commercial paper issue should not be more than one month old 2) Debenture issue whether the debentures issued by it are credit rated 3) Public deposit no non banking financial company having net owned fund of twenty five lakhs of rupees and above shall accept public deposit unless it has obtained minimum credit rating for fixed deposits from any one of approved credit rating agencies at least once a year and a copy of the rating is sent to RBI along with return on prudential norms.

Bank rating:

1) 2) 3) 4)

Assessment of banks in public domain Ratings by RBI is kept confidential Brings discipline and transparency in banking Helps in expediting consolidation in the sector

Credit rating methodology involves analysis of following:

1) Business analysis a. Structure of the industry b. Market position c. Operating efficiency d. Legal position 2) Financial analysis a. Accounting quality b. Earning protection c. Adequacy of cashflows d. Financial flexibility 3) Management evaluation 4) Regulatory and competitive environment 5) Fundamental analysis a. Capital adequacy b. Asset quality c. Liquidity management d. Profitability and financial position e. Interest and tax sensitivity

(3) REVIVAL PRORAMME TO REVIVE A SICK UNIT

Recognizing the socio-economic role being played by CPSEs in the development of the country, Government has evolved strategies from time to time for strengthening C P S E s . S o m e o f t h e s t r a t e g i e s f or restructuring/revival of CPSEs including sick units on long-term basis include: - BIFR; - Financial Restructuring - JV for inputs - Fresh Funds - Org and biz restructuring

- VRS - Improved marketing - Cost control The major strategies for restructuring of CPSEs including sick units on long term basis may include:(i) Financial restructuring: Investment is made in the form of equity participation, loan, non-plan assistance or through the revival packages which involve sustainable outgo from Government or writeoff of past losses and infusion of fresh capital, etc. Measures such as waiver of loan/interest/ penal interest, conversion of loan into equity, conversion of interest including penal interest into loan, moratorium on payment of loan/ interest, Government guarantee, etc. are also taken to improve financial strength of thecompany. (ii) Business restructuring: Change of management, organizational restructuring, hiving of f viable units from CPSEs for formation of separate company, closure of unviable units, formation of joint ventures by induction of partners capable of providing technical, financial and marketing inputs, change in product mix, improving marketing strategy, etc. may be involved. (iii) Manpower rationalization: through approved Voluntary Retirement Scheme(VRS). Government has set up a Board for Reconstruction of Public Sector Enterprises (BRPSE) to advise the Government on the measures to be taken to restructure PSEs. The Board comprises a part- time Chairman, three part-time Non-Official Members and three part-time Official Members including Secretary, Department of Public Enterprises as Member Secretary. The Board is serviced by DPE. For the purpose of making reference to BRPSE, a company will be considered sick if it has accumulated losses in any financial year equal to 50% or more of its average net worth during 4 years immediately preceding such financial year and / or a company which is a sick company within the meaning of Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The concerned administrative Ministries have been advised to send proposals of their CPSEs identified as sick for consideration o f t h e BRPSE.

(4) PROCESS OF IPO AND BOOK BUILDING

Book building refers to the process of generating, capturing, and recording investor demand for shares during an IPO (or other securities during their issuance process) in order to support efficient price discovery. Usually, the issuer appoints a major investment bank to act as a major securities underwriter or bookrunner. The book is the off-market collation of investor demand by the bookrunner and is confidential to the bookrunner, issuer, and underwriter. Where shares are acquired, or transferred via a bookbuild, the transfer occurs off-market, and the transfer is not guaranteed by an exchanges clearing house. Where an underwriter has been

appointed, the underwriter bears the risk of non-payment by an acquirer or non-delivery by the seller.

Process
During the fixed period of time for which the subscription is open, the bookrunner collects bids from investors at various prices, between the floor price and the cap price. Bids can be revised by the bidder before the book closes. The process aims at tapping both wholesale and retail investors. The final issue price is not determined until the end of the process when the book has closed. After the close of the book building period, the book runner evaluates the collected bids on the basis of certain evaluation criteria and sets the final issue price. If demand is high enough, the book can be oversubscribed. In these case the greenshoe option is triggered. Book building is essentially a process used by companies raising capital through public offeringsboth initial public offers (IPOs) or follow-on public offers (FPOs) to aid price and demand discovery. It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices, which are within the price band specified by the issuer. The process is directed towards both the institutional as well as the retail investors. The issue price is determined after the bid closure based on the demand generated in the process.

(4) INVESTMENT BANKING

An investment bank is an institution that performs a variety of financial services for corporations, individuals, and the government. The primary function of an investment bank is to raise capital for growing companies and the government by issuing equity and debt securities. In essence, the role of an investment bank is to operate as an agent between companies in need of funding and the public markets. The chief difference between an investment bank and retail bank is that an investment bank does not accept deposits or originate loans. An investment bank also offers advisory and strategic services related to mergers, acquisitions, and corporate restructuring. Today, a typical investment bank may offer risk management and broker dealer services as well. An investment bank is also known as an underwriter.

(5) FINANCIAL DERIVATIVES

A derivative instrument is a contract between two parties that specifies conditionsin particular, dates and the resulting values of the underlying variablesunder which payments, or payoffs, are to be made between the parties One of the oldest derivatives is rice futures, which have been traded on the Dojima Rice Exchange since the eighteenth century.[6] Derivatives are broadly categorized by the relationship between the underlying asset and the derivative (e.g., forward, option, swap); the type of underlying asset (e.g., equity derivatives, foreign exchange derivatives, interest rate derivatives, commodity derivatives, or credit derivatives); the market in which they trade (e.g., exchange-traded or over-the-counter); and their pay-off profile.
Derivatives are used by investors to:      provide leverage (or gearing), such that a small movement in the underlying value can cause a large difference in the value of the derivative;[8] speculate and make a profit if the value of the underlying asset moves the way they expect (e.g., moves in a given direction, stays in or out of a specified range, reaches a certain level); hedge or mitigate risk in the underlying, by entering into a derivative contract whose value moves in [9] the opposite direction to their underlying position and cancels part or all of it out; obtain exposure to the underlying where it is not possible to trade in the underlying (e.g., weather derivatives);[10] create option ability where the value of the derivative is linked to a specific condition or event (e.g. the underlying reaching a specific price level).

(6) DISINVESTMENT PROCESS OF PSUs

Introduction Public sector undertakings were established in India as a part of mixed economy. The coexistence of private and public sector will make the economy balanced and independent. After independence public sector undertakings played a vital role in the economic development of the country. Generation of employment, balanced regional development and economic development of the country were the objectives of PSE's at the time of their establishment. The government has contributed either wholly or partially in the equities of the public sectors depending on the need and requirement of the projects. During mid 1991 onwards the economic scenario of the country has changed with the onset of fiberalisation and Globalisation measures. The goal of service rendering was slowly substituted with profit maximization in PSE's and other government departments.

Disinvestment Disinvestment is a process where Government sells its equity holding to private sectors. In other ways it is a privatization process where private parties are given shareholding in Government undertakings either wholly or partially. The Rangarajan committee recommended the programme of disinvestments in 1991-92. The disinvestments commission was established under the chairmanship of Shri. G. V. Ramkrishnan. He was given the task of long term planning of disinvestment To speed up the disinvestment process, the Government of India has set up a separate Department of disinvestment The amount realized from disivestments will be used for meeting expenditure in social sector, restructuring the PSE's and for retiring public debt. An attempt has been made in this paper to study the progress and process of disinvestment of PSE's in India. According to Anjila Saxena (2001) bureaucratic, trade union and valuation of PSU's disinvestments. Fair valuation and transparency is disinvestments process are equally important to make this exercise free from criticism and better public acceptance, B.K.S. Prakasa Rao and S.V. Ramana Rao (2001) found that disinvestment process through liberalization and privatization leads to cost reduction, quality of service and operational efficiency. Improvement of management and operating performance is a precondition for successful privation. They further observed that a strong private sector and strong growth potential are essential for attaining higher degree of national output.