CONCEPT INVESTMENT BANKS...
The banking scenario in India is itself huge, covering the
different facets of the economy.
By and large, investment banks in India are itself an
institution which generates funds in two different ways.
The first manner in which it works is by drawing public
funds via the capital market by way of selling stock in
The other way in which it operates is to seek for venture
capital or private equity, as a substitute for a stake in
An individual or institution which acts as an underwriter or
agent for corporations and municipalities issuing securities.
Most also maintain broker/dealer operations, maintain markets
for previously issued securities, and offer advisory services to
Investment banks also have a large role in facilitating mergers
and acquisitions, private equity placements and corporate
Unlike traditional banks, investment banks do not accept
deposits from and provide loans to individuals. also called
ROLE OF AN INVESTMENT BANK
The major work of investment banks includes a lot of consulting.
For instance, they offer advices on mergers and acquisitions to
The role that an investment bank plays sometimes gets
overlapped with that of a private brokerage house.
The usual advice of buying and selling is also given by
There is no demarcating line between the investment banking
and other forms of banking in India.
This has been observed majorly of late.
All banks nowadays want to provide their customers the best of
services and create a niche for themselves and that is why apart
from investment banks, all other banks too are aiming at making it
An investment bank is split into 3 parts.
3:-And back office.
TYPICALLY, AN INVESTMENT BANKING GROUP NOWADAYS PROVIDES, WORLD-WIDE SOME OR ALL OF THE FOLLOWING
SERVICES, EITHER IN DIVISIONS OF THE BANK OR IN ASSOCIATED COMPANIES WITHIN THE GROUP:-
1. Mergers and Acquisition Advisory
2. Private Placement of Debt and Equity
3. Securities Underwriting
4. Management of Capital issues
5. Management of Buyback and takeovers
6. Corporate Advisory Services
7. Project Advisory Services
8. Other services like Restructuring/Sales, Real
Estate, and Loan Syndication and so on...
THE CORE SERVICES PROVIDED BY THE INVESTMENT BANKS ARE IN THE AREAS OF DEBT MARKET, EQUITY MARKET AND
The phrase mergers and acquisitions refers to the
aspect of corporate strategy, corporate finance and
management dealing with the buying, selling and
combining of different companies that can aid,
In business or economics a merger is a combination
of two companies into one larger company.
Merger is a tool used by companies for the purpose
of expanding their operations often aiming at an
increase of their long term profitability.
An acquisition, also known as a takeover, is the
buying of one company (the ‘target’) by another. An
acquisition may be friendly or hostile
IPO PROCESS FOLLOWED BY AN INVESTMENT
BANKER WHILE GOING PUBLIC
I Issuer company- Initiate the IPO process
Appoint lead manager/merchant banker as book
Appoint registrar of the issue
Appoint syndicate members
II Lead Manger- Pre-Issue Role
Prepare draft offer prospectus document for IPO
File draft offer prospectus with SEBI
Road shows for IPO
III SEBI- Prospectus Review
SEBI review draft offer prospectus
Revert it back to Lead Manager if need clarification or changes
SEBI approve the draft offer prospectus, the draft offer prospectus is
now become offer prospectus.
IV Lead Manger – Pre- Issue Role
Submit the offer prospectus to Stock Exchanges, registrar of the issue
and get it approved
Decide the issue date and issue price band with the help of issuer
Modify offer prospectus with date and price band. Document is now
called Red Herring Prospectus
Red Herring Prospectus& IPO Application Forms are printed and posted
to syndicate members; through which they are distributed to investors
V Investor- Bidding for the public issue
Public issue open for investors bidding(minimum 5 to maximum
Investors fill the application forms and place orders to the
Syndicate member provide the bidding information to BSE/NSE
electronically and bidding status gets updated on BSE/NSE
Syndicate members send all the physically filled forms and
cheques to the registrar of the issue
Investor can revise the bidding by filling a form and submitting it
to syndicate member.
Syndicate members keep updating stock exchange with the latest
Public issue closes for investors bidding
VI Lead Manager- Price Fixing
Based on the bids received, lead manager evaluate the final issue price
Lead manages update the Red Herring Prospectus with the final issue
price and send it to SEBI and Stock Exchanges.
VII Registrar – Processing IPO applications
Registrar receives all application forms and cheques from syndicate
They feed applicant data and additional bidding information on computer
Send the cheques for clearance
Find all bogus application
Finalize the pattern for share allotment based on all valid bid received
Prepare ‘Basis of Allotment’
Transfer shares in the De-Mant account of investors
VIII Lead Manger- Stock Listing
Once all allocated shares are transferred in
investors accounts, Lead Manager with the
help of Stock Exchange decides Issue Listing
Finally share of the issuer company listed in
MERGER AND ACQUISITION
WHAT IS MERGER?
A merger is a combination of two or more
companies where one corporation is
completely absorbed by another corporation.
WHAT IS ACQUISITION?
Acquisition essentially means ‘to acquire’ or
‘to takeover’. Here a bigger company will
take over the shares and assets of the
HISTORY OF MERGER AND ACQUISITION
The concept of merger and acquisition in India was not
popular until the year 1988.
The key factor contributing to fewer companies involved
in the merger is the regulatory and prohibitory provisions
of MRTP Act, 1969. (Monopolies and Restrictive Trade
The year 1988 witnessed one of the oldest business
acquisitions or company mergers in India.
As for now the scenario has completely changed with
increasing competition and globalization of business. It is
believed that at present India has now emerged as one of
the top countries entering into merger and acquisitions
MERGER AND ACQUISITION PROCESS
Preliminary Assessment or Business Valuation- In this
process of assessment not only the current financial performance
of the company is examined but also the estimated future market
value is considered
Phase of Proposal- After complete analysis and review of the
target firm's market performance, in the second step, the proposal
for merger or acquisition is given.
Exit Plan- When a company decides to buy out the target
Firm and the target firm agree, then the latter involves in Exit
Structured Marketing- After finalizing the Exit Plan, the target
firm involves in the marketing process and tries to achieve
highest selling price.
Stage of Integration- In this final stage, the two firms are
integrated through Merger or Acquisition.
DIFFERENT TYPES OF MERGERS
A horizontal merger - This kind of merger exists between two companies who
compete in the same industry segment.
A vertical merger - Vertical merger is a kind in which two or more companies in
the same industry but in different fields combine together in business.
Co-generic mergers - Co-generic merger is a kind in which two or more
companies in association are some way or the other related to the production
processes, business markets, or basic required technologies.
Conglomerate Mergers - Conglomerate merger is a kind of venture in which
two or more companies belonging to different industrial sectors combine their
Friendly acquisition - Both the companies approve of the acquisition under
Reverse acquisition - A private company takes over a public company.
Back flip acquisition- A very rare case of acquisition in which, the purchasing
company becomes a subsidiary of the purchased company.
Hostile acquisition - Here, as the name suggests, the entire process is done by
MOTIVES FOR MERGERS &ACQUISITIONS
Economies of large scale business
Large-scale business organization enjoys
both internal and external economies.
Elimination of competition
It eliminates severe, intense and wasteful
expenditure by different competing organizations.
Desire to enjoy monopoly power
M&A leads to monopolistic control in the
Adoption of modern technology
Corporate organization requires large
Lack of technical and managerial talent
Industrialization, scarcity of entrepreneurial, managerial and technical talent
Impact of Mergers and Acquisitions
Mergers and acquisitions impact the employees or the workers the most. It is a well known
fact that whenever there is a merger or an acquisition, there are bound to be layoffs.
Impact of mergers and acquisitions on top level management
Impact of mergers and acquisitions on top level management may actually involve a "clash
of the egos". There might be variations in the cultures of the two organizations.
Shareholders of the acquired firm:
The shareholders of the acquired company benefit the most. The reason being, it is seen in
majority of the cases that the acquiring company usually pays a little excess than it what should.
Unless a man lives in a house he has recently bought, he will not be able to know its drawbacks.
Shareholders of the acquiring firm: hey are most affected. If we measure the benefits enjoyed
by the shareholders of the acquired company in degrees, the degree to which they were
benefited, by the same degree, these shareholders are harmed
STRATEGIES OF MERGER AND ACQUISITION
Then there is an important need to assess the
market by deciding the growth factors through
future market opportunities, recent trends, and
The integration process should be taken in line
with consent of the management from both the
companies venturing into the merger.
Restructuring plans and future parameters
should be decided with exchange of information
and knowledge from both ends.
TOP 5 INDIAN MERGERS AND ACQUISITIONS
The Reliance – BP deal
Essay exits Vodafone
GVK Power acquires Hancock Coal
Adyta Birla Group to acquire Columbian
The Vedanta – Cairn acquisition
PORTER’S FIVE FORCES
Rivalry: The industry seems to have low Barriers to entry for small, upstart players but
very high barriers to catapulting firms into bulge bracket Status.
Supplier Bargaining Power: Investment banking is essentially a relationships business,
and stronger the network of critical
Buyer Bargaining Power One investment bank to another seems to entail few costs. In
spite of this, statistical studies show that
Substitutes Historically, there were no clear substitutes for services such as IPOs,
Distribution, M&A advisory, etc. Technology, however, is changing that. Though still at a
germinal stage, it is generating unprecedented alternatives.
Threat of New Entrants Investment banks are also facing a competitive threat from firms
HDFC (GROUP COMPANIES)
Housing Development Finance Corporation
Limited (HDFC Ltd.) was established in 1977
with the primary objective of meeting a social
need of encouraging home ownership by
providing long-term finance to households
, HDFC has assisted more than 4.3 million
customers to own a home of their own, through
cumulative housing loan approvals of over Rs.
4.63 trillion and disbursements of over Rs. 3.74
trillion as at March 31, 2012.
SUBSIDIARIES AND ASSOCIATE COMPANIES
HDFC Bank HDFC Bank was incorporated in 1994 by Housing Development
Finance Corporation Limited (HDFC), India's largest housing finance company
HDFC Asset Management Company Ltd
HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies
Act, 1956, on December 10, 1999,
HDFC Standard Life Insurance Company Limited
It was established after private companies were allowed to enter the insurance industry in the
year 2000. HDFC holds 74% of the equity while Standard Life holds 26%
. HDFC Sales offers financial management solutions to individuals encompassing among other
products like Home Loans, Life Insurance, Mutual Funds, Fixed Deposits and property Solutions.
HDFC ERGO General Insurance Company ltd (formerly HDFC
General Insurance Company Ltd)
The insurance industry over the decade has gone through a fairly dynamic & an interesting
phase. Other than increasing number of players we have witnessed De-trifling in the market.
Increased competition & deregulation on the pricing front has laid to prices coming down;
practically across all line of products.
Buying a dream house is one thing, but the entire process of finding and
acquiring your dream space in this world is an experience to be
HDFC RED is a digital information hub that helps you through every
stage of the house purchasing process
HDB Financial Services Ltd
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an 'in principle' approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector, as part of the
RBI's liberalization of the Indian Banking Industry in 1994
STATEMENT PURSUANT TO SECTION 2012 OF THE
COMPANIES ACT 1956, RELATING TO SUBSIDIARY
SUBSIDIARIES AND ASSOCIATE COMPANIES
ICICI Group offers a wide range of banking products and financial services to corporate
and retail customers through a variety of delivery channels and through its specialized
group companies and subsidiaries in the areas of personal banking, investment
banking, life and general insurance, venture capital and asset management. With a strong
customer focus, the ICICI Group Companies have maintained and enhanced their
leadership positions in their respective sectors
ICICI Bank is India's second-largest bank with total assets of Rs. 4,736.47 billion (US$ 93
billion) at March 31, 2012
ICICI Prudential Life Insurance
A leading international financial services group headquartered in the United Kingdom.
ICICI Prudential was amongst the first private sector insurance companies to begin
operations in December 2000 after receiving approval from Insurance Regulatory
Development Authority (IRDA).
ICICI Lombard General Insurance Company,
ICICI Lombard GIC Ltd. is the largest private sector general insurance company
in India with a Gross Written Premium (GWP) of Rs. 6,420 crore for the year
ended March 31, 2013. The company issued over 91.8 lakh policies and settled
over 50.7 lakh claims as on March 31, 2013.
ICICI Securities Ltd
ICICI Securities Ltd is an integrated securities firm offering a wide range of
services including investment banking, institutional broking, retail broking,
private wealth management, and financial product distribution
ICICI Securities Primary Dealership Limited („I-Sec PD‟)
is the largest primary dealer in Government Securities. It is an
acknowledged leader in the Indian fixed income and money markets, with a
strong franchise across the spectrum of interest rate products and services -
institutional sales and trading, resource mobilization, portfolio management
services and research.
ICICI Prudential Asset Management
ICICI Prudential Asset Management Company Ltd. (IPAMC/ the Company) is the joint venture
between ICICI Bank, a well-known and trusted name in financial services in India and Prudential
Plc, one of UK’s largest players in the financial services sectors
ICICI Venture is a specialist alternative assets manager based in India. The firm is a wholly
owned subsidiary of ICICI Bank the largest private sector financial services group in India.
ICICI Group has partnered India in its economic growth and development. Promoting
inclusive growth has been a priority area for the Group from both a social and business
ICICI Home Finance Company Limited
ICICI Home Finance Company Limited ("ICICI Home Finance" or "ICICI HFC") is one of
the leaders in the Indian mortgage finance and realty space
Bank Crisis In 1974
In the 699 days between 11 January 1973 and 6 December 1974, the New York Stock
Exchange's Dow Jones Industrial Average benchmark lost over 45% of its value, making it the
seventh-worst bear in the history of the index. 1972 had been a good year for the DJIA, with
gains of 15% in the twelve months. 1973 had been expected to be even better, with magazine
reporting, just 3 days before the crash began, that it was 'shaping up as a gilt-edged year'. In the
two years from 1972 to 1974, the American economy slowed from 7.2% real GDP growth to
−2.1% contraction, while inflation (by CPI) jumped from 3.4% in 1972 to 12.3% in 1974.
Worse was the effect in the United Kingdom, and particularly on the London Stock
Exchange's FT 30, which lost 73% of its value during the crash. From a position of 5.1% real
GDP growth in 1972, the UK went into recession in 1974, with GDP falling by 1.1%. At the
time, the UK's property market was going through a major crisis, and a secondary banking crisis
forced the Bank of England to bail out a number of lenders. In the United Kingdom, the crash
ended after the rent freeze was lifted on 19 December 1974, allowing a readjustment of property
prices; over the following year, stock prices rose by 150%. The definitive market low for the FT30
Index (a forerunner of the FTSE100 today), came on 6 January 1975 when the index closed at
146 (having reached a nadir of 145.8 intra-days). The market then practically doubled in just
over 3 months. However, unlike in the United States, inflation continued to rise, to 25% in
1975, giving way to the era of stagflation. The Hong Kong Hang Seng Index also fell from 1,800
in early 1973 to close to 300.
About the BIS
Established on 17 May 1930
The BIS is the world’s oldest international financial organization
Head office is in Basel, Switzerland and representative offices in Hong Kong
SAR and in Mexico City.
The BIS currently employs around 550 staff from 50 countries.
Basel committee on Banking Supervision – (BCBS)
A set of agreements
Regulations and recommendations on Credit risk , market risk and
Purpose – to have enough capital on account to meet obligations and
absorb unexpected losses
In 1988, the Basel Committee (BCBS) in Basel, Switzerland, published a set of minimal capital
requirements for banks, known as 1988 Basel Accord or Basel 1.
Primary focus on credit risk
Assets of banks were classified and grouped in five categories to credit risk weights of zero ‘0’,
10, 20, and 50 and up to 100%.
Assets like cash and coins usually have zero risk weight, while unsecured loans might have a
risk weight of 100%.
0% - cash, central bank and government debt and any OECD government debt
0%, 10%, 20% or 50% - public sector debt
20% - development bank debt, OECD bank debt, OECD securities firm debt, non-OECD bank
debt (under one year maturity) and non-OECD public sector debt, cash in collection
50% - residential mortgages
100% - private sector debt, non-OECD bank debt (maturity over a year), real estate, plant and
equipment, capital instruments issued at other banks
The bank must maintain capital (Tier 1 and Tier 2) equal to at least 8% of its risk-weighted
assets. For example, if a bank has risk-weighted assets of $100 million, it is required to maintain
capital of at least $8 million.
PITFALLS OF BASEL I
Limited differentiation of credit risk
(0%, 20%, 50% and 100%)
Static measure of default risk
The assumption that a minimum 8% capital ratio is sufficient to protect banks
from failure does not take into account the changing nature of default risk.
No recognition of term-structure of credit risk
the capital charges are set at the same level regardless of the maturity of a
Simplified calculation of potential future counterparty risk
the current capital requirements ignore the different level of risks associated with
different currencies and macroeconomic risk. In other words, it assumes a
common market to all actors, which is not true in reality.
Lack of recognition of portfolio diversification effects
in reality, the sum of individual risk exposures is not the same as the risk
reduction through portfolio diversification. Therefore, summing all risks might
provide incorrect judgment of risk
Definition of 'Basel II'
A set of banking regulations put forth by the
Basel Committee on Bank
Supervision, which regulates finance and
banking internationally. Basel II attempts to
integrate Basel capital standards with
national regulations, by setting the minimum
capital requirements of financial institutions
with the goal of ensuring institution liquidity.
in 2010, Basel III guidelines were released. These
guidelines were introduced in response to the
financial crisis of 2008. A need was felt to further
strengthen the system as banks in the developed
economies were under-capitalized, over-leveraged
and had a greater reliance on short-term funding.
Also the quantity and quality of capital under Basel II
were deemed insufficient to contain any further risk.
Basel III norms aim at making most banking activities
such as their trading book activities more capital-
intensive. The guidelines aim to promote a more
resilient banking system by focusing on four vital
banking parameters viz. capital, leverage, funding
"People think that Islamic Banking
system is based on faith, but it's based
on justice. The system is based on
justice for the two parties and how
you get to the justice is extracted
from Islamic faith"
INTEREST IS ONE OF THE MAIN SOURCE
OF BANK’S EARNING
A bank generates profit from the differential between the level of interest it
pays for deposits and other sources of funds, and the level of interest it charges
in its lending activities.
INTEREST PROHIBITED IN ISLAM
The word “Riba” is used in the Holy Quran 8 times. In
30:39,4:161,3:130, 2:276,2:278 and 3 times in 2:275.
“Those who devour usury will not stand except as stand one whom the
Evil one by his touch Hath driven to madness. That is because they say:
"Trade is like usury," but Allah hath permitted trade and forbidden usury.
Those who after receiving direction from their Lord, desist, shall be
pardoned for the past; their case is for Allah (to judge); but those who
repeat (The offence) are companions of the Fire: They will abide therein
(for ever).” (Quran 2:275)
“O ye who believe! Devour not usury, doubled and multiplied; but fear
Allah. that ye may (really) prosper.” (Quran 3:130)
DIFFERENCE BETWEEN ISLAMIC AND
Islamic banking only deals in “halal” products and services.
Thus, all transactions must be SHARIAH COMPLIANT i.e. must be
in accordance with the Islamic Jurisprudence.
consideration of collateral to be looked upon separately.
However, if the transaction is based on "joint-venture" basis, there
should not be any collateral;
In a default or termination situation, the Bank (or financier)
normally demand the outstanding sale price. Generally, the sale
price is fixed and comprise "principal and profits" predetermined
upfront before a contract is signed.
compounding calculation i.e. to conventional practice of "interest
upon interest" element is strictly prohibited under Islamic banking
ISLAMIC BANKING TERMINOLOGY
1) Mudarabah (profit sharing)
Mudarabah is an arrangement between the bank, or a capital provider, and an
entrepreneur, whereby the entrepreneur can mobilize the funds of the former for
its business activity. Profits made are shared between the bank and the
entrepreneur according to predetermined ratio. In case of loss, the bank loses
the capital, while the entrepreneur loses his provision of labor. It is this financial
risk, according to the Shariah, that justifies the bank's claim to part of the profit.
The profit-sharing continues until the loan is repaid.
2) Musharakah (joint venture)
Musharakah is a relationship between two parties or more, of whom contribute
capital to a business, and divide the net profit and loss pro rata. This is often
used in investment projects, letters of credit, and the purchase or real estate or
3)Qard hassan/ Qardul hassan (good loan/benevolent loan)
This is a loan extended on a goodwill basis, and the debtor is only required to
repay the amount borrowed. However, the debtor may, at his or her
discretion, pay an extra amount beyond the principal amount of the loan (without
From this Project I learnt the following points
Learnt the process how Investment banker approach
or deal IPO and M&A For their client
How important role they play for the economy.
Who is the Top banker in Global and in India?
Learnt about the Porter Five Forces.
And went through the Top 2 conglomerate companies
Learnt about how Basel Norms plays a vital role in
Indian banking against the Global standards.
How Islamic Banks function and their role