PROGRAM MBA
SUBJECT CODE & NAME MA0043 CORPORATE BANKING
1. “A commercial bank follows
certain sound principles to ensure safety and security of its funds invested as corporate advance while
planning a reasonable return also” In the light of above explain the uniformly accepted
principles of lending.
Ans- Principles of lending to corporate sector
The banking business
operates on certain sound principles to ensure the safety and security of funds
and at the same time derive reasonable revenue from the operations as banks are
commercial in nature. The uniformly accepted principles of lending are:
(a) Principle of Safety: The principle of safety explains timely
recovery of principal and interest of the loans extended for various types of
borrowers. This equally applies to all other investments. It is also important
that adequate security remains intact throughout while the liability remains outstanding.
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2 . “Two important sources of working capital fiancé for a commercial
firm are : Consortium finance and Loan
syndication”. Elaborate.
Ans- Consortium finance
Under
this arrangement, several banks (or financial institutions) finance a singl borrowing
firm with common appraisal, common documentation, joint supervision and
follow-up exercises. A large bank approaches the client, collects the
information about amount of loan,terms and conditions and then calls a meeting
of other banks. Those who agree to lend the money, approach the client and the
client fixes up the loan with each of them separately. The follow-up and other
jobs are done by the lead bank (the larger bank that arranges the deal, monitors
the accounts and conducts the proceedings is called the lead bank) of the
consortium which is mutually decided upon by the participating banks. Generally,
the lead bank has major shares in the consortium loan. The borrower avails
credit facility at one place i.e. with the lead bank. The loan documents are executed
at the lead bank. The lead bank regularly
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3. “Factoring and Forfeiting are
still nascent in India” Do you agree ? Substantiate if you agree or disagree. How will you differentiate
between Factoring and Forfeiting ?
Ans- Factoring
Factoring is an
external source of finance used for meeting short-term financial requirements
of the corporate sector. Under this process, the supplier of goods or services
endorses receivables in favour of the factor and receives advance payment.
‘Factor’ is an organization exclusively promoted for this purpose. The factor
can be promoted by a bank, financial institution or a private corporate
sector firm.
Definition
Factoring
can be broadly defined as an agreement in which receivables arising out of sale
of goods and services are sold by the firm or corporate client to a factor
(financial intermediary) as a result of which the title to the goods and services
represented by the receivables passes to the factor. Subsequently, the factor
becomes responsible for all credit control, sales accounting and debt collections
from the
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4. Describe the loan pricing
mechanism as per the RBI guidelines.
Ans- Loan Pricing Mechanism
The loan
price depends on cost of funds to an individual bank, operating cost, risk
premium for the type of loan and advance, expected profit margin of the bank etc.
The cost of funds to a bank include the components such as interest paid on
deposits, interest paid on borrowings availed from other organizations, dividend
payment on equity and any other cost incurred in raising the resource. The
total interest paid on deposits depends on the deposit mix of a particular bank
i.e., the proportion of different deposits in total deposits (current deposits,
savings deposits and term deposits). Higher the proportion of low/no interest deposits,
lower will be the cost of fund to the bank. Similarly, cost of borrowing also
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5. How do
you perceive the
Basel Committee accords
on risk management
? Do you
think Basel –III accord is an improvement over Basel-II
? What are the impediments of Indian banks, if any, to migrate to Basel-III ?
Ans- Basel Committee on Risk Management
Banking
regulations aim at improving the safety of banking industry, providing common
benchmarks for all banks and promoting sound business and supervisory
practices. Regulation leads to pre-emptive action against bank failures, by
imposing capital requirements in line with banks’ risks. Globalization of the
banking industry has created a strong interrelationship in the risks faced by
banks in different countries. Local supervisory authorities are not able to
ensure protection against the risks arising out of international linkages.
There is, therefore, a need to have common benchmarks for all players across
the
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6. Explain the hedging strategies
adopted by the firms through use of derivatives to minimize the risk of foreign
exchange volatility.
Ans- The Hedging Strategies
The important hedging
strategy adopted by the firms is the use of derivative instruments. A
derivative is explained as a financial contract, the value of which is derived
from any other financial asset’s value (known as underlying asset), e.g.,
commodity price, exchange rate, stock price, interest rate, price index, and so
on. The derivatives reallocate risk among financial market participants. Here, you
will come to know about the hedging strategies used via derivatives for foreign
exchange exposure.
(i) Forwards: A forward contract is an
agreement between two parties to sell or purchase a particular amount of a
currency at a fixed rate on a specific future date. In this case, the
depreciation of the receivable currency is hedged against loss by selling a
currency forward. This will minimize the risk of
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SUBJECT CODE & NAME MA0044 INSTITUTIONAL BANKING
1. Explain the changing face of
DFIs in India with special reference to NABARD.
Ans- Changing Face of DFIs in India
Getting access to
finance presents a challenge to companies and the rural people in a developing country like India,
especially for SMEs who want to raise funds
for the establishment
of a new
unit or for modernisation/
expansion of an existing unit. This gives rise to a problem referred to as “the
missing middle” –
those businesses with perhaps the greatest potential to row
and create jobs
are the ones
that have the
least access to the
investment.
DFIs are
government-controlled institutions that invest in sustainable private sector
projects with the
twofold objective of
spurring development in emerging
economies while themselves remaining
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2.“According to the report of All India Census of SSIs, 35 % of the SSIs
were closed due to severe financial
crisis” In the light of above illustrate the challenges faced by financial institutions to finance small scale sector.
Can you cite some of the measures taken by the government to address the challenges faced in
financing MSMEs ?
Ans- Challenges in Financing SSIs
According to the report
of All India Census of SSIs, 35% of the
SSIs were closed due to financial problems.
The following
are some of the challenges
faced by the
DFIs/banks with respect to
financing in small-scale sector.
Preparation
of project proposal
– Entrepreneurs experience
many difficulties in
formulating the project proposal which
is required first for raising
financial assistance from the banks/the government. Collection of data
takes a lot
of time. NSIC
is now assisting
small industries in successfully
achieving this first step.
Quantum of
loan sanctioned –
Quantum of loan
sanctioned is inadequate and
there is
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3. What do
you understand by
securitization of housing
finance ? How
would you explain bankruptcy-remoteness and insolvency regulations
of SPV (Special purpose vehicle) ?
Ans- Securitisation of housing loans
A loan is a simple
financial transaction in which a borrower wants money, and a lender offers it and collects interest.
This arrangement continues until the
loan is repaid. In some cases, however, the borrower may be unable or unwilling
to pay back
the loan. Secured
loans, where the
borrower offers collateral such as real estate, would
cater to such contingencies. In case
of a default, the creditors can seize
and sell the asset to recover their money.
What is securitisation?
Securitisation
is the process by which homogeneous illiquid financial assets are
pooled and re-packaged
into marketable securities
and sold to the
public. Transfer of mortgaged debt is
from an
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4. Describe the role of Export
Credit Guarantee Corporation of India in promoting export credit. Cite some of the policies and schemes
to address the imminent risks in export trade.
Ans- Export Credit Guarantee Corporation of
India Ltd. (ECGC)
ECGC was formed
by the GOI
under the administration of
Ministry of Commerce
and Industry to
provide insurance facilities
to exporters and banks
in India. The objectives of ECGC are as follows:
To
assist Indian exporters in
managing their credit
risks by providing timely information on worthiness of the
buyers, bankers and countries.
To protect
the Indian exporters
against unforeseen losses,
which may arise
due to the
failure of the
buyer, bank or
problems faced by the
country of the buyer by providing
cost-effective credit
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5. “Apart from DFIs and commercial
banks there are various other institutions carved to look into
the sectoral needs,
especially financial needs”.
Can you name
some of those
while specifying their roles ?
Ans- Role of Other Financial Institutions in
India
Apart from DFIs and
commercial banks, there are
various other institutions carved out to
look into the sectoral needs, more specifically, financial needs. Let us look at some of these institutions.
Power Finance Corporation Limited (PFC)
The PFC was formed with
an objective to provide financial assistance to the power and its allied sectors and
also to act as a catalyst for bringing about institutional
improvements in the
functions of the
borrowing power sector companies. It helps in the optimum utilisation
of the resources available and
mobilisation of
resources from both
within and outside
India. PFC is registered as
a NBFC under
the RBI Act
and RBI has
classified it as an “Infrastructure Finance
Company.” In 1990,
this
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6. “The World Bank is supporting
the Government of India in its effort to achieve the National goal”. Enumerate.
Ans- World Bank Assisted Project in India
The Ganga is India's
most important river. It’s sprawling basin accounts for one-fourth of the country's water resources
and is home to more than 400 million
Indians - or some one-third of India's population.
The
river's 2,500 km journey from its
glacial source in the Himalayas to its enormous fan-shaped delta in the Bay of Bengal traverses five
Indian states along the mainstream, enriching huge
swathes of agricultural
plains, and sustaining
a long procession
of towns and
cities. As India's
holiest river, the
Ganga has a cultural and
spiritual significance that
far transcends the
boundaries of its basin. It
is worshipped as a living
goddess, and since
time immemorial, people
from across the
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SUBJECT CODE & NAME MA0046 MERCHANT BANKER
1. “Every merchant
banker in India
has to comply
with the General
Obligations and esponsibilities” as mandated in the SEBI Act
1992. Enumerate the extant guidelines.
Ans- General Obligations and Responsibilities
1. Code of Conduct for Merchant Bankers
The code of conduct for
merchant bankers is under the heading of General Obligations and
Responsibilities in the SEBI Act 1992. Every merchant banker shall abide by the
code of conduct as specified in the Act. These guidelines are as follows:
1.
Merchant banker cannot associate with any business other than that of the
securities market. No merchant banker, other than a Bank or a Public Financial
Institution, who has been granted a certificate of registration under these
regulations, shall carry on any business other than that in the securities
market. Despite anything contained above, a merchant banker who prior to the
date of notification of
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2. How will
you differentiate between
ADRs and GDRs ?
Identify the specific
role players involved in making the global issue successful.
Ans- Differences between ADRs and GDRs
The following are the
main differences between ADRs and GDRs. 
ADR is
the method that many established companies adopt with the aim of raising funds
from the American markets. When it comes to raising funds in the Indian market,
Indian companies may do so in a direct manner. However, when it comes to
raising funds in the American market, Indian companies
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3.
You have been appointed as “Manager, Non-fund based services” in a
premier merchant bank. Can you perceive
the kind of portfolios you may have to deal with ?
Ans- Non-fund services/fee-based services:Fee-based financial services
are those services where financial institutions function in specialized fields
to make a considerable income in the form of fees or dividends or brokerage on
operations.
These include the
following services:
•Credit rating
•Portfolio management
•Loan syndication
•Mergers and
acquisitions
•Merchant banking and
Issue management
•Investment advisory
and management services
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4. “The benefits
of bancassurance is
extended not only
to the banking
and insurance companies but
also to their
customers”. Elaborate the
statement referring to
the extant regulations of bancassurance in India.
Ans- The following are the some of the benefits of bancassurance to the
banks and insurance companies:
(i) Increase in the
income of banks.
(ii) Easy access to
prospective clients by the insurance companies.
(iii) Insurance
products can be sold at a low price.
(iv) The distribution
network of banks is much wider than insurance companies.
(v) Banks can use their
manpower and other resources in a more efficient way.
(vi) Banks have more
marketing and processing capabilities.
(vii) Banks have a huge
customer database and insurance companies can use it for selling their
insurance products.
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5. As a financial consultant
advise your client regarding the differences
between mergers and acquisitions.
Cite also the acts, regulations and guidelines related to mergers, acquisitions
and takeovers.
Ans- Mergers
Merger is the combining
of all the assets and liabilities of two or more businesses where only one of
the businesses survives. The company which ceases to exist is known as the
transferor company and the company which remains in existence is known as the
transferee company. A merger has the following
features:
(i) Shareholders of the
selling company become shareholders of the buying company and an exchange ratio
is determined to find out how many shares of the buying company will
shareholders get in exchange for their shareholdings in the selling company.
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6. “A credit rating agency only
facilitates the investors to decide and prioritize based on the ranks assigned to various debt instruments and
the corporates floating those instruments”. Elucidate the statement.
Ans- Concept of Credit Rating
Credit rating is a
financial service provided by an approved body which rates the various
securities of a company according to a set model. Various symbols are assigned
to various securities according to default rate
risk involved in that debt security. Default risk is associated with the
capability of acompany to make regular payment of interest on any loan taken by
it and timely repayment of the
principal
amount. Further, it must be noted that neither a credit rating agency ensures
the guarantee of any financial performance of
a company nor it ensures against price risk, interest risk or exchange
rate risk. It means if a debt instrument is rated very good then it does not
mean that the investor will be able
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