FINANCIAL MARKETS AND FINANCIAL SERVICES

APPENDICES

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Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Appendices

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Appendices

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Appendices

Common Credit Problems

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Lack of or a deficient credit culture Large borrowers, to which banks have large exposure, that encounter serious difficulties or become marginal for one reason or another Moderate-size borrowers, when hog chunks of borrowing are involved, that increase borrower leverage significantly Small one-way-out borrowers, overleveraged from the start, and using bank money as equity Poorly policed asset growth or repayment dependent on continued economic and profit growth

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Appendices

a. b. c. d. e.

Pre-sanction appraisal of a loan proposal. Bankers have evolved sound principles of lending. Acceptable Borrower Acceptable Business Acceptable Purpose Acceptable Repayment Programme Acceptable Security

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Appendices

The Concept
Over The Counter of India Exchange (OTCEI) is a ringless and electronic national stock exchange. OTC exchange has a nationwide reach. The market is spread across the country through numerous counters of the operators of the exchange. Small and medium sized companies with a paid-up capital between Rs. 30 lakhs and Rs. 10 crore can be enlisted. However, the maximum limit has now been raised to Rs. 25 crore. The minimum public offer should be 40% of the issued capital or Rs. 20 lakh worth of shares in face value, whichever is higher. OTCEI deals in equity shares, preference shares, bonds, debentures and warrants. OTC trading will be by way of negotiated bidding. As opposed to the traditional ring in the stock exchange, the trading here will be screen based. Transactions would take place through satellite communication telephone lines. Companies covered under the MRTP/FERA may be listed on the OTC, only if they have a minimum issued equity capital of Rs. 300 lakh. A company which is listed on any other recognised stock in India will not simultaneously be eligible for listing on the OTCEI.
Himalaya Publishing House Financial Markets and Financial Services Vasant Desai

1. 2. 3.

4.
5. 6. 7. 8.

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Advantages or OTCEI a. For the Investor i. In the stock exchange, there is no transparency in the transaction and investors do not come to know what price the scrip was bought or sold at, whereas on the OTCEI, investors have access to current prices of all scrips being traded on the PTI scan display. The computerised trading on the OTCEI will provide greater confidence of trading. ii. Definite liquidity is ensured to investors. iii. Automatic registration of shares lodged by an individual upto 0.5% of its total paid up equity. iv. A transaction in the stock exchange takes upto six months to be completed, whereas on the OTCEI, all transactions would be completed within 7 days. v. Investors may get greater sense of security because all the scrips have been researched and members have themselves been willing to invest in these scrips.

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Appendices

b. For the Company i. If a company wants to raise funds immediately, it can pledge its equity with the sponsor and thereby reduce interest cost. ii. The company at one go gets a nation-wide listing. iii. The cost of the public issue also comes down as costs reacting to the stipulation regarding the number of the form prospectuses to be printed, number of collection centres to be appointed, publicity requirements, marketing costs, involvement of advisors, managers, co-managers, underwriters, etc., are reduced. iv. Since OTC companies are required to dilute only 40%, therefore the possibility of takeovers is substantially reduced. At the same time, public participation is involved, which helps to raid money from capital markets directly. v. Wealth tax is saved as no such tax is levied in respect of net wealth of any widely held industrial company. Also the rate of income tax would be lower in such a case.

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Appendices

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Appendices

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Appendices

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Appendices

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Appendices

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai