Amity Campus

Uttar Pradesh
India 201303

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ASSIGNMENTS
PROGRAM: MFC
SEMESTER-II
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INSTRUCTIONS
a) Students are required to submit all three assignment sets.
ASSIGNMENT
Assignment A
Assignment B
Assignment C

DETAILS
Five Subjective Questions
Three Subjective Questions + Case
Study
Objective or one line Questions

b)
c)
d)
e)

MARKS
10
10
10

Total weightage given to these assignments is 30%. OR 30 Marks

All assignments are to be completed as typed in word/pdf.
All questions are required to be attempted.
All the three assignments are to be completed by due dates and need to be
submitted for evaluation by Amity University.
f) The students have to attached a scan signature in the form.

Signature :
Date
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( ) Tick mark in front of the assignments submitted

Assignmen
Assignment
Assignment
t A
B
C

Financial Services
ASSIGNMENT- A
Attempt these five analytical questions
Q1.

What do you do you understand by the term Credit Rating Agency? Explain their major function?

A credit rating agency (CRA) is an independent company that evaluates the financial conditions of issuers of
debt instruments and then assigns a rating that reflects its assignment of the issuers ability to make the debt
payments. The CRA assigns credit ratings for issuers of certain types of debt obligations as well as the debt
instruments themselves. In some cases, the servicers of the underlying debt are also given ratings. In most cases,
the issuers of securities are companies, special purpose entities, state and local governments, non-profit
organizations, or national governments issuing debt-like securities (bonds) that can be traded on a secondary
market. A credit rating for an issuer takes into consideration the issuer's credit worthiness (i.e., its ability to pay
back a loan) and affects the interest rate applied to the particular security being issued.
Below are some of the CRA that operate around the world
1841- Merchantile Credit Agency (USA)
1900- Moodys Investors Services (USA)
1916- Poor Publishing Company (USA)
1922- Standard Statistics Company (USA)
1924- Pitch Publishing Company (USA)
1941- Standard and Poor (USA)
1074- Thomson Bank Watch (USA)
1975- Japanese Bond Rating Institution (JAPAN)
1987- CRISIL by ICICI (INDIA)
1991- ICRA by IFCI (INDIA)
1994- CARE by IDBI (INDIA)
Credit ratings are intended to provide a long-term view of creditworthiness based on fundamental analysis.
Unlike market-based indicators such as bond spreads or credit default swap prices, ratings do not reflect market

sentiment or the dynamics of supply and demand. In other words, they are not a trader's view of credit risk.
They don't address asset value nor do they speak to the liquidity of a security. They aren't a buy or sell
recommendation. Ratings address only one aspect of a debt instrument-credit quality. Below are some of the
functions of CRAs:
Estimation of Risk Premiums: CRAs provide ratings which are used by various lenders such as banks and
financial institutions in determining the risk premium they will charge on loans and corporate bonds. A poor
credit rating implies a higher risk premium with an increase in the interest rate charged to corporations and
individuals with a poor credit rating. Issuers with a good credit rating are able to raise funds at a lower interest
rate.
Enhanced Transparency in the Credit Markets: The credit rating agencies provide improved efficiency in
the credit markets and allow for more transparency in dealings. The ratings help monitor the credit soundness of
various borrowers through a set of well-defined rules.
Standardization of the Evaluation Process: Most CRAs use their own methodology for determining credit
ratings, but since only a handful of popular credit rating providers exist, this adds a great deal of standardization
in the rating process. The credit ratings of different borrowers can be easily compared using ratings provided by
a credit rating company and the applications can be easily sorted.
Development of Financial Markets: CRAs help provide risk measures for various entities and make it easier
for financial market participants to assess and understand the credit risk of the parties involved in the investing
process. Individuals can get a credit score in order to be eligible for easy access to credit cards and other loans.
Institutions can borrow money easily from banks without having to go through lengthy evaluations from each
individual lender separately. Also corporations and governments can issue debt in the form of corporate bonds
and treasuries to attract investors based on the credit ratings.
Credit Rating Agencies Help Regulate Financial Markets: The credit ratings provided by popular CRAs
such as Moody's, Standard and Poor's and Fitch, have become a benchmark for regulation of financial markets.

Legal policies require certain institutions to hold investment graded bonds. Bonds are classified to be
investment graded based on their ratings by these agencies, any corporate bond with a rating higher than BBB is
considered to be investment graded bond.

Q2.

What do you mean by Book Building? Explain the types of Book-Building?

Companies have different ways and options to raise funds. An unlisted company can come out with an initial
public offer (IPO) while a listed firm can raise through follow on public offer (FPO) or rights issue. IPOs or
FPOs can be issued either at a fixed price or a range can be given to investors to choose a price. The
methodology of issuing securities by giving a price range is known as book building method. Book building is a
price discovery mechanism where the issuers do not fix up a single price for the securities but provide a price
range. Investors put their bid within the price range and depending on the demand and supply of the units, the
final price is decided. The lowest price of the range is called the floor price and the highest price is called as cap
price. Cut off price is the price at which the shares are allotted.
SEBI guidelines have defined Book Building as "a process undertaken by which a demand for the securities
proposed to be issued by a body corporate is elicited and built-up and the price for such securities is assessed for
the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement,
document or information memoranda or offer document". Book Building is basically a process used in Initial
Public Offer (IPO) for efficient price discovery. It is a mechanism where, during the period for which the IPO is
open, bids are collected from investors at various prices, which are above or equal to the floor price. The offer
price is determined after the bid closing date.
According to the SEBI guidelines there are types of book building and these are 100% book building and 75%
book building.
75% Book Building Process: The option of book-building is available to all body corporate which are eligible
to make an issue of capital to the public as an alternative and to the extent of the percentage of the issue, which
can be reserved for firm allotment. The issuer company can either reserve the securities for firm allotment or

issue them through book - building process. The issue of securities through book-building route should be
separately identified/ indicated as placement portion category in the prospectus. The securities available to the
public should be separately identified as net offer to the public. The requirement of minimum 25% of the
securities to be offered to the public is also applicable. Underwriting is mandatory to the extent of the net offer
to the public. The draft prospectus containing all the details except the price at which the securities are offered
should be filed with SEBI. The issuer company should nominate one of the lead merchant bankers to the issue
as book runner, and his name should be mentioned in the prospectus. The copy of the draft prospectus, filed
with SEBI, should be circulated by the book runner to the institutional buyers, who are eligible for firm
allotment, and to the intermediaries, eligible to act as underwriters inviting offers for subscription to the
securities.
100% Book Building Process: In an issue of securities to the public through a prospectus, the option for 100%
book building is available to any issuer company. The issue of capital should be Rs. 25 crore and above.
Reservation for firm allotment to the extent of the percentage specified in the relevant SEBI guidelines can be
made only to promoters, permanent employees of the issuer company and in the case of new company to the
permanent employees of the promoting company. It can also be made to shareholders of the promoting
companies, in the case of new company and shareholders of group companies in the case of existing company
either on a competitive basis or on a firm allotment basis. The issuer company should appoint eligible merchant
bankers as book runner(s) and their names should be mentioned in the draft prospectus. The lead merchant
banker should act as the lead book runner and the other eligible merchant bankers are termed as co-book runner.
The issuer company should compulsorily offer an additional 10% of the issue size offered to the public through
the prospectus.

Q3.

What do you mean by hire purchase?

Hire purchase is a method of sale where goods are let out on hire by a creditor (usually a finance company) to
the hire purchase customer (hirer) who is required to pay an agreed amount in periodical installment. The
ownership of the property remains with creditor and passes on to hirer on the payment of the last installment.

According to the hire purchase act of India 1972 a hire purchase agreement is 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
agreement under which payment is to be made in installments over a specified period. Possession is transferred
to the purchaser at the time of entering into the contract while ownership in goods transfers to the purchaser on
payment of the last installment. Each installment is treated as hire charges so that if default is made in payment
of any one installment the seller is entitled to take away the goods. The hirer is free to return the goods without
being required to pay any further installment falling due after the return.
The following are the features of a hire purchase agreement
Under hire purchase system, the buyer takes possession of goods immediately and agrees to pay the total
hire purchase price in installments.
Each installment is treated as hire charges.
The ownership of the goods passes from the seller to the buyer on the payment of the last installment.
In case the buyer makes any default in the payment of any installment the seller has right to repossess
the goods from the buyer and forfeit the amount already received treating it as hire charges.
The hirer has the right to terminate the agreement any time before the property passes. That is, he has the
option to return the goods in which case he need not pay installments falling due thereafter. However, he
cannot recover the sums already paid as such sums legally represent hire charges on the goods in
question.

Q4.

What do you mean by Consumer Credit? Explain the types of Consumer Credit?

Consumer credit is a way for people who spend money on products to get an advance on the money required to
pay for the goods. The most common example of consumer credit is a person using a credit card. He uses the
credit card to pay for goods and services and then he repays the credit card company at a future date. Consumer
credit is an amount of credit used by individuals to buy products, such as goods and services and is used as an
advance which is required to pay for the purchases. The purchase of goods and services involve housing loans,
education, cars and many more. It is also referred to as a consumer debt. An individual repay the amount to
credit card companies at a set future date. There are three types of consumer credit and the following is an
explanation of the three types of consumer credit:

Non-Installment Credit: Non-installment credit is offered for short term use usually for a period of one month
and an individual is required to pay back the money before the expiry of credit period given to him. It is
the simplest type of consumer credit among the three. An individual has to pay a lump sum amount of
credit instead of making monthly payments of a specified figure. Depending on the company which is
offering the credit, non-installment credit can also be secured or unsecured and is a good choice for those
individuals who find it hard to make regular repayments after a fixed interval.
Installment Closed-End Credit: Installment closed-end credit is used for a defined time period and amount.
This type of credit is for specific purposes and allows consumers to purchase a single item or a few
commodities. Repayments on this type of consumer credit are usually made in equal installments.
Installment closed-end credit is also called a non-revolving credit and in times of recession, the amount of
this type of credit remains relatively same and does not decline. The amount of goods and services
purchased is paid in full along with the interest payment within a specified period of time. Mortgage
loans, home loans, business loans and car loans are some of the good examples of installment closedend credit. Companies and stores usually retain the title of goods and services sold until full payment is
made because if a consumer defaults, a seller can repossess the property. The credit does not go beyond
the sale price of a property and a person pays credit in installments instead of paying it back in lump sum
amount.
Revolving Open-End Credit: Revolving open-end credit is a type of consumer credit typically found in
most credit cards. This means that you are given a credit limit by credit card companies and a consumer
must repay a part of credit at the end of a credit period. The payment consists of the amount actually
borrowed plus the interest charge. The period is usually about one month and if an individual does not pay
the debt in full, a higher interest rate will be charged to him. A person has a specific amount of credit he or
she can use or not use for different purchases. However, this type of consumer credit does not close until
credit card companies offering the credit choose to close the account. This is what makes it a revolving
credit as it usually does not close. Revolving open-end credit is designed to be used repeatedly, with a

predefined credit limit approved by credit card companies. Common examples of revolving-open end
credit are credit cards and home-equity line of credit.
Q5.

What do you understand by Venture Capital? Explain the scope of Venture Capital?

Venture capital is the capital provided by firms of professionals who invest alongside management in young,
rapidly growing or changing companies that have the potential for high growth. Venture capital is a form of
equity financing especially designed for funding high risk and high reward projects. There is a common
perception that venture capital is a means of financing high technology projects. However, venture capital is
investment of long term finance made in:
Ventures promoted by technically or professionally qualified but unproven entrepreneurs
Ventures seeking to harness commercially unproven technology,
High risk ventures.
The term venture capital represents financial investment in a highly risky project with the objective of earning a
high rate of return. While the concept of venture capital is very old the recent liberalization policy of the
government appears to have given a boost to the venture capital movement in India. In the real sense, venture
capital financing is one of the most recent entrants in the Indian capital market.
There is a significant scope for venture capital companies because of increasing emergence of technocrat
entrepreneurs who lack capital to be risked. These venture capital companies provide the necessary risk capital
to the entrepreneurs so as to meet the promoters contribution as required by the financial institutions. In
addition to providing capital, venture capital firms take an active interest in guiding the assisted firms. A young,
high tech company that is in the early stage of financing and is not yet ready to make a public offer of securities
may seek venture capital. Such a high risk capital is provided by venture capital funds in the form of long-term
equity finance with the hope of earning a high rate of return primarily in the form of capital gain. In fact, the
venture capitalist acts as a partner with the entrepreneur. Thus, a venture capitalist (VC) may provide the seed
capital for unproven ideas, products, technology oriented or startup firms. The venture capitalists may also
invest in a firm that is unable to raise finance through the conventional means.
Features of Venture Capital

Venture capital combines the qualities of a banker, stock market investor and entrepreneur in one. The main
features of venture capital can be summarized as follows:
High Degrees of Risk: Venture capital represents financial investment in a highly risky project with the
objective of earning a high rate of return.
Equity Participation: Venture capital financing is, invariably, an actual or potential equity participation
wherein the objective of venture capitalist is to make capital gain by selling the shares once the firm becomes
profitable.
Long Term Investment: Venture capital financing is a long term investment. It generally takes a long period to
Ancash the investment in securities made by the venture capitalists.
Participation in Management: In addition to providing capital, venture capital funds take an active interest in
the management of the assisted firms. Thus, the approach of venture capital firms is different from that of a
traditional lender or banker. It is also different from that of a ordinary stock market investor who merely trades
in the shares of a company without participating in their management. It has been rightly said, venture capital
combines the qualities of banker, stock market investor and entrepreneur in one.
Achieve Social Objectives: It is different from the development capital provided by several central and state
level government bodies in that the profit objective is the motive behind the financing. But venture capital
projects generate employment, and balanced regional growth indirectly due to setting up of successful new
business.
Investment is liquid A venture capital is not subject to repayment on demand as with an overdraft or following
a loan repayment schedule. The investment is realized only when the company is sold or achieves a stock
market listing. It is lost when the company goes into liquidation.

Assignment B
Q1.

What do you mean by Financial Services? Mention in brief following types of financial services?

Financial services refer to services provided by the finance industry. The finance industry encompasses a broad
range of organizations that deal with the management of money. Among these organizations are banks, credit
card companies, insurance companies, consumer finance companies, stock brokerages, investment funds and
some government sponsored enterprises. The term financial service in a broad sense means mobilizing and
allocating savings. Thus it includes all activities involved in the transformation of savings into investment. The
financial services can also be called financial intermediation. Financial intermediation is a process by which
funds are mobilized from a large number of savers and make them available to all those who are in need of it
and particularly to corporate customers. Thus, financial services sector is a key area and it is very vital for
industrial developments. A well-developed financial services industry is absolutely necessary to mobilize the
savings and to allocate them to various invest able channels and thereby to promote industrial development in a
country. The financial intermediaries in India can be traditionally classified into two: Capital Market
intermediaries and Money market intermediaries. The capital market intermediaries consist of term lending
institutions and investing institutions which mainly provide long term funds. On the other hand, money market
consists of commercial banks, co-operative banks and other agencies which supply only short term funds.
Hence, the term financial services industry includes all kinds of organizations which intermediate and facilitate
financial transactions of both individuals and corporate customers. The functions of financial services among
others include;
Facilitating transactions exchange of goods and services in the economy.
Mobilizing savings for which the outlets would otherwise be much more limited.

Allocating capital funds notably to finance productive investment.

Monitoring managers so that the funds allocated will be spent as envisaged.

Transforming risk and reducing it through aggregation and enabling it to be carried by those more
willing to bear it.

There are two types of financial services. These are asset or fund based financial services and non-fund or fee
based financial services.
In asset or fund based financial services the firm raises funds through debt, equity, deposits and the bank invests
the funds in securities or lends to those who are in need of capital. The services include leasing and hire
purchase, housing finance, credit cards, venture capital, factoring, forfeiting and bill discounting.
On the other hand the non- fund or fee based financial services are services wherein financial institutions
operate in specialized fields to earn a substantial income in the form of fees or dividends or brokerage on
operations. The major fee based financial services are issue Management, corporate advisory services, credit
rating, mutual funds, asset securitization and stock broking services.

Q2. What do you mean by Initial Public Offer? Explain the different type of entry norm to make an IPO?
Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of securities or an offer
for sale of its existing securities or both for the first time to the public. IPOs generally involve one or more
investment banks known as "underwriters". The company offering its shares, called the issuer, enters a contract
with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to
sell these shares. A company can raise money by issuing either debt or equity. If the company has never issued
equity to the public, it's known as an IPO.
SEBI has laid down eligibility norms for entities accessing the primary market through public issues. The main
entry norms for companies making a public issue (IPO or FPO) are summarized as under: There are three types
of entry norms
In the first entry norm, the company shall meet the following requirements:

Net Tangible Assets of at least Rs. 3 crores for 3 full years.

Distributable profits in at least three years
Net worth of at least Rs. 1 crore in three years
If change in name, at least 50% revenue for preceding 1 year should be from the new activity
The issue size does not exceed 5 times the pre- issue net worth To provide sufficient flexibility and also
to ensure that genuine companies do not suffer on account of rigidity of the parameters, SEBI has

provided two other alternative routes to company not satisfying any of the above conditions, for
accessing the primary Market, as under:
In the second entry norm, the company shall meet the following requirements:
Issue shall be through book building route, with at least 50% to be mandatory allotted to the Qualified
Institutional Buyers (QIBs).
The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory marketmaking for at least 2 years
In the third entry norm, the company shall meet the following requirements:
The project is appraised and participated to the extent of 15% by FIs/Scheduled Commercial Banks
of which at least 10% comes from the appraiser(s).
The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory marketmaking for at least 2 years.
In addition to satisfying the aforesaid eligibility norms, the company shall also satisfy the criteria of having at
least 1000 prospective allotees in its issue
Q3.

What do you mean by Leasing? Explain the different type of leasing?

Leasing is a method of financing the cost of an asset. It is a contract in which a specified asset or equipment
required by the lessee is purchased by the lessor (financier) from a manufacturer or vendor selected by the
lessee. The lessee has the possession and use of the asset on payment of the specified rental over a predetermined time. Lease financing is, thus a device of financing or money lending. The real function of lessor is
not renting of asset but lending of funds or financing or extending credit to the borrower.
The lease has two parties to the contract who essentially are the financer or owner of asset called Lessor and
user of the asset called lessee. In some instances there could be a leaseholder or a broker who works as an
intermediary in arranging lease finance deals, in case of exposure to large funds. Apart from above three there
are some times lease-financers who refinances the lessor (owner).
In a lease finance deal, the ownership of assets vests with the lessor and its use is allowed to the lessee. Upon
the expiry of the lease tenure, the asset reverts to the lessor. The consideration which the lessee pays to the

lessor for the lease transaction is the lease rental. The lease rentals are structured in such way that the lessor is
compensated on the investment made in the asset (in the form of depreciation), the interest on the investment
and repairs, borne by the lessor and servicing costs over the lease period.
The term of lease is the period for which the agreement of lease remains in operations. Every lease should have
a definite period otherwise it will be legally inoperative. The lease can be renewed after expiry of the term.
Below are the different types of lease contracts available:
Finance Lease: A Finance lease is mainly an agreement for just financing the equipment or asset, through a
lease agreement. The lessor transfers to the lessee substantially all the risks and rewards incidental to the
ownership of the assets except for the title of the asset. In such leases, the lessor is only a financier and is
usually not interested in the assets. These leases are also called Full Payout Lease as they enable a lessor to
recover his investment in the lease and derive a profit. Finance lease are mainly done for such equipment or
assets where its full economic life is normally utilized by one user. Ships, aircrafts and wagons are usually
financed through this type of lease. Generally a finance lease agreement comes with an option to transfer of
ownership to lessee at the end of the lease period. Normally lease period is the major part of economic life of
the asset.
Operating Lease: An operating lease is one in which the lessor does not transfer all risks and rewards
incidental to the ownership of the asset and the cost of the asset is not fully amortized during the primary lease
period. The operating lease is normally for such assets which can be used by different users without major
modification to it. The lessor provides all the services associated with the assets and the rental includes charges
for these services. The lessor is interested in ownership of the asset as it can be lent to various users, during its
economic life. Examples of such lease are earth moving equipment, mobile cranes, computers and automobiles.
Sale and Lease Back: In this type of lease, the owner of an asset sells it to a leasing company (lessor) which
leases it back to the owner (lessee).
Direct Lease: In direct lease, the lessee and the owner of the equipment are two different entities. A direct lease
can be of two types: Bipartite and Tripartite lease.

 Bipartite lease: There are only two parties in this lease transaction, namely the equipment supplier-cumfinancer (lessor) and lessee. The lessor maintains the assets and if necessary, replaces it with similar
equipment in working condition.
Tripartite lease: In such lease there are three different parties the equipment supplier, the Lessor
(financier) and the lessee. In such leases sometimes the supplier ties up with financiers to provide
financing to lessee, as he himself is not in position to do so.
Single investor lease: This is a bipartite lease in which the lessor is solely responsible for financing part. The
funds arranged by the lessor (financier) have no recourse to the lessee.
Leveraged lease: This is a different kind of tripartite lease in which the lessor arranges funds from another
party linking the lease rentals with the arrangement of funds. In such lease, the equipment is part financed by a
third party normally through debt and a part of lease rental is directly transferred to such lender towards the
payment of interest and installment of principal.
Domestic Lease: A lease transaction is classified as domestic if all the parties to such agreement are domiciled
in the same country.
International Lease: If the parties to a lease agreement are domiciled in different countries, it is known as
international lease. This lease can be further classified as import lease and Cross border lease.
Import lease: In an import lease, the lessor and the lessee are domiciled in the same country, but the
equipment supplier is located in a different country. The lessor imports the assets and leases it to the
lessee.
Cross border lease: When the lessor and lessee are domiciled in different countries, it is known as cross
border lease. The domicile of asset supplier is immaterial.

CASE STUDY
Case study:
HSBC's Restructuring in India
Period: 1999-2004 Organization: HSBC India Pub Date: Countries: India Industry: Banking
Abstract:
The case discusses the operations of HSBC Group in India and the measures taken by
HSBC India in recent times to achieve a faster growth.
It discusses in detail the reorganization program launched by Booker, the CEO of HSBC
India to transform the conservative institution into an aggressive, performance-oriented
one.
The case discusses in detail various internal reorganization measures including the
introduction of new work principles, downsizing, organizational reshuffling and greater
focus on potential growth areas.
Background
The Hong Kong and Shanghai Banking Corporation Limited (HSBC) entered India as early
as 1959. Despite being one of the oldest and well-established foreign banks, HSBC had
been lagging behind local private sector banks and other foreign banks in India in terms
of business network and growth. HSBC's competitors and industry experts regarded it as
a conservative bank that lacked competitive spirit.
Commenting on HSBC, the head of direct sales of one of its rival banks said, "HSBC isn't
seen as being as aggressive as its rivals in the market. It has extremely good
relationships with its branch customers and serves them very well, but it is just not seen
as being aggressive in the rest of the market." HSBC's complacency was reflected in the
bank's financial performance.
Local private sector banks like ICICI and HDFC were far ahead of HSBC in all business
segments. When benchmarked against foreign banks, HSBC fared badly. HSBC's net
profits fell by over 25 per cent for two consecutive years in the fiscal 2000-01 and 200102, while rival banks like Citibank3 posted a rise of 37 per cent in profits for the same
period.
On November 2002, Niall S K Booker (Booker) was appointed Group Manager and Chief
Executive Officer (CEO) of the HSBC Group in India.
Booker soon realized that HSBC India followed a conventional approach to doing business
and retained its old bureaucratic structure and culture. He believed that the much
criticized laidback work culture was the reason for the lacklustre financial performance of
the bank.
Booker decided to transform the bank's work culture so that HSBC could shed its
bureaucratic and conservative image and gear up to face new challenges. He wanted
HSBC India to be proactive and aggressive like its competitors.
To achieve this, Booker concentrated on giving the bank a new direction by launching a
major restructuring program.

HSBC is a leading global player in the banking and financial services industry. It is the
third largest bank in the world in terms of market capitalization it provided a
comprehensive range of financial services, namely, personal financial services,
commercial banking, corporate investment banking, private banking and other related
businesses. HSBC was established in 1865 to finance the growing trade between Europe,
India and China. Scotland-born Thomas Sutherland (Sutherland), who worked for the
Peninsular and Oriental Steam Navigation Company, established the bank.
He found that there was considerable demand for local banking facilities in Hong Kong
and on the Chinese coast. Sutherland established a bank in Hong Kong in March 1865,
and another in Shanghai after a month. The banks' headquarters were at Hong Kong.
Soon, the bank opened branches around the world. The emphasis continued to be on
strengthening the presence in China and the rest of the Asia-Pacific region. By the end of
the century, HSBC emerged as the foremost financial institution in Asia.
World War I (1914-1919), however, brought disruption and dislocation for many
businesses. The 1920s saw a revival with HSBC opening more branches. During World
War II (1941-1945), the bank was forced to close many branches and its head office was
temporarily shifted to London. After the war, the headquarters was shifted back to Hong
Kong.
The post-war political and economic changes in the world compelled the bank to analyze
and reorient its strategy for continued business growth. The acquisition of the Mercantile
Bank and the British Bank of the Middle East (BBME) in 1959 laid the foundation for the
present day HSBC Group
HSBC in India
HSBC's origins in India could be traced back to October 1853, when the Mercantile Bank
of India, London and China was established in Mumbai.
Starting with an authorized capital of Rs 5 mn, the Mercantile Bank soon opened offices
in London, Chennai (India), Colombo, Kandy, Kolkata (India), Singapore, Hong Kong,
Canton and Shanghai.
In the next 10 decades, the Mercantile Bank steadily expanded its geographical network
and service offerings, keeping pace with the evolving banking and financial needs of
customers. The Mercantile Bank was acquired by the HSBC Group in 1959. The head
office of Mercantile Bank at the Flora Fountain building in Mumbai continued to be the
head office of the HSBC Group in India.
In the 1970s, HSBC decided to expand by acquisition and formation of its own
subsidiaries. HSBC introduced India's first automated teller machine (ATM) in 1987. In
2001, HSBC opened the first bank branch in Pune (Western India) that remained open all
365 days a year.
The Restructuring
On his appointment, Booker's approach was to focus on fine-tuning and executing
existing strategies, rather than experimenting with new plans. He intended to take it
slow and steady without radical changes.

He said that "the people issue" was very important to him. Therefore, the key
components of the restructuring programmers included introducing new work principles,
downsizing, organizational reshuffling and focus on new growth areas.
New Work Principles
HSBC's work culture was considered most bureaucratic among all foreign banks in India.
Reportedly, the top management had a laid-back attitude towards work. An insider said,
There is a bunch of people at the top who aren't very competent and who all play golf
together. It is basically an old boys' club.

The Benefits
The impact of the restructuring programme was reflected by the improved financial
performance of HSBC (Refer Exhibit IV and V for the financial highlights of HSBC).
For the financial year 2003-04, the assets per employee and net profit increased by 30
per cent; operating profit by 31 per cent and cost-to-income ratio came down from 47 to
43 per cent compared to the fiscal 2002-03. Personal financial services accounted for 36
per cent of total advances, against 31 per cent in the previous fiscal.
HSBC's retail assets doubled during this period from around a fourth to a third of its total
assets. HSBC expected that the retail business would grow by 40 per cent in the fiscal
2004-05. Home loans business grew by 100 per cent; and the branches' contribution
comprised 30 per cent
Looking Ahead
Notwithstanding the benefits reaped from the restructuring, HSBC was still a small player
in several financial services businesses including asset management, home loans, stock
broking, credit cards and retail banking in India.
For instance, HSBC Asset Management (India) Private Ltd. launched in December 2002,
had total assets under management amounting to Rs 540 bn by June 2004. Still, it was
only the 10th largest asset management company (AMC) in India. The slow growth of
advances was another problem for HSBC.
In the financial year 2003-04, HSBC's loan disbursals grew by just 4.67 per cent over the
financial year 2003 while for the same period, its competitors like Standard Chartered
and Citibank loan disbursals grew by 44 per cent and 11 per cent respectively. Moreover,
in spite of improved financial performance, the changes introduced by Booker did not go
well among top managers.

Question to review:Q.1 The need for old and well-established organizations to change their outlook and the way they operate
along with the changing times so as to compete with smaller, nimble-footed competitors successfully

There is indeed need for old and well-established organizations to change their outlook and the way they
operate along with the changing times so as to compete with smaller, nimble-footed competitors successfully.
The conservative style of doing business did not help Hong Kong and Shanghai Banking Corporation Limited
(HSBC). Having entered the Indian banking market as early as 1959 HSBC lagged behind to both the local
private sector banks and the other foreign banks in India in terms of business network and growth. HSBC's
competitors and industry experts regarded it as a conservative bank that lacked competitive spirit.
Despite the bank having extremely good relationships with its branch customers and serving them very well, the
head of direct sales of one of its rival banks acknowledged that HSBC was not seen as being as aggressive as its
rivals in the market. HSBC's complacency was reflected in the bank's financial performance. When
benchmarked against foreign banks, HSBC fared badly. HSBC's net profits fell by over 25 percent for two
consecutive years in the fiscal 2000-01 and 2001-02, while rival banks like Citibank posted a rise of 37 per cent
in profits for the same period. The laidback work culture, lack of a competitive spirit and the old bureaucratic
structure and culture never helped HSBC. Shedding off such an image and gearing up to face new challenges by
reviving a competitive spirit, the old and well-established organizations would position them to compete with
small nimble-footed competitors successfully.
Q.2 Examine the restructuring program implemented by HSBC India to revive its financial performance
On his appointment, Booker's approach was to focus on fine-tuning and executing existing strategies, rather
than experimenting with new plans. He intended to take it slow and steady without radical changes. Bookers
focus was not mainly market centred but was focused on correcting the laidback work culture and the old
bureaucratic structure and culture which he called "the people issue" that never helped HSBC. To address this
he had to restructure HSBC by introducing new work principles, downsizing, organizational reshuffling and
focus on new growth areas.
Q.3 Critically analyze the strategies adopted by Niall SK Booker to make HSBC India an aggressive,
performance-oriented organization

The strategies adopted by Niall SK Booker to make HSBC India an aggressive, performance-oriented
organization worked well. The impact of the restructuring programme was reflected by the improved financial
performance of HSBC. For the financial year 2003-04, the assets per employee and net profit increased by 30
percent; operating profit by 31 percent and cost-to-income ratio came down from 47 to 43 per cent compared to
the fiscal 2002-03. Personal financial services accounted for 36 percent of total advances, against 31 per cent in
the previous fiscal. HSBC's retail assets doubled during this period from around a fourth to a third of its total
assets. HSBC expected that the retail business would grow by 40 percent in the fiscal 2004-05. Home loans
business grew by 100 percent and the branches' contribution comprised 30 per cent. It seems that the people at
the top whom an insider said, There is a bunch of people at the top who aren't very competent and who all play
golf together, either bought into the New Work Principles introduced by Niall SK Booker or were laid in in the
process of downsizing. Despite all these gains Niall SK Booker and HSBC needed to sharpen the organisations
competitive edge to become a force in the Indian financial market.
Q.4Chart a growth strategy for HSBC India in the near future
The performance of HSBC after restructuring was still below the industry average as the other banks still
outperformed HSBC. For instance, HSBC Asset Management (India) Private Ltd. launched in December 2002,
had total assets under management amounting to Rs 540 bn by June 2004. Still, it was only the 10th largest
asset management company (AMC) in India. The slow growth of advances was another problem for HSBC.
In the financial year 2003-04, HSBC's loan disbursals grew by just 4.67 per cent over the financial year 2003
while for the same period, its competitors like Standard Chartered and Citibank loan disbursals grew by 44 per
cent and 11 per cent respectively. For HSBC to become a major player in the Indian financial market there is
need to chart a growth strategy for the organization. This can be achieved by securing a significant
organizational growth by tapping into new markets. Creating additional demand for a bank's products or
services, especially in a market where competition has yet to fully develop, would spur phenomenal growth for
a HSBC. This could be achieved by taking advantage of the organizations strength of having extremely good
relationships with its branch customers and serving them very well.

Creation of new products or services is a primary method by which companies grow. Indeed, new product
development is the fulcrum of most organizations' growth strategies. With presence within and outside the
country, HSBC could innovate new products and service while improving upon the old product portfolio. New
services such as factoring and forfaiting could be introduced while improving asset management services. The
top management still needed changes to be line with the current challenges.

ASSIGNMENT C
Q1.

Approval from which body is required to start Factoring in India ?

Q2.

a)Central Government
b)State Government
c)State Bank of India
d)Reserve Bank of India
How can Factoring help a Business ?

Q3.

a) Cash Inflow
b)Low Costing
c)Bad Debts Recovery
d)Increase Sales
Who is a Factor ?

Q4.

a)Buyer
b)Seller
c)Agent of Buyer
d)Agent of Seller
What kind of agreement do Factoring deals with ?
a)Cash Sales of Goods
b)Cash Sales of Fixed Asset
c)Credit Sales of Goods
d)Credit Sales of Fixed Asset

Q5.

An Invoice is valued at Rs.10,000 & the seller received Rs.9000.

So what is the Advanced Rate in consideration with Factoring ?

a)9 %
b)10 %
c)90 %
d)100 %
Q6.

Book
(a)
(b)
(c)
(d)

Building is a
method of placing an issue
method of entry in foreign market
price discovery mechanism in case of an IPO
none of the above

Q7.

Sell
(a)
(b)
(c)
(d)

Reliance Petro Shares at Rs 60 This order is a

Best rate order
Limit order
Discretionary order
Stop Loss Order

Q8.

Stock exchange helps in

(a)
fixation of stock prices
(b)
ensures safe and fair dealing
(c)
induces good performance by the company
(d)
all of the above

Q9.

Issue Management is a system under which concept of Management?

a)Human Resource Management
b)Financial Management
c)Project Management
d)System Management

Q10. ___________ 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.
a)Book building
b)Book keeping
c)Booking
d)Recording
Q11. What are the two types of obligations of merchant banker in issue
management?
a)Ex issue and pre issue
b)Pre issue and next issue
c)Pre issue and post issue
d)Post issue and next issue
Q12. The company shall ensure that:
a) The letter of offer, the public announcement of the offer or any other
advertisement, circular, brochure, publicity material shall contain true, factual and
material information and shall not contain any misleading information and must
state that the directors of the company accepts the responsibility for the
information contained in such documents.
b)the company shall not issue any shares including by way of bonus till the date of
closure of the offer made under these regulations
c) the company shall pay the consideration only by way of cash
d)All the above
Q13. What is IPO?

a)INITIAL PUBLIC OFFER

b)IN THE PUBLIC OFFER
c)INITIAL POSTAL OFFER
d)INTERNAL PUBLIC OFFER
Q14. Forex market deals with
(a)
multi currency
(b)
only domestic currency
(c)
none of the above
1. Q15. The _____________ of a company is the maximum amount of share capital that
the company is authorized by its constitutional documents to issue to
shareholders.
a)Authorized capital
b)Issued capital
c)Reserve capital
d)Paid up capital
Q16. The type of lease that includes a third party, a lender, is called:a.) Sale and leaseback
b.) Direct leasing arrangement.
c.) Leveraged lease.
d.) Operating lease.
Q17. Medium-term notes (MTNs) have maturities that range up to ?
a) one year.
b) two years.
c) ten years
d) thirty years (or more)
Q18. The term of the lease may be ?
a) Fixed
b) Periodic
c) Infinite Duration.
d) ANY OF THE ABOVE
Q19. Mutual funds are valued with help of their
(a)
NAVs
(b)
NFO
(c)
IPO

(d)

None of the above

Q20. The SEBI __________lays down the overall regulatory framework for registration and
operations of venture capital Funds in India.
a) The SEBI (Venture Capital Funds) Regulation, 1996[Regulations].
b) GUIDELINES.
c) NORMS.
d) RECOMMENDATIONS.
Q21. Right issue is:
(a)
issue of securities by issue of prospectus to the public
(b)
Securities are issued through some selected investors.
(c)
Selling securities in the primary market by issuing rights to the existing
shareholders.
(d)
None of the above
Q22. Private placement has following advantage:
(a)
Flexibility and high cost
(b)
Accessibility and speed
(c)
High cost and speed
(d)
Speed and complexity
Q23. Book
(a)
(b)
(c)
(d)

Building Process is completed with the help of a

Book runner
Underwriter
Registrar
Lead manager

Q24. What is FVCIs?

a) Foreign Value Capital Investors.
b) For Venus Capital Investors.
c) Foreign Venture Capital Investors
d) Foreign Venture Capital Institution.
Q25. Venture capital (also known as VC or Venture) is a type of _____ capital?
a) private equity .
b) Reserve.
c) Preference.
d) None of the above.
Q26. Total amount of called up share capital which is actually paid to the company by the
members is called
(a)
Subscribed capital
(b)
Called up capital
(c)
Paid up share capital
(d)
None of the above
Q27. A shares par value is Rs 10 but it is issued at Rs 20 , then extra amount over par
value is called
(a)
Coupon

(b)
(c)
(d)
Q28. Bad
(a)
(b)
(c)
(d)

Interest
Premium
None of the above
news about a company can pull down its stock prices. This is called
Market risk
Non market risk
Interest risk
Callable risk

Q29. Debt/Income funds invest in

(a)
Tax saving schemes
(b)
Money Market Instruments
(c)
High Rate fixed income bearing instruments
(d)
Both debt and equity
Q30. Mutual Funds investor can not earn following return
(a)
Dividend
(b)
Capital Gain
(c)
Increase in NAV
(d)
Fixed interest earning
Q31. When approaching a VC firm, consider their portfolio:?
a) Business Cycle: Do they invest in budding or established businesses?.
b) Industry: What is their industry focus?
c) Return: What is their expected return on investment?
d) All the above
Q32. Most venture capital funds have a fixed life of _____ years?
a) 10.
b) 20.
c) 30.
d) 40.
Q33. HIRE PURCHASE IS ALSO CALLED.?
a) Closed-end leasing.
b) PURCHASING.
c) CREDIT PURCHASE.
d) LEASING.
Q34. Balanced funds provide:
(a)
Steady return
(b)
High return
(c)
Increase volatility
(d)
None of the above

Q35. Stock exchanges should ensure:

(a)
Active trading and insider information
(b)
Active trading and transparency
Which of the following is true?
(a)
Both a and b
(b)
Only b
(c)
Only a
(d)
Neither a nor b
Q36. Merchant bankers do not indulge in following activities
(a)
Drafting of prospectus
(b)
Appointment of Registrar
(c)
Selection of Promoter
(d)
Arrangement of underwriter
Q37. Private placement reduces ________________________ of public issue:
(a)
Cost
(b)
Subscription
(c)
Issue size
(d)
None of the above
Q38. Every hire-purchase agreement shall state.
a) The hire-purchase price of the goods to which the agreement relates.
b) The date on which the agreement shall be deemed to have commenced.
c) The goods to which the agreement relates, in a manner sufficient to identify
them.
d) All the above.
Q39. A person must be at least ___ years of age to enter into a valid hire purchase.
a) 21.
b) 30
c) 18
d) 15.
Q40. Preference shares means which fulfill the following two conditions
a)
It carries preferential rights in respect of dividend at fixed amount and fixed
rate
b)
It does not carry preferential rights in regard to payment of capital on
winding up .
WHICH ONE OF THESE IS TRUE:
(a)
Both a and b
(b)
Only a
(c)
Only b
(d)
Neither a nor b.