Investment Valuation in India

The Reserve Bank of India has announced that starting it will withdraw all notes that were printed before 2005. Starting 1 st April 2014, the all banks will exchange old notes with new ones. One has to present all old notes to banks and they will be provided with new ones. Starting July 2014, anyone exchanging more than 10 notes of Rs 500 or Rs 1000 will have to present their ID proof. How to identify which notes were printed before 2005? All notes printed before 2005 did not have the year of printing on them. Starting 2005, all notes have the year printed on the back side at the bottom. The move is aimed at reducing fake notes from circulation. However, it was clarified by RBI Governor R Rajan that the pre-2005 notes will continue to be legal tender. This has created further confusion among people as to whether they should actually replace the notes or not. Impact of Currency Recall The currency recall announcement has a huge impact as this would cap...

RBI, wide notification no. Notification No. FEMA 20 / 2000-RB dated 3rd May, 2000 have amended the pricing and valuation guidelines for a private company issuing shares to a person resident outside India. RISGHTS ISSUE The offer on right basis to the persons resident outside India shall be at a price which is not less than the price at which the offer on right basis is made to resident shareholders. ISSUE OF SHARES Current Provision - Price of shares issued to persons resident outside India is required to be issued at a value arrived at by a Chartered Accountant who would determine the price in accordance with the erstwhile Controller of Capital Issues (CCI) Guidelines [conservative method of valuation by considering an average of the Net Asset Value (NAV) of the company and the company’s Profit Earning Capacity Value (PECV), which was arrived at based on its past financial performance]. Revised Guidelines - Price of shares issued to persons resident outside India, shall not be...

The celebrations of free ATM transactions from any bank in India was not even over that the RBI accepted the Indian Banks Association (IBA) proposal to re-introduce transaction charges for customers on the use of other banks’ ATM. IBA has proposed to levy a transaction fee of Rs. 20 per transaction for using another bank's ATM more than five times a month. Also the Reserve Bank of India has said that not more than Rs 10,000 can be withdrawn each time they are used. It will be optional on the part of the banks to levy this charge on customers. IBA has not made it mandatory but left it to the banks' discretion. Since the banks will recover the transaction costs it would have to pay to the bank providing the ATM services, it has less to lose. Once again, it’s the customers who lose. ATMs have become an important channel for banking transactions, particularly for cash withdrawal and account balance enquiry and also funds transfer, bill payments and cell phone recharge facilities. T...

"India, with its strong internal drivers for growth, may escape the worst consequences of the global financial crisis. Indian banks have very limited exposure to the US mortgage market, directly or through derivatives, and to the failed and stressed financial institutions. The equity and the forex markets provide the channels through which the global crisis can spread to the Indian system. The other three segments of the financial markets - money, debt and credit markets could be impacted indirectly. Risk aversion, deleveraging and frozen money markets have not only raised the cost of funds for Indian corporates but also its availability in the international markets. This will mean additional demand for domestic bank credit in the near term. Reduced investor interest in emerging economies could impact capital flows significantly. The impending recession will also impact on Indian exports. Even EMEs which do not have direct or significant exposure to stressed financial instrumen...

The statements issued by the Prime Minister, Finance Minister, RBI Chief and Bank chairmen have at least some truth in it. This is seconded by the recent Crisil report. But again, there are two sides of a coin. The report says that the global crisis is not responsible for the challenges faced by the Indian Banks; but at the same time, there are a lot of internal factors that are responsible for the same. Contrary to the stance taken by authorities, ratings major Crisil has said domestic, not global factors are responsible for the current challenges facing the banking sector. In a statement issued on Tuesday, the ratings agency has said: “ Crisil believes that the Indian banking system is relatively insulated from factors leading to the turmoil in the global banking industry .” The statement goes on to add that the recent tight liquidity in the Indian market is also qualitatively different from the global liquidity crunch, which was caused by a crisis of confidence in banks lending t...

A convertible bond (CB) is debt at issuance and through its life, until converted into shares. Conversion into shares happens if the share price is above a certain share price (“conversion price”) either at maturity or through the life of the bonds. Typically on the day the convertible bond is priced, the volume weighted average price of the shares or the closing price of the shares is taken as a base price (“reference price”). Conversion price is then calculated as (reference price x (1 + conversion premium)) , where the conversion premium is typically between 10% and 30%. The number of shares per bond is fixed by dividing the denomination of the bond with the conversion price. This defines the maximum number of new shares that can be issued at any time, limiting maximum dilution for existing shareholders. In order to see how this works, let us take a simple example: Assumptions Issue Amount: USD 25m Reference price (closing price of shares): USD 100 Denomination of bonds: USD 100,000...

Frequently Asked Questions on NBFCs What is a Non-Banking Financial Company (NBFC)? A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/ stock/ bonds/ debentures/securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property. A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company (Residuary non-banking company). NBFCs are doing functions similar to banks. What is difference between banks & NBFCs ? NBFCs are doing functions akin to that of banks, howe...