PE Masterproject1 2003

2010
IDBI BANK’S STRATEGIC DIVERVSIFICATION

INTO RIVATE EQUITY
Project report
Under the guidance of

Mr. Akhilesh Mishra
Submitted by
Hiren Rudani
In partial fulfillment of the requirement

For the award of the degree
Of
PGDM PROGRAMME
IN
[Finance]
TABLE OF CONTENTS
………………………………………………………..
PART I
1. ACKNOWLEDGEMENT
2. ABOUT IDBI BANK
3. WHY IDBI BANK WANT TO PARTICIPATE IN FIELD OF PRIVATE EQUITY?
4. INDIAN FINANCIAL SYSTEMS
5. INTRODUCTION
6. DEFINITION
7. STRUCTURE OF PRIVATE EQuITY FUND
8. WHY INVEST IN PRIVATE EQUITY?
9. A BRIEF HISTORY OF PRIVATE EQUITY IN INDIA
10. PRIVATE EQUITY FUNDS RAISING PATTERNS
11. INDIA AND PRIVATE EQUITY INVESTMENTS
12. REASONS FOR PE PLAYERS ENTERING INTO INDIA
13. PE IN THE GROWTH OF INDIAN ECONOMY
14. FUND RAISED BY PRIVATE EQUITY INVESTMENTS.
15. PROSPECTS FOR THE PRIVATE EQUITY MARKET IN INDIA
16. ROLE OF PRIVATE EQUITY PLAYERS
17. APPROACHES TO PORTFOLIO CONSTRUCTION
18. COMPARISON OF PRIVATE EQUITY WITH ALTERNATE SOURCE OF

FINANCING
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19. STRENGTHS WEAKNESES
20. RISKS
21. THE REGULATORY ENVIRONMENT
22. ANALYSES
23. RECENT DEALS IN INDIA
24. CONCLUSION
25. BIBLIOGRAPHY
PART II
26. PROPOSAL DURING INTERNSHIP
27. GRAPHICAL REPRESENTATION
28. PROPOSAL FOR
29. ANNEXURE I
30. ANNEXURE II
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Acknowledgement
I take this opportunity to express my profound and sincere gratitude to Mr. Akhilesh Mishra
and Ms. Sangeeta Prabhu for their inputs and feedback in developing this project. Their
guidance, continued support, constructive criticism and suggestions helped invaluably in
shaping the form and content of this report.
I also acknowledge and thank with deep sense of gratitude, the staff of IDBI Library Member
for their constant support and invaluable suggestions right from the conception to the design
and completion of the project.
This final work has been developed in concomitance with my internship experience at IDBI
BANK in Mumbai. My objective was to get practical training and industry insight of the
current situation of Private Equity investment in the promising Indian economy.
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Brief History
IDBI Bank was founded on July 1, 1964 under an Act of Parliament. It was established as
a wholly owned subsidiary of RBI (Reserve Bank of India). The ownership was however
transferred to the Government of India on February 16, 1976. It worked as the main
financial institution, whose main goal was to coordinate with other institutions associated
with financing, developing and promoting the industry. With the public issue of IDBI
Bank released in July 1995, the share holding of the Government came down below
100%. However, the majority of the share was still owned by the government, which is
currently 52.3%. IDBI Bank started offering a wide array of products and services to its
customers, which covered entire range of industrial activities including services and
manufacturing. In September 2003, IDBI acquired the entire shareholding of Tata
Finance Limited in Tata Home Finance Ltd. Since then, the fully owned housing
subsidiary was known as 'IDBI Home Finance Limited'. Next year, on July 29, 2004, the
Board of Directors of IDBI and IBDI Bank approved the merger of IDBI Bank with the
Industrial Development Bank of India Ltd. IDBI Bank also acquired United Western
Bank in 2006.
YEAR WISE HISTORY

1964
- The Company was Incorporated on 1st July, at Mumbai. The Bank was established as
a wholly owned subsidiary of the Reserve Bank of India on 1st July, under a special
statute, viz., Industrial Development Bank of India Act.
1965
- With effect from 1st April, the Bank introduced a scheme for rediscounting since
bills/promissory notes arising out of sale of indigenous machinery on deferred payment
basis.
5
- The Bank decided to supplement its refinance operations with a measure of risk-
sharing with other institutions on a systematic basis and introduced a participation
scheme for this purpose, with effect from 1st April, 1966.
- The Development Assistance Fund was established on 27th March, in terms of

Notification dated 16th March, issued by the Government of India.
1972
- The IDBI took initiative in establishing a technical consultancy service centre at the
State level in Kerala in February called the Kerala Industrial and Technical Consultancy
Organization and contributed 51% to its paid-up capital of Rs 2 lakhs.
1973
- North Eastern Industrial and Technical Consultancy Organization, Ltd. EITCO), was
sponsored by the IDBI in May. Another technical consultancy organization, viz., Bihar
Industrial and Technical Consultancy Organization, Ltd. (BITCO), was set up.
- Refinance facilities are provided to eligible banks, which are authorized dealers in
foreign exchange, against medium-term export credits granted to exporters in the private
sector, who are manufacturers, recognized export houses or other exporters of standing.
- The Bank as a apex institution, has also been vested with the responsibility of
strengthening the resources position of the term financing institutions with a view to
enabling them to expand and diversify their activities.
- The Bank received various lines of credit from IDA/World Bank from time to time
beginning from the year in US Dollars.
1976
- With a view to promoting fuller utilization of capacity, technological up gradation and
export development, the Government of India established in March, the Technical
Development Fund (TDF).
- Two Seed Capital Assistance Schemes were introduced by IDBI during the year viz.
(i) SFC's Special Share Capital Scheme and (ii) IDBI's own scheme.
1977
- IDBI introduced in January, at the instance of the Government of India, a scheme for
providing rupee assistance, to industrial units receiving import licenses’, under the TDF.
- IDBI, apart from giving resource support for setting up of IFCI, UTI and SFCs,
helped in establishing Shipping Credit and Investment Corporation of India, Ltd., Stock
Holding Corporation of India Ltd., Securities and Exchange Board of India, Discount
and Finance House of India, Ltd., Tourism Finance Corporation of India Ltd., Over The
Counter (OTC) Exchange of India, Biotech Consortium India Ltd., and Indian
Investment Management Company Ltd.
6
1982
- 55,00,000 shares issued.
1983
1984
- IDBI introduced equipment finance scheme in September.
1985
- A new scheme known as Equipment Refinance Scheme was introduced with
effect from July 1st.
- The Bank introduced a new scheme called the Foreign Currency Refinance scheme.
Under this Scheme, the Bank would extend foreign currency refinance facility to
SIDCs/SIICs under the Bank's Normal Refinance Scheme.
- A special scheme of assistance for installing in-house quality testing facilities was
introduced under SIDF. Presently, this scheme is being operated by SIDBI.
1986
- Small industries development fund was set up in May to pay concentrated attention to
the provision of financial and non-financial inputs to the small scale sector.
1987
- The National Equity Fund Scheme was introduced in August for providing equity type
support to new tiny and small scale industrial units which are engaged in manufacturing
activities and also for rehabilitation of potentially viable sick SSI units.
1988
1989
1991
- With effect from 1st April, DAF was merged with the General Fund.
- The Bank's resources can be augmented through issue of bonds and debentures with or
without Government guarantee.
7
- IDBI introduced 3-year 9% capital for sale to the public in the domestic market.
1992
- The Bank issued unsecured bonds for a minimum aggregate amount of Rs 300 crores
as follows: Deep Discount Bond had a face value of Rs 1,00,000 was issued at a deeply
discounted price of Rs 2,700 with a maturity period of 25 years from the date of
allotment, Double Option Bond had a face value of Rs 5,000 bears an interest of 15%
payable at the end of 10th year on redemption with a premium of Rs 250 per bond. Part
A of Rs 5,000 and Part B of Rs 16,500 are tradable separately on Stock Exchanges at
Ahmadabad Mumbai, Bangalore, Calcutta, Delhi and Mumbai and Regular Return Bond
had a face value of Rs 5,000 where interest on principal sum is payable half-yearly.
These bonds are redeemable at a premium of 5% at the end of 10 years from the date of
allotment.
- The bank entered the area of merchant banking to provide professional advice and
services to industry for raising resources from capital market, acquisition of assets on
lease and mergers/take-over’s of existing units.
- The Bank set up a foreign exchange dealing room to deal with all foreign exchange
transactions. The bank had set up Investor of India Ltd. with a view to providing
registrar and transfer services based on high technology system.
- In order to provide wider range of direct finance to meet the specific requirements of
clients, the bank introduced new products such as Asset Credit and Equipment Finance.
Also introduce equipment leasing to meet the increasing demand for such services.
1993
- Authorized Capital reclassified. Equity Shares sub-divided. 2530,00,000 Pref. shares
issued. Under Section 4 of IDBI Act, 1964, Government of India by the notification in
Official Gazette date 16.11.1994 converted 2530,00,000 No. of equity shares into
Preference shares.
1994
- The Bank obtained the membership of National Stock Exchange. IDBI Bank Ltd.
promoted and incorporated in September as a commercial bank with an authorized
capital of Rs 500.
- The Bank had set up a Mutual Fund as a trust with a view to offering innovative
investment products to investors backed by high quality servicing. - 17,30,93,300 shares
allotted to public.
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1995
- 17 New ventures were sanctioned. The beneficiary industries were electronics,
industrial automation, industrial products and machinery, computer software etc.
- The bank entered into an Umbrella Grant Agreement with the World Bank for US $
50 million aimed at phasing out use of ozone Depleting Substances in industry as part of
ongoing efforts to reduce environmental degradation.
- The Bank offered 16,80,00,000 No. of Equity shares of Rs 10 each to Public at a

premium of Rs 120 each along with 1,44,20,000 No. of equity shares of Rs 10 each at a
price of Rs 130 per share was offered for sale by Government of India. Out of the
above 3,36,00,000 shares offered to UTI, Exim Bank and IRBI.
- 5,80,000 shares offered to employees, 10,02,20,000 shares were offered to public

along with 19,78,000 shares not taken up in various categories (all were taken up along
with unsubscribed portion of shares offered to other categories).
1997
- The Bank accepted 68 debenture trusteeship assignments in respect of bonds and
debentures aggregating to Rs 2,743 crores.
- IDBI, became the first financial institution to apply NSDL as DP.
- IDBI has signed an agreement with National Securities Depository Ltd (NSDL) to get
its equity shares admitted for dematerialization.
- IDBI has signed a -million bilateral seven-year loan facility arranged by Asahi Finance
Ltd with Asahi Bank Ltd, Hong Kong as the lender.
- The Reserve Bank of India has shot down the IDBI's proposal to privately place equity
shares of its subsidiary, IDBI Bank, with the shareholders of the financial institution.
- The largest financial institution of the country IDBI has merged Its foreign exchange
and domestic treasury operations following rapid deregulation of the money and foreign
exchange markets in the country.
- The 500 MW Pench thermal power project, promoted by Pench Power Ltd, has tied
up its financing arrangement with IDBI.
- The IDBI has signed a 0 million line of credit with the Export-Import Bank of Japan
(EXIM-J) at Tokyo.
- IDBI is set to become the first all-India financial institution to float capital gains
bonds.
9
1998
- The Industrial Development Bank of India (IDBI) has commissioned a study on the
country's debt market.
- The IDBI has tied up a 0 million line of credit with the Export Import Bank of Japan
for financing Indo-Japanese joint venture projects in India.
- The IDBI is set to enter the capital market with a mega Rs 1,000-1,500 crores debt
issue (Flexibond 4). This will be IDBI's maiden retail issue in the current fiscal.
- American Express Bank, the travel related and financial services company, has entered
into a strategic alliance for financial services with IDBI Bank.
- IDBI Bank has entered into a strategic alliance with leading travel and financial
service company American Express Bank.
- The Industrial Development Bank of India would enter the capital market with a public
issue of four crores shares with a face value of Rs 40 crores.
- IDBI may tie the knot with US based .9 billion Principal Financial Group for
management of provident & pension funds in the country.
- The Industrial Development Bank of India has tied up with 8 commercial banks for
extension of loans against its Flexibonds V issue slated to be launched from December
21.
1999
- IDBI Bank Ltd, came out with a maiden public offering of four crores equity shares
of Rs 10 each at a premium of Rs 8 per share aggregating Rs 72 crores, said four lakhs
shares were reserved for its employees and another 40 lakhs shares were reserved for
IDBI's equity holders on a competitive basis. The issue will close on February 16, 1999.
The shares are proposed to be listed on BSE, NSE, and the Indore Stock Exchange.
- IDBI Bank, promoted by two premier financial institutions - Industrial Development

Bank of India (IDBI) and Small Industries Development Corporation of India (SIDBI) -
is coming out with a public issue of 40 million equity shares of Rs.10 each at a premium
of Rs.8 per share aggregating Rs.72 crores.
- THE IDBI is all set to launch the sixth issue of Flexi bonds, from February 22 to
mobilize Rs. 1,500 crores, inclusive of a green shoe option of Rs. 750 crores.
- American Express Bank (Amex) has entered into a strategic alliance with IDBI Bank
for its personal financial services (PFS) division to jointly explore the development of
products such as smart card and debit card, and market complementary products and
services to customers of both the banks.
- The Board for Industrial and Financial Reconstruction (BIFR) has declared ATV
Projects a sick company and appointed IDBI as operating agency (OA) for preparing the
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rehabilitation package for the company. IDBI has succeeded in entering into one-time
settlement for 77 cases for fiscal year 1998-99 as compared to 45 cases in the previous
year.
- The IDBI has decided to enter the market for the first time this fiscal to borrow Rs
1500 crores through its Flexi bond-VII issue.
- A Memorandum of Understanding (MoU) between IDBI and Principal Financial

Group was signed in Mumbai.
2000
- The Company proposal for the forfeiture of 3,03,100 No. of equity shares of Rs. 10/-
each for non-payment of allotment money.
- The Bank has been made the nodal agency for disbursing the Montreal Protocol-
approved million compensation package to four Indian companies, including SRF Ltd.,
and Gujarat Flurocarbonds.
- IDBI and CIDC would set up a joint working group to chalk out modalities for
lending to the construction industry and risk assessment of the business.
- The Company has proposed to undertake a capital restructuring exercise to reduce the
Government stake to 51 per cent through an American Depository Share issue.
- IDIB Principal Asset Management Company, the 50:50 joint venture between
Industrial Development Bank of India and Principal Financial Group-USA, has brought
about several changes in its top management.
- The company is launching a special deposit scheme- IDBI Suvidha - to mop-up Rs

2,200 crores worth of outflow on account of premature redemption of the discount bonds
issued five years back.
- Crisil has assigned the highest safety rating of ÀAA' to various bonds issue of the
company.
- Crisil has assigned the highest safety rating of ÀAA' to various bonds issue of the
company.
- IDBI has become the first all-India financial institution to qualify for the ISO 9002
certification for its treasury operations.
- Industrial Development Bank of India and the Export-Import bank of the United States
have signed an memorandum of understanding for financing in the amount of 0 million
to support import of US-sourced goods for Indian borrowers.
- Hughes Tele.com (India) has tied up a Rs 250-crore loan with the Industrial
Development Bank of India.
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- The Industrial and Development Bank of India has sold 36,500 No. of equity shares of
Pan Foods Ltd. to the promoters at a price of Rs 10 per share.
- Industrial Development Bank of India (IDBI), one of the country's leading financial
institutions, launched a novel investment concept of asset allocation future goals in a
50:50 joint venture with the US-based principal Financial group.
- IDBI has appointed I-Flex Solutions Ltd, the information technology arm of Citibank,
to implement an integrated banking solutions package in a phased manner over 12-18
months.
- Industrial Development Bank of India has set up two internal task forces, one to
explore opportunities to enter the insurance sector, while the other to lead IDBI Intech, a
newly form IT subsidiary.
- Industrial Development Bank of India is considering hiving off its venture capital
scheme as a separate company before the end of the year.
- 18,074,300 partly paid up equity shares of face value of Rs 10/- Each were forfeited
on August 25. Consequently, (i) the aggregate face value of Rs 180,743,000 has been
reduced from the Subscribed and Paid up equity capital, (ii) allotment money in Arrears
of Rs 135,557,250 has been written down fully and (iii) Forfeited shares account has
been credited by Rs 45,185,750 being the amount actually paid up on the forfeited
shares.
- The Bank is re-entering the retail market after about eight months, with its
Flexibonds-9 issue.
- The Company proposes to exercise the call option and redeem Easy Exit Bond and
Regular Income Bond at face value plus interest accrued and outstanding at the end of 5
years from the date of allotment, i.e. March 18, 2001.
- IDBI issued bonus equity shares in the ratio of 3:5 that is, three bonus shares for every
five equity shares held.
2001
- India Post and Industrial Development Bank of India (IDBI) Principal Asset
Management Company have entered into a joint partnership to make available current
and future investment opportunities through post offices across India.
- The Industrial Development Bank of India and Morgan Guaranty Trust Company of
New York have entered into a long-term rupee interest rate swap.
- The Industrial Development Bank of India has launched a new company
-IDBI Trusteeship Services Ltd. for carrying out trusteeships and other related business.
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- Industrial Development Bank of India has formed a new company – - IDBI
Trusteeship Services Ltd. for carrying out trusteeship and related
businesses.
- IDBI has sold 1,40,845 No. of equity shares for Rs 15 each of Pennar Profiles to
Udaya Bhaskara Reddy, a strategic investor, as part of the arrangements entered into by
the promoters of Pennar Profiles with IDBI.
- The Bank has launched a non-convertible debentures issue to raise at least Rs 500
crores.
- The Government has re-appointed Mr. S.K. Chakra borty as the acting Chairman and
Managing Director of Industrial Development Bank of India (IDBI). Mr. Chakra borty
has been given an extension of three months beginning May 1 or till a regular CMD is
appointed.
-Credit Rating and Information Services of India Ltd (Crisil) has downgraded the
outstanding bond issues and the certificate of deposit programme of the Industrial
Development Bank of India.
-Industrial Development Bank of India has picked up over 30 per cent equity stake in a
Chennai-based high-end animation and motion graphics company, MUV Technologies,
by investing Rs 2.7 crores.
-MUV Technologies, which has already set up the studio, is engaged in the
development, production and creation of high concept, professional computer
animation, visual effects and motion graphics.
- The Credit Rating Information Services of India Ltd (Crisil) has assigned a rating of
‘AA+’, indicating high safety to the Industrial Development Bank of India’s (IDBI) Rs
2,500-crore ‘Flexi bonds’ and Rs 6,343 crores ‘Omni bonds’ programme
- IDBI bank has plans to open over200 atms soon in a bid to expand its operations in
India and thus position itself to become a fast growing entity.
-The Finance Ministry did a last-minute volte face on July 30, asking Mr. S.K. Kapur to
temporarily head the Industrial Development Bank of India (IDBI). This is the fourth
time that the Ministry has hesitated from appointing a full-time Chairman for the top
term-lender.
2001
- India's largest term lender Industrial Development Bank of India raised Rs 55 crores
(.68 million) through a private placement of 90-day commercial paper, debt dealers said.
2002
- Industrial Development Bank of India has informed that Mr. T M Nagarajan has been
appointed as Whole Time Director (designated as Deputy Managing Director) of IDBI
for the period from the date of taking charge and up to September 30,2002.
13
-Industrial Development Bank of India has informed that Govt of India, vide
notification dated July 19, 2002 has appointed Shri D C Gupta, Secretary Financial
Sector, Ministry of Finance, Dept of Economic Affairs as a Director on the Board of
Industrial Development Bank of India wef July 19, 2002.
-Industrial Development Bank of India has informed BSE that the shareholders other
than Central Government have elected the following three Directors in the AGM held on
August 02, 2002
Mr. Ravi Veera Gupta

Mr. Manohar Gopal Bhide
Mr. Jamshed J Irani
-Appointed as the lead manager to the 1000 mw Maithon Power Company
-Board accords in-principal approval for group's entry into non-life/reinsurance broking
business
-Slashes interest rates on Flexi bonds by 25 basis points
-Gives revamping package for Natco Pharma Ltd.
-Enters domestic market with Omni bonds worth Rs 250 cr
-Sets up a body of Rs 100 crores exclusively for providing support to the film industry
-Promoters of Visaka Industries Ltd buy-back 4,63,858 equity shares of face value
Rs.10/- each held by Industrial Development Bank of India at a price of Rs.23/- per share
-ICRA assigns downward rating to IDBI long-term programmes
-FIs, banks given more power to recover NPAs through Asset Reconstruction Ordinance
-Comes out with the issue of Flexibonds-14 with four bonds on July 26 to collect a total
of Rs 200 crores
-Refuses to accept GE-Bechtel offer to restart Dabhol Power Company (DPC)
-Mops up Rs 337 cr by securitising loans to three firms
-Buys back Float Rate Notes of 0 mn
-Hits market with 9.4% interest for five-year retail bonds
-Reports drop in non-performing assets (NPAs) at Rs 1,300 crores
-Raises Rs 415 cr through Flexibonds-15

14
-Government gives nod for the restructuring package for the company by repealing the
IDBI Act and facilitating the conversion of the development financial institution into a
stand-alone bank
-Endorses proposal to purchase DPC power at Rs 2.80/unit
-Reduces Flexi bonds interest rate by 25-85 basis points
-Sells 2,98,174 fully paid equity shares of Rs 10/- each of InfoTech Enterprises, reduces
the holding in the company to 4.51%
2003
-Refunds 0,000 deposit amount to DPC bidders with a view to sell assets of DPC
-IDBI board okays 50 % Asset Management Company (AMC) stake sell off to Principal
Financial Group of the USA
-Offloads 25 lakhs Discount and Finance House of India (DFHI) equity shares to State
Bank of India (SBI)
-Seizes salt refinery of Ganesh Benzoplast under Securitization Act -Centre permits
IDBI to reissue Statutory Liquidity Ratio (SLR) bonds
-Divests its 50% stake in AMC & trustee company in favor of Principal Financial
Group of the USA for Rs 94 crores
-Takes possession on the second resort of Suman Motels Ltd. under the Securitization
Act
-Modifies its financing pattern for films by doing away with profit-sharing or overflow,
and the completion bond guarantee
-Acquires entire stake of Tata Finance Ltd. in Tata Home finance Ltd. for Rs 49.98
crores, enters housing finance sector
-Offloads its stake in Gujarat Borosil Ltd. to Vulcan Exports Ltd.
-Sells 7.56 crores shares in Mangalore Refinery & Petrochemicals Ltd.

(MRPL) to Oil & Natural Gas Corporation Ltd. (ONGC)
-Signs a formal subscription Agreement on July 7, 2003 with Nepal Development Bank
Ltd. (NDBL), a private sector development bank in Nepal. Buys 10% stake in NDBL
-Acquires the knit processing unit of Suditi Industries Ltd on July 4 which is situated
close to Navi Mumbai under the Securitization Act
-Sues Spectrum Power Generation Limited (SPGL) for allotment of

15
shares worth Rs 23.25 crores in SPGL
-J K Corp allots 26,53,500 shares to IDBI by way of conversion of part of rupee term
loans into equity shares of the company under restructuring scheme
-IDBI, IFCI ink deal to launch SLR bonds
-Lok Sabha introduces IDBI (Transfer of Undertaking and Repeal) Bill, 2002 on August
14 which will pave the way for the transformation of the institution into a bank
-Acquires CMM Studios under Securitization Act
-Appointed P P Vora, chairman and managing director, IDBI, as the chairman of its new
housing finance arm
-IDBI Home finance mops up million through external commercial borrowings
-Clears restructuring package for Stone India Ltd.
-IDBI Home finance reduces home loan rates up to 150 basis points
-Ties up with Andhra Bank to sell Government of India (GOI) saving bonds
-Acquires 1,62,87,668 shares amounting to 5.51% of the total paid up capital of Recron
Synthetics Ltd.
-UTI Chairman & Managing Director (CMD) Mr. M Damodaran takes charge as CMD
of IDBI and holds concurrent charge from October 1 as part of an interim arrangement
-Mr. P Vora has withdrawn from the board of IDBI Bank wef November 4, 2003.
Further, Industrial Development Bank of India (IDBI) has notified nomination of Mr. M
Damodaran, CMD, IDBI as its nominee director on the Board of the bank wef November
4, 2003 in place of Mr. P Vora.
-Lok Sabha clears Industrial Development Bank (transfer of undertaking & repeal) Bill
of 2002
2004
-IDBI rejigs debt borrowing program
-IDBI gets a bonanza out of IFCI-PNB amalgamation
-Industrial Development Bank of India (IDBI) has informed that the Government of
India, Ministry of Finance vide notification dated February 4, 2004 states that in
supersession to the notification dated September 29, 2003 and consequent upon the
approval of the Appointment Committee of the Cabinet, it has decided to entrust the
16
additional charge of the post of Chairman and Managing Director (CMD), IDBI to Shri
M. Damodaran, Chairman, Unit Trust of India w.e.f. October 1, 2003 to May 31, 2004.
-Standard & Poor's (S&P) Ratings Services on February 19 assigned Industrial

Development Bank of India's (IDBI) proposed 0 million senior unsecured notes a 'BB'
rating. An obligation rated BB is less vulnerable to non-payments and other peculative
issues. However, it faces major ongoing uncertainties or exposures to adverse business,
financial or economic conditions, which could lead to obligor’s
inadequate capacity to meet its financial commitments on the obligation.
--Industrial Development Bank of India [IDBI] has acquired 17,60,000 shares

amounting to 12.11% of the total paid up capital of Soma Textiles Limited.
-The promoters of Eastern Threads Ltd (ETL) have purchased 4 lakhs equity shares of
face value of Rs 10 each of ETL, from Industrial Development Bank of India, at a price
of Re 1 per share. The transaction constituted over one per cent of the paid up capital of
the ETL.
-IDBI acquires 46 lakhs shares of Mysore Cements
-Mr. Damodaran has been appointed CMD at IDBI with effect from June 1,
2004 till May 31, 2007
-IDBI - Launch of sixth tranche of IDBI Omni bonds (2004-2005)
2005
-Industrial Development Bank of India Ltd (IDBI) has informed that the Public Issue of
IDBI Flexi bonds - 23, which was opened for subscription on March 21, 2005 has been
closed on March 29, 2005.
-IDBI enters into CO-Financing tie-up with SIDBI.
2006
-IDBI signs MoU with Fortis
-IDBI bags IT Team of the Year Award 2005.
-IDBI sets up new branch in Andheri
-IDBI - Tripartite MOU with Federal Bank & Forties Insurance

International
-IDBI bags Asiamoney's Best India Deal of the Year Award 2005.
-IDBI Launches No Frills 'Sabka' Savings Bank Account.
2007
17
- Industrial Development Bank Of India Limited has informed that as per provisions of
Article 134 to 138 of the Articles of Association of IDBI Ltd., read with Sections 255
and 256 of the Companies Act, 1956, the shareholders have re-appointed the following
two directors after retirement by rotation on the Board of Directors of IDBI Ltd. in the
3rd Annual General Meeting of IDBI Ltd. held on June 22, 2007.
(1) Shri Hira Lal Zutshi and
(2) Shri A. Sakthivel
-IDBI Wins Three Awards at the ABCI
-IDBI signs MOU with IFC for co-operation in Clean Development Mechanism (CDM)
Projects
-IDBI, Federal Bank and Fortis Sign Joint Venture Agreement To Establish A New Life
Insurance Company In India
-IDBI Launches new 600 days ‘Suvidha Plus’ FD Scheme
2008
-Industrial Development Bank Of India Limited has submitted to a copy of the
Resolution passed by the Board by circulation on March 12, 2008 in respect of change of
name of the Bank to IDBI Bank Limited by passing a Special Resolution through Postal
Ballot in terms of Section 192A of the Companies Act, 1956.
-Company name has been changed from Industrial Development Bank of India Ltd to
IDBI Bank Ltd.
-IDBI bags two Special IT Awards from IBA
-IDBI ties up with Motilal Oswal Securities for online trading
2009
- IDBI Bank has slashed its benchmark prime-lending rate (BPLR) by 25 basis points to
12.75 per cent. The reduction will come into effect from July 1 and will apply to all
loans linked to the BPLR, including home loans, according to a press release from the
bank. The bank cut deposit rates by 25-50 basis points earlier this week.
-IDBI Bank bags IBA's prestigious Banking Technology award
-IDBI Bank Ltd and Tata Motors Limited (TML) sign MoU for Vehicle Loan Financing
After the transfer of its ownership, IDBI became the main institution, through which the
institutes engaged in financing, promoting and developing industry were to be
18
coordinated. In January 1992, IDBI accessed domestic retail debt market for the first
time, with innovative Deep Discount Bonds, and registered path-breaking success. The
following year, it set up the IDBI Capital Market Services Ltd., as its wholly-owned
subsidiary, to offer a broad range of financial services, including Bond Trading, Equity
Broking, Client Asset Management and Depository Services.
In September 1994, in response to RBI's policy of opening up domestic banking sector to

private participation, IDBI set up IDBI Bank Ltd., in association with SIDBI. In July
1995, public issue of the bank was taken out, after which the Government's shareholding
came down (though it still retains majority of the shareholding in the bank). In September
2003, IDBI took over Tata Home Finance Ltd, renamed ‘IDBI Home finance Limited’,
thus diversifying its business domain and entering the arena of retail finance sector.
The year 2005 witnessed the merger of IDBI Bank with the Industrial Development Bank
of India Ltd. The new entity continued to its development finance role, while providing
an array of wholesale and retail banking products (and does so till date). The following
year, IDBI Bank acquired United Western Bank (which, at that time, had 230 branches
spread over 47 districts, in 9 states). In the financial year of 2008, IDBI Bank had a net
income of Rs 9415.9 crores and total assets of Rs 120,601 crores.
The Present Today, IDBI Bank is counted amongst the leading public sector banks of
India, apart from claiming the distinction of being the 4th largest bank, in overall ratings.
It is presently regarded as the tenth largest development bank in the world, mainly in
terms of reach. This is because of its wide network of 509 branches, 900 ATMs and 319
centers. Apart from being involved in banking services, IDBI has set up institutions like
The National Stock Exchange of India (NSE), The National Securities Depository
Services Ltd. (NSDL) and the Stock Holding Corporation of India (SHCIL).
The Industrial Development Bank of India Limited commonly known by its acronym IDBI is
one of India's leading public sector banks and 4th largest Bank in overall ratings. RBI
categorized IDBI as an "other public sector bank". It was established in 1964 by an Act of
Parliament to provide credit and other facilities for the development of the fledgling Indian
industry.[1] It is currently 10th largest development bank in the world in terms of reach with
1210 ATMs, 720 branches and 486 centers.[2] Some of the institutions built by IDBI are the
National Stock Exchange of India (NSE), the National Securities Depository Services Ltd
(NSDL), the Stock Holding Corporation of India (SHCIL), the Credit Analysis & Research
Ltd, the Export-Import Bank of India(Exim Bank), the Small Industries Development bank of
India(SIDBI), the Entrepreneurship Development Institute of India, and IDBI BANK, which
today is owned by the Indian Government, though for a brief period it was a private
scheduled bank.
19
The Industrial Development Bank of India Limited, popularly known as IDBI Bank is one of
the leading public sector banks in India. Categorized as "other public sector bank" by
Reserve Bank of India (RBI), IDBI Bank is also the 4th largest Indian bank. Founded in 1964
to provide credit and other facilities to its customers, IDBI Bank currently has 457 centers,
688 branches and 1020 ATMs across the nation. It is world's 10th largest development bank
in terms of reach. IDBI Bank also built several institutions including the National Stock
Exchange of India (NSE), the Stock Holding Corporation of India (SHCIL) and the National
Securities Depository Services Ltd. (NSDL) etc.
Subsidiaries of IDBI BANK
IBDI Bank has the following subsidiaries:
• IDBI Capital Market Services Limited

• IDBI Home Finance Limited
• IDBI Intech Limited
• IDBI Gilts Limited
• IDBI Mutual fund
Products and Services
• IDBI Bank offers a wide array of products and services to its customers. For different
customer groups and needs, there are different types of products and services
including Personal Banking, Corporate Banking, SME Finance and Agri Business etc.
Personal Banking
1. Following products and services are offered under Personal Banking:

2. Deposits
3. Savings Account
4. Current Account
5. Fixed Deposits
6. Suvidha Tax Saving Fixed Deposit
7. Pension Accounts
8. Sabka Account
9. Super Shakti Account for Women
10. Jubilee Plus Account
11. Loans
12. Home Loans
13. Loans Against Property
14. Education Loans
15. Personal Loan
16. Loan Against Securities
17. Reverse Mortgage Loan
18. Auto Loan
19. Payments
20. Tax Payments
20
21. Stamp Duty payments
22. EasyFill
23. Bill Payment
24. Card to Card Money Transfer
25. Online Payments
26. PayMate
27. Investments Advisory
28. Smart Financial Planning
29. Mutual Fund
30. Insurance
31. Fixed Income Securities
32. Cards
33. Gold Debit Card
34. International Debit cum ATM Card
35. Gift Card
36. World Currency Card
37. Cash Card
38. KIDS Debit Card
39. Foundation Day Cash Back Scheme 2009
40. Platinum Card
41. Institutional Banking
42. Institutional Savings Account
43. Corporate Payroll Account
44. 24 Hours Banking
45. Phone Banking
46. SMS Banking
47. Account Alerts
48. Internet Banking
49. Other products
50. Lockers
51. India Post
52. Preferred Banking
53. NRI Services
54. Capital Market
55. IPO
56. Demat
Corporate Banking
57. Following products and services are offered by IDBI Bank for the corporate:
58. Project Finance
59. Infrastructure Finance
60. Syndication, Underwriting & Advisory Services
61. Carbon Credits Business
62. Working Capital
63. Cash Management Services
64. Trade Finance
65. Tax Payments
66. Derivatives
67. Technology Up gradation Fund Scheme (TUFS)
21
68. Film Financing Scheme
69. Direct Discounting Bills
70. Rehabilitation Finance
SME Finance
71. Following SME Finance products are offered by the IDBI Bank:
72. Sulabh Vyapar Loan
73. Dealer Finance
74. Funding under CGFMSE
75. Direct Credit Scheme - SIDBI
76. Preferred customer scheme - IDBI Bank / SIDBI
77. Vendor financing (Pre - Sale)
78. Vendor financing (Post - Sale)
79. Lending Against the Security of Future Credit Card Receivables
80. Working Capital Financing - Software Development Entities
81. Finance to Medical Practitioners
82. Loan to SRWTO
83. SME Hosiery Special Current Account
IDBI Capital as an institutional player provides the entire gamut of Capital Market services
encompassing:
1. Public Offerings
2. Qualified Institutional Placements
3. Buyback
4. Takeover
5. Preferential Allotments
6. External Commercial Borrowings, FCCBs, etc.
The above activities entails liasioning with institutional investors such as treasury departments of
Domestic Institutions, Banks and corporate, fund managers of mutual funds, private equity firms,
FIIs, HNIs.
In 2006, IDBI Bank acquired United Western Bank in a rescue. Annasaheb Chirmule, who
worked for the cause of Swadeshi movement, founded Satara Swadeshi Commercial Bank in
1907, and some three decades later founded United Western Bank. The bank was incorporated
in 1936, and commenced operations the next year, with its head office in Satara, in
Maharashtra State. It became a Scheduled Bank in 1951. In 1956 it merged with Union Bank
of Kolhapur, and in 1961 with Satara Swadeshi Commercial Bank. At the time of the merger
with IDBI, United Western had some 230 branches spread over 47 districts in 9 states,
controlled by five Zonal Offices at Mumbai, Pune, Kolhapur, Jalgaon and Nagpur.
22
Recent developments
To meet emerging challenges and to keep up with reforms in financial sector, IDBI has
taken steps to reshape its role from a development finance institution to a commercial
institution. With the Industrial Development Bank (Transfer of Undertaking and Repeal)
Act, 2003, IDBI attained the status of a limited company viz. "Industrial Development
Bank of India Limited" (IDBIL). Subsequently, the Reserve Bank of India (RBI) issued
the requisite notification on September 30, 2004 incorporating IDBI as a 'scheduled bank'
under the RBI Act, 1934. Consequently, IDBI, formally entered the portals of banking
business as IDBIL from October 1, 2004.
The commercial banking arm, IDBI BANK, was merged into IDBI. In March 2008, IDBI
Bank entered into a joint venture with Federal Bank and Fortis Insurance International to
form IDBI Fortis Life Insurance, of which IDBI Bank owns 48 percent. The company
ended the year with over 300 Cr in premiums as on 31 March 2009.
We have developed strong expertise across different industries, which enable us to structure
the transaction in that context. In Private Equity (PE), we focus on sectors ranging from
Infrastructure, Power, Telecom, Healthcare & Life Sciences, Pharmaceuticals, Hospitality,
Banking, Logistics, Media, Auto Ancillaries / Components, Cement, Steel, etc to name a few.
Our strength in Private Equity advisory is on account of:
 Strong relationships with PE funds and their key decision makers

 Strong execution team gives an edge on optimal structuring and efficient closure of
transactions
 Value addition on entire structure of activities
Our PE transaction doesn’t come to an end with the transfer of funds but also cater to entire
gamut of Investment Banking needs. IDBI Capital enables strong growth oriented companies
raise capital through;
• Preparation of Business and Financial Plans

• Preparation of the Information Memorandum
• Discussions and Negotiations with prospective investors
• Deal closure and Execution
23
Why idbi bank want to participate in field of private equity?
AS the core object of IDBI BANK is to look after development of industry sectors. But
there are many ways to participate in development of industry like improving their
performance by guiding, helping them to structure out an organization and really required
form to develop is finance them.
Now, IDBI Bank having many routs to finance these companies included
• lending money through provide loan,

• project finance,
• Infrastructure Finance,
• Technology Up-gradation Fund Scheme (TUFS).
• Syndication, Underwriting & Advisory Services
• Trade Finance
• Cash Management Services
But the another object of idbi bank to start private equity firm is due to its characteristics
private equity investment like investing in unlisted companies hiving definite growth
potential.
So if a company has opportunity to grow and expand their business can get finance easily
through private equity fund.
With Indian economy recording about 6-7 per-cent GDP growth, a buoyant capital
market, with sensex hovering at around 17000-mark, improvement in industrial growth
and rising exports, India has become a leading destination for PE investors.
Nearly three-quarters of the productivity growth at private equity-owned companies is due to

more effective management of existing facilities and that are available to idbi bank.
The consumer market counts 50 million households (more than 200 million people) with a
yearly income in excess of $1,000. The country has the second-largest English-speaking
population in the world and a technical employment base of 4.1 million. This pool is
augmented yearly through an excellent tertiary education system.
As a result of these factors, the pool of SMEs with growth potential has significantly increased
in India. To take advantage of these opportunities, SMEs need diverse sources of finance for
24
expansion. IDBI’s assessment of India’s private sector leads it to recommend providing
assistance to increase the variety of financing instruments that are accessible to private firms.
In particular, SMEs require long-term finance for capital expenditure and expansion projects.
INDIAN FINANCIAL SYSTEMS AND COMMERCIAL BANKING
Economic growth and development of any country depends upon a well-knit financial
system. Financial system comprises, a set of sub-systems of financial institutions financial
markets, financial instruments and services which help in the formation of capital. Thus a
financial system provides a mechanism by which savings are transformed into investments
and it can be said that financial system play an significant role in economic growth of the
country by mobilizing surplus funds and utilizing them effectively for productive purpose.
The financial system is characterized by the presence of integrated, organized and regulated
financial markets, and institutions that meet the short term and long term financial needs of
both the household and corporate sector. Both financial markets and financial institutions play
an important role in the financial system by rendering various financial services to the
community. They operate in close combination with each other.
Components/ Constituents of Indian Financial system:
The following are the four main components of Indian Financial system
1. Financial institutions
2. Financial Markets
3. Financial Instruments/Assets/Securities
4. Financial Services.
Financial institutions:
Financial institutions are the intermediaries who facilitates smooth functioning of the financial
system by making investors and borrowers meet. They mobilize savings of the surplus units
and allocate them in productive activities promising a better rate of return. Financial
institutions also provide services to entities seeking advises on various issues ranging from
restructuring to diversification plans. They provide whole range of services to the entities who
want to raise funds from the markets elsewhere. Financial institutions act as financial
intermediaries because they act as middlemen between savers and borrowers. Were these
25
financial institutions may be of Banking or Non-Banking institutions.
Financial Markets:
Finance is a prerequisite for modern business and financial institutions play a vital role in
economic system. It's through financial markets the financial system of an economy works.
The main functions of financial markets are:
1. to facilitate creation and allocation of credit and liquidity;

2. to serve as intermediaries for mobilization of savings;
3. to assist process of balanced economic growth;
4. to provide financial convenience
Financial Instruments
Another important constituent of financial system is financial instruments. They represent a
claim against the future income and wealth of others. It will be a claim against a person or an
institutions, for the payment of the some of the money at a specified future date.
Financial Services:
Efficiency of emerging financial system largely depends upon the quality and variety of
financial services provided by financial intermediaries. The term financial services can be
defined as "activites, benefits and satisfaction connected with sale of money, that offers to
users and customers, financial related value".
26
PRE-REFORMS PHASE
Until the early 1990s, the role of the financial system in India was primarily restricted to the
function of channeling resources from the surplus to deficit sectors. Whereas the financial
system performed this role reasonably well, its operations came to be marked by some serious
deficiencies over the years. The banking sector suffered from lack of competition, low capital
base, low Productivity and high intermediation cost. After the nationalization of large banks in
1969 and 1980, the Government-owned banks dominated the banking sector. The role of
technology was minimal and the quality of service was not given adequate importance. Banks
also did not follow proper risk management systems and the prudential standards were weak.
All these resulted in poor asset quality and low profitability. Among non-banking financial
intermediaries, development finance institutions (DFIs) operated in an over-protected
environment with most of the funding coming from assured sources at concessional terms. In
the insurance sector, there was little competition. The mutual fund industry also suffered from
lack of competition and was dominated for long by one institution, viz., the Unit Trust of
27
India. Non-banking financial companies (NBFCs) grew rapidly, but there was no regulation of
their asset side. Financial markets were characterized by control over pricing of financial
assets, barriers to entry, high transaction costs and restrictions on movement of
funds/participants between the market segments. This apart from inhibiting the development of
the markets also affected their efficiency.
Financial Sector Reforms in India
It was in this backdrop that wide-ranging financial sector reforms in India were introduced as
an integral part of the economic reforms initiated in the early 1990s with a view to improving
the macroeconomic performance of the economy. The reforms in the financial sector focused
on creating efficient and stable financial institutions and markets. The approach to financial
sector reforms in India was one of gradual and non-disruptive progress through a consultative
process. The Reserve Bank has been consistently working towards setting an enabling
regulatory framework with prompt and effective supervision, development of technological
and institutional infrastructure, as well as changing the interface with the market participants
through a consultative process. Persistent efforts have been made towards adoption of
international benchmarks as appropriate to Indian conditions. While certain changes in the
legal infrastructure are yet to be effected, the developments so far have brought the Indian
financial system closer to global standards.
The reform of the interest regime constitutes an integral part of the financial sector reform.
With the onset of financial sector reforms, the interest rate regime has been largely deregulated
with a view towards better price discovery and efficient resource allocation. Initially, steps
were taken to develop the domestic money market and freeing of the money market rates. The
interest rates offered on Government securities were progressively raised so that the
Government borrowing could be carried out at market-related rates. In respect of banks, a
major effort was undertaken to simplify the administered structure of interest rates. Banks now
have sufficient flexibility to decide their deposit and lending rate structures and manage their
assets and liabilities accordingly. At present, apart from savings account and NRE deposit on
the deposit side and export credit and small loans on the lending side, all other interest rates
are deregulated. Indian banking system operated for a long time with high reserve
requirements both in the form of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio
(SLR). This was a consequence of the high fiscal deficit and a high degree of monetisation of
fiscal deficit. The efforts in the recent period have been to lower both the CRR and SLR. The
statutory minimum of 25 per cent for SLR has already been reached, and while the Reserve
Bank continues to pursue its medium-term objective of reducing the CRR to the statutory
minimum level of 3.0 per cent, the CRR of SCBs is currently placed at 5.0 per cent of NDTL.
As part of the reforms programme, due attention has been given to diversification of
ownership leading to greater market accountability and improved efficiency. Initially, there
28
was infusion of capital by the Government in public sector banks, which was followed by
expanding the capital base with equity participation by the private investors. This was
followed by a reduction in the Government shareholding in public sector banks to 51 per cent.
Consequently, the share of the public sector banks in the aggregate assets of the banking sector
has come down from 90 per cent in 1991 to around 75 per cent in2004. With a view to
enhancing efficiency and productivity through competition, guidelines were laid down for
establishment of new banks in the private sector and the foreign banks have been allowed
more liberal entry. Since 1993, twelve new private sector banks have been set up. As a major
step towards enhancing competition in the banking sector, foreign direct investment in the
private sector banks is now allowed up to 74 per cent, subject to conformity with the
guidelines issued from time to time.
Conclusion: The Indian financial system has undergone structural transformation over the past
decade. The financial sector has acquired strength, efficiency and stability by the combined
effect of competition, regulatory measures, and policy environment. While competition,
consolidation and convergence have been recognized as the key drivers of the banking sector
in the coming years
RECENT CHANGES
We shall now enumerate the recent changes that have occured in the Co-operative Banking
Scene, subsequent to the reform measures initiated by the Government.
• During 1992-93 the Reserve Bank of India liberalised the licensing policy for new
Primary Urban Co-operative Banks greatly; prescribed the entry point viability norms
and advised to follow the guidelines relating to their operations and advised to adopt
norms in respect of income recognition, classification of assets and provisioning on
the lines stipulated for commercial banks.
• During 1993-94 the National Co-operative Bank of India [NCBI] was registered on
5th August 1993 as a Multi-State Co-operative Society.
• A Co-operative Development Fund was set up by NABARD to help the Co-operative
Banks to improve managerial systems and skills.
• For the first time Scheduled Urban Co-operative Banks were permitted to invest their
29
surplus funds in Certificate of Deposits and Commercial Papers of those institutions
/ Corporate with credit rating P1 / A1 from CRISIL / ICRA.
• During 1994-95 with a view to improving the viability as also to strengthening the
credit delivery systems, the Co-operative Credit institutions were advised to prepare
Development Action Plans [DAPs] and enter into Memorandum of Understandings
[MOUs] with NABARD and concerned State Governments for their effective
implementation.
• With a view to maintaining the rural credit flow uninterrupted from SCBs and RRBs
the relaxation in the stipulation that they must recover loans at least 40% of the
demand for the previous year to be eligible for refinance from NABARD was extended
up to June 30, 1996.
• Lending and deposit rates of all Co-operative Banks were deregulated in various
phases.
• Effective from April 24, 1995, PCBs were allowed to invest their surplus funds in
equity bonds of all India financial institutions in addition to their investment in PSU
Guidelines - JAIIB
98
Bonds within the ceiling of 10% of their deposits.
• Effective from August 24, 1995 State Co-operative Banks and Central Co-operative
Banks were permitted to invest 5% of their non-SLR surplus fund, according to the
discretion of the local management.
• In February 1996, PCBs were allowed to invest their surplus funds in Certificate of
Deposits issued by banks and other financial institutions, approved by the Reserve
Bank subject to fulfilling certain conditions.
• During 1995-96, all Scheduled PBCs were brought under the purview of the provisions
of the Banking Ombudsman Scheme, 1995.
30
• In April 1996, Scheduled PCBs were allowed to undertake equipment leasing and
hire purchase financing activities after complying with certain prudential requirements.
Non-scheduled PCBs desiring to undertake the above activities were required to
approach the Reserve Bank through the Regional Offices concerned.
• Consequent to allowing PCBs to extend their area of operation, to the entire district
of registration, including rural areas, in the context of the credit gap in agricultural
sector effective December 1996, PCBs were permitted to extend direct finance for
agricultural activities which would be counted as priority sector advances.
• All scheduled and non-scheduled PCBs with deposits of over Rs.50 crore were
required to introduce the system of concurrent audit.
• The prudential accounting norms viz., income recognition, asset classification,
provisioning for bad and doubtful debts and capital adequacy were applied to State
Co-operative Banks and Central Co-operative Banks from the year 1996-97 in two
phases viz., 1996-97 and 1997-98.
Introduction (private equity)
Financial Globalization and increasing risk appetite among global investors has given birth to
new genre of financial intermediaries such as the “private equity”.
Private equity has arrived as a major component of the alternative investment universe and is
now broadly accepted as an established asset class within many institutional portfolios. Many
investors still with little or no existing allocation to private equity are now considering
establishing or significantly expanding their private equity programs.
31
Private equity is often categorized an "a tool investment", comprising a variety of investment
techniques, strategies and asset classes that are complimentary to the stock and bond portfolios
traditionally used by investors.
Private equity provides long-term, committed share capital, to help unquoted companies grow
and succeed. If you are looking to start up, expand, buy into a business, buyout a division of
your parent company, turnaround or revitalize a company, private equity could help you to do
this. Obtaining private equity is very different from raising debt or a loan from a lender, such
as a bank. Lenders have a legal right to interest on a loan and repayment of the capital,
irrespective of your success or failure. Private equity is invested in exchange for a stake in
your company and, as shareholders; the investors’ returns are dependent on the growth and
profitability of your business.
The investments often involve the acquisition of a controlling interest or significant influence
costing several millions of dollars, private equity opportunities are generally more appropriate
for large institutional investors with the time and resources to evaluate the potential risks and
returns, and the patience to wait 10 years or longer to maximize investment returns
Presently there is lot of ambiguity surrounding the concepts of private equity and alternative
investment channels like venture capital and hedge funds. Venture capital is a subset of private
equity and refers to equity investments made for the launch, early development, or expansion
of a business. It has a particular emphasis on entrepreneurial undertakings rather than on
mature businesses. In fact, in most of the literature on private equity and venture capital, these
two concepts are used interchangeably. Hedge Funds differ from private equity firms in terms
of their time-to-hold, liquidity, leverage and strategic direction of investments which in turn
dictates differences in their exit strategy, risk tolerance and desired rate of return of the two
types of funds. Hedge funds seek a quick flip of their investments with the average length of
their investments being 6-18 months, whereas private equity firms stay invested for around3-5
years. Hedge funds are also inclined towards volatile withdrawal of investments as opposed to
private equity firms which are focused on long term returns. However, of late, it has been
observed that the arena of activities of such institutional investors are not mutually exclusive.
Many private equity groups own hedge funds and make long term investments in hedge funds.
Further, attracted by the significant returns in buyout deals, many hedge funds have joined
32
hands with private equity players to make large buyout deals. Given the differences in activities
and risk tolerance of the two players coupled with the absence of any public reporting norms of
their activities, the synergy between the two players has raised regulatory concerns, of recent.
Definition:
“The term “private equity” refers to a range of investments that are not freely tradable on
public stock markets.” (IFSL RESEARCH)
33
Private equity is medium to long-term finance provided in return for an equity stake in potentially
high growth unquoted companies. Some commentators use the term “private equity” to refer only
to the buy-out and buy-in investment sector. Others, in Europe but not the USA, use the term
“venture capital” to cover all stages, i.e. synonymous with “private equity”. In the USA “venture
capital” refers only to investments in early stage and expanding companies. To avoid confusion,
the term “private equity” is used throughout this Guide to describe the industry as a whole,
encompassing both “venture capital” (the seed to expansion stages of investment) and
management buy-outs and buy-ins.
Types of investments
The Private Equity sector is broadly defined as investing in a company through a negotiated
process. Investments typically involve a transformational, value-added, active management
strategy. Private Equity investments can be divided into the following categories:
Types of investments
Venture capital Buyout Special Situation
1. Venture capital: principally in early-stage companies that are still developing their products
or services, yet have the prospect of generating revenue in a few years; and later-stage firms
generating revenue with the expectation of profits within a year or two. This is further classified..
 Seed stage Financing provided to research, assess and develop an initial concept before
a business has reached the start-up phase
 Start-up stage Financing for product development and initial marketing.
2. Buyout and acquisition: financing usually accompanied by a new business plan, and
occasionally with new management, to improve a company's financial performance.
Buyouts are one of the largest Private Equity that you can find out there today. This category
can include the leveraged buyouts, and the management buyouts. This is the category of Private
34
Equity, which is the most famous, and what makes the paper and the news the most. An example
of a buyout would be the leveraged buyout of Nabisco, which was described as the Barbarians at
the gate. The buyout category of Private Equity is often assumed to include both the growth and
expansion, or one of the other. This category and growth together make up sixty percent of all
Private Equity that there is out there today.
 Leveraged Buyout (LBO): It entails the purchase of a company by a small group of

investors, especially buyout specialists, largely financed by debt.
 Management Buyout (MBO): It is a subset of LBO whereby incumbent management
is included in the buying group and key executives perform an important role in the LBO
transactions.
3. Special Situation: capital to established companies looking to enter new markets or
achieve a larger scale of operations.
 Expansion stage Financing for growth and expansion of a company, which is breaking
even or trading profitably.
 Replacement capital Purchase of shares from another investor or to reduce gearing via
the refinancing of debt.
 The above stages can be explained by the diagram, which is shown below -:
(Source: private-equityonline.com)
35
MODE OF WORKING OF PRIVATE EQUITY FIRM
FUNDS ARE RAISED FROM INVESTORS FOR INVESTMENT
PE Firm raised
Investment made
funds. The Analyses made for
in investee
investors being various investment
companies, which
banks, FIs, public options taking into
are good
pension funds, account factors
investment
corporate pension like ROI,
opportunities after
funds, fund-of- suitability of
due diligence
fund, etc. investment, etc.
process.
STAGE I STAGE II STAGE III
36
STRUCTURE OF PRIVATE EQYITY FUND
A private equity firm is usually structured as a limited partnership, where the general
Partner receives capital from limited partners (pension funds, hedge, funds, etc), and pays
the managers, advisers and lenders out of fees.
1.Investors in Private Equity
The number and variety of groups that invest in private equity have expanded
substantially to include a wide range of different types of investors. Up to two decades
ago, the private equity market predominantly consisted of wealthy individuals investing
into early stage companies. Today, institutional investors with long-term commitments to
the asset class provide the vast majority of the capital in private equity funds and new
categories of investors such as sovereign wealth funds have entered this market.
2.Intermediaries
The growth in the private equity market over the past three decades is largely
attributable to the emergence of private equity funds that raise and invest funds from
investors. Private equity funds are organized mainly as limited partnerships. Under the
partnership arrangement, investors who contribute to the fund’s capital are the limited
partners while professional managers running the fund serve as the general partners.
Intermediaries not organized as limited partnerships, such as Small Business
Investment Companies and publicly traded investment companies only play a marginal
role in the private equity market. About four-fifths of private equity investments flow
through specialized intermediaries, almost all of which are in the form of limited
partnerships. The remainder is invested directly in firms through co-investments (direct
investing alongside private equity partnerships) and other forms of direct investments.
Organizations which only manage funds (known as Independents) accounted
for around 80% of investments in recent years. Organizations which only invest for a
parent (Captives) accounted for around 5% while the remaining accounted for by
organizations which do both (Semi-captives).
3.Issuers
37
Issuers in the private equity market vary widely in size and in their reasons for
raising capital. As private equity is one of the most expensive forms of finance, issuers
generally are firms that do not have an alternative source of financing such as a bank
loan, private placement or the public equity market.
Firms seeking venture capital are typically young firms that are projected to show
high growth rates. Seed or start-up capital is the money used to purchase equity-based
interest in a new or existing company which is still not operational. Venture
capital also includes early-stage capital provided for companies that have
commenced trading but have not moved into profitability or proved its commercial
viability. later stage investments where the product or service is widely available are also
considered as venture capital investments.
38
Why to Invest in Private Equity?
1) The fundamental reason for investing in private equity is to improve the risk and
reward characteristics of an investment portfolio. Investing in private equity offers the
investor the opportunity to generate higher absolute returns whilst improving portfolio
diversification.
2) The Indian economy has been growing at an average rate of 6-7% per year since the
1991 launch of economic reforms and liberalization of trade and investment. While agriculture
has traditionally been India’s largest economic sub-sector, the past dpecade has seen the
services sector emerge as the largest component of gross domestic product (GDP). According
to recent research, the main factors underlying India’s long-term growth are rationalization of
the domestic economy (i.e., improving total productivity) and, more recently, exports of
information technology and information technology–enabled services
Over the last 10 years, the Indian Government has introduced wide-ranging changes to
accelerate economic growth and integrate the Indian economy with the rest of the world.
These reforms have primarily minimized or reduced the role of government in industry and
trade, and improved the competitiveness of Indian industry.
3) Private equity-owned companies outperform comparable publicly traded companies in

sales growth, cash flow, profitability and productivity.
4) Two-thirds of the earnings growth (before taxes, interest and capital expense) at private
equity owned companies results from business expansion, with organic revenue growth being
the most significant element.
5) Nearly three-quarters of the productivity growth at private equity-owned companies is

due to more effective management of existing facilities.
39
6) The benefits of improved performance are passed on to employees in the form of
higher wages, competitive benefits and greater job security and stability.
7) Private equity-owned companies are better managed than companies with other
ownership structures are and are particularly strong at operational management practices.
8) Private equity ownership spurs greater advances in innovation. Patents filed by PE-
owned firms were far more likely to be cited in other patent applications than those filed by
firms not owned by private equity investors, the most commonly accepted measure of the
economic impact of innovation used and accepted by researchers.
9) Eighty-five percent of private equity firms included in a recent study increased capital
expenditures in the three years after the private equity investment.
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A BRIEF HISTORY OF PRIVATE EQUITY IN INDIA
In India, private equity is reasonably young, dating back to the mid-1990s. The environment
heated up in the end of the ‘90s with the IT boom, with companies investing (and getting their
fingers burnt) with their investments. In recent years, there has been a resurgence of these
firms, with India’s stock markets booming and sectors like the life sciences, infrastructure and
most recently, real estate being growth stories for the future. Global firms such as Warburg
Pincus, Blackstone and the Carlyle Group have a presence in India while Indian players like
ICICI Venture and ChrysCapital also have a large presence.
The Stages of PE Investment in Indian Scenario

1996-1997 - Beginning of PE activity in India: The Indian private equity (PE) market
roughly started in 1996-1997 and it scaled new heights in 2000 primarily because of the
success demonstrated by India in assisting with Y2K related issues as well as the overall boom
in the Information Technology (IT), Telecom and the Internet sectors, which allowed global
business interactions to become much easier. In fact, the total value of such deals done in India
in 2000 was $1.16 billion and the average deal size was approximately US $4.14 million.
2001-2003 - PE becomes risk averse and activity declines: Not surprisingly, the investing
in India came “crashing down” when NASDAQ lost 60% of its value during the second
quarter of 2000 and other public markets (including those in India) also declined substantially.
Consequently, during 2001-2003, the PEs started investing less money and in more mature
companies in an effort to minimize the risks.
For example:
41
(a) The average deal size more than doubled from $4.14 million in 2000 to $8.52 million in 2001
(b) The number of early-stage deals fell sharply from 142 in 2000 to 36 in 2001
(c) Late-stage deals and Private Investments in Public Equity (PIPEs) declined from 138 in 2000
to 74 in 2001, and
(d) Investments in Internet-related companies fell from $576 million in 2000 to $49 million in
2001.This decline broadly continued until 2003.
2004 onwards - Renewed investor interest and activity: Since India’s economy has been
growing at 7%-8% a year, and since some sectors, including the services sector and the high-
end manufacturing sector, have been growing at 12%-14% a year, investors renewed their
interest and started investing again in 2004. As Figure 1 shows, the number of deals and the
total dollars invested in India has been increasing substantially. For example, US $1.65 billion
in investments were made in 2004 surpassing the $1.16 billion in 2000 by almost 42%. These
investments reached US $2.2 billion in 2005, and during the first half of 2006, PE firms have
already invested $3.48 billion (excluding debt financing). We forecast that the total investment
in 2006 is likely to be $6.3 billion, a number that is more than five times the amount invested
in 2000.
PE investment expands beyond IT and ITES: A very important feature of the resurgence in the
PE activity in India since 2004 has been that the PEs are no longer focusing only on the IT and
the ITES (IT Enabled Services, commonly known as “Business Process Outsourcing” or BPO)
sectors. This is partly because the growth in the Indian economy is no longer limited to the IT
sector but is now spreading more evenly to sectors such as bio-technology and
pharmaceuticals; healthcare and medical tourism; auto-components; travel and tourism; retail;
textiles; real estate and infrastructure; entertainment and media; and gems and jewellery.
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PRIVATE EQUITY FUNDS RAISING PATTERNS
Private equity fundraising
1. Private equity fundraising refers to the action of private equity firms seeking capital
from investors for their funds. Typically, an investor will invest in a specific fund managed by
a firm, becoming a limited partner in the fund, rather than an investor in the firm itself. As a
result, an investor will only benefit from investments made by a firm where the investment is
made from the specific fund that they have invested in.
2. The majority of investment into private equity funds comes from institutional investors.
The most prolific investors into private equity funds are public pension funds, banks, and
financial institutions, which together provided 40% of all commitments made globally
according to data from London-based Private Equity Intelligence Ltd.
3. Other prominent groups investing in private equity include corporate pension plans,
insurance companies, endowments, family offices, and foundations.
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4. Another large investor group in private equity funds is so-called fund of funds, which
are private equity funds that invest in other private equity funds in order to provide investors
with a lower risk product through exposure to a large number of vehicles often of different
type and regional focus. Fund of funds accounted for 14% of global commitments made to
private equity funds in 2006 according to Private Equity Intelligence Ltd.
5. It is also worth noting that the managers of private equity funds themselves will also
invest in their own vehicles, typically providing between 1–5% of the overall capital. Often
private equity fund managers will employ the services of external fundraising teams known as
placement agents in order to raise capital for their vehicles.
6. The use of placement agents has grown over the past few years, with 40% of funds
closed in 2006 employing their services according to Private Equity Intelligence Ltd.
7. Placement agents will approach potential investors on behalf of the fund manager, and
will typically take a fee of around 1% of the commitments that they are able to garner.
8. It is not unheard of for funds to spend as long as two years on the road seeking capital,
although the majority of fund managers will complete fundraising within nine months to
fifteen months.
9. Once a fund has reached its fundraising target, it will have a final close. After this point
it is not normally possible for a new investor to invest in the fund, unless they were to
purchase an interest in the fund on the secondaries market.
India and Private Equity Investments
 Around 70% of the PE investments in March 2009 were made unlisted companies
 India has been on the radar for many Private Equity firms(also known as PE firms in
common parlance). Primary factors attracting these funds in India being a vibrant market and
democracy, which fosters entrepreneurship as well as new firms. It is these new firms, which
know the target market very well who form the basis for new investment by all Private Equity
Firms across the words.
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 PE(Private Equity) has come a long way from providing fuel (funds) to the fiery
growth of India Inc. It helps investor companies with a whole host of activities — from
forging strategic alliances to assisting in corporate governance, from providing management
advice to budgeting. To gauge the activities of these firms as well as their investment patterns
in India, the following study has been undertaken by me:
Analyze the performance of companies receiving PE funding. I did this by tracking deals
concluded before January ’07, since it’s too early to comment on companies that received
money in ’07. I am in the process of analyzing data for approximately 100 listed companies,
spread across sectors like gems and jewellery, tea, shipping, aviation, edible oil and garments,
to name a few. I intend to compare the performance of companies receiving PE funds with
those of their peers in the corresponding Economic Times sartorial indices that did not get any
such funds.
 On an average, a preliminary analysis of the Private Equity funding in new, virgin

industries and companies concludes some basic, yet vital and important points.
 It is observed that mostly, companies which received funding seemed to do much better
than their peers on the following parameters — profitability, cash profits, sales and investor
returns. There were some intangible benefits too, such as greater recognition and increased
media attention.
Reasons for Private equity players entering into India

 A large and growing pool of qualified engineers, scientists, managers, and technicians,
many returning from industrialized countries and a growing middle class with substantial
purchasing power. In addition, inflation is likely to remain at managed levels, although federal
and state budgetary deficits must be controlled.
 The consumer market counts 50 million households (more than 200 million people)
with a yearly income in excess of $1,000. The country has the second-largest English-speaking
population in the world and a technical employment base of 4.1 million. This pool is
augmented yearly through an excellent tertiary education system. Leading corporations like
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Citibank, General Electric, and Unilever are extensively staffed by Indian expatriate staff
recruited and trained in India.
 As a result of these factors, the pool of SMEs with growth potential has significantly
increased in India. To take advantage of these opportunities, SMEs need diverse sources of
finance for expansion. ADB’s assessment of India’s private sector leads it to recommend
providing assistance to increase the variety of financing instruments that are accessible to
private firms.5 In particular, SMEs require long-term finance for capital expenditure and
expansion projects.
 The strong interest in India has resulted in very bullish stock market conditions, with
trading volumes increasing substantially. This has eased exit possibilities, with most of the
early domestic and foreign entrants such as Actis Partners, Warburg Pincus, Citigroup Venture
Capital, Barings and West Bridge Capital reaping significant multiples on their investments. It
is little wonder that other global private equity players such as 3i, Blackstone and Goldman
Sachs have been setting up shop in India, each with deep pockets.
 The most of the private firms in India is still in the need of capital to expand them, in
spite of having the required technology, labor and knowledge they are not able to become
productive to the economy. Thus, the advent of private equity players has provided an
opportunity for these firms to grow with the economy.
 Private Equity players have came to India with a research back up and thus they know
the potential of these firms and thus there has been reduction in the corpus amount invested in
China than in India, which definitely gives a hunch where the Indian economy is booming.
Reasons for Private Equity players being accepted in Indian Economy
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Another practice that private equity players in India have yet to actively adopt is to
supplement executive teams in portfolio companies with a talented board of directors, who not
only play an active role in formulating the company’s strategies but also use their
network of relationships, contacts and managerial expertise to implement various
strategic initiatives for the company — whether it is to tie up a joint venture, to acquire
another company, or to diversify into a new area through a greenfield project. These board
members are expected to devote a significant amount of time outside board meetings to
contribute to the company’s growth and value creation.
The private equity industry in India is at a key injection point. Investors the world over are
increasing their allocations on India. The robust economy, supportive government, and recent
industrial reforms could see several hundred billion dollars channeled to the newly opened
infrastructure sector alone.
Current status of Private Equity investment Indian economy

According to the Private Equity Impact study and research findings - A quantitative
comparison of Private Equity- and Venture Capital-backed companies against their non
Private Equity-backed peers and relevant market indices, in terms of key economic parameters
like Sales, Profitability, Exports, Wages and Research & Development.
In accordance with the research reports and findings from the study:
PE-backed companies grew at a significantly higher rate compared to non Private Equity
backed companies as well as market indices like the Nifty and CNX Midcap.
 Wages at Private Equity-backed companies grew at a significantly higher rate

compared to their peers who are not PE-backed.
 About 96% of top executives at Private Equity-backed companies believe that without
Private Equity financing, their companies would not have existed or would have developed
slower.
 More than 60% of top executives at Private Equity-backed companies said that the
number of employees at their companies had increased after the PE investment.
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PE in the growth of Indian Economy
“Private Equity in India: Adding Human Capital to the Value-Creation “
If you are a global company and India is not part of your plan, then you have missed the
bus…..said by - Dr. Manmohan Singh, Prime Minister of India
Private equity investments in India would be in the range of $9-$10 billion in this
calendar year(2010), according to a recent report by consultancy firm KPMG and lobby
group Confederation of Indian Industry.
PE investment in the country dipped to $210 million in 15 deals in March 2009, against $1.3
billion in 22 deals in March 2008.
 In the days before economic liberalization, it was just established industrial houses
such as Tata or Birla which had easy access to the capital markets and money resources largely
on the basis of their pedigree.
 The investment environment has radically changed since then. A whole new breed of
entrepreneurs now occupies front ranking positions in their respective fields. Many of the old
business houses which had the foresight to embrace change, have restructured, re-focused and
have flourished. The rest have withered into insignificance. And in their stead, many have
emerged who could become future stars in manufacturing, technology or knowledge-based
services. Indeed the investment environment is so attractive that investors are flocking to
scores of funds, domestic and international, taking a heavy exposure on the future of these
companies. Besides foreign institutional investors and mutual funds, private equity funds are
also taking concentrated bets across companies and segments. Many India-dedicated funds
have, and are, being set up to finance and to provide resources to the organizations as they
know the potential of these organizations.
 And allocations in existing ones are being ramped up for corporate in south Asia, India
and China. Timothy Draper, founder of Draper Fisher Jurveston, a Silicon Valley venture
48
fund, on his first exploratory visit to the country in October went on record to say that he was
adopting a contrarian approach. "Now that everyone's crowding in China I have to go
someplace different. And that place is India." Draper is also contemplating to set up an office
in India. Draper is well known for funding Sabeer Bhatia of Hotmail, the free internet e-mail
service which was subsequently sold to Microsoft for over $400 million. There are several
other PEs which are rushing to India. Unlike Draper, they are not contrarians but are willing to
bet on the India growth story. Among them is west Bridge Capital Partners, a Mauritius based
company focusing on IT and BPO businesses and having offices in Silicon Valley and
Bangalore. It recently procured subscriptions to its second India VC fund of $200 million.
“One major draw in favor of India is the diversity of enterprises which span over virtually all
sectors.
 Many of the private equity funds tend to seek a place on the board and participate
actively in laying down the policy framework to ensure quicker rise of the enterprise. This is
especially helpful in case of new economy businesses where traditional assessment by
investors may not get the same valuation as may be received from a private equity investor.
Again, this is helpful in case of an unlisted company.
 India’s private equity sector is moving to the big league. Fund sizes have increased
dramatically from 500 million to 112 billion just a few years ago, to between US $400
million and US $1 billion today. The minimum deals now start at around US $50 million,
eclipsing the average deal size of US $8 million in 2002. With the strong global interest in the
Indian market continuing, the challenge is no longer about raising private equity funds, but
how to extract value from the portfolio investments, turning the focus from financial capital to
human capital.
 During the first half of fiscal year 2008-09, US$27.96 billion of foreign direct
investment (FDI) poured into India. This is set to explode further, with sweeping reforms by
the Indian government to loosen restrictions on FDI across various sectors, which will lead to
more international corporations and financial investors entering the Indian market. Examples
include the retail sector,
49
 Where 51 percent FDI is now allowed in single brand products; the telecoms services
sector.
 Where the FDI limit has been raised from 49 percent to 74 percent; and selected
infrastructure sectors, such as the development of new airports, lying of natural gas pipelines,
petroleum infrastructure, captive mining of coal and lignite, mining of diamonds and precious
stones, as well as the development of townships where complete foreign ownership is now
welcome.
 Since 2004, India has witnessed a tremendous rise in Private Equity financing. Indian
companies are creating partnerships with PE firms on a scale that has not been witnessed
before. Is this good for the Indian economy? What kind of value does this relatively new form
of financing offer to Indian entrepreneurs?
 PEs not only provides resources of funds to the new ventures but also focuses on
identifying and upgrading both product/process innovation and management functions in
accordance to the global economy.
 PEs plays a critical rule in the innovation process, not only as a source of finance to
innovation but through other functions that lie at the core of high tech Development.
 PEs bridge between sources of finance, entrepreneurs, scientists, suppliers, and
customers by providing not only the required sources of funds but also an added value of
technologies and requirements.
 PEs typically also add value to their portfolio companies through assistance in strategic
decisions in the day-to-day management of the firms.
 PE capitalists with technology & entrepreneurial background generate more value
added than PEs with financial background
Fund raised through Private Equity investments
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Before moving to year 2010 let us see through the graph the Private Equity investment in India
till 2009 `
asia
Private equity investment India
Amount in $bn
130
117
120
110
100
no of fund raised
90
78
80
70
57 62
60
49
50
36 35
40
22 30
30
16
20
10
0
2005 2006 2007 2008 2009
asia 22 57 62 49 117
India 16 36 35 30 78
Private Equity firms invested a record $7,460 million over 299 deals in India during the 12
months ending December 2006. The amount invested during year was over three times that
during the previous year. (These figures exclude investments in real estate.)
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Despite the headline grabbing mega deals, the bulk of the investments were in the sub $25
million category, with the maximum number of investments falling in the $10-25 million
range.
By Industry
Information Technology and IT-Enabled Services (IT & ITES) continued to remain the
favourite industry among PE investors during 2006. Other industries that attracted significant
PE investor attention during the year included Manufacturing, BFSI (Banking, Financial
Services and Insurance), Healthcare & Life Sciences and Engineering & Construction.
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Key factors that have contributed to the steady inflow of investment
in India are - :
 Growing consumer demand and India, s consequent emergence as a high demand

and quickly expanding market.
 Growing recognition as a high quality, low cost production and Research and
Development destination.
 Infrastructure growth and public private partnership in infrastructure projects.
 Competitive business models focused on exports and outsourcing from small and
medium sized companies.
 Government inclination and reforms which create an investment friendly
atmosphere.
 A sizeable, multi-talented workforce and established management capabilities.
All of the above factors have contributed to the Indian growth story, which has, apart from
the traditional PE funds, attracted the attention of a cross-section of investors ranging from
high net worth individuals, pension funds and universities in developed countries to propriety
funds of the investment banking firms. The assets invested in emerging economies generally
form bout 5-10% of their total investment corpus. Besides looking to optimize the risk-return
profile, these investors also want to hedge their investments in developed economies. Business
models in emerging economies, built to cater to export led demand, shift the risk back to the
developed economies. This is where the large Indian market, fuelled by increasing
consumerism, has provided investors with a natural hedge. Indian business models essentially
built to cater to domestic demand , have interested PE players and a larger component of PE
investments are being made in this space , as PE players consider this model to be more
stable. These trends are expected to continue in the short to medium term. Accordingly, while
IT and ITes are still in favoured sectors, healthcare, automotive ancillaries, hospitality, real
estate, infrastructure, entertainment, media, and services have also witnessed significant action
and hold promise for a lot more.
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Apart from valuations issue in recent times PE players have been concerned about the
slowdown in the government economic reforms policy – key areas of concern include
 Opening up of sectors such as retail to foreign investments.

 Labour reforms.
 Providing greater operational autonomy in sectors such as telecom
and media.
 Facilitating smoother entry and exit norms for foreign investment.
In spite of the above, there appears to be enough momentum at this point of time to ensure that
there will be no slowdown in PE activity in the near future. For example, a large number of
domestic funds are finding great value in retail business in India, both in the hope of a policy
change in the future and the expected growth in the sectors in times to come. The Indian
economy grew 8.9% during the first quarter of 2009-2010, which is the highest first quarter
growth in six years. This growth is expected to continue in the near future – and combined
with an increase in domestic demand and a friendly business environment, can be expected to
ensure that PE funds remain highly focused on India.
Private equity investment in India is forecast to grow rapidly over the next few years as
overseas investors continue to be attracted by the country’s strong growth prospects.
According to consultants Bain & Co, the value of Indian private equity investments is set to
grow to $7bn a year by 2010, compared with $2.2bn in 2005.
Examples:
US entertainment giant Walt Disney is planning to become the first foreign media group to
release original, local language programmes for the Indian children’s TV market. Disney
recently acquired Hungama, an Indian children’s channel, and is working on two Hindi-
languages TV series to be shown on its Disney Channel.
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US IT group IBM is to establish a software development centre in Calcutta, creating 3,000
jobs, while fellow US computer company Dell is to invest up to $60m to build its first
manufacturing plant in India.
Why Are Private Equity Firms Looking Hard at India?
Private equity players in India focusing at hospitality and education sector

Submitted by TheIndiaStreet
 Private equity players in India are focusing at hospitality sector and education firms at
this moment of time. Not so long ago, IT, manufacturing, banking and engineering were the
preferred choice for private equity investors. But situated has changed in the last few months
as "shallow sectors" such as hospitality, agriculture and media are gaining importance among
bulge-bracket investors.
 You may not believe at first but it’s true that even agriculture sector has pocketed $29
million by way of three separate deals. According to sources, agriculture-based research
companies are attracting investors. On the other hand, in the energy sector, private equity
investors have invested more than $250 million across 11 deals over the past nine months. In
my opinion, power and power utility services are the most vibrant sub-segments of energy
sector.
 It has been noticed that hotel sector is attracting plenty of private equity investors. In
terms of statistic, private equity investors have invested more than $25 million in hotels chains
this year. According to experts, booming hospitality sector in India is seeing rising interest
from both domestic and foreign players that are interested in investing in hotels.
 The domestic education sector also stands to gain from the private equity investors.
Because of booming economy and talent shortage, private equity investors expect the demand
for services from such firms to pick up. Point to be noted here is that companies in the
education sector normally give online tutoring services for customers abroad.
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 In some cases, they also tap the domestic market by setting up coaching centres and
vocational training. Berggren Holdings, a New-York based fund, which is interested in
investing $300 million in India over the next couple of years, has identified education as one
of its focus areas.
 In March, when the international private equity firm Warburg Pincus sold a $560
million stake in Bharti Tele-Ventures, India's largest publicly traded mobile telephony
company, it created a sensation both in that country and among private-equity investors around
the world. The transaction, on the Bombay Stock Exchange, was the largest block trade ever
on the Indian market. It was also consummated in a breathtaking 28 minutes, prompting stock
market observers in India to remark on the unexpected depth and maturity of their equity
markets.
 Private equity investors marveled at the profitability of the investment -- in a market
that was in its infancy barely a decade ago. Money from U.S. private equity investors was
going to Asia back then, but it was to destinations such as Indonesia and Thailand. India did
not figure in most investors' definitions of "Asia" -- or at least not in any major way. The
March transaction was the largest of a series of retrenchments, over several months, that saw
Warburg reduce its 18.5% stake in Bharti to about 6%.
 Warburg, which invested nearly $300 million in Bharti between 1999 and 2001, walked
away with a profit of $800 million from selling two-thirds of its holdings. At Bharti's current
share prices, Warburg's remaining 6% stake in the company is worth some $700 million, or
more than twice what it originally invested. Bharti, which trails privately held Reliance
Infocomm, had a sallow $100 million market capitalization when Warburg entered the scene.
It now has a market capitalization of $15 billion. In 1999, Bharti had 104,000 subscribers. It
now has 14 million.
 India has done well by Warburg, generating returns in "the mid-30s over 10 years," the
firm's co-president, Charles R. Kaye, said during a presentation on October 11 organized by
the University of Pennsylvania's Center for the Advanced Study of India. (Kaye will return to
Philadelphia next month to speak at the Wharton India Economic Forum on November 17 and
18.) In turn, the firm has favoured India. Warburg is the largest private equity investor in
India by far, having ploughed $811 million into the country as of mid-2005. This amount
is more than twice the $362 million Warburg has invested in China, according to data
provided by the National Venture Capital
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Prospects for the Private Equity Market in India
Indians spend approximately $44.8 billion on education while the global education market is
approximately $2 trillion. Approximately 26% or $11.5 billion of the industry in India is private
and offers investment opportunities. Market growth across the Indian private education sector is in
excess of 10% per annum and this sector is looking like a major opportunity over the next few
years.
As per reports within the private equity and venture capital world, one of the hottest new
segments where investors are now looking to invest in over the next six to eight months is the
education sector. The sudden rise of popularity in this sector has come at a time when investors are
looking to expand their investment options and cover different options that not only provide a
good opportunity but also discover new possibilities.
The technology boom of 2000 and the outsourcing wave have affirmed India position as a
provider of high quality products and services at highly competitive cost. A buoyant Indian
economy, the change in spending patterns and rising income levels in the working population
have acted as a catalyst for domestic demand. In the wake of increasing competition and slow
economic growth in developed economies India’ s importance is growing, not just as a low
cost outsourcing destination but also as a potential market offering high growth.
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The hike in GDP rate(2010) giving silent message that Indian economy is on good track and
the opportunities are emerging day by day. India inc. should have to more utilized their
strength.
There is also a big opportunity on serious infrastructure like roads, ports, power. India has
made building of roads, bridges, airports and power plants a priority and expects private firms
to fund half of a projected $1 trillion in infrastructure between 2012 and 2017.
India's diversified conglomerate Tata Group and private equity firm Actis aim to bid for $2
billion of road projects in India over the next five years as the country makes a major push to
build highways.
ICICI Venture, one of India's largest private equity firms with about $2 billion in assets,
also plans to launch a $100- million fund in India with an option to raise another $100 million
for investing in real estate companies.
Private equity investment in India fell more than 60 percent to $4.4 billion in 2009 from
$11.9 billion in 2008, according to VCC Edge, which provides data on mergers and
acquisitions, and private equity and venture capital deals.
In conclusion, a large and growing pool of entrepreneurial SMEs in India have great potential
for expansion. These SMEs’ demand for long-term equity finance is not met by traditional
financial institutions, and the private equity investment rate still has a long way to go to reach
the levels. This gap provides an opportunity for Indian private equity firm to stimulate the
diversification of the financial sector in India by supporting a domestic private equity team
with an excellent track record in the niche of SME equity finance, and to mobilize funds from
institutional investors by actively participating in the Fund’s structuring and supervision.
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Role of Private Equity players
The different major roles played by Private Equity players in the economy are as follows
1. Financial
2. Equity
3. Quasi Equity
4. Shareholder’s Loans
5. Guarantees
6. Managerial
7. Board inputs: Industry specialist Independent Directors
8. Investment professionals with experience & knowledge of building businesses
9. Networking
10. Global access to valuable group of people and skills
11. Fast track partnership.
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Provides Fund irrespective of market conditions for –
12. Expansion Capital

13. Acquisition Capital/Change of control
14. Restructuring Businesses
15. MBOs, Divestments, Consolidation
16. Restructuring B/S
17. Shoring up Promoter stakes
18. Privatisation (Public to private)
To enable entrepreneurs achieve success that may otherwise have been beyond reach by
providing resources over and above money.
Money can be availed through any other form of funding. But, money alone can not catalyse
the working of your organisation, thus along with the resources PE players also provides risk
management tools ensuring high degree of success to the organisation.
PE players also facilitate and promote building businesses and teams ensuring high standard of
corporate governance.
Success of PE Fund is dependent on success of the venture. PE funds make sure that their star
entrepreneur are helped with all the resources and learning which can be mustered by the fund
to help him realise his dream.
The chart below shows the different roles played by Private Equity firms –:
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Private Equity capital is more than just money
Apart from providing capital, Private Equity investors provide strategic and operational
guidance to the companies they invest in. A vast majority of top executives from the PE-
backed companies felt that their Private Equity investors made far greater contributions than
just provision of capital. Entrepreneurs cited strategic direction, financial advice, top
management recruitment and marketing as the main areas where Private Equity fund managers
add value.
Private Equity firms are active investors and adopt a hands-on working relationship with their
portfolio companies. Their strategic input is more than just financial monitoring. Eighty
percent of the top management at PE-backed companies said they interact with their investors
on a weekly or monthly basis.
Some other important roles are -

 Intermediation and Market Building - The enhanced access to business and
advisory/consultancy services and to knowledge/technology that PE provide will contribute to
the emergence of new markets in the global economy. Moreover, PEs helps enterprises global
product and global capital markets. This is particularly important for SMEs and clusters
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wanting to expand the range of markets in which they would like to operate e.g. new markets
for intermediate inputs, which the Globalization process is opening.
 Source of External Capabilities - PEs complement the capabilities of innovative

SMEs, sometimes in those areas were entrepreneurs are less likely to be knowledgeable and
capable e.g. export marketing; know whom, management, etc.
 Facilitating Complex Contracting - This is particularly so in relation to marketing

agreements, alliances, strategic partnerships, M&A, etc—many of these critical for fast access
to global product markets. A central condition for success in many of these is prior experience,
which entrepreneurs frequently do not have. A PE sector may eventually have such
capabilities and thereby have a strong impact on innovative enterprises quest to rapidly build
global market share.
 Promoting International Links – It provides promotion and global links to the

enterprise thus increasing the industry visibility of the firms to go for global expansion with
the right partner.
 Supporting of the Global Expansion of Promising Innovative SMEs - The value

roles of PE is to provide equity based (generally private) finance and support organizations
could play important roles in promoting innovative SMEs and clusters in industrializing
economies PE could become a pillar of the Knowledge Economy—by facilitating the
provision of services to Innovative SME’s; by being a node of three overlapping networks; and
because its capabilities are largely based on tacit knowledge. Moreover, by promoting SME
they are promoting invention (and indirectly innovation and diffusion), self-organization and
creation of new teams & tacit knowledge, and the continuous building of new markets.
Interactive learning lies at the basis of these processes.
Facilitate the Transition to a Learning Economy – Since the PE are learned and qualified
investors, this could provide enterprise a new learning environment that constitute a key
sector in the creation, diffusion and adaptation of tacit knowledge, codified knowledge and
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technology
How the Indian firms will perform will largely depend on their manageme
How successful these firms will perform in the big league of high stakes private equity
plays over the long run could depend heavily on one key factor — their teams of professionals.
A recent global survey by McKinsey & Company revealed that Indian business
leaders are much more optimistic about the future than their international peers are. Yet
Indian business leaders see the high cost and low availability of talent as the single greatest
constraint on their companies — it’s a problem that worries them much more than it does their
counterparts around the world. Similarly, top on the agenda of India’s private equity firms is
finding the right leadership teams to drive business.
To date, private equity firms have focused on different stages of a portfolio company’s
evolution, entering at an early stage with venture capital funds, later for growth capital, and
even after listing as a Private Investment in Public Equity (PIPE) deal players emerging in the
Indian market. Firms that focus on a few narrowly defined industry sectors are better
positioned to build upon and translate their expertise into value-creation potential, transaction
pricing, and higher potential returns over the long run. It is therefore no longer sufficient to
look primarily at the skill sets and track records of investment professionals. Firms need to
ensure that their executives think and act like owners, and will take active responsibility for
the proper guidance of portfolio companies.
We also envisage that more private equity firms will hire operating partners who become
deeply involved in the management of buy-out investments and other portfolio companies . In
many cases, private equity firms retain the incumbent management, preferring not to
rock the boat when buying out a company. As seasoned managers with in-depth industry or
functional expertise, operating partners act as sage counselors and critical advisors on
operating, financial, and strategic issues for the portfolio companies’ management teams. With
a clear mandate to add value to an investment within a fixed timeframe, they can adopt a less
sentimental approach and focus unflinchingly on results to make fast decisions and act rapidly
where necessary. An alternative to hiring operating partners is to create management buy-in
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teams. Here, private equity firms enter into joint investments in specific portfolio companies
with a small group of seasoned professionals who are looking for a new challenge, and who
have the funds for a small co-investment amount as “sweat equity”. It has been shown that
running the business as an owner inevitably helps unlock value. The benefit of this joint
management ownership program is that it instantly puts in place highly motivated owner
executives to run the company from day one.
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Approaches to Portfolio Construction
Portfolio construction will reflect the principal objectives of investing in private equity,
including targeting higher long-term returns and portfolio diversification through reduced
correlation to public equity markets. Issues of correlation will apply not only in connection
with other assets, but also amongst the assets in the private equity portfolio itself.
1) The size of the private equity allocation

Investors in private equity should be able to accept the illiquid character of their investment,
hence the extent to which liquidity may be required is often a factor in the size of allocation.
For this reason, it is often the case in the US that the investors who make the largest
proportional allocations to private equity from their overall portfolios are those who are able to
invest for the long term with no specific liabilities anticipated. These would include
endowments, charities and foundations. Pension funds also are often large investors in the
asset class. Based on the requirement to increase targeted returns and/or reduce volatility, the
investor will determine the proportion of its overall portfolio that it believes is appropriate to
allocate to private equity.
2) Number of private equity funds to commit to
It is a challenge for investors to avoid concentration of risk within their private equity portfolio
and to control portfolio volatility. It is appropriate to aim for some diversification. The chart
below indicates that a level of diversification can be achieved by holding at least six different
funds.
3) Ways of achieving diversification
Stage There is negative correlation between returns from different stages of private equity.
Diversification can therefore reduce risk within a private equity portfolio and this should be an
important consideration.
Geography Geographical diversification can be secured in Europe through the use of country-
specific, regional and pan-European funds. Non-European exposure is also widely available, in
particular through US funds, but also for example through Global, Israeli, Latin American and
Asian funds.
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Manager Selecting a variety of managers will reduce manager specific risk. Vintage year
Timing has an impact on the performance of funds, as opportunities for investment and exit
will be impacted by external economic circumstances. For this reason, it has become a normal
practice to compare the performance of funds against others of the same vintage. There may be
marked differences in performance from one vintage year to another. In order to ensure
participation in the better years, it is generally perceived to be wiser to invest consistently
through vintage years, as opposed to "timing the market" by trying to predict which vintage
years will produce better performance.
Industry in venture investing, most of the focus tends to be on technology-based industries.
These can be subdivided, for example into healthcare / life sciences, information technology
and communications. Buyout funds tend to focus on technology to a lesser extent, providing
exposure to such sectors as financial institutions, retail and consumer, transport, engineering
and chemicals. Some have a specific sector focus.
4) How to implement the strategy
 Given the typical minimum investment size of private equity funds, establishing a
diversified portfolio will require certain minimum levels of capital commitment. It will also
take time to put into effect, bearing in mind vintage year diversification and the over-riding
objective to identify the best managers in a given area.
5) How to plan for the volatility of cash flows - the J-curve
 When drawdown and distributions are combined to show the net cash flows to
investors, this normally results in a "J-curve", illustrated in the chart below. As distributions
normally commence before the whole commitment has been drawn, it is unusual for an
investor ever to have the full amount of its commitment actually managed by the manager. In
the illustration below, net drawn commitments peak at around 80%
 Earning acceptable returns takes time investing in private equity funds can produce
low or negative returns in the early years. The rewards usually come several years later as the
investments mature. This timing is known as the J curve effect.
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Example of j curve
In the initial years, investment returns to the limited partners are negative because the general
partner's management fees are drawn from invested capital, accounting and valuation policies
tend to result in portfolio write downs occurring more quickly than increases in carrying value,
and because lower performing investments are identified early relative to the better performing
investments which are often held longer and sold later in the life of a fund. Over time, the
progress made by investee companies justifies a value for the business that is higher than its
original cost, resulting in unrealized gains. During the remaining period, the higher value of
the businesses is confirmed by the partial or complete sale of companies, resulting in cash
flows and realized capital gains to the partners. Private equity investing may involve a series
of J curves because capital is invested in different investment funds and private companies at
different times.
This initial funding may be followed by subsequent drawdown (the timing and size of which
are generally made known to the investor two or three weeks in advance) as needed to make
new investments. Just-in-time drawdown is used to minimize the amount of time that a fund
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holds un-invested cash, which is a drag on fund performance when measured as an internal
rate of return ("IRR"). As portfolio companies mature and exits occur, the fund will begin to
distribute proceeds. This will take a few years from the date of first investment and the timing
and amounts will be volatile.
Comparison of private equity with alternate source of financing:
A provider of debt (generally a bank) is rewarded by interest and capital repayment of the loan
and it is usually secured either on business assets or your own personal assets, such as your
home. As a last resort, if the company defaults on its repayments, the lender can put your
business into receivership, which may lead to the liquidation of any assets. A bank may in
extreme circumstances even bankrupt you, if you have given personal guarantees. Debt which
is secured in this way and which has a higher priority for repayment than that of general
unsecured creditors is referred to as “senior debt”.
By contrast, private equity is not secured on any assets although part of the non-equity funding
package provided by the private equity firm may seek some security. The private equity firm,
therefore, often faces the risk of failure just like the other shareholders. The private equity firm
is an equity business partner and is rewarded by the company’s success, generally achieving
its principle return through realizing a capital gain through an “exit” which may include:
 Selling their shares back to the management
 Selling the shares to another investor (such as another private equity firm)
 A trade sale (the sale of company shares to another)
 The company achieving a stock market listing
Although private equity is generally provided as part of a financing package, to simplify
comparison we compare private equity with senior debt.
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Private equity compared to senior debt
Private equity Senior debt

Medium to long-term. Short to long-term.
Not likely to be committed if the safety of
the loan is threatened. Overdrafts are
Committed until “exit”. payable on demand; loan facilities can be
payable on demand if the covenants are not
met.
A useful source of finance if the debt to

Provides a solid, flexible, capital base to meet your
equity ratio is conservatively balanced and
future growth and development plans.
the company has good cash flow.
Good for cash flow, as capital repayment, dividend

Requires regular good cash flow to service
and interest costs (if relevant) are tailored to the
interest and capital repayments.
company’s needs and to what it can afford.
The returns to the private equity investor depend Depends on the company continuing to
on the business’ growth and success. The more service its interest costs and to maintain the
successful the company is, the better the returns all value of the assets on which the debt is
investors will receive. secured.
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If the business fails, private equity investors will
rank alongside other shareholders, after the banks If the business fails, the lender generally
and other lenders, and stand to lose their has first call on the company’s assets.
investment.
If the business appears likely to fail, the

If the business runs into difficulties, the private lender could put your business into
equity firm will work hard to ensure that the receivership in order to safeguard its loan,
company is turned around. and could make you personally bankrupt if
personal guarantees have been given.
A true business partner, sharing in your risks and

rewards, with practical advice and expertise (as Assistance available varies considerably.
required) to assist your business success.
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STRENGTHS
1) Long-term historical out-performance
The long-term returns of private equity represent a premium to the performance of public
equities. This has been the case in the US for over 20 years and in Europe, following an
increase in the number of private equity funds, for over 10 years. For many institutions, such a
premium over more conventional asset classes justifies the different risk profile of the asset
class.
True stock picking in a low inflation, low growth environment
A low inflation environment creates a focus on growth stocks as a means of out-performance.

One of the core skills of the successful private equity manager is to pick companies with
growth potential and actively to create the conditions for growth in those companies. Since
private equity funds own large, often controlling, stakes in companies, few, if any, other
private equity managers will have access to the same companies. Private equity managers are
therefore true "stock pickers". This contrasts to mutual funds, which will often hold largely the
same underlying investments as their peer group, with variations in weightings being fine-
tuned to a few basis points.
Absolute returns
Excessive volatility and poor investment performance experienced by quoted equity portfolios,
many of which have index-tracking strategies or are benchmarked to an index ("closet
trackers"), have led to a swing in favor of strategies that seek absolute returns.
Demographic trends have compounded the desirability of such a change. The need to provide
for an ageing population has obliged many institutions to adopt a more absolute return oriented
investment approach in order to meet future liabilities. Private equity managers do seek
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absolute returns and their traditional incentivisation structure, the "carried interest", is highly
geared towards achieving net cash returns to investors.
2) Portfolio diversification improves risk and volatility characteristics
Within a balanced portfolio, the introduction of private equity can improve diversification.
Although lower correlation of returns between private equity and public market classes is
widely debated and needs further investigation, the numbers do indicate a lower correlation.
3) Exposure to the smaller companies market
The private equity industry has brought corporate governance to smaller companies and
provides an attractive manner of gaining exposure to a growth sector that went out of favor
with market investors in the mid 1990s for reasons of liquidity.
Access to legitimate inside information
A much greater depth of information on proposed company investments is available to private

equity managers. This helps managers more accurately assess the viability of a company's
proposed business plan and to project the post-investment strategy to be pursued and expected
future performance. This greater level of disclosure contributes significantly to reducing risk
in private equity investment. Equivalent information in the public markets would be
considered "inside information". By definition, investors in public markets will know less
about the companies in which they invest.
Ability to back entrepreneurs
The wider emergence in Europe of entrepreneurs as an important cog in the economy has been
facilitated by a period of larger company rationalization. This has reflected similar
developments in the US that, for example, fostered rapid growth in technological innovation
and substantial knock-on benefits for the whole economy through the 1990s. Entrepreneurs
have also been at the heart of developments in Europe, creating value in both traditional and
hi-tech industries. The private equity asset class offers the ability to gain investment exposure
to the most entrepreneurial sectors of the economy.
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Influence over management and flexibility of implementation
Private equity managers generally seek active participation in a company's strategic direction,
from the development of a business plan to selection of senior executives, introduction of
potential customers, M&A strategy and identification of eventual acquirers of the business.
Furthermore, implementation of the desired strategy can normally be effected much more
efficiently in the absence of public market scrutiny and regulation. This flexibility represents
another feature whereby risk can be reduced in private equity investment.
Leveraging off balance sheet
Buyout managers in particular are able to make efficient use of leverage. They aim to organize
each portfolio company's funding in the most efficient way, making full use of different
borrowing options from senior secured debt to mezzanine capital and high yield debt. By
organizing the company's funding requirements efficiently, the equity returns are potentially
enhanced. In addition, because the leverage is organized at the company level and not the fund
level, there is a ring-fencing benefit: if one portfolio company fails to repay its borrowing, the
rest of the portfolio is not contaminated as a result. Thus, the investor has the effective benefit
of a leveraged portfolio with less downside risk.
WEAKNESES
However, there are features that investors might not find attractive and which must be
understood.
Long-term investment
In general, holding periods between investment and realization can be expected to average
three or more years (although this may be shorter when IPO markets are especially healthy).
Because the underlying portfolio assets are less liquid, the structure of private equity funds is
normally a closed-end structure, meaning that the investor has very limited or no ability to
withdraw its investment during the fund's life. Although the investor may receive cash
distributions during the fund's life, the timing of these is normally uncertain. "Liquidity risk" is
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one of the principal risk characteristics of the asset class. Private equity should therefore be
viewed as a longer-term investment strategy.
1) Increased resource requirement
As a result of the active investment style typical of the industry and the confidentiality of
much of the investment information involved, the task of assessing the relative merits of
different private equity fund managers is correspondingly more complex than that of
benchmarking quoted fund managers. This makes investment in private equity funds a much
more resource-intensive activity than quoted market investment. Likewise, post investment
monitoring of funds' performance is also more resource-intensive. Resource is a key issue in
the development of a private equity program that is suitable for the investor.
2) "Blind pool" investing
when committing to a private equity fund, the commitment is typically to provide cash to the
fund on notice from the general partner. Whilst launch documentation will outline the
investment strategy and restrictions, investors give a very wide degree of discretion to the
manager to select the companies that the investors will have a share in. Unlike some real estate
partnerships, there is usually no ability at the launch of a private equity fund to preview
portfolio assets before committing, because they have not yet been identified. Also, there is
generally no ability to be excused from a particular portfolio investment after the fund is
established.
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Risks
1) Investment Risks
All investing involves risk. Most investments involve many different types of risk—anything
that creates uncertainty about your investment is a risk. Before you make an investment, you
need to determine what risks you are taking and if you can—financially and physically—
afford to take those risks. The promoter of the investment should tell you, in writing, what
risks are involved in the investment she or he is trying to sell you. You need to determine if
you can afford those risks.
The risk you absolutely must not take is the risk that the investment is not legitimate. An iron-
clad rule about risk is that the higher the potential rate of return on an investment, the higher
the risk you are taking that you will not receive that return and, additionally, that you may lose
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your initial investment. Always investigate the salesperson and the investment before you
hand over your money.
Let's assume, however, that you know that the investment is legitimate. You have obtained
all of the representations about the investment in writing, you have checked with the securities
regulators to make sure the securities and the salespeople are registered, you have investigated
the issuer of the securities, and you have read the prospectus. What types of risk should you
look for to determine if this investment suits your goals?
2) Market risk:
The risk that the price for which you can sell the investment will be lower than the price you
initially pay for it. A number of factors affects market risk, including political, economic, and
weather conditions. Is the risk high that the market price of the investment will be volatile? If
so, can you afford to hold the investment if the price drops until the price comes back up? If
you can't hold the investment because you need the money for something else at a specific
time, then you can reduce risk by buying a more stable investment.
3) Business risk:
The possibility that the transaction underlying an investment will not succeed. You can lose
money if the company's competitors are better than the company, people don't buy the
company's products, or the company's officers don't manage the company well or are
dishonest. You can lower the business risk by investing in a business that is established and
has a successful track record, that is run by experienced business people, and that sells a
product in which consumers have proven to be interested.
4) Liquidity risk:
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The risk that you will not be able to sell the investment quickly if you need or want to. An
investment in exchange-traded securities is very liquid because you can buy or sell the
securities any time the exchange is open. An investment in a limited partnership that owns raw
land may not be as liquid if no one is interested in that parcel of land when you want to sell
your interest.
5) Inflation risk:
The chance that the value of investments will be eroded as inflation shrinks the value of the
country's currency. You run the risk that inflation will erode the value of your investment if
the return you receive on the investment is lower than the inflation rate.
As in all things, you must ascertain and maintain the appropriate balance between the risks you
can afford and are willing to take and the return you would like to receive on your investment.
These are only a couple of the Investments that actually come from Private Equity. If you are
planning to get in this sector then please does some research before you take that initial leap?
THE REGULATORY ENVIRONMENT OF THE PRIVATE EQUITY INDUSTRY IN INDIA
1. The Securities and Exchange Board of India (SEBI)

issued its Regulations for Venture Capital in 1996, thus
establishing the agency’s authority over the funds, the limits on
their activities, and incentives for them to finance and rescue
troubled companies. There are no legal or regulatory differences
between venture capital and private equity firms. The
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Government first permitted financial institutions (Industrial
Development Bank of India, ICICI, and IFCI), commercial
banks (including foreign banks), and subsidiaries of commercial
banks to establish venture capital companies under guidelines
issued in 1988. In addition, under current central bank
regulations, banks’ investments in mutual funds catering to
venture capital funding are considered to be outside the ceilings
applicable to banks’ investments in corporate equity and debt.
2. Foreign venture capital funds have been permitted to
operate in India since 1995. They may either hold the shares of
unlisted Indian companies directly (up to a maximum of 25% of
equity) or route their investments through domestic venture
capital funds and companies. Before guidelines were issued in
September 2000, direct exposure by offshore private equity
funds in shares of unlisted companies was treated as a foreign
direct investment and had to be approved in line with the
Government’s general policy on foreign investments. Indocean
Venture Fund (now Indocean Chase), originally set up by
George Soros and Chemical Bank in October 1994, was the first
such overseas private equity fund.
3. The regulatory environment for the private equity industry
was simplified in 1995–2000. Foreign institutional investors
participated in the growth of the private equity industry through
the foreign direct investment regulations of the Government and
the simplified tax administration procedures under the Indo-
Mauritius Double Taxation Avoidance Treaty. While the foreign
direct investment route offered minimum investment restrictions
for private equity funds, exit pricing and repatriation of capital
were regulated by the Reserve Bank of India (RBI). To bring
these capital flows under the regulation of the venture capital
industry, new SEBI regulations were issued with simplified exit
pricing and repatriation procedures for foreign investors.
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4. Following amendments to the 2000 budget, the
Government has allowed private equity funds “pass-through”
status, meaning that the distributed or undistributed income of
the funds is not taxed. To avoid double taxation, the income of a
private equity fund is taxed only in the hands of the investor.
5. SEBI was also made the sole regulatory authority, and
private equity funds must submit quarterly reports to it. In
September 2000 SEBI announced the guidelines that now
govern venture capital investment, based on the January 2000
recommendations of the Chandrashekhar committee on venture
capital. After another set of amendments in April 2004, the
following rules now apply:
I. Foreign venture capital investors can invest in India without the need for approval
from the Foreign Investment Promotion Board if they register with SEBI.
a) Each investor in a venture fund must invest at least Rs500,000, and each fund
must have at least Rs50 million in capital.
b) A fund may invest in one company up to 25% of the fund’s capital. It cannot
invest in associated companies of ventures that it finances.
II. A fund must invest 66.67% (lowered from 75% in April 2004) of its investible
funds in unlisted equity or equity-linked instruments. The remaining 33.3% can be
invested in subscriptions to initial public offerings (IPOs) of companies or in debt
instruments of a company in which the venture fund has already made an equity
investment.
III. The April 2004 amendments removed the previous 1-year lockup period for IPO
subscriptions. They also allowed investments within the 33.3% category in
preferential allotments of equity shares of a listed company, subject to a 1-year
lock-in, and in equity shares or equity-linked instruments of a listed company that
is financially weak.
a) The removal of the profitability criterion as a listing requirement

had an important effect on the private equity industry as it provided
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an exit mechanism for investors. To replace the profitability
requirement, a firm would be delisted if it did not earn a profit
within 3 years of listing.
b) The acquisition of shares in a venture fund by the investee company

or its promoters is exempt from the provisions of the takeover code
and will therefore not mandate an open offer.
IV. Mutual funds may invest 5% of the capital of an open-ended scheme and 10% of
the capital of a closed-ended scheme in a venture fund.
6. In April 2004 the SEBI also removed some previous restrictions

and allowed venture funds to invest in real estate companies,
gold financing companies, and equipment leasing and hire-
purchase companies registered with the RBI.
These regulations have significantly improved the regulatory environment for private
equity funds operating in India, such as BTS India Private Equity Fund. In addition, they
reflect the strong commitment of the Indian Government to support the provision of long-
term equity finance to domestic entrepreneurial companies.1
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ANALYSES
 Between the years 2000 and 2007, a lot of water has flown under the bridge, there have
been many calls to call in for greater regulation of these funds, and their target companies in
India because:
 The securities issued by companies through the private placement route get listed and
traded on the stock exchanges after allotment, just like a public issues.
 In turn, they are bought by all kind of investors, including the retail, through the
secondary market. Therefore, this way the transaction in them is at par with the securities
issued through the public issue.
 The difference between the two is on the disclosure. In the case of public issue, the
disclosure is broad and the companies are mandated to inform their shareholders through
public announcement and annual reports about the utilization of the funds raised.
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 In the case of private placement, the disclosure is bare minimum. For instance, the
companies are not required to inform the utilization of funds raised through the private
placement.
Recent deals in India

Wed 23 Jun 2010
Baring Private Equity may invest Rs 370 cr in Oriental Tollways
Baring Private Equity Partners India, an India-focused fund, is understood to be close to
investing Rs 370 crores in Oriental Tollways, part of the Rs 1,000-crore, New Delhi-based,
Oriental Structural Engineers (OSE), a company focused on infrastructure development,
specialising in highways and runways. According to investment bankers close to OSE, the
fresh infusion of funds will be used for the company’s equity contribution of various special
purpose vehicles (SPV). While a senior OSE official, who requested not to be named,
confirmed interest from PE funds, Baring said it wouldn’t comment on market speculation.
BPEP India is currently investing from its third fund, with a corpus of close to $300 million
(Rs 1,390 crores) with focus in the manufacturing, pharmaceutical, information technology
and services sectors.
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Reliance Venture Asset invests in Gradatim IT Wed 14 Jun 2010
Reliance Venture Asset Management has successfully completed the Series A round of
venture funding in Gradatim IT Ventures, a notable entity in the micro-transaction technology
space, that provides technology enabled on-demand solutions to leading MFIs, NBFCs, and
insurance providers. With 11 portfolio companies already under its stable, this is Reliance
Ventures’ third investment in this year alone – it recently completed leading rounds in Reverse
Logistics, a reverse supply chain solutions company and Tessolve Services, a semiconductor
test and product engineering company. The investment in Gradatim comes close on the heels
of these and is in line with the company’s vision to invest in disruptive ideas backed by a
scalable business model. Indo US Venture Partners is the existing investor in Gradatim. YES
Bank was the exclusive advisor to this transaction
Mon 07 Jun 2010
Payback acquires majority stake in i-mint

Germany-based Payback, one of the largest loyalty programme companies in Europe, together
with domestic private equity company Peepul Capital, has acquired 86 per cent stake in i-mint,
India’s leading loyalty programme company. The deal is valued at $30 million. Payback alone
will have a little over 50 per cent stake in i-mint. “The strong platform created by i-mint,
coupled with Payback’s proven track record in delivering significant consumer and retail
partner value, is a winning combination,” said Sandeep Reddy, MD, Peepul Capital. He added
Peepul, instrumental in bringing all partners together, will leverage its wide network in India
to support i-mint’s growth. i-mint already has a vast customer base, well-known brands and a
strong partner portfolio comprising 1,500 companies including HPCL, Megamart, Gitanjali
Group, Ferns n Petals, Bookmyshow.com ,D’damas, Tantra, etc.
Global Takeoff to tap VC for $10 mn Sat 12 Jun 2010
Global Takeoff, a city-based provider of converged digital entertainment, communication and

advertising, is in the process of raising a $10-million (approximately Rs 46 crores) venture
capital fund to take its technologies to the next level. “We are in talks with two VCs – one in
the US and the other in India – and should be receiving funds in three months from now,
which will be primarily used to scale up marketing, acquire premium content such as new
movies and expand our R&D to make sure that the technologies are stable and can be extended
to any other parts of the world,” Uday Reddy, chairman and chief executive, told Business
Standard. Global Takeoff offers two products – Freedocast.com, a portal to live broadcast
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user-generated and premium content, and YuppTV.com that offers live streaming of Indian
and international television channels on the Internet.
Saturday 05 June 2010
IFC could invest up to Rs 10.5 crores in Swadhar Finserve

The International Finance Corporation (IFC) which is a part of World Bank group, is planning
to acquire 20 per cent shareholding in Swadhaar FinServe (SPFL) with an equity investment of
Rs 10.5 crores(US$2.25 million approximately). Swadhar Finservie an urban microfinance
institution based operating in Mumbai and its surroundings and has 27 outlets in Mumbai,
Baroda and Pune and plans to expand its operations to Rajasthan and Central India.The word
“swadhaar” in Hindi means self-support.
6.GMR Energy raises Rs 465 crore in PE fund 08 Jun 2010
GMR Infrastructure said on Thursday a private equity fund, IDFC Private Equity Fund III,
and four other investors have agreed to invest Rs 465 crore (USD 99.63 million) in its unit,
GMR Energy. Infrastructure Development Finance Company, IDFC Investment Advisors Ltd
Argonaut Ventures and Ascent Capital Advisors India Pvt Ltd are the other investors in the
power utility, GMR Infrastructure said in an exchange filing. On 19 April, group chief
financial officer, Subbarao Amarthaluru, told Reuters that the group wants to raise additional
USD 100 million in private equity for its unlisted power unit in about one and half months.
Carlyle invests Rs 102 cr in Tirumala Milk

The Carlyle Group, a global alternative asset manager with $88.6 billion of assets under
management, has invested $22 million (approximately Rs 102 crore) in Andhra Pradesh-based
dairy company Tirumala Milk Products Private Limited. The funds will be used for expanding
its procurement network, processing capacity, entry into new markets and for the manufacture
of new value-added products.
Private equity partners eye stake in Apollo Hospitals’ pharma arm

The existing private equity partners of Apollo Hospitals, such as Apax Partners, Bisikan Bayu
Investments (Mauritius), an investment arm of Khazanah, and Class (Mauritius), are likely to
pick up stakes in Apollo Pharmacy, the retail pharmacy business of Apollo Hospitals, as the
parent is seriously looking at hiving it off into a separate entity. Similarly, Apollo Hospitals
would also look for partners for its nursing training business, Apollo School of Nursing, to
unlock the value of each business entity of the group, sources close to the development said.
84
Apollo Hospitals, which has been scouting for investors over the last few years for its retail
pharmacy business, is expected to get strong support from the existing PEs, as a sizeable
chunk of the 1,050 stores showed encouraging Ebitda margins during the last financial year.
R-ADAG emerges preferred bidder for OTCEI stake

Controlling stake in Over-The-Counter Exchange of India (OTCEI) from some of the
exchange’s existing institutional investors, according to officials close to the development.
The officials said that R-ADAG put in a bid of Rs 90 crore and that there was close
competition between MCX-SX and ADAG for acquiring control of the exchange. However,
when contacted an ADAG group official declined to comment. Apart from the two, the BK
Modi group had also expressed interest in buying an equity stake in the Mumbai-based
exchange that was incorporated in 1991, three years before NSE was established. The rules on
ownership of stock exchanges restrict a single investor’s shareholding at 5%. According to
officials, the entity acquiring a controlling stake in OTCEI will have to approach market
regulator Sebi for greater clarity on this issue
(Source: India Micro Finance)
Bibliography
Websites
• www.wikipedia.org/wiki/Private_equity
85
• www.privateequity.com
• www.indiavca.org
• www.financialexpress.com
• www.privateequityonline.com
OTHER
• Indian Venture Capital Association
• Indian Venture Capital Journal,
• Price Waterhouse Coopers, The Evolution of BPO in India,
PROPOSAL DURING INTERNSHIP
86
OBJECT: TO EVALUATE WEATHER THE PROPOSAL IS WORTH FOR THE IDBI BANK
INVESTMENT?
The following steps undertaken by private equity team (including myself) to process the
above proposal for investment.
1. The XYZ ltd. or its arranger handover investment proposal to IDBI private equity
department
2. The proposal contains brief introduction about XYZ ltd.(investee company) to private
equity manager (IDBI BANK)
3. Presentation has been given by top level executive of XYZ Ltd. To the bank’s
officers.
4. Private equity department provided with data of XYZ ltd. which include future until
5years.
The senior officer of the department has allocated the job to team for analyses the industry
performance, company’s data etc.
A graphical presentation is shown to brief out the processing cycle of the investment
proposal
87
understood
Business Plan
Submitted to Analyses
Investment of Major
committee revenue
source
Analyses
of fixed
Prepare and
Memorandum variable
expenses
Analyses
Current of
demand Feasibilit
scenario y
Of plan
Compare with
peers
organization
`````
88
UNDERSTANDING BUSINESS PLAN INCLUDE
 In which Sector it is pertaining to.

 Is this sector growing?
 What is contribution of growth of this sector in GDP?
 Future growth opportunity etc…
MAJOR REVENUE SOURCE:
 What are the revenue sources?

 Out of that, which one are their bread and butter?
 Income expense ratio
BIFURCATE FIXED AND VARIABLE EXPENSES:
 The ratio between fix assets and variable assets

 Portion of fix assets as reduce per unit as sales increase
 YOY increase/decrease in expenses
 Portion of variable cost as it is very with volume
 Percentage of fixed cost….
FEASIBILITYOF PLAN ORGANIZATION
 Are all the data given realistic and feasible?

 Cross check the data are and verified with current value.
 Also the feasibility of revenue portion?
 Ask the any data require from them.
 Ask for second call meeting to clarify your judgment.
COMPARE WITH PEERS
 Are the numeric data comparably valid or unrealistic?

 What is current position of major competitors?
 Compare business model with them
CURRENT DEMAND SCENARIO

 Market position
PREPARE A MEMORANDOM
 The memorandum is attached with project file
SUBMITTED TO INVESTMENT COMMITTEE.
89
Annexure I
Memorandum to the Investment Committee
XYZ (India) Pvt.Ltd.
Proposal for participation in Private Placement of Equity
SUMMARY SHEET
1. Date of Receipt of June XX, 2010

Completed Application
2. ARN No. PE/MF_XX
3. Name of the Company XYZ (India) Pvt.Ltd.
4. Address: Registered Office:

Office -xxxx
5. Nature of Business/ To undertake certifications, membership,

Products Examination, Events etc in the field of Financial
Planning arena.
6. Constitution Private Limited Company
7. Directors (As on date) Shri R M
Shri G D
Shri S M
Shri R K
8. Listing Not applicable
9. Shareholding as on Particulars Comm- %

March 31, 2009 (%) itment (cr)
BANK 5.7 19.9
Insurance company 2.9 10
Foreign bank 4.4 15
Parent company 2.9 10
Others 2.1 0.72
Total 16 56
Offered for Private 14 44
Placement
Grand Total 100
1 Company/ Customer ID 11. PSL / Non-
90
1. Date of Receipt of June XX, 2010
Completed Application
2. ARN No. PE/MF_XX
3. Name of the Company XYZ (India) Pvt.Ltd.
4. Address: Registered Office:

Office -xxxx
5. Nature of Business/ To undertake certifications, membership,

Products Examination, Events etc in the field of Financial
Planning arena.
1 Date of last sanction/ Not applicable
2. renewal/ review
1 Internal Rating Not Available
3.
1 External Rating Not applicable
4. (Agency name:)
1 Bank’s RM Shri A M
5.
16. Total Exposure to company (TE) (Details Existing – Rs.nil crores
given below) Proposed – Rs. XXcrore
Nature of facility Existing Proposed
FB Limit -
NFB Limit -
Investment in Equity Shares - XX
Total - XX
17. Banker’s Report & Comments thereon New relationship
(for new relationships)
18. a) Whether appearing in the RBI's list of defaulters/ willful No
defaulters
b) Whether company / promoters' names appear in caution No
advice
19. Adverse comments if any by the Statutory Auditors in the None
Audited Annual report
20. Credit History Satisfactory
21. Insurance (Coverage, validity & adequacy) Not applicable
26
Check List of enclosures
.
(i) Analysis of BS & P&L (Annexure – I) Yes
(ii) Projected profitability statement (Annexure – II) Yes
91
1 Proposal
XYZ.Ltd. has approached IDBI Bank for placement of equity shares of Rs.5
crores under private placement of shares.
2 Company Background
XYZ Ltd. incorporated on August31, 2009, was established at the behest of ABC
Ltd., the Indian affiliate of USA board, to undertake activities in the financial
planning segment and augment the scalability and the initiative of the Financial
Planning Movement in the country.
ABC Ltd.: ABC Ltd is professional Membership & certification organization- part of
leading Global Confederation established by prominent financial service corporations
with an objective to professionalize the concept of Financial Planning in India.
3 Shareholders
Particulars Amount Percentage Amount Paid
Committed (cr) (Rs. cr)
BANK 5.7 19.9 1.1
Insurance company 2.9 10 0.6
Foreign bank 4.4 15 0.8
Parent co. 2.9 10 2.9
Others 2.1 0.72 0.2
Total 16 56 5.6
Offered for Private Placement* 14 44
Grand Total 30 100
* XYZ Ltd. seeks equity participation for the balance amount i.e. 45% of the
total corpus of Rs. 30 crores from key industry participants such as financial
institutions, banks, funds, insurance companies. (As an employee retention and
incentive strategy, the board of XYZ LTD. will consider the issue of employee
stock options/sweat equity.)
92
Relevant terms from Shareholder’s Agreement
- The board may have a maximum of 10 directors.

- Any Shareholder holding at least 15% will have right to appoint one non-
rotational director on the Board.
- The Board will select the chairman and if Chairman is an Executive Director,
at least half the total strength of the Board would be independent directors. If
the chairman is Non-Executive, at least one third of the total strength of the
Board would be independent directors. The Company will appoint the
independent directors in the course.
- The Board will appoint the Managing Director and will monitor and evaluate
his performance every year.
4 Board of Directors
The BOD comprises of key management personnel and nominated
representatives of the current shareholders shareholders as follows:
Sr. No. Name (S/Shri) Designation
1 Mr. R M Key Management
2 Mr. G D Nominee
3 Mr. S M Nominee
4. Mr. R K Director
5 Key Management Personnel

Shri R M: He is currently Principal Advisor and Director of ABC Ltd. He was also
the director of one of the premier Business schools in India- for four years.
He has diversified work experience across various discipline including financial
services, Management Education and Human resource in the IT sector. In his
professional career spanning over 11 years, he has established an extensive network
of eminent professionals and financial sector participants. The significant visibility
and networks developed by Mr. R.M. will provide invaluable leverage in establishing
XYZ LTD. and enable it in achieving its objectives.
93
Shri Mr. R.M accomplishments have been well recorded in the media viz., “Mr.
Turnaround” in Times of India, “Smart People” by Business Standard, and “Front
Runner” by Business India.
The Board has proposed to establish the following committees to govern the critical
aspects of the business and operations viz:
Nomination Committee: Shri G D L and Shri. S M
Knowledge Management Committee: Shri R K and Mr. R.M
Investment Committee: Mr. R.M and Shri M I
Audit and Enrolment Committee: Shri A B and Shri S S
Marketing and Business development Committee: Shri S B and Shri. V S.
6 Industry Outlook
India has become a major global player with high economic growth rates and its
performance in the past has been particularly impressive in view of the global
collapse. The outlook for the economy and various industry verticals are positively
influencing the need for financial planning. XYZ.Ltd proposes to tap into this
opportunity to meet the needs of the Investors, Wealth Management and the
Investment community.
• The Indian economy is one of the fastest growing economies.

• A report “Opportunities in Banking sector” by market research
company, RNCOS, forecasts that the Indian banking sector will grow
at a healthy compound annual growth rate of around 23.3 per cent till
2011.
• India is the fifth largest life insurance market in the emerging insurance
economies globally and the segment is growing at a healthy 32-34 per
cent annually. According to a report by research firm RNCOS-
‘Booming Insurance Market In India (2008-2011)- the total life
insurance premium in India is projected to grow to US$ xxx.xx billion
by 2010-11.
94
Market research conducted by AN Consulting 2007 to assess the opportunity to
establish an entity established to operate in the financial planning space. Some of the
key finding from the report are as follows:
• Industry’s potential is to absorb between 4-6 lac financial planners.
• 3/4th of this potential is for independent planners
• Likely to grow between 7-10 lac by FY 12
• Growth driven by
- Increase in demand for institutional financial planners as the 75-25
(independent – institutional) split in FY 08 becomes a 60-40 split in FY12.
- Commitment by Parent comp. Members.
Growth in Potential for Financial Planners (lacs)
9
8 CAGR –28%
7 3.4
6
CAGR –8%
5
1.25
4
3
5.1
2 3.75
1
0
FY 08 FY 12
Institutional Independent
7 Objectives of XYZ.Ltd Promote and augment the scalability of the Financial

Planning Movement
• Create a world class institution- Set new benchmarks in quality and
service delivery
• Meet the existing training needs of industry
• Nurture and develop a pool of excellent and employable personnel
95
• Provide an equal opportunity to financial service organizations to
participate in the growth and future prospects of XYZ LTD..
8 Proposed Business Model of XYZ LTD.
XYZ LTD. will provide services in the following areas in order to achieve its
objectives:
• CFP Certification Education Programme
• Event Management
• Knowledge Workshops
• Publications
• Consulting, Research and Development
• Rating Services
Master Service Agreement (SLA) Highlights

• XYZ LTD. to be appointed to provide specified services to Parent co.
India through separate SLA’s to be entered into by parties.
• SLA’s to be subject to the terms of the master service agreement
• Consideration for the services and service standards to e agreed as per
the relevant SLA.
• Each XYZ LTD. and Parent co. to appoint an authorized representative
to oversee the implementation of the services and SLAs.
• The authorized representatives to meet at atleast once every month (or
pre-agreed shorter period) to discuss any concerns.
• The agreement may be terminated with 90 days notice from either party
• XYZ LTD. to be an independent contractor hereunder and not an agent
of Parent co.
96
9 Project Cost Details
XYZ LTD. proposes to undertake operations in major metros and Tier II cities
at the following locations. Capex requirement of 30 crores is envisaged to be
incurred for this purpose, the details of which are presented below:
Particulars Rs. In crores

Premises 12
Infrastructure 3
Working capital 9
Brand Building/ Marketing Expenses 2
Pre-operative/ Preliminary Expenses & Contingencies 4
Total 30
XYZ LTD. proposes to undertake operations in major metros and Tier II cities
viz. Mumbai, Delhi, Bangalore, Kolkatta, Pune, Hyderabad, Chennai and
Ahmadabad.
10 Financial Projections
(i) Projected Profitability Statement
(in crores)
Year Year Year Year Year Year
Particulars 0 1 2 3 4 5
Income
Event Management 0 1 1 2 2 2
Knowledge Workshops 0 3 7 10 14 18
CFP Course Training 0 6 16 36 54 75
Financial Journal
Publication 0 1 1 2 3 5
Consulting / Research
Services 0 0 0 0 0 0
Total 0 12 26 50 74 101
Cost of Production
97
Variable Cost 0 3 7 13 20 28
Fixed costs 3 14 15 18 22 26
Total 3 17 22 32 43 54
EBITDA -3 -6 4 19 31 46
Interest and Other
Financial charges 0 0 0 0 0 0
Depreciation 0 2 2 1 1 1
Operating Profit/ PBT -3 -8 2 17 30 46
Preliminary Expenses
W/off 0 1 0 0 0 0
PBT -4 -9 2 17 30 46
- Provision for Taxes 0 0 0 3 10 16
Net Profit -4 -9 2 14 20 30
Gross Cash Accruals -3 -6 4 15 21 31
Proposed Equity
Dividend 0 0 0 0 0 0
Net Cash Accruals -3 -6 4 15 21 31
EPS -1 -2 32% 2 3 5
Gross Profit Margin - -50% 15% 37% 42% 46%
Operating Profit Margin - -69% 8% 35% 41% 45%
Net Profit Margin - -76% 7% 28% 27% 30%
(ii) Projected Balance sheet

(in crores)
Year Year Year Year Year
Particulars 0 1 2 3 4 Year 5
Existing Equity 29 29 29 29 29 29
Reserves And Surplus -4 -12 -11 3 23 53
Long Term Loans 0 0 0 0 0 0
Total 25 17 19 32 52 82
Gross Fixed Assets 0 10 10 10 10 10
Depreciation 0 2 4 5 6 7
Net Fixed Assets 0 7 6 5 4 3
CWIP 9 0 0 0 0 0
Current assets 5 5 6 6 6 7
Less: Current Liabilities 0 1 1 2 3 3
Net Current Assets 5 4 5 4 3 4
Cash 11 4 8 23 45 75
Miscellaneous Assets 1 1 1 0 0 0
98
Total 25 17 19 32 52 82
11 Current Status:
Funding: Equity investment of approx. 55% already tied-up
Operation:
• Memorandum of Understanding with NM, a SB promoted
public trust, to develop qualification streams for financial
advisors and financial educators.
• Agreement with Bharatiya Vidya Bhavan’s, Bhavan centre for Inter-
Disciplinary studies for promoting operations of XYZ LTD.’s
education and certification programme in India including
establishing and maintaining academic programs.
Infrastructure:
• Lease Property for establishing operations has been
identified. Interactions with developers for understanding
and fulfilling qualification criteria are in process.
• On immediate basis, ~6,500 sq ft of modestly equipped
premises with knowledge management hub, classroom
with support infrastructure available (Note: The premises
are shared with Parent co.)
Logo and Branding:

Logo and Branding identified to embody the mission and
objectives of XYZ LTD. to lay down the foundation for development
of the financial planning profession with fundamental and strong
products.
12 Key Attractions
The investment would offer an excellent strategic option to impart
Financial Planning training to personnel across your organization.
In such it would:
99
• Enable you develop a skilled human capital resource
pool through employer sponsored, knowledge
enhancement initiatives
• Allow you to leverage your position as a strategic

investor in a training service provider and access XYZ
LTD.’s expertise and core competency in conducting
training programmes.
• Ensure customized courseware and workshop

specifically designed within the realm of financial planning
to suit your training requirements
• Provide an opportunity to participate as an investor in the financial

planning segment, which is gaining momentum across the BFSI
sector.
13 Investment Category
This investment is subject to lock in period of 5 years. Thus IDBI Bank would
categorize the same as Long-term investment
14 Risk
• Long term investment period

• No guaranty return
• Currently on establishing status
• Industry performance is not that much attractive.
15 Recommendations
• The company offers an opportunity to participate as an investor in the financial
planning segment, which is gaining momentum across the BFSI sector.
• The company may provide an opportunity to train our staff member for the
required manpower in financial planning for our valued customer.
100
• SEBI has also given indication to support FPSB India to act as a regulatory board
in financial planning sector.
• The company has offered the shares at the face value of Rs. xx per share.
• In view of the above, investment committee may approve the subscription of share
to the extent Rs. 5cr.(less than 18% of the total private pacement) under the private
placement programme of the company.
Dated: may 5, 2010

Mr. XXXX
(ASSISTANCE GENERAL MANAGER)
(BANK NAME)
101
Annexure II
TERM SHEET
01 Effective Date The date on which the Subscription Agreement is executed

02 Name of the (XYZ LTD.)
Company
03 Promoter Group Bank, insurance company, Foreign bank ,Parent co.
04 Investor for IDBI Bank Ltd.
Private Placement
05 Present Share 5.6 crores
Capital (As on
March 31, 2010)
06 Book Value per Rs. 9.17
share as at March
31, 2010
07 Investment based Not done
on valuation
08 Amount and Shares are offered at the face value of Rs. 10 per share
Terms of
Subscription
09 Capital Structure Particulars Amount %
Committed (cr)
BANK 5.7 19.9
INSURANCE CO. 2.9 10
FOREIGN BANK 4.4 15
PARENT CO. 2.9 10
Others 2.1 0.72
Total 16 56
Offered for Private 14 44
Placement*
Grand Total 30 100
10 Allotment of The total investment of Rs.XX crores shall be released as
shares to the per Drawdown request from XYZ LTD.. The Company
Investor shall issue the Investor shares within 30 days or such
number of days as mutually agreed from the realization of
the Subscription amount.
The Investor shares shall rank pari passu with the existing
Equity shares with respect to corporate actions, including
but not limited to voting rights, dividends, and bonus and
rights issue of shares.
11 Amount of Rs.xx crores
Subscription to
Private placement
12 Non-dilution, Anti dilution adjustments are applicable including no cash
non-disposal and or in-kind dividends, no further increases in share capital,
management no capital repayment/ distribution, no consolidation or sub-
102
control, Non- division of share capital, no rights issue, no bonus issues or
compete any other distribution to shareholders or investors without
prior written approval/consent from IDBI Bank Ltd.
13 Lock-in- Period The Investors’ equity shares shall be subject to a lock-in
period of 5 years from the date of subscription of shares.
14 Use of proceeds For capex expenditure to be incurred during setting of XYZ
LTD..
15 Exit Stake sale or IPO
103

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2010

IDBI BANK’S STRATEGIC DIVERVSIFICATION

Under the guidance of

In partial fulfillment of the requirement

2. ABOUT IDBI BANK

3. WHY IDBI BANK WANT TO PARTICIPATE IN FIELD OF PRIVATE EQUITY?

4. INDIAN FINANCIAL SYSTEMS

7. STRUCTURE OF PRIVATE EQuITY FUND

8. WHY INVEST IN PRIVATE EQUITY?

9. A BRIEF HISTORY OF PRIVATE EQUITY IN INDIA

10. PRIVATE EQUITY FUNDS RAISING PATTERNS

11. INDIA AND PRIVATE EQUITY INVESTMENTS

12. REASONS FOR PE PLAYERS ENTERING INTO INDIA

13. PE IN THE GROWTH OF INDIAN ECONOMY

14. FUND RAISED BY PRIVATE EQUITY INVESTMENTS.

15. PROSPECTS FOR THE PRIVATE EQUITY MARKET IN INDIA

16. ROLE OF PRIVATE EQUITY PLAYERS

17. APPROACHES TO PORTFOLIO CONSTRUCTION

18. COMPARISON OF PRIVATE EQUITY WITH ALTERNATE SOURCE OF

21. THE REGULATORY ENVIRONMENT

23. RECENT DEALS IN INDIA

27. GRAPHICAL REPRESENTATION

28. PROPOSAL FOR

YEAR WISE HISTORY

- The Development Assistance Fund was established on 27th March, in terms of

- 30,00,000 shares issued.

- 30,00,000 shares issued.

- 66,00,000 shares issued.

- 50,00,000 shares issued.

- The Bank offered 16,80,00,000 No. of Equity shares of Rs 10 each to Public at a

- 5,80,000 shares offered to employees, 10,02,20,000 shares were offered to public

- IDBI, became the first financial institution to apply NSDL as DP.

- IDBI Bank, promoted by two premier financial institutions - Industrial Development

- A Memorandum of Understanding (MoU) between IDBI and Principal Financial

- The company is launching a special deposit scheme- IDBI Suvidha - to mop-up Rs

- The Industrial Development Bank of India has launched a new company

Mr. Ravi Veera Gupta

-Appointed as the lead manager to the 1000 mw Maithon Power Company

-Slashes interest rates on Flexi bonds by 25 basis points

-Gives revamping package for Natco Pharma Ltd.

-Enters domestic market with Omni bonds worth Rs 250 cr

-ICRA assigns downward rating to IDBI long-term programmes

-Refuses to accept GE-Bechtel offer to restart Dabhol Power Company (DPC)

-Mops up Rs 337 cr by securitising loans to three firms

-Buys back Float Rate Notes of 0 mn

-Hits market with 9.4% interest for five-year retail bonds

-Reports drop in non-performing assets (NPAs) at Rs 1,300 crores

-Raises Rs 415 cr through Flexibonds-15

-Endorses proposal to purchase DPC power at Rs 2.80/unit

-Reduces Flexi bonds interest rate by 25-85 basis points

-Offloads its stake in Gujarat Borosil Ltd. to Vulcan Exports Ltd.

-Sells 7.56 crores shares in Mangalore Refinery & Petrochemicals Ltd.

-Sues Spectrum Power Generation Limited (SPGL) for allotment of

-IDBI, IFCI ink deal to launch SLR bonds

-Acquires CMM Studios under Securitization Act

-IDBI Home finance mops up million through external commercial borrowings

-Clears restructuring package for Stone India Ltd.