This article throws light upon the top eight types of fee based activities in India. The types are: 1. Issue Management 2. Portfolio Management 3. Loan/Lease Syndication 4. Corporate Counselling 5. Arranging Foreign Collaboration 6. Advising on Acquision or Mergers 7. Project Counselling 8. Advising on Capital Restricting.
Fee Based Activity: Type # 1. Issue Management:
Like ordinary issue, the process of issue management is same. It is, however, the duty of the Non-Banking Financial Company to supply a complete set of services and must try to improve and develop the process of marking the issues by which the net work of the promoters will be extended.
It is needless to say that the institutions who will take the responsibility to supply the services, must be able to improve the network of the brokers which ultimately brings a success relating to the issue.
If the issues are not subscribed the same may be closed on the earliest closing date. In order to overcome this difficulty, these companies join with others and form a club taking 5 to 10 merchant bankers (those who are authorised) who must take a minimum corpus of funds.
Now, if the issue goes in the hands of the club, there will be, no doubt, hesitation on the part of anyone regarding the investment in the issue having a public support and as such, the issue closes at the earliest closing date which relieves the promoters regarding the issue.
As a result of the above, the merchant bankers and the Non-Banking Financial Companies (NBFCs) will earn a reputation in the market by which they can promote many businesses. NBFC, to some extent will capture and curtail the business that flows to the institutions belonging to the state level.
Once the technique becomes successful the club can be extended to 10 or more i.e., instead of acting as competitors among themselves, the sharing of income in the form of fees as a result of the close co-ordination becomes more profitable and rewarding as well.
In future, they can easily form a group and the regional guilds in order to supply the services more effectively and efficiently as well which will be a blessing to the business world.
Fee Based Activity: Type # 2. Portfolio Management:
Portfolio management implies the investment of funds taken from numbers/clients in various securities and an adequate return should be given to them. In other words, it is a scheme by which the portfolio manager raise funds from his clients/members with a commitment in order to operate the securities market together with the information, in well explained terms relating to the composition of portfolio, annual return, appropriation of capital, the extent of risk etc.
The manager must be authorised by the Securities and Exchange Board of India positively. Before certifying a manager as authorised, the SEBI will enquire about the infrastructure and truck record of the firm For this purpose, a minimum amount of net worth/shareholders’ fund has been fixed at Rs. 50 lakhs.
It is the duty of the portfolio manager to maintain the funds which belong to his clients/ members with the schedule bank in a separate account, which will be invested according to the terms specified. The manager is, however, entitled to a fixed fee and not a variable one depending upon the returns to the clients/members accordingly.
It is also the duty of the NBFCs to see that guidelines that are laid down by the RBI relating to the restrictions on announcement of guaranteed returns, are followed properly in addition to the other guidelines.
The NBFCs may adopt the approach of investing in the debentures of good companies and a particular proportion should be invested in shares through the primary market route and the balance amount of the fund, should be invested in the secondary market.
Fee Based Activity: Type # 3. Loan/Lease Syndication:
The practising Chartered Accountants who supply the liaison services to the clients where they are in need of funds whether for the purpose of working capital or for term loan purposes.
At present, it has been found that the Chartered Accountant firms are keen interested to keep in touch with the large group of companies and are trying to improve their contact with others with the help of such giant clients who are doing quite successful business.
When a company finds it difficult to procure funds who has some problems, weakness and is not able to get various services, these firms appear in the picture and act as an intermediary between the institution and the company as well In this particular case, NBFC, can play a very prominent role for procuring funds and assist them in various ways, can supply the necessary services for those clients.
They can act as a broker and their fees must be comparable with the fees charged by the Chattered Accountant firms. In order to serve these services, NBCFs should have a direct contact with the high officials of the banks and various financial institutions simply in order to collect the necessary information.
In fact, when the company will be able to know the rules, regulations, procedures of the financial institutions and-its proper operation and will grow its contact, its requirements will be fulfilled very soon.
About leasing, however, it becomes necessary to collect a list of institutions/companies who are engaged with leasing business along with their respective quotation which will assist the company to evaluate the offers received by it in near future.
It is to be noted that many companies are engaged with leasing business usually in the 2nd half of the year and deal in 100% depreciable items which is, rather, considered as their primary objectives.
Thus, any information about them can easily be collected by the company and it can make necessary arrangement for the clients particularly who can pay the rent as soon as it becomes due. In this way NBFCs, can help a lot which may be considered as their moral duty which will prove worth in future. For this services the NBFCs can charge a fee which must not exceed 5% of the funds being a fee based activity.
Fee Based Activity: Type # 4. Corporate Counselling:
The corporate counselling is an another attractive fee based service. At the time of diversification, expansion and development, a medium size company needs the service of an expert relating to the above for which they seek the advice from various institutions. The institutions also come forward to assist them as soon as they receive the formal request from such firms.
Now, in this context the role of NBFCs is very important. They can perform various functions relating to the generation of funds by developing the existing systems and pointing out the weak areas of the companies.
Usually, the company receives the services either from an individual who is an expert in this line or from the firm of Chartered Accountants who possess the latest data relating to financial information although their area of services is to some extent limited.
In other words, they can supply the information and necessary data which they have collected from their clients in the past and can apply only the same and particularly, beyond this level, they are helpless. For example, if a company wants to invest a greater amount of funds in a capital project, which requires the services of capital budgeting and as such, can eliminate the various projects which are less profitable.
This sort of information is readily available with them. So, a company who is going to take an extension programme, it can have the readymade information relating to the various attractive projects. On the basis of such data and necessary information, it can suggest a few concrete propositions which may be proved worth.
Moreover, these brokers and brokerage firms under the NBFCs group possess the old data and information that they collect from the Government publication which may not have any relevance to the present day economic condition and changing circumstance of the society.
However, the corporate counselling requires every aspect of the project in details. That is why, a company which is specialised on a particular line, e.g., product selection, must be able to supply the necessary related information about the utility of the product, its various cost structure, market competition etc.
In short, it is practically impossible for a single company to maintain all the data relating to various kinds of products.
They should, of course, have a close contact with other NBFCs who are related in that particular line. In short, a company should not change its position. Needless to mention here that the various institutions are not able to supply this sort of services to the clients concerned.
Thus, NBFCs should enquire about it very carefully and at least one or two areas of specialisation must be selected by it and to maintain a close contact with other for other necessary information and data which are also very important in order to serve them better.
Fee Based Activity: Type # 5. Arranging the Foreign Collaboration:
It is one of the most significant tasks of the project management and the companies to arrange the foreign collaboration particularly who wants to specialise in the above area and should consider the matter carefully.
As a result of the liberalisation relating to industry and capital market by the Government of India, the companies are employing their resources which they acquire by issuing shares via primary capital route and as such, are interested for good projects relating to either export oriented project or import substitution projects.
Needless to mention here that the companies need technical know-how for both the types of project from the suppliers who supply overseas technology. NBFCs should collect the necessary information about it.
It may also be mentioned here that it is impossible for companies to maintain the data for all kinds of industries, rather they should have specialized either one or two types of industries in the beginning and if possible gradually to maintain the data relating to suppliers of foreign technology.
However, NBFC must contain such data and keep the information relating to the latest technology from them who have already acquired earlier along with the result. Details of the similar technology, if any, may be taken into consideration along with their particulars.
Moreover, necessary information relating to the fees, mode of settlement and remittance of such fees or royalties, together with the various rules and regulations relating to them, should be collected.
Indian Policy towards Foreign Collaboration:
Regarding foreign collaboration, the Government of India, permits in certain areas in the field of high priority and the areas where the import of foreign technology is absolutely required. In other areas, import of technology may be considered on merit if substantial exports are guaranteed over a period of 5 to 10 years.
In 1985, however, a big spurt took place in foreign collaboration between India and other countries, U.S.A. at the top. According to Indian Investment Centre, 1024 collaboration agreement was signed between Indian and foreign companies during that year and the total investments involved in these collaboration worked out to Rs. 125.36 crores.
The collaboration which were approved in 1985 contained a wide range of industries, viz., electrical equipment (205), industrial machinery (152), transportation (101), chemicals (69), metallurgical industries (53), industrial instrument (52), telecommunication (36), machine tools (32), ceramics (27), consultancy (23), fuels commercial office and house equipment (20 each), leather goods pickers (19), prime movers (15), boilers and steam generating plants (13) and earth moving machinery (II).
However, the proposals of NRI’s which were approved during that year were 52, out of which 24 came from USA, 5 from FRG, 2 each from France, Italy, Japan, South Korea, Sweden and U. K., 1 each from Canada, Finland, Cyprus, Ireland, Kuwait, the Netherlands, Sri Lanka, Singapore, Taiwan and Switzerland.
Fee Based Activity: Type # 6. Advising on Acquisition and Mergers:
NBFC should pay the proper attention in this field. In order to consolidate the firm and to form a new one or to enjoy the benefits of economies of large scale, many companies are interested to amalgamate. The matter is very clear and simple if the management of both the companies is ready to do so.
To have these objectives, sometimes the promoters misuse their powers over the various companies. For this purpose, the Government has laid down certain guidelines prescribing the maximum limit of holding by the NRJs in the Indian companies recently.
Now these figures are to be informed to the RBI. As a result, no company can remit the dividend to NRIs before taking the approval from the RBI for which RBI exercise a direct control over the outflow of foreign exchange. It is needless to say that these areas, viz., acquisition and mergers need collective knowledge of professionals including legal practitioners, Chartered Accountants and other technical people in the line.
Fee Based Activity: Type # 7. Project Counselling:
It is practically coming from the concept of corporate counselling and under the circumstances, the concerned company employs engineers and MB As and other technical persons who are experts in the area of project management.
If the client desires to invest his resources on long term basis to any project and is ready to invest such funds accordingly as per guidelines presented by the consultant company, the same task can be performed by the NBFC accordingly. Better result can be achieved if these companies form an informal association or a guild.
However, the project counselling will include the following:
1. Identification of raw material suppliers.
2. Selection of site of the project.
3. Identification of major plant and machinery suppliers.
4. Helping the company in funds resourcing and preparing the project report, which is to be submitted to the institution in connection with the sanction of the loan.
5. Advising the company an alternate means of financing.
6. Advising and arranging some portion of promoters, contribution from financial institutions.
7. Advising the clients about availability of foreign collaboration.
8. Advising the companies about the sales strategy i.e., whether to develop its own staff or to develop dealer’s network etc.
9. Advising the client on the sales strategy, trade discounts, cash discounts etc.
From the above, it reveals that project counselling includes a lot of financial services starting from procurement and arrangement of funds and its application thereof. Since the project counselling is a specialised task, it is better to be specified in one particular unit of industry and to supply the service against a reasonable fee which should have been low proportionately at the beginning in comparison with other units.
The primary criterion should be to supply the quality service at first. For this purpose, collecting and maintaining data relating to the same industry from various sources should be presented.
When the company will gather some experience in this line and is able to supply the necessary particulars confidently and is also familiar with the mechanism of project management in a particular unit, it can go for another industry as well.
It can also be stated here that once the particular task is undertaken some other allied services may also be provided, and naturally for the purpose of executing a particular project, appointing unskilled and junior staff is of no use.
Because, there should be a direct relationship between the institution relating to procure funds, preparing cash budgets and to maintain the different books of account. Unfortunately, a small portion of the said task may be handed over to Non-Banking Financial Company. So, it can be stated that corporate counselling and project counselling should be taken up by the NBFC or a very small scale and in simple form.
Fee Based Activity: Type # 8. Advising on Capital Restructuring:
For the purpose of fresh issue, the companies have to present and prepare their Balance Sheet in a healthy form but not with the product of window dressing which produces an effective use and application of financial management as a whole. It is not an easy task. It requires a lot a practical exercise and experience. Sometimes, professional advice may also be required.
Needless to mention here that NBFC can supply the necessary service for the purpose on various matters by giving their valued advices and instructions, e.g., capital structuring/restricting, so that the financial health of the enterprise through the Balance Sheet would be looked better. Since, it is a fee based service it will, no doubt, earn a lucrative amount.
The NBFC will be in a better position relating to these areas if they fix their reasonable fees in comparison with the Chartered Accountant or any other professional organisation to whom the companies seek valuable advice.