1 What is IPO? Initial public offering (IPO), also referred to simply as a "public offering" or "flotation", is when a company issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded. In an IPO the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market. An IPO can be a risky investment. For the individual investor, it is tough to predict what the stock or shares will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value. However, in order to make money, calculated risks need to be taken. The Initial Public Offering (IPO) for a new public company is the first opportunity for the investing public to be able to purchase shares in the company. An IPO is a very exciting time for the company, and IPOs are often eagerly anticipated by the investing public as well. There are several reasons for which a private company may wish to become a public company. The two biggest reasons are to raise capital and to allow the original investors or entrepreneurs who started the company to realize profits on their investment and time. A private company is one in which investment or ownership is limited to select individuals or organizations. A public company is one in which anyone can invest and obtain ownership by purchasing shares on a publicly traded exchange. Undertaking an IPO is a large and exciting event for a new company. A well received IPO means that the company will have cash to further its development and growth. It also usually means that the people who started the company realize some significant profits for their efforts. An IPO requires a great deal of work, from filing the necessary paperwork with the regulatory bodies and writing a prospectus for potential investors to devising and implementing a sales campaign for the sale of the initial shares. Since the company also needs to continue to function and complete its normal activities, a financial firm is usually hired to do this work. This firm is referred to as the underwriting firm for the IPO. For a really large IPO, the work may even be split between several underwriting firms. The investing public is usually excited about an IPO. It is hard to understand why, since most stocks that are sold during an IPO tend to perform badly at first. Some companies also do not survive, so investing in an IPO is more risky and usually less rewarding then investing in more established stocks. Perhaps investors believe the 2 sales hype that usually accompanies an IPO. Perhaps they are excited about being among the first to own the next potential IBM or Microsoft. Procedure IPOs generally involve one or more investment banks as "underwriters." The company offering its shares, called the "issuer," enters a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell these shares. The sale (that is, the allocation and pricing) of shares in an IPO may take several forms. Common methods include: Best efforts contract Firm commitment contract All-or-none contract Bought deal Dutch auction Self distribution of stock A company that is planning an IPO appoints lead managers to help it decide on an appropriate price at which the shares should be issued. There are two ways in which the price of an IPO can be determined: either the company, with the help of its lead managers, fixes a price or the price is arrived at through the process of book building. Note: Not all IPOs are eligible for delivery settlement through the DTC system, which would then either require the physical delivery of the stock certificates to the clearing agent bank's custodian, or a delivery versus payment (DVP) arrangement with the selling group brokerage firm . This information is not sufficient Finding the right IPO process The traditional method of doing IPOs is the fixed price offering. Here, the issuer and the merchant banker agree on an "issue price" - e.g. Rs.100. Then you and I have the choice of filling in an application form at this price and subscribing to the issue. Extensive research has revealed that the fixed price offering is a poor way of doing IPOs. Fixed price offerings, all over the world, suffer from `IPO underpricing'. In India, on average, the fixed-price seems to be around 50% below the price at first listing; i.e. the issuer obtains 50% lower issue proceeds as compared to what might have been the case. This average masks a steady stream of dubious IPOs who get an issue price which is much higher than the price at first listing. Hence fixed price offerings are weak in two directions: dubious issues get overpriced and good issues get underpriced, with a prevalence of underpricing on average. What is needed is a way to engage in serious price discovery in setting the price at the IPO. No issuer knows the true price of his shares; no merchant banker knows the true price of the shares; it is only the market that knows this price. In that case, can we just ask the market to pick the price at the IPO? 3 Imagine a process where an issuer only releases a prospectus, announces the number of shares that are up for sale, with no price indicated. People from all over India would bid to buy shares in prices and quantities that they think fit. This would yield a price. Such a procedure should innately obtain an issue price which is very close to the price at first listing -- the hallmark of a healthy IPO market. Recently, in India, we had an issue from Hughes Software Solutions which was a milestone in our growth from fixed price offerings to true price discovery IPOs. While the HSS issue has many positive and fascinating features, the design adopted was still riddled with flaws, and we can do much better. How did the Hughes issue work? 1. The Merchant Bankers selected "syndicate members" who helped in selling the issue. 2. Orders were collected by the merchant bankers or syndicate members (only), and submitted using the computerised IPO system created by NSE. The NSE system only accepted these orders; it did not reveal any information to investors. 3. Investors could place, modify or delete orders in the "book building period" -- however they were doing this in the blind since the system gave them no information. 4. The NSE system revealed information to the merchant bankers. The full database of orders was passed on by NSE to the merchant bankers, who could then use this for discretionary allocation of shares. We can point out numerous flaws in this: 1. From a basic economic perspective, the IPO is a relationship between the issuer (Hughes) and investors. It is hard to justify the requirement that orders only go to merchant bankers or syndicate members; this greatly shrinks the extent to which the IPO harnesses NSE's remarkable distribution machinery. A superior IPO process would involve investors going to any NSE terminal and placing orders. 2. The essence of modern market design is superior information display for superior price discovery. Investors should be able to continuously see how many shares have been bid for; the shape of the demand function; the cutoff price, etc. Using this information they would be able to think more effectively about order revisions, cancellations, fresh order placement, etc. The Hughes IPO, done through the space age VSAT technology of NSE, uses standards of transparency associated with a 19th century market design. 3. In the Hughes IPO, the merchant bankers specified a band, from Rs.480 to Rs.630, in which orders had to fall. The merchant bankers proved to be wrong, and the IPO suffered from severe underpricing. If we take price discovery seriously, we should let the market set the price. 4. The Hughes IPO process was too elongated in time. The IPO process should obtain price discovery in a short time-period where everyone interested in the issue is trading on the screen at the same time. An issue that lasts for more than an hour raises the cost for participants to constantly monitor the order book and revise orders. 4 5. The sale of part of the issue at a fixed price (discovered at the auction) reduces the size of the auction and raises the probability of market manipulation at the auction. 6. There should be no discretionary allocation of shares; instead shares should be allocated purely by price--time priority. From this perspective, we design an idealised IPO process: 1. On Monday morning, the newspaper should carry an advertisement which is the prospectus of the IPO, which only talks about the firm and is silent on valuation. 2. The IPO should take place on Tuesday evening, from 4 PM to 5 PM. The auction should be a simple uniform-price auction with full transparency. A picture of the demand schedule, and the cutoff price, should update on the screen in realtime. 3. Investors should be able to go to any NSE terminal and place orders into the auction. This harnesses 5,000 odd computer screens in 300 cities all over India in the auction process. From the issuers perspective, NSCC should perform the credit enhancement exactly as it does on the equity market. At a legal level, all orders on the screen should be placed by NSCC, thus shielding the issuer from the credit risk associated with anonymous order placement. 4. There should be no fragmentation of the shares on offer. All shares to be sold should go through a single auction. If a retail investor wanted to "access the IPO at prices close to the offer price" she would just place non--competitive bids at the IPO, where she bids to buy (say) 100 shares at the IPO price, whatever it proves to be. 5. Allocation of shares in the depository should take place on Tuesday itself. There should be no physical shares. Trading on NSE should start on Wednesday (the next day). This gives us a one--day lag between the IPO and the start of trading. 6. Firms below a certain size should be barred from this IPO market. Using prospective valuations based on P/E, P/B and P/S ratios prevailing for the industry, a size of Rs.100 crore or so should be required. Smaller issuers should go to venture capitalists and private equity funds. What is Merchant Bank? A Merchant Bank deals with the commercial banking needs of international finance, long term company loans, and stock underwriting. A merchant bank does not have retail offices where one can go and open a savings or checking account. A merchant bank is sometimes said to be a wholesale bank, or in the business of wholesale banking. This is because merchant banks tend to deal primarily with other merchant banks and other large financial institutions. The most familiar role of the merchant bank is stock underwriting. A large company that wishes to raise money from investors through the stock market can hire a merchant bank to implement and underwrite the process. The merchant bank determines the number of stocks to be issued, the price at which the stock will be issued, and the timing of the release of this new stock. The merchant bank files all the paperwork required with the various market authorities, and is also frequently 5 responsible for marketing the new stock, though this may be a joint effort with the company and managed by the merchant bank. For really large stock offerings, several merchant banks may work together, with one being the lead underwriter. By limiting their scope to the needs of large companies, merchant banks can focus their knowledge and be of specific use to such clients. Some merchant banks specialize in a single area, such as underwriting or international finance. Many of the largest banks have both a retail division and a merchant bank division. The divisions are generally very separate entities, as there is very little similarity between retail banking and what goes on in a merchant bank. Although your life is probably affected every day in some way by decisions made in a merchant bank, most people reading this article are unlikely ever to visit or deal directly with a merchanway from the spotlight. Role of Merchant Bank in IPO When a company wants to raise funds through initial public offering (IPO) it appoints an investment bank for underwriting the issue. An Investment bank is also called as merchant bank. There is no regulatory restriction to use the services of a merchant bank for IPO. Since in an IPO a company participates for the first time, it doesn’t have complete understanding of the rules and documentation, required to be submitted, to get a clearance from the regulator. Famous merchant bankers world over are Goldman Sachs, Credit Suisse and Morgan Stanley. Banks like Deutsche, Citi, UBS etc have investment banking wings. Underwriters assess and analyze firm’s current performance, firm’s future earnings potential, industry scenario, competition in the same sector, current local and global market situations etc. to decide the issue price/price band. They also work on the activities like completion of the mandatory documentation as required by the regulatory body. Underwriters charge a fee for this activity, which is generally a percentage of the issue size. If the issue size is very large a syndicate of merchant banks takes up the task of underwriting the issue. However one merchant bank leads the other. Types of Merchant Bank 1) Central Bank A central bank, reserve bank, or monetary authority is the entity responsible for the monetary policy of a country or of a group of member states. It is a bank that can lend money to other banks in times of need. Its primary responsibility is to maintain the stability of the national currency and money supply, but more active duties include controlling subsidized-loan interest rates, and acting as a lender of last resort to the banking sector during times of financial crisis (private banks often being integral to the national financial system). It may also have supervisory powers, to ensure that banks and other financial institutions do not behave recklessly or fraudulently. 6 Most richer countries today have an "independent" central bank, that is, one which operates under rules designed to prevent political interference. Examples include the European Central Bank (ECB) and the Federal Reserve System in the United States. Some central banks are publicly owned, and others are privately owned. For example, the Reserve Bank of India is publicly owned and directly governed by the Indian government. Another example is the United States Federal Reserve, which is a quasi- public corporation. The major difference is that government owned central banks do not charge the taxpayers interest on the national currency, whereas privately owned central banks do charge interest.[ 2) Advising bank An advising bank (also known as a notifying bank) advises a beneficiary (exporter) that a letter of credit (L/C) opened by an issuing bank for an applicant (importer) is available and informs the beneficiary about the terms and conditions of the L/C. The advising bank is not necessarily responsible for the payment of the credit which it advises the beneficiary of. The advising bank is usually located in the beneficiary's country. It can be (1) a branch office of the issuing bank or a correspondent bank, or (2) a bank appointed by the beneficiary. In case (1), the issuing bank most often sends the L/C through its branch office or correspondent bank to avoid fraud. The branch office or the correspondent bank maintains specimen signature(s) on file where it may counter-check the signature(s) on the L/C, and it has a coding system (a secret test key) to distinguish a genuine L/C from a fraudulent one. In case (2), the beneficiary can request the applicant to specify his/her bank (the beneficiary's bank) as the advising bank in an L/C application. In many countries, this is beneficial to the beneficiary, who may avail the reduced bank charges and fees because of special relationships with the bank. In addition, it is more convenient to deal with the beneficiary's own bank over a bank with which the beneficiary does not maintain an account. 3) Commercial bank A commercial bank is a type of financial intermediary and a type of bank. Commercial banking is also known as business banking. It is a bank that provides checking accounts, savings accounts, and money market accounts and that accepts time deposits. After the Great Depression, the U.S. Congress required that banks engage only in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S. law, some use the term "commercial bank" to refer to a bank or a division of a bank primarily dealing with deposits and loans from corporations or large businesses. In some other jurisdictions, the strict separation of investment and commercial banking never applied. Commercial banking may also be seen as distinct from retail banking, which involves the provision of financial services direct to consumers. Many banks offer both commercial and retail banking services. 7 4) National bank The term national bank has several meanings: especially in developing countries, a bank owned by the state an ordinary private bank which operates nationally (as opposed to regionally or locally or even internationally) in the United States, an ordinary private bank operating within a specific regulatory structure, which may or may not operate nationally. In the past, the term "national bank" has been used synonymously with "central bank", but it is no longer used in this sense today. Some central banks may have the words "National Bank" in their name; conversely if a bank is named in this way, it is not automatically considered a central bank. Example: National-Bank AG in Essen, Germany is a privately owned commercial bank, just like National Bank of Canada of Montreal, Canada. On the other side, National Bank of Ethiopia is the central bank of Ethiopia and National Bank of Cambodia is the central bank of Cambodia 5) Merchant bank In banking, a merchant bank is a financial institution primarily engaged in offering financial services and advice to corporations and wealthy individuals on how to use their money. The term can also be used to describe the private equity activities of banking 6) Private bank Private banks are banks that are not incorporated. A private bank is owned by either an individual or a general partner(s) with limited partner(s). In any such case, the creditors can look to both the "entirety of the bank's assets" as well as the entirety of the sole-proprietor's/general-partners' assets. These banks have a long tradition in Switzerland, dating back to at least the revocation of the Edict of Nantes (1685). However most have now become incorporated companies, so the term is rarely true anymore. There are a few private banks remaining in the U.S. One is Brown Brothers Harriman & Co., a general partnership with about 30 members. This is also true of private banks in Europe, and reputable old private banks such as the Swiss Bank Hottinger & Cie founded in 1786 and the British Duncan Lawrie Bank founded in 1860, are truly hard to find. "Private banks" and "private banking" can also refer to non-government owned banks in general, in contrast to government-owned (or nationalized) banks, which were prevalent in communist, socialist and some social democratic ("liberal") states in the 20th century. Private banks as a form of organization should also not be confused with "Private Banks" that offer financial services to high net worth individuals and others. 8 7) Savings bank A savings bank is a financial institution whose primary purpose is accepting savings deposits. It may also perform some other functions. In Europe, savings banks originated in the 19th or sometimes even the 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative, while in others, socially committed individuals created foundations to put in place the necessary infrastructure. 8) Custodian bank A custodian bank, or simply custodian, is a financial institution responsible for safeguarding a firm's or individual's financial assets. The role of a custodian in such a case would be the following: to hold in safekeeping assets such as equities and bonds, arrange settlement of any purchases and sales of such securities, collect information on and income from such assets (dividends in the case of equities and interest in the case of bonds), provide information on the underlying companies and their annual general meetings, manage cash transactions, perform foreign exchange transactions where required and provide regular reporting on all their activities to their clients. Custodian banks are often referred to as global custodians if they hold assets for their clients in multiple jurisdictions around the world, using their own local branches or other local custodian banks in each market to hold accounts for their underlying clients. Assets held in such a manner are typically owned by pension funds. Functions of a Merchant Banker: 1) Management of debt and equity offerings- This forms the main function of the merchant banker. He assists the companies in raising funds from the market. The main areas of work in this regard include: instrument designing, pricing the issue, registration of the offer document, underwriting support, marketing of the issue, allotment and refund, listing on stock exchanges. 2) Placement and distribution- The merchant banker helps in distributing various securities like equity shares, debt instruments, mutual fund products, fixed deposits, insurance products, commercial paper to name a few. The distribution network of the merchant banker can be classified as institutional and retail in nature. The institutional network consists of mutual funds, foreign institutional investors, private equity funds, pension funds, financial institutions etc. The size of such a network represents the wholesale reach of the merchant banker. The retail network depends on networking with investors. 3) Corporate advisory services- Merchant bankers offer customised solutions to their clients financial problems. The following are the main areas in which their advice is sought: Financial structuring includes determining the right debt-equity ratio and gearing ratio for the client, the appropriate capital structure theory is also framed. 9 Merchant bankers also explore the refinancing alternatives of the client, and evaluate cheaper sources of funds. Another area of advice is rehabilitation and turnaround management. In case of sick units, merchant bankers may design a revival package in coordination with banks and financial institutions. Risk management is another area where advice from a merchant banker is sought. He advises the client on different hedging strategies and suggests the appropriate strategy. 4) Project advisory services- Merchant bankers help their clients in various stages of the project undertaken by the clients. They assist them in conceptualising the project idea in the initial stage. Once the idea is formed, they conduct feasibility studies to examine the viability of the proposed project. They also assist the client in preparing different documents like the detailed project report. 5) Loan syndication- Merchant bankers arrange to tie up loans for their clients. This takes place in a series of steps. Firstly they analyse the pattern of the client’s cash flows, based on which the terms of borrowings can be defined. Then the merchant banker prepares a detailed loan memorandum, which is circulated to various banks and financial institutions and they are invited to participate in the syndicate. The banks then negotiate the terms of lending on the basis of which the final allocation is done. 6) Providing venture capital and mezzanine financing- Merchant bankers help companies in obtaining venture capital financing for financing their new and innovative strategies. Merchant bank activities Merchant banks, now so called, are in fact the original "banks". These were invented in the Middle Ages by Italian grain merchants. As the Lombardy merchants and bankers grew in stature based on the strength of the Lombard plains cereal crops, many displaced Jews fleeing Spanish persecution were attracted to the trade. They brought with them ancient practices from the middle and far east silk routes. Originally intended for the finance of long trading journeys, these methods were now utilized to finance the production of grain. The Jews could not hold land in Italy, so they entered the great trading piazzas and halls of Lombardy, alongside the local traders, and set up their benches to trade in crops. They had one great merchant bank is a traditional term for an Investment Bank. It can also be used to describe advantage over the locals. Christians were strictly forbidden the sin of usury. The Jewish newcomers, on the other hand, could lend to farmers against crops in the field, a high-risk loan at what would have been considered usurious rates by the Church, but did not bind the Jews. In this way they could secure the grain sale rights against the eventual harvest. They then began to advance against the delivery of grain shipped to distant ports. In both cases they made their profit from the present discount against the future price. This two-handed trade was time consuming and soon there arose a class of merchants, who were trading grain debt instead of grain. It was a short step from financing trade on their own behalf to settling trades for others, and then to holding deposits for settlement of "billete" or notes written by the 10 people who were still brokering the actual grain. And so the merchant's "benches" (bank is a corruption of the Italian for bench, as in a counter) in the great grain markets became centers for holding money against a bill (billette, a note, a letter of formal exchange, later a bill of exchange, later still, a cheque). These deposited funds were intended to be held for the settlement of grain trades, but often were used for the bench's own trades in the meantime. The term bankrupt is a corruption of the Italian banca rotta, or broken bench, which is what happened when someone lost his traders' deposits. Being "broke" has the same connotation. A sensible manner of discounting interest to the depositors against what could be earned by employing their money in the trade of the bench soon developed; in short, selling an "interest" to them in a specific trade, thus overcoming the usury objection. Once again this merely developed what was an ancient method of financing long distance transport of goods. Merchant Banking is an activity that includes corporate finance activities, such as advice on complex financings, merger and acquisition advice (international or domestic), and at times direct equity investments in corporations by the banks. Merchant banks are private financial institution. Their primary sources of income are PIPE financings and international trade. Their secondary income sources are consulting, Mergers & Acquisitions help and financial market speculation. Because they do not invest against collateral, they take far greater risks than traditional banks. Because they are private, do not take money from the public and are international in scope, they are not regulated. Anyone considering dealing with any merchant bank should investigate the bank and its managers before seeking their help. The reason that businesses should develop a working relationship with a merchant bank is that they have more money than venture capitalists. Their advice tends to be more pragmatic than venture capitalists. It is rare for a merchant bank to fail. The last major failure was Barings Bank (1992). It failed because of unsupervised trading of copper futures contracts and buybacks. When the DotCom Bubble burst in 2001, scores of venture capital firms failed. The greatest merchant bank failure in history was the Knights Templar. After the Crusades, the Order became immensely wealthy controlling and funding the trade between the Middle East and Western Europe. They foolishly loaned money to the French Government. To avoid repaying the money, King Louie had the Pope declare the Order heretics. Thousands of monks lost their lives, but France balanced its budget. To understand Merchant Banks, you should know something of their history. Modern merchant banking started in Italy during the 7th Century. The banking practices evolved from the financing structure of the Silk Road Trading that predates the Roman Empire. The basic financing structure was the advance payment for goods by merchant bankers at a great discount to the delivery value of those goods. In the case of Italy and then Germany, wheat was the product. The merchant banks purchased the wheat soon after planting. They accepted the risk of crop failure. They profited when they sold the wheat. In most countries today, the national government accepts the risk through government crop insurance. 11 As the British Empire expanded in the 18th and 19th Centuries, merchant banks prospered in London. For instance, merchant bankers funded Canada’s Hudson Bay Company. This period saw the rise of such merchant banks as Schroders, Warburgs or Rothschilds. Amsterdam benefited from the trade created by the Dutch East Indian Company. Since the 18th century, the role of the merchant banker has been considerably broadened to include a composite of modern day skills. Such skills are inherently entrepreneurial, managerial, financial and transactional. While the American Triangular Trade and Clipper ships of the 19th Century should have created major merchant banking centers in Boston and New York. Unfortunately, the American global trade wasn’t a major catalyst for merchant banking growth. However, the Rockefellers and Back Bay Wealth in Boston owe their fortunes to ancestors involved in merchant banking activities. The Kennedy fortune comes in part from Joseph Kennedy’s involvement as a merchant banker to the pre-Crash Stock Market. By the 1960s, the cost of going public in the States began to increase. Many American brokerage house clients lacked the resources to pay these costs. Major brokerage firms responded by creating merchant banking departments. In the 1920s, American merchant banks began to become involved in investor These departments became known as Investment Banks. Their role was to loan the parent brokerage firm’s client companies the money to go public. They recovered the loan from the proceeds of the Initial Public Offering (IPO). For their service, they received a large bloc of shares in the new public company. Their secondary job was to arrange acquisitions that made the client company a more attractive IPO candidate. Successful M&A work is very rewarding. Today, North American merchant banks have taken the form of "boutiques"- whereby, each offers its own specialized services. The hallmarks of these merchant bank boutiques are that they typically charge fees payable in cash and/or the client's stock for each service rendered. You can find a merchant bank that meets any reasonable set of needs. Factors responsible for the Changes: Globalization of Indian Economy has made the whole economy open, which has more multinational player in the era of the financial services? This has resulted in to the emergence of the global investment in financial sector. Government has now open up the doors of investments especially in the area of banks and insurance, which leads to competitive environment for the present players. Now they have to bring something new which is efficient and best services to live in the competitive environment. Competition arising out of Private Company Participation is due to the liberalization of the economy. Now along with the public/government players, private players are also offering financial services and instruments, which are more innovative and different than the earlier offering. All around, there is a fresh thinking on the financial products, structure of banking and insurance instruments with value creation. Financial markets are being redefined, reinvented and reconfigured on a persistent basis. 12 Changing Customer Demographics: If we look at the all-growing economies like China, Germany and Brazil, India has 35% of the population in the age group of 15years to 34 years. It is estimated that by 130mn plus people get added to working population by 2009 with 55 million families (320 million people) will be added in the middle-income group (0.1 to 0.3 Million Rs). The demographic change leads to the change in the need of the customer. Changing Customer Needs customers have larger segment in corporate decision- making they are the final judges of the every single activity offered by the marketer. Banks in India have traditionally offered mass banking products. Financial market has turned into a buyer's market. Market focus is shifting from mass banking products to class banking with introduction of value added products. Today, financial institutions are co-designing the products/services with their customers and striving to provide them with global solutions Technology Improvements Technology is also helping market players redefine the way they have been operating in the market. In today's time it becomes vary easy for a customer to transfer a fund from one location to another location with CLICK of Mouse. Availability of the concepts like phone banking, anytime banking etc. has become possible because of the technological developments only. Government Reforms Government is major decision player in the financial market. It decides the proportion of the investment limits as well as the regulation and control. In last ten years government is designing its policy with more liberal and competitive content. Which it are welcome trends for the emerging financial services. Heightened focus on customer relations the bank of the future has to be essentially a marketing organization that also sells banking products. New distribution channels are being used; more & more banks are outsourcing services like disbursement and servicing of consumer loans, Credit card business. Direct Selling Agents (DSAs) of various Banks go out and sell their products. They make house calls to get the application form filled in properly and also take your passport-sized photo. Banking in India originated in the first decade of 18th century with the General Bank coming into existence in 1786. Bank of Hindustan followed this. Both these banks are now defunct. The oldest bank in existence in India is the State Bank of India being established as the Bank of Calcutta in Calcutta in June 1806. In the early 1990s the then Narasimha Rao government embarked on the policy of liberalization and gave license to small number of private banks, which came to be known as new generation tech-savvy banks such as ICICI Bank and HDFC Bank. Currently in 2005, banking in India is considered fairly matured in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. With the growth of Indian economy expected to be strong for quite some time especially in its service sector, the demand for banking services specially retail banking, mortgage and investment services are expected to be strong.