purpose of education

1. LEASING,HIRE
PURCHASE&MERCHANT
BANKING
JYOTI PRAKASH
1638755
MBA III

2. LEASING

3. MEANING OF LEASE &
LEASING
• A lease is a contractual arrangement calling for the lessee (user) to pay the
lessor (owner) for use of asset.
• Leasing is a process by which a firm can obtain the use of a certain fixed assets for
which it must pay a series of contractual, periodic, tax deductible payments.

4. IMPORTANT TERMS
• Lessee is the receiver of the services or the assets under the lessee contract.
• Lessor is the owner of the assets.
• Tenancy is the relationship between the tenant and the landlord.
• Term is the fixed or indefinite period of time involved in the lease contract.
• Rent is the consideration for the lease.

5. TYPES OF LEASE
• Operating Lease: Short term , cancelable lease agreements. The lessor is
responsible for the maintenance and insurance of the asset.
For Example: Tourist renting a car, Hotel rooms, etc.
• Financial Lease: Long term non cancellable lease contract.
For Example: Plant, Machinery, Building , Ships and aircraft.
• Sale and Lease-back: Special financial agreement in which the user may sell
an asset owned by him to the lessor and lease it back from him.
• For Example: Shipping Industry.

6. ADVANTAGES OF LEASING
• Leasing is less capital – intensive than purchasing so it is more suitable for a
business which has constraints on its capital.
• Lease payments are considered expenses rather than assets, which can be
set off against revenue when calculating taxable profit at the end of the
relevant tax accounting period.
• Leasing providers more flexibility to a business which expect to grow in the
relatively short term because a lessee is not usually obliged to renew a
lease at the end of its term.

7. DISADVANTAGES OF
LEASING
• Tactical legal considerations usually make it expedient for lessees to default
on their leases.
• If the business is successful, lessor may demand higher rental payments
when leases come up for renewal.
• A net lease may shift some or all of the maintenance cost onto the tenant.

8. HIRE PURCHASE

9. MEANING
The hire purchase Act of India 1972, defines a hire purchase agreement as an
agreement under which goods are let on hire and under which the hirer has
an option to purchase them in accordance with the terms of agreement.
It involves two parties:
Hirer: The party which receive the asset.
Hiree: The party which rents out the asset.

10. FEATURES
• Hire purchase is based on an agreement in writing.
• The buyer takes possession of the goods at the time of entering into
contract.
• Each installment is treated as hire charges.
• Ownership transfer from the buyer to the seller on the payment of the last
installment.
• The purchaser has the right to terminate the agreement any time before
the property passes.

11. ADVANTAGES
• Expensive items such as machinery and plant can be acquired without huge
financial investment.
• Term can be flexible and fixed re-payments make for easy future budgeting.
• After full payment of the hire purchase agreement, ownership of the goods
in transferred to the hirer.

12. DISADVANTAGES
• Higher Prices: The buyer has to pay much higher prices than that payable
on cash purchase . The seller adds margin to cover interest and risk.
• Transfer of Ownership: The buyer does not get ownership of goods until
last installment paid. He cannot sell the goods before final payment.
• Large Investment: The hire purchase seller has to invest considerable funds
because payments are received from buyer over a long period of time.

13. MERCHANT BANKING

14. WHAT IS MERCHANT
BANKING
Merchant Banking may be defined as an institution which covers a wide
range of activities such as underwriting of shares, portfolio management ,
Project counseling , insurance etc. They all render these service for a fee .
Both commercial and investment banks may engage in merchant banking
activities. The original purpose of merchant bank was to facilitate and finance
production and trade of commodities and hence the name “merchant”.

15. WHO IS A MERCHANT
BANKER
• A merchant banker is one who is a critical link between a company raising
fund and the investors.
• Merchant banker is one who underwrites corporate securities and advices
on issues like corporate mergers.
• Merchant Banker understands the requirements of the business concern
and arranges finance with the help of financial institutions, banks, stock
exchanges and money market.

16. GROWTH OF MERCHANT
BANK IN INDIA
• Grindlays Bank (1967).
• City Bank (1970).
• SBI (1972).
• Other Banks – Private Banks, Foreign Banks.
• Financial Institutions – Commercial Banks, Development Banks.