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India Cluster64 Verified Questions
Primary Capital Market & IPOs GK Questions & Answers
The primary capital market in India serves as the direct capital mobilization mechanism through which corporate entities and public issuers raise long-term equity and debt capital directly from investors. Regulated primarily by the Securities and Exchange Board of India (SEBI) under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations) and Sections 23 to 42 of the Companies Act, 2013, primary issuances encompass Initial Public Offerings (IPOs), Further Public Offerings (FPOs), Rights Issues, and Private Placements including Qualified Institutions Placements (QIP). An unlisted issuer entering the public market must file a Draft Red Herring Prospectus (DRHP) with SEBI and registrar authorities, followed by a Red Herring Prospectus (RHP) containing complete business disclosures without the final issue price. The price discovery mechanism relies on the 100% book building process, where merchant bankers establish a price band with a maximum floor-to-cap spread of 20%. Under SEBI mandates, public issue allocations are compartmentalized: minimum 50% for Qualified Institutional Buyers (QIBs), maximum 35% for Retail Individual Investors (RIIs), and 15% for Non-Institutional Investors (NIIs). All retail applications operate mandatorily through Application Supported by Blocked Amount (ASBA) integrated with UPI, while SEBI enforced a compressed T+3 listing timeline in December 2023.
High-yield conceptual summaries for competitive exams and rapid revision.
The primary capital market is governed by SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 and the Companies Act, 2013.
An Initial Public Offering (IPO) is the maiden public issue of shares by an unlisted company to institutional and retail public investors.
A Further Public Offering (FPO) is an issuance of additional shares made by an already listed company to raise fresh equity capital.
A Red Herring Prospectus (RHP) contains complete business operations and financials but omits quantum of shares or the issue price.
Under SEBI ICDR regulations, the upper price cap in a book built IPO cannot exceed 120% of the floor price (spread capped at 20%).
In a standard book-built IPO, allocation quotas mandate minimum 50% for QIBs, minimum 15% for NIIs, and maximum 35% for Retail Individual Investors.
A Retail Individual Investor (RII) is defined by SEBI as an individual investor whose total application value does not exceed ₹2,00,000 in an issue.
Anchor Investors are Qualified Institutional Buyers applying for a minimum value of ₹10 crore, allocated up to 60% of the QIB quota before IPO opening.
Shares allocated to Anchor Investors are subject to phased lock-in periods: 50% for 30 days and the remaining 50% for 90 days from allotment.
Application Supported by Blocked Amount (ASBA) ensures investor funds remain in their own bank account until final share allotment is confirmed.
SEBI mandated ASBA for all retail investors in public issues from January 2016, later introducing UPI-based payment mechanism up to ₹5 lakh.
In December 2023, SEBI made the T+3 listing timeline mandatory, cutting time between issue closure and exchange listing from 6 to 3 working days.
The Green Shoe Option allows underwriters to over-allot shares up to 15% of the total issue size to stabilize post-listing share volatility.
Qualified Institutions Placement (QIP) under Chapter VI of ICDR allows listed companies to raise capital from domestic institutions without elaborate public filing.
A minimum promoter contribution of 20% of post-issue capital must be locked in for 18 months under revised SEBI regulations (reduced from 3 years).
easyFinancial Terms, Money Markets & Capital Instruments
The outright purchase and sale of Government Securities in the open market by the RBI to inject or absorb rupee liquidity is known by which term?
Verified Explanation
Open Market Operations (OMOs) involve the outright purchase or sale of government securities by the central bank in the secondary market to regulate durable liquidity conditions.
2ID: GK-BANK-00103
easyFinancial Terms, Money Markets & Capital Instruments
In the Indian money market, what is the inter-bank lending and borrowing market called when funds are borrowed or lent for a tenure of exactly 1 day (overnight)?
Verified Explanation
In Indian money market operations: 1 day (overnight) transactions are 'Call Money', 2 to 14 days are 'Notice Money', and 15 days to 1 year are 'Term Money'.
3ID: GK-BANK-00104
mediumFinancial Terms, Money Markets & Capital Instruments
In the Indian money market, if funds are borrowed or lent for a period between 2 days and 14 days without collateral, what is the transaction termed?
Verified Explanation
Under RBI money market operating guidelines, money lent or borrowed for a tenure from 2 days up to 14 days is termed 'Notice Money'.
4ID: GK-BANK-00165
hardFinancial Terms, Money Markets & Capital Instruments
Under the Market Stabilization Scheme (MSS) introduced in April 2004, what special sovereign debt instruments were issued by the RBI to mop up enduring excess liquidity from heavy capital inflows?
Verified Explanation
Under the MSS arrangement agreed between the GoI and RBI, the Government issued MSS Treasury Bills and dated securities to absorb liquidity arising from foreign exchange inflows, with the proceeds held in a separate sterilised cash account.
5ID: GK-BANK-00109
mediumFinancial Terms, Money Markets & Capital Instruments
What is the minimum denomination in which Commercial Paper (CP) can be issued by eligible corporate borrowers in the Indian money market?
Verified Explanation
Commercial Paper (CP) is issued in denominations of ₹5 Lakh and multiples thereof, with maturity ranging between a minimum of 7 days and a maximum of up to 1 year.
6ID: GK-BANK-00379
mediumFinancial Terms, Money Markets & Capital Instruments
What specific open market monetary intervention is known as 'Operation Twist', executed by the RBI to manage long-term bond yields?
Verified Explanation
Operation Twist involves the simultaneous purchase of long-term government securities (injecting long-term liquidity and depressing yields) and sale of short-term treasury bills to flatten the yield curve without altering durable liquidity.
7ID: GK-BANK-00440
mediumFinancial Terms, Money Markets & Capital Instruments
What is the primary mechanism of 'Operation Twist' conducted by the Reserve Bank of India in the open market?
Verified Explanation
Operation Twist involves the simultaneous purchase of long-dated securities and sale of short-term treasury bills to lower long-term yields and flatten the term structure of interest rates.
8ID: GK-BANK-00501
mediumFinancial Terms, Money Markets & Capital Instruments
What simultaneous open market operation is executed by the RBI under 'Operation Twist' to flatten the yield curve?
Verified Explanation
In 'Operation Twist', the RBI simultaneously buys long-dated government bonds (to lower long-term yields) and sells equal amounts of short-dated Treasury Bills/bonds (absorbing liquidity) without altering the net monetary base.
9ID: GK-BANK-00234
hardFinancial Terms, Money Markets & Capital Instruments
In the Indian interest rate derivatives market, what overnight reference benchmark published by FBIL serves as the floating-rate leg for settlement in Overnight Index Swaps (OIS)?
Verified Explanation
In India, Overnight Index Swaps (OIS) are benchmarked against the overnight Mumbai Interbank Outright Rate (MIBOR), administered and published daily by Financial Benchmarks India Pvt Ltd (FBIL).
10ID: GK-BANK-00110
mediumFinancial Terms, Money Markets & Capital Instruments
Which zero-coupon, discounted short-term debt instruments are issued by the Government of India for standard tenures of 91 days, 182 days, and 364 days?
Verified Explanation
Treasury Bills (T-Bills) are short-term promissory notes issued at a discount to face value by the RBI on behalf of the Central Government with standard tenures of 91, 182, and 364 days.