Some of the popular among the varied products available at the choice of borrowers are described below:

1. Syndicated Loan on variable Interest rate basis: This is the most widely used product. It represents a credit arranged by a syndicate of banks (i.e. a group of consortium of banks) for medium term up to 7 years with amortization (repayments) after the grace period over. Interest is expressed as spread over LIBOR (London Inter Bank Offered Rate). Funds are thus provided by different banking Institutions, who share the syndicated loan at agreed basis. The risk is thus spread over different constituents. The Bank or Institution contributing the maximum share acts as the Leader of the Syndicate and coordinate the function of the group.

2. Bonds Issue: Bond Issues are raised by the credit worthy Corporations and Institutions in the International market of primary Investors. A prospectus, which is a document covering the offer terms, is issued and the Issue is listed at an appropriate centre for International finance. (Like London, Luxembourg etc.). The issue could be on a fixed rate basis or floating rate basis, the latter being referred as the Floating Rate Notes (FRNs). In floating rate notes the interest rate fluctuates as per market conditions between a pre-determined maximum and minimum rates.

3. Note Issuance Facilities: The system of 'Note Issue facilities developed during the mid-eighties. NIF represents an underwritten facility under which borrowers are assured of funds for medium term (of 5 to 7 years) and the at the same time the investors have the flexibility to unload their positions at short intervals (3-6 months). It is thus a short-term investment for the investors, but the borrower is assured of a continuous flow of credit for the medium term. It is the specific role of the underwriters, who ensure a continuos flow of credit from different chains of investors. It is similar to Commercial Banks mobilising enormous funds on short-term basis (up to one year) and utilizing a portion thereof for medium term lending. NIFs have greatly facilitated the securitisation process in evidence during the recent years. These are also called revolving underwritten facilities.

4. Commercial Paper: CPs as a means raising funds is also of recent origin and this mode of finance has gained popularity. It can be distinguished from NIFs in terms of 'underwritten commitment'. CP is an issue of Euro-Notes, not underwritten and depending upon its tenure it is called CP (Short-term up to 270 days) Medium Term Note (MTN) for period of 1 to 3 years. The mode of raising finance is popular in the U.S., Europe and Japan.

5. Equity-related bonds: These are not direct equity issues (Euro equity or international equity), but carry an offer of option for eventual conversion of the investment into equity issues. Thus these are in the form of convertible bonds, which offer an option to the bondholders to convert their bonds in equity shares at an agreed price over an agreed period. Alternatively the bonds are issued with equity warrants which in turn can be converted into equity shares.

6. Swaps, Futures & Options: The current decade saw innovations in banking business in the form of swaps, futures and options. These innovations have been rendered possible due to availability of computer aids and the market player as have adopted these techniques for asset/liability management. Alongside these innovations noted above, the process of liberalisation and consequent integration of markets is under way. Such a move towards globalisation of markets has turned up arbitrage opportunities, which can be availed through swap options in an effective manner. Borrowers and investors can raise or invest in many currencies, which they can usually change (hedge or swap) during the period of loan or investment. The extent of the flexibility depends on inter alia, market conditions, the credit-worthiness of the counterparty and the liquidity of the market in that financial instruments

A swap transaction is an agreement under which two parties agree to exchange streams of payments (obligations), arising from financial transactions, involving different interest bases or different currencies and also their relative interest payments. A typical interest rate swap involves exchange of a fixed rate loan with a floating rate loan. Swap transactions are used both to hedge actual risk exposures and to benefit by arbitraging between different currency markets and between different maturity sectors of the financial markets.

This facility enables Banks and Corporations to hedge their exposure to financial risks arising from interest rate and exchange rate changes. An option contract gives the user a right, but not an obligation to take the contract, whereas in a forward contract there is an obligation to fulfill the contract.

Futures not only offer actual hedging facilities, but also speculative opportunities to market participants. Banks are increasingly using interest rate and currency futures to hedge mismatched maturities of their liabilities and assets or exchange rate exposures.

To sum up these financial instruments can be broadly grouped into four types:

(i). Fund raising, (ii) Underwriting, (iii) Hedging and, (iv) Arbitrage

1. Fund raising:: This comprises both debt and equity. Debt instruments are Overdraft, Term Loans, Floating rate Notes (FRNs), Bonds and Debentures. Equity involves Preference Shares (Prefs) and Shares (with various rights attached)

2. Underwriting: Underwriting instruments are principally credit facilities. Note issuance facilities (NIFs) Euronote facilities, Revolving Underwriting facilities (RUFs), Short tern Note Issuance Facilities (SINFs), Commercial Paper

3. Hedging: Hedging instruments are principally two types: Forward Contracts and Futures. Forward contracts can exist both in Foreign Exchange and interest rates. (Forward Rate Agreements-, FRAs). Similarly fund raising instruments using futures is possible in foreign exchange, interest bearing instruments, stock indices, commodities and options

4. Arbitrage: Arbitraging instruments take the shape of debt swaps and asset swaps (linked to bonds)

While such revolutionary changes were taking place in the global arena, the Indian Banking context was completely insulated and kept captive up to the beginning of the Nineties, on account of directed policies on major business and operational matters, in particular those relating to credit, investment, rate of interest etc. Basic policy parameters were decided by RBI and the Finance Ministry and Banks had little options in this respect. This phenomenon changed totally in the Nineties, and changes sweeping the international banking field started influencing the Indian financial markets and banking institutions, with the advent of the Economic Reforms, and the Reforms in the Financial and Banking Sector. These we will study in the subsequent chapters.