Professional Documents
Culture Documents
?inancial system
m A financial system is a complex, well-
integrated set of sub-systems of financial
institutions, markets, & services which
facilitates the transfer & allocation of funds ,
efficiently & effectively.
m ?inancial systems of most developing
countries are characterized by coexistence
& cooperation between formal &informal
financial sectors.
m
he Indian financial system can also be
broadly classified into formal & informal
financial system.
m MO?,RBI,SEBI & other regulatory bodies.
m Individual moneylenders, partnership
firms.
VOMPONEN
S O?
E ?ORMAL
?INANVIAL SYS
EM
m ?inancial institutions.
m ?inancial markets.
m ?inancial instruments.
m ?inancial services.
?unctions of a financial system
m Mobilize & allocate saving.
m Monitor corporate performance.
m Provide payment & settlement systems.
m Optimum allocation of risk-bearing & reduction.
m Disseminate price-related information.
m Offer portfolio adjustment facility.
m Lower the cost of transactions.
m Promote of financial deepening & broadening.
?inancial system designs
m Bank ±based
Developed ±Japan, Germany, ?rance ,Italy
Under ±developed-Argentina, Pakistan Sri
Lanka, Bangladesh
m Market ±based.
D-US, UK, Singapore, Malaysia, Korea.
U d ±Brazil ,Mexico, the Philippines,
urkey.
Nature & Role of financial
institution
m Liability ,asset and size transformation
consisting mobilization of funds &their
allocation by providing large loans on the
basis of numerous small deposits.
m Maturity transformation.
m Risk transformation.
Money market
m It is a market for overnight to short-term funds &
instrument having a maturity period of one or less than
one year.
- it is not a single market but a collection of markets for
several instruments.
- It is a wholesale market of short-term debt instrument.
- Its principal feature is honor where the creditworthiness
of the participants is important.
-
he main players are: RBI, D? I, mutual fund, banks,
corporate investors, NB?Vs, state govt., provident funds,
S
VI, PSUs.
- It is a need-based market wherein the demand & supply of
money shape the market.
?unctions
m Provide a balancing mechanism.
m Provide a focal point for central bank intervention
for influencing liquidity & general level of
interest rates in the economy.
m Provide reasonable access to suppliers & users of
short-term funds to fulfill their borrowing &
investment requirement at an efficient market
clearing prices.
Money market instruments
m
reasury bills.
m Vall/notice money market.
m Vommercial papers
m Vertificates of deposits
m Vommercial Bills
REAURY BILLS
m It is short ±term instruments issued by RBI
on behalf of the government to tide over
short-term liquidity shortfalls.
m
-bills are rapid at par on maturity.
DS is
not applicable on
-bills
ypes of
-bills
m On tap Bills-4.66
m Ad hoc Bills
m Auctioned
±Bills
m -Day
-bills
m 364-Day
-bills
m -Day-
-bills
m 4-Day-
-bills
VOMMERVIAL PAPER
m It is an unsecured short-term promissory
note issued at a discount by creditworthy
corporate ,primary dealers &all Indian
financial institutions.
m Introduced in Jan.
m P of VRISIL is necessary
m Maturity period of approx.3 months or less.
m Process for issuing a cp
Vommercial bills
IN
ERMEDIARY
m Discount and finance house of India
-
he D? I was set up in April by RBI with the
objective of deepening and activating the money market.
It commenced in operations from July . .
- It is a joint stock company in form and is jointly owned
by the reserve bank of india ,public sector bank, and all ±
India financial institutions which have contributed to its
paid up capital of Rs. crore in the proportion of 5
- :3:. in addition refinance facility with the reserve bank
and credit of Rs. crore from public sector banks.
Vont«««.
m
he role of the D ?I is to function as a specialized
money market intermediary for stimulating activity in
money market instruments and develop secondary
markets in these instruments. it also undertakes short-term
buy-back operations in the government and approved
dated securities.
he D? I mobilize funds/resources from
commercial bank , financial institutions and corporate
entities having resources to lend which are pooled and
lent in the money market.
m
he D? I deals in treasury bills, commercial bills
certificates of deposits, call/notice money market and
government securities.
Vont«.
m
he presence of the D? I as an intermediary in the
money market has helped corporate entities, banks , and
financial institution to raise short-term money and invest
short- term surpluses.
he D? I also extends repos ,i.e.,
buy ±back facility up to 4 days , to banks and financial
institutions in respect of money market instruments.
m RBI divested its shareholders in favor of the existing
shareholders in march,3. the SBI became the major
shareholder and D? I became a subsidiary of SBI from
march,3 ,3.
Money market mutual fund
m MMM?s were introduced in April to
provide an additional short ± term avenue for
investment and bring money market instrument
with in the reach of individuals.
hese M? would
invest exclusively in money market instruments.
m MMM?s bridge the gap between small
individuals investors and the money market.
MMM?s mobilize saving from small investors to
money market instruments.
m MMM?S was announced by RBI in April, .
Vont«..
m MMM?s were allowed to offer a µcheque
writing facility¶ in a tie up with banks to
provide more liquidity to unit holders.
m
he MMM?s ,earlier under the purview of
RBI , now come under the purview of the
SEBI regulation since march 7,.
Link between the money market and
monetary policy in India
m
he monetary represents policies ,objectives and instrument directed
towards regulating money supply and the cost and availability of credit in the
economy.
m
he objectives of the monetary policy are pursued by ensuring credit
availability with stability in the external value of rupees as well as an overall
financial stability.
m ?or example, if
he RBI desires to inject liquidity for short period, it could
resort repos-providing funds to the banks in exchange of securities at a
predetermined interest rate.
m
he RBI also set up a framework of the interim liquidity adjustment facility
which helped in injecting liquidity through the collateralized lending facility
to banks ,export credit refinance to the bank , and liquidity support to primary
dealers.
m ?ixed rate repos were introduced by the RBI to absorb liquidity. the RBI use
multiple instruments to ensure that appropriate liquidity is maintained in the
system.
m Market-base instruments help in minimizing volatility in the money market.
ools for managing liquidity in the
money market.
m Reserve requirement.
m Interest rates.
m Bank rate.
m Refinance from the Reserve bank.
m Repos
Banking and Non-banking
institution.
m Banking institution
- It is one of the important financial pillars of the financial
system.
- It is oldest financial intermediary in the financial syatem.
-
he essential characteristics of the banking business as
defined in section (b) of the banking Regulation Act are
as follows.
- Acceptance of deposits from the public
- ?or the purpose of lending or investment
- Repayable on demand or
- Withdraw able by means of any instrument whether a
cheque or otherwise.
Vont«..
m Deposits
m Vredit creation
m Lending of money
m Ancillary functions
m Regulating of bank in india
Development of banking in India
m Banking in India has its origin in Vedic times, i.e to
4 BV.
m In 63, the first bank was set up in madras by the
officers of east India company. Between 77 and 5,
agency houses established the bank of industan, the
commercial bank , the Valcutta bank, the bank of Bombay
. Later ,the commercial bank and Valcutta bank merged
to form the union bank.
hree presidency banks- the bank
of Bombay, the bank of Bengal which were set up
between and 43 were amalgamated into the
imperial bank of India in .
m
he sudden boom of investment in the s , led to the
emergence of leading joint stock banks such as the PNB,
BOI,the Indian bank, BOB , central bank of India, union
bank .
m In 6, these banks were nationalized to promote macro-
economics objectives such as economic growth, better
regional balance of economic activities.
m Between 6 and , there was a rapid expansion of
branch network. the number of bank branches increased
from ,6 to 6,57. banking deposits grew at a
compound annual growth.
Vont«.
m Vompetition was infused in the banking system
for the first time in 3 when the RBI granted
permission to set up private sectors and foreign
banks were allowed to open branches. Despite
competition , banks were in position to post the
higher profit due to volume expansion and fewer
poor quality loan
Scheduled commercial bank
m Public sector bank.
-
he state bank of India
- Nationalized banks
- Private sector banks
- ?oreign banks in India
m Regional rural banks.
Reform in the banking sector
m Government of India set up the Narsimham committee ( )
to examine all aspects relating to structure ,organization and
functioning of the Indian banking system. measure like capital
adequacy ,income recognition ,asset classification ,norms for
investment, entry of private sectors banks, gradual reduction of
SLR and VRR were recommended and implemented to
strengthen the banking system.
m Another committee which deserve mention is the khan
committee, which was constituted by the RBI in December
7 to examine the harmonization of the role and operations
of development financial institutions and banks.
Vont«««
m
he verma committee, which had been the most controversial of committee ,
recommended the need for greater use of information technology even in the
weak public sector banks ,restructuring of weak banks but not merging them
with strong banks , market ±driven merger sale of foreign branches ,closure
of subsidiaries of weak public sector banks, and voluntary retirement scheme
for at least 5 of the staff.
m Banking sector Reform
- Phase recommendations of the committee on banking sector
reforms, (Narshimham committee I)
Deregulation of the interest rate structure
Progressive reduction in pre-emptive reserves.
Liberalization of the branch expansion policy.
Introduction of prudential norms to ensure capital adequacy, proper income
recognition classification of assets based on their quality and provisioning
against bad and doubtful debts.
Vont«««
Decreasing the emphasis laid on directed
credit and phasing out the confessional rate
of interest to priority sector.
Deregulating of the entry norms for private
sector banks and foreign banks.
Permitting public and private sector banks
to access the capital market.
Vont«.
Setting up of the asset Reconstruction fund.
Vonstituting the special debt recovery tribunals.
?reedom to appoint chief executive and officers of the banks.
Vhange in the constitution of the board.
Bringing NB?Vs under the ambit of regulatory framework.
| Phase II Recommendations of the committee on banking sector
reforms April ,(Narsimham committee II)
Vapital Adequacy
Asset Quality
System and methods
Industry structure
Regulation and supervision
Legal Amendments
Vont««
m Prudential regulation
m Vapital Adequacy and tier I and II
m Restructuring of public sector Banks
m Voluntary Retirement Scheme
m
echnology in banking
m Payment and settlement system
m Diversification in bank operations
m Merger and acquisitions in banking.
m Equity capital raised by public sector banks.
Vooperative banking
m Vooperative banks came into existence with the
enactment of cooperative credit societies Act of
4 which provided for the formation of
cooperative credit societies.
m Vooperative bank is member promoted and has to
be registered with the state ± based registrar of
cooperative societies.it functions with the rule of
µone member one vote¶ and µno-profit no-
loss¶basis.
Vont««
m Urban cooperative banks
m Rural cooperative banks.
Non ± banking financial companies
m NB?Vs supplement role of the banking
sector in meeting the increasing financial
needs of the corporate sector , delivering
credit to the unorganized sector and to
small local borrowers. NB?Vs have a more
flexible structure than banks.
ypes of NB?Vs
m ire purchase finance company.
m Investment company including primary
dealer.
m Loan company
m Mutual benefit financial company
m Equipment leasing company
m Vhit fund company
Overview of regulation of NB?Vs
m Mission
m Amendment to the Reserve bank of India
Act, 34.
m Basic structure of regulatory and
supervisory framewoek
Mutual fund
m Vontents
- Meaning and benefits of mutual fund
- istory of mutual funds
-
ypes of mutual fund scheme
- Organization of a mutual fund
- Unit trust of India
- Growth and performance of mutual funds in India
Introduction
m A mutual fund is a common pool of money into
which investors place their contributions that are
to be invested in accordance with a stated
objective.
he ownership of the fund is thus joint
or ³mutual´, fund belongs to all investors.
he
work µMutual¶ means a vehicle wherein the
benefits of a certain investment are reaped by
investors in proportion to their investment
m A mutual fund uses the money collected from
investors to buy those assets which are
specifically permitted by its stated investment
objective.
hus, an equity fund would buy equity
assets ± ordinary shares, preference shares,
warrants etc. A bond fund would buy debt
instruments such as debentures, bonds or
government securities. It is these assets which are
owned by the investors in the same proportion as
their contribution bears to the total contributions
of all investors put together.
!
m s
m NAV or Net Asset Value of the fund is
the cumulative market value of the assets
of the fund net of its liabilities. NAV per
unit is simply the net value of assets
divided by the number of units outstanding.
Buying and selling into funds is done on
the basis of NAV-related prices.
m ! !
he preference of Indian investor is
changing rapidly. Previously they were investing
into fixed income earning securities. In this fixed
income earning securities, post office¶s saving
scheme and fixed deposits were common
avenues. But with the passage of time, inflation
increased, so there was a great need of avenues
that gives high returns, more liquidity and better
management of investor¶s fund.
m Initially people started investing in share market
but it was highly volatile and it required constant
watch over the fund. So people started shifting
over the Mutual ?unds because they were
professionally managed.
hey were also having
high liquidity, good return and helped in tax
planning. ?rom last few years, mutual fund
industry has shown tremendous phenomenon
growth so more and more people are attracting
towards the mutual funds
m Mutual ?und now represent perhaps the most
appropriate investment opportunity for most
investors as financial markets become more
sophisticated and complex, investors need a
financial intermediary who provides the required
knowledge and professional expertise on
successful investing. It is no wonder then that in
the birthplace of mutual funds ± the USA ± the
fund industry has already overtaken the banking
industry, more funds being under mutual fund
management than deposited with the banks.
m
he Indian mutual fund industry has already started
opening up many of the exciting investment opportunities
to Indian investors. We have started witnessing the
phenomenon of more savings now being entrusted to the
funds than to the banks. Despite the expected continuing
growth in the industry, mutual funds are still a new
financial intermediary in India. ence, it is important that
the investors, the mutual fund agents/distributors, the
investment advisors and even the fund employees acquire
better knowledge of what mutual funds are, what they can
do for investors and what they cannot, and how they
function differently from other intermediaries such as the
banks.
r !
r
m ' r ''
m Unit
rust of India (U
I) was established on 63 by
an Act of Parliament. It was set up by the Reserve Bank
of India and functioned under the Regulatory and
administrative control of the Reserve Bank of India. In
7, U
I was de-linked from the RBI and the Industrial
Development Bank of India (IDBI) took over the
regulatory and administrative control in place of RBI.
he
first scheme launched by U
I was Unit Scheme in 64.
At the end of U
I had Rs.6, 7 cores of assets
under management.
m ß
r ''
r
m 7 marked the entry of non-U
I, public
sector mutual funds set up by the public sector
banks and Life Insurance Vorporation of India
(LIV) and General Insurance Vorporation of India
(GIV). SBI Mutual ?und was the first non-U
I
Mutual ?und established in June 7
m
r 'ß
r
With the entry of private sector funds in 3, a new era started in the
Indian mutual fund industry, giving the Indian investors a wider choice of
fund families. Also, 3 was the year in which the first Mutual ?und
Regulations came into being under which all the mutual funds except U
I
were to be registered and governed.
he erstwhile Kothari Pioneer (now
merged with ?ranklin
empleton) was the first private¶s sector mutual fund
registered in July 3.
m
he 3 SEBI (Mutual ?und) Regulations were substituted by a more
comprehensive and revised Mutual ?und Regulations in 6.
he industry
now functions under the SEBI (Mutual ?und) Regulations 6.
he number
of mutual fund houses went on increasing, with many foreign mutual funds
setting up funds in India and also the industry has witnessed several mergers
and acquisitions. As at the end of January 3, there were 33 mutual funds
with the total assets of Rs. , ,5 cores.
he Unit
rust of India with Rs.
44,54 cores of assets under management was way ahead of other mutual
funds.
m
r
ß
m
he second is the U
I Mutual ?und Ltd, sponsored by SBI, PNB, BOB and LIV. It
is registered with SEBI and functions under the Mutual fund Regulations. With the
bifurcation of the erstwhile U
I which had in March more than Rs.76,
cores of assets under management and with the setting up of a U
I Mutual ?und,
conforming to the SEBI Mutual ?und Regulations and with the recent mergers
taking place among different private sector funds, the mutual fund industry has
entered its current phase of consolidation and growth. As at the end of September,
4, there were funds, which manage assets of Rs. 53 cores under 4
schemes.
!
Vont««..
m
m
!
!
he association of mutual funds in
India
m
he association of mutual fund in India (AM?I) was
established in 3 when all the mutual funds except the
U
I, came together realizing the need for a common
forum for addressing the issues that affect the mutual fund
industry as a whole.
he AM?I is decided to developing
the Indian mutual fund industry on professional health
and ethical lines and to enhance and maintain standards in
all areas with a view to protecting and promoting the
interest of mutual funds and their unit holders.
Objectives of AM?I
m
o define and maintain professional and ethical standards in all areas
of operation of mutual fund industry.
m
o recommend and promote best business practices and code of
conduct.
m
o interact with SEBI and RBI and to represent all matters relating to
the mutual fund industry.
m
o develop a cadre of well-trained agent distributors and to
implement a programme of training and certification for all
intermediaries and other engaged in the industry.
m
o undertake nationwide investor awareness programme so as to
promote proper understanding of the concept and working of mutual
fund.
m
o disseminate information on mutual fund and to undertake studies
and research directly and/or in association with other bodies.
UNI
RUS
O? INDIA
m
he unit trust of India¶s first mutual fund organization. It
is the single largest mutual fund in India which came into
existence with the enactment of the U
I Act in 64.
m
he finance minister ,
.
Krishnamachari set up the idea
of unit trust which would mobilize saving of commodity
and invest these saving in the capital market. is idea
took the form of Unit trust of India , which commenced
operations from July 64 µwith a view to encouraging
saving and investment and participation in the income ,
profits, and gains accruing to the corporation from the
acquisition ,holding management, scope of business,
powers and functions of the trust as well as accounting ,
disclosure and regulatory requirement for the trust.
Vont«..
m U
I was set up as a trust without ownership capital and
with and independent board of trustees.
m U
I has a wide distribution network of 54 branch offices
,66 chief representatives about 67, agents. U
I
manages 7 schemes and has an investor base of .
million services.
m U
I mission statement is to meet the investor¶s diverse
income and liquidity needs by creation of appropriate
scheme to offer best possible return on his investment,
render him prompt and efficient service .beyond normal
customer expectation.
Insurance
RA
ING SYMBOLS
m IG INVES
GRADES
AAA - IG ES SA?
Y
A -ADEQUA
E SA?
Y
BBB -MODRA
E SA?
Y
m SPEVULA
IVE GRADE
B - IG RISK
V -SUBS
AN
AIL RISK
D -DE?AUL
VRISIL
m
he first credit agency was floated on January ,
m Started by IVIVI& U
I with an equity capital of rs. 4 crores
m
he other promoter are: ASB, LIV ,GIV , SBI ?DV NINE PUBLIV
SEV
OR & PRIVA
E SEV
OR & ?OREIGN BANKS
m OBJEV
IVE:
-rate debt obligation of Indian companies
-to assist both individual & institutional investors in making investment
decision
-to raise fund
-help to intermediary as a marketing tool.
m Rating methodology:
-at the request of the company.
-first analysis of past performance.
-company position with in industry
Vont«««
m Evaluation of management & cash flow projections
of the company & identifies the key issues
concerning the company.
m Demand & supply growth, government policy.
m Operating efficiency
m Recruitment &training system
m When crisil receive request, it assigns two teams on
the job. first meets the official & makes an
assessment of the industry company & management.
he second team is also to make its own study of the
industry.
Vredit rating symbols
m Debenture
- igh investment grades
.AAA :highest safety
.AA :high safety
- Investment grade
A : adequate safety
BBB : moderate safety
-speculative grade
BB : inadequate safety
B : high risk
V :substantial risk
D :default
Vont«««
m ?ixed deposit rating:
-?AAA :highest safety
-?AA :high safety
-?A :adequate safety
m Speculative Grade:
-?B : inadequate safety
-?V : high risk
-?D : default
Investment information and credit
rating agency of India
m
he IIVR was set up by Industrial finance
corporation of India on 6th January, .
it is public limited company with an
authorized share capital of Rs. crores.
he initial paid up capital of RS. 3.5
crores is subscribed by I?V, U
I, LIV,
GIV, SBI and 7 other banks. IIVRA
strated its operations from 5th .
IIVRA RA
ING SVALE
m Long ± term including Debenture Bonds and Preference
share.
LAAA- ighest safety
LAA- high safety
LA- adequate safety
LBBB- Moderate safety
LBB- inadequate safety
LB- Risk prone
LV- substantial risk
LD- default
Vont«..
m MAAA: ighest Safety
m MAA : igh safety
m MA : Adequate Safety
m MB : Inadequate Safety
m MV : Risk prone
m MD : Default
Vommercial Paper
m A- ighest safety
m A- igh safety
m A-3 Adequate Safety
m A-4 Risk Prone
m A-5 Default
Vredit Analysis and research limited
m VARE was promoted in 3 jointly with
investment companies , banks and finance
companies. Service offered by VARE are
( ) credit Rating ()information service
(3)Equity research (4) Rating of parallel
market of LPG and kerosene
m ?or long term debt instruments
- ighest Safety - VARE AAA
- igh Safety - VARE AA
- Adequate safety - VARE A
- Inadequate safety - VARE BB
- igh Risk - VARE B
Vont«.
m ?or short term debt instrument
- ighest Safety - PR
- igh Safety - PR
- Adequate Safety - PR 3
- Inadequate Safety - PR 4
Merchant Banking
Definition
m Merchant banks offer consultancy services
for mergers and acquisition and financial
restructurings, and the associated financing.
mMerchant banking refers to in by a bank in a
non financial business. It is virtually equivalent
to privet equity invest.
Vont««
m Merchant banks are banks that specialize in
activities that facilitates trade and
commerce.
his typically involves
international finance, long term loans to
companies, and underwriting. Merchant
banks do not offers usual banking services
to the general public.
SERVIVES
m Vorporate counseling
m Project counseling
m Loan syndication
m Issue Management
m Portfolio management
m Working capital finance
m Acceptance credit and bill discounting.
m Merger , amalgamations and take overs.
Vorporate counseling
m VV covers the entire field of merchant banking
activities viz. project counseling, capital
restructuring, project mgmt, public issue mgmt,
loan syndication working capital, fixed deposit,
lease financing, acceptance credit, etc.
m
he scope of VV is limited to giving suggestion
and opinions to client and help taking actions to
solve their problems.
Project counseling
m PV includes preparation of project reports,
deciding upon the financing the project &
appraising project report with financial
institutions or banks.
m PV also includes filling up of the
applications with relevant information for
obtaining funds from financial institutions.
Loan syndication
m LS refers to assistance rendered by MB to get
mainly term loans for projects.
m MB helps corporate clients to raise syndicated
loans from commercial banks.
m MB helps clients approach financial institution
for term loans.
m MB involvement enables the co. to state that it
has exercised due diligence in the exercise of
obligation under various regulation.
Issue management
m IM involves marketing of corporate
securities viz. equity and preference shares,
debenture or bonds by offering them to
public.
m MB acts as intermediary to transfer capital
from those who own it to those to need it.
REGULA
ORY ?RAMEWORK
m MB has been statutory brought within the
framework of the SEBI under ³SEBI act ´
m Guidelines issued during April , all MB will
require authorization by SEBI to carry out
business.
m SEBI has issued revised guidelines on Dec.
.
Vategories«««
. MB consist of ³issue management´
. Vo-manger/Advisor, consultant,
underwriter or portfolio manager.
3. Authorized to act as underwriter, Advisor
or consultant to an issue.
4. MB who act as Advisor or consultant to
an issue.
: An initial Authorization fee, an annual fee &
Renewal fee may be collected by SEBI
: ?or a issue not more than MB should be
associated as lead managers. But to issues of
Rs cr and above. Lead manager may go up to
4)
: Vategory MB shall accept a min. underwriting
commitment whichever is less.
: Each MB is required to furnish to the
SEBI half yearly unaudited financial result
to monitor the capital Adequacy of the MB.
: SEBI has prescribed a code of conduct to
the MB. e will render at all times high
standards of services, exercise due
diligence, ensure proper care an exercise
independent professional judgment.
:
o ensure transparency & accountability in the
operation and to protect investors, MB have to
enter into agreement with corporate body setting
their mutual right and liability.
: Inspection will be conducted by SEBI to ensure
that provisions of the regulation are properly
complaint from customer . It is obligation on the
part of merchant bankers to furnish all the details
sought by the investigation team.
erms Of Issue
m MB must have a minimum net worth of 5 crore
m Authorization is valid for an initial period of 3 years.
m An initial authorization fee, an annual fee and renewal fee are
collected by SEBI.
m All issues should be managed by at least one authorized MB,
functioning as sole manger or lead manager.
he number of
lead merchant manager for issues upto 5 crores is restricted to
. ?or larger issue of 4 crores and above the number could
go upto 5. Lead MB is not essential where the issue does not
exceed Rs. 5 lakh.
cont««..
m
he specific responsibility of each lead manager
must be submitted to SEBI prior to the issue.
m MB are expected to exercise due diligence
independently.
m
he should verify the contents of prospectus and
reasonableness of the views expressed therein.
MB of the issue should certify to this effect to
SEBI.
m
he MB regulations integrate issue management
with under writing in order to ensure a stake of
MB in the issue managed by them. Lead
managers to the issue are required to accept a
minimum of 5 underwriting obligation or Rs.
5 lakhs in the issue subject to a ceiling.
m
he MB regulations ensure involvement of MB
in post issue management even where these
activities are handled by other intermediaries.
m MB¶s have to submit to SEBI. Whatever
information documents, returns, report as
may be prescribe and called for.
m MB have to adhere to a code of conduct
prescribe by SEBI.
SVOPE O? MERV AN
BANKING
m Growth of new issues market
m Entry of foreign investors
m Vhanging policy of financial institution
m Development of debt market
m Innovations in financial instruments
m Vorporate restructuring
m Disinvestment
. Growth of a New Issues Market
m
he amount of annual average of capital issues by
non govt. public co. was about cr. In 7s.
m It roses to over Rs. cr. In s.
m Rs. 7 cr. In st four years of s.
m ?igure was well beyond Rs. 4 cr. By the end
of 4-5.
m No. of capital issues has also increased from 363
in - to in 3-4.
. Entry of ?oreign Investors
m Entry of ?II in Indian Vapital Market by
created an opportunity for MB to advise
them for their investment.
m
he increasing no. of joint ventures abroad
by Indian cos. also require expert services
of MB.
3. Vhanging Policy of ?inancial
Institutions
m Lending policies of financial institutions changed
from Security Orientation to Project Orientation,
Vorporate Enterprise requires expert services of
MB for project Appraisal, ?inancial Management,
etc.
m Policy of Decentralization & Encouragement of
SME will increase demand for
echnical &
?inancial services which can be provided by MB.
4. Development of Debt Market
m Experts feel that of the estimated capital
issues of Rs. 4 cr. In 4-5, a good
portion may be raised through debt
instrument.
m
he Development of Debt Market will
offer tremendous opportunity to MB.
5. Innovations in ?inancial
Instruments
m Innovations in ?inancial Instruments like non-
convertible debentures with detachable warrants,
cumulative convertible preference shares, zero
coupon bonds, deep discount bonds, triple option
bonds, secured premium notes, floating rates
bonds, auction rated debentures etc.
m MB can be a market maker for these instruments.
6. Vorporate Restructuring
m
o survive in the Vompetition, cos. are
reviewing their strategies, structure &
functioning.
his has led to VR including
Mergers, Acquisitions, Splits,
Disinvestments, & ?inancial Restructuring.
m
his offers good opportunity to MB to
extend the area of their operations.
7. Disinvestments
m
he govt. raised Rs. cr. through
disinvestments of Equity Shares of selected
public sector undertakings in 3-4.
m
he govt. will sell the shares of identified public
sector at any time the year when they get a good
price above stipulated levels.
m
his is likely to provide a good business to MB in
future.
?inancial regulation
he security exchange board of
India
m SEBI protects the interest of investors in securities and
promotes the development of security market.
m With the announcement of reform package in , the volume
of business in both the primary and secondary segments of
capital market increased. A multicrore securities scam rocked
the Indian financial system in .
m
he then existing regulatory framework was found to be
fragmented and inadequate and hence a need of autonomous,
statutory and integrated organization to ensure the smooth
functioning of capital market was felt.
m SEBI , which was already in existence since April, , was
conferred statutory powers regulate the capital market.
Objective of SEBI
m Protect the interest of the investor in
securities.
m Promote the development of securities
market.
m Regulating the securities market.
Powers of SEBI
m
he SEBI exercises powers under sections & B
of the act , , and 7 other regulations.
m Ask any intermediary or market participant for
information.
m Inspect books of depository participants , issuers or
beneficiary owners.
m Suspend or cancel a certificate of registration
granted to a depository participant or issuer.
m Request the RBI to inspect books of a banker to an
issue
m Suspend or cancel certification issued to the
Vont«
m Suspend or cancel registration issued to foreign institutional
investors.
m Investigate an acquirer , a seller, or merchant banker for
violating takeover rules.
m Suspend or cancel the registration of a merchant banker.
m Investigate the affairs of mutual funds , their trustees and asset
management companies.
m investigate any person dealing in securities on complaint or
contravention of trading regulation.
m Suspend or cancel the registration of errant portfolio managers
m Vancel the certificates of registrars and share transfer agents.
?unctions of SEBI
m Regulating the business in stock exchanges and any other securities
market.
m Registering and regulating the working of stock brokers , sub brokers,
share transfer agents, bankers to an issue , trustees of trust deeds,
registrars to an issue , merchant bankers , underwriters, portfolio
managers m investors advisors, and such other intermediaries who may
be associated with the securities market in any manner.
m Registering and regulating the working of collective investment schemes,
including mutual funds.
m Prohibiting fraudulent and unfair trade practices in the securities market.
m Prohibiting insider trading in securities.
m Regulating substantial acquisition of share and take over of companies.
m Valling for information from, undertaking inspection, conducting
inquiries and audits of the stock exchange and intermediaries and self
regulatory organization in the securities market.
Vont«
m Levying fees or other charges
m Vonducting research for the above purpose.
m Performing such other functions as may be prescribed by the government.
Achievement of SEBI
m
hroughout its 5 year existence as a statutory body, SEBI has
sought to balance the two objectives by constantly reviewing
and reappraising policies , programmes and formulating new
policies , regulation to ensure growth of the market.
m
he SEBI introduced an array of reforms in the primary and
secondary markets and catalyzed modernization of the market
infrastructure to prepare the market for the twenty- first
century.
m India is probably the only country in the world where all
exchanges have screen-based trading .
m Vomputerized trading has led to reduction in scope for price-
rigging and manipulation since a paper trail can easily lead the
regulators now to the doorsteps of the guilty.
Vont«.
m Improvements have been made in clearance and settlement system
.(NSDL , VDSL)
m SEBI introduced the option of making an issue trough book building.
m Big success in mutual funds.
m ?II
m
3
E RESERVE BANK O?
INDIA
m Established in 34.
m ?unctioning from April 35.
m Ventral office in Mumbai.
m Nationalized in 4.
objectives
m
o secure monetary stability within the country.
m
o operate the currency and credit system to the advantage of
the country.
organization
m Ventral board
m Non-official directors
m Local boards
m Offices
m
raining establishments
functions
m
o formulate, implement and monitor the monetary policy.
m
o prescribe board parameters of banking operations with which the
country¶s banking and financial system works.
m
o facilitate external trade.
m
o issue and exchange or destroy currency and coins not fit for
circulation.
m
o perform wide range of promotional functions to support national
objectives.
m
o perform merchant banking functions for the central and the state
governments.
m
o maintain banking account of all scheduled banks.
Role of RBI
m Monetary authority of the country.
m Regulator and supervisor of the financial system.
m Banker to the government.
m Manager of exchange control.
m Issuer of currency.
m Development role.
m Banker to the banks.
Vonsumer finance
m
he term consumer finance refers to the
activities involved in granting credit to
consumers to enable them possess own
goods meant for every day use. It is known
such as credit merchandising, deferred
payments, installment buying, hire
purchase, pay-out-of income scheme, pay
as you earn scheme, credit buying etc.
ypes
m Revolving credit-similar to a bank
overdraft-credit cards.
m ?ixed credit
m Vash loan
m Secured finance
m Unsecured finance
Sources of consumer finance
m
raders
m Vommercial banks
m Vredit card institution
m NB?Vs
m Vredit unions
m Middlemen
Mode of consumer finance
m Open account-allow the consumer to make
any number of purchase during a month,
not exceeding a certain value.
m Vredit card
m Revolving account-monthly installment
m Option plan
m Installment account
m Vash loan
Demand for consumer finance
Applicant finance
ype of security
offered
Past payment record 5
otal
parameter Vredit
score
An applicant is said to enjoy a
Age . -.5
good credit standing
provided the score is 7 sex .4
points or above.
m Specific fixed formula: Stability of residence .4-.4