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NBFC and Stock Markets
NBFC and Stock Markets
Engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by Government or local authority or other securities of like marketable nature. Leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity.
Sale/purchase/construction of immovable property. The companies which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is called Residuary nonbanking company.
A Bank is a financial institute in broader sense of the term, but all financial institutes are not banks. an NBFC cannot accept demand deposits: i.e. they can not accept current account or savings account or any other account where deposit of money does not have a maturity date. it is not a part of the payment and settlement system and as such cannot issue cheques to its customers. the payment and settlement systems are clearing house, Electronic Fund Transfer (EFT), National Electronic Fund Transfer (NEFT) and Real Time Gross Settlement (RTGS). The deposit insurance facility of DICGC is not available for NBFC depositors unlike in case of banks. Deposit Insurance and Credit Guarantee Corporation (DICGC) is an organization which insures all deposits kept in the bank by the depositors with exception likes deposits of central, state and foreign governments, inter-bank deposits etc.
RBI is entrusted by the Ministry of Finance with the responsibility of regulating and supervising the Non-Banking Financial Companies by virtue of powers vested in Chapter III B of the Reserve Bank of India Act, 1934. In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every NBFC should be registered with RBI to commence or carry on any business of non-banking financial institution as defined in clause (a) of Section 45 I of the RBI Act, 1934. The exceptions where an NBFC doesnt have to register with RBI are: Venture Capital Fund/Merchant Banking companies/Stock broking companies registered with SEBI, Nidhi companies as notified under Section 620A of the Companies Act, 1956, Chit companies as defined in clause (b) of Section 2 of the Chit Funds Act, 1982 or Housing Finance Companies regulated by National Housing Bank.
Contd.
With effect from December 6, 2006 the NBFCs registered with RBI have been reclassified as : (i) Asset Finance Company (AFC)
Before 17th century, trading of ownership of companies and securities used to take place in crude manner from Egypt to Belgium. The first organised Stock Exhchange was established in Amsterdam in 17th century. The Dutch East India Company, which had business interest in Indian soil also has the distinction of issuing the first share in Amsterdam Stock Exchange. It was established in 1602 and in 1669 it was the richest private company of the world having declared dividend at 40%. New York stock exchange its origins back to the signing of the Buttonwood Agreement by 24 New York City stockbrokers and merchants on May 17, 1792. The agreement was so named because it was signed on the pavement outside at 68 Wall Street under a Buttonwood tree. In the beginning there were five securities traded in New York City with the first listed company on the NYSE being the Bank of New York.
Although in 1698 seed of the London stock exchange was sowed when a list of stock and commodity prices called The Course of the Exchange, but the modern London stock exchange was formally established in 1801. Tokyo Stock Exchange : 1878 Today the size of the global stock market is estimated at about $51 trillion. The world derivatives market has been estimated at about $480 trillion at face or nominal value. Trading in stock market has deep rooted effect on the financial world and banking has in the process benefitted.
Dematerilisation of shares : Converting physical shares issued in form of certificates into electronic form is called dematerilisation or Demat. Depository : They are the custodian of dematerialized share acts like clearing house facilitating trading formalities & accounting. Central Depository Services (India) Ltd. (CDSL) is an accredited depository which received the certificate of commencement of business from SEBI in February, 1999. CDSL was promoted by Bombay Stock Exchange Limited (BSE) jointly with leading banks such as State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank, Union Bank of India and Centurion Bank. According to SEBI guidelines, financial institutions, banks, custodians, stockbrokers, etc. are eligible to act as DPs. The investor who is known as beneficial owner (BO) has to open a demat account through any DP for dematerialization of his holdings and transferring securities. The huge sum of money that are invested in the stock market ultimately goes through the banking system.
Who are FIIs :Companies which are registered outside India but are investing in India are known as FIIs. However, there is a limit on how much these FIIs can invest in Indian companies.
FII investments are made in foreign currency which: Adds upto foreign exchange reserve. Indias reserve stands at US$ 227.9 Bn in mid December 2007 and FII input are mostly responsible for a 55% growth from Jan2007. Comes through banking channel and forex is being traded.
The structure of Financial System of India classified as follows: Industrial Finance : Funds required for carrying on Industries and Trade. Agricultural Finance : Funds needed for agricultural and allied activities. Development Finance : broadly this also includes the industrial finance, but essentially it includes funds required for infra structural developments.
Micro means a millionth part and as such microeconomics deal with small components of national economy of a country. It studies the economic behaviors of individual units, like an individual or a particular firm.
Microeconomics is sometimes termed as PRICE THEORY, because the price is the core of microeconomics.
Hence, the theory of product pricing with its two constituents, namely the theory of consumers behavior and the theory of production and cost are the principal factors. Wages, rent, interest and profit are factor incomes and to be taken into account for this purpose.
Individual Investors
RBI
URBAN
SCH COMM. BANK
STATE
PUBLIC SECTOR
PVT SECTOR
FGN BANKS
REG. RURAL
NATIONALISED