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Dilipraj Dongre
Financial System
Existence
system
Promotes Money
the well being and standard of living of the people of a country and monetary assets the saving investment
Mobilize
Promotes
Financial System of any country consists of financial markets, financial intermediation and financial instruments or financial products
Flow of funds (savings)
Seekers of funds (Mainly business firms Flow of financial services and government)
Non- Organized
Money lenders
Local bankers Traders
Landlords
Pawn brokers Chit Funds
Money Lender
Nidhi's/Chit Funds Indigenous Banking Cooperative Movement Societies Banks
Joint-Stock Banks
Investors Borrowers
Un-organized Sector
Economy
Regulators
Financial Instruments
Financial Markets
Financial Intermediaries
Forex Market
Capital Market
Money Market
Credit Market
Mechanism which allows people to trade Affected by forces of supply and demand Process used In Finance, Financial markets facilitates
Financial Markets
Capital markets facilitate the transfer of capital (i.e. financial) assets from one owner to another. They provide liquidity. Liquidity refers to how easily an asset can be transferred without loss of value. A side benefit of capital markets is that the transaction price provides a measure of the value of the asset.
Mobilization of Savings & acceleration of Capital Formation Promotion of Industrial Growth Raising of long term Capital Ready & Continuous Markets Proper Channelisation of Funds Provision of a variety of Services
Stock Market was for a privileged few Archaic systems - Out cry method Lack of Transparency - High tones costs No use of Technology Outdated banking system Volumes - less than Rs. 300 cr per day No settlement guarantee Historical Indian Capital Market - mechanism - High risks perspective
1994-Equity Trading commences on NSE 1995-All Trading goes Electronic 1996- Depository comes in to existence 1999- FIIs Participation- Globalisation 2000- over 80% trades in Demat form 2001- Major Stocks move to Rolling Sett 2003- T+2 settlements in all stocks Indian- Capital markets - Chronology 2003 Demutualisation of Exchanges
Each scam has brought in reforms - 1992 / 2001 Screen based Trading through NSE Capital adequacy norms stipulated Dematerialization of Shares - risks of fraudulent paper eliminated Entry of Foreign Investors Investor awareness programs Rolling settlements Inter-action between Capital Markets - banking and exchanges Reforms
Corporatisation of exchange memberships Banning of Badla / ALBM Introduction of Derivative products - Index / Stock Futures & Options Reforms/Changes in the margining system STP - electronic contracts Margin Lending Securities Lending Reforms / Initiatives post 2000
MARKET STRUCTURE
(JULY 31, 2005)
22 Stock Exchanges,
Over 10000 Electronic Terminals at over 400 locations all over India. 9108 Stock Brokers and 14582 Sub brokers 9644 Listed Companies 2 Depositories and 483 Depository Participants 128 Merchant Bankers, 59 Underwriters 34 Debenture Trustees, 96 Portfolio Managers 83 Registrars & Transfer Agents, 59 Bankers to Issue 4 Credit Rating Agencies
Market
Instruments
Intermediaries Regulator
SEBI
Primary
Secondary
Equity
Players
CRA
Corporate Intermediaries
Individual
Banks/FI
FDI /FII
Mangalore Stock Exchange Hyderabad Stock Exchange Uttar Pradesh Stock Exchange Coimbatore Stock Exchange Cochin Stock Exchange Bangalore Stock Exchange Saurashtra Kutch Stock Exchange Pune Stock Exchange National Stock Exchange OTC Exchange of India Calcutta Stock Exchange Inter-connected Stock Exchange (NEW) Madras Stock Exchange
Bombay Stock Exchange Madhya Pradesh Stock Exchange Vadodara Stock Exchange The Ahmedabad Stock Exchange Magadh Stock Exchange Gauhati Stock Exchange Bhubaneswar Stock Exchange Jaipur Stock Exchange Delhi Stock Exchange Assoc Ludhiana Stock Exchange
Corporate governance Creates investment opportunities for small investors Government raises capital for development projects
Sl.N o. 1 2 3 4 5
As on 31st December
No. of Stock Exchanges No. of Listed Cos. No. of Stock Issues of Listed Cos. Capital of Listed Cos. (Cr. Rs.)
270
753
1812
2614
3973
9723
32041
59583
971
1292
2675
3273
6750
25302
11027 9
514
47812 1
693
24
63
113
168
175
224
86
107
167
211
298
582
1770
5564
358
170
148
126
170
260
344
803
Equity
Hybrid
Debt
Equity Shares
Preference Shares
ADR / GDR
Establishment of Development banks & Industrial financial institution. Legislative measures Growing public confidence Increasing awareness of investment opportunities
Growth
of transparency Physical settlement Variety of manipulative practices Institutional deficiencies Insider trading
Market for short-term money and financial assets that are near substitutes for money. Short-Term means generally period upto one year and near substitutes to money is used to denote any financial asset which can be quickly converted into money with minimum transaction cost
Money Market
Money Market
It is a place for Large Institutions and government to manage their short-term cash needs
It is a subsection of the Fixed Income Market It specializes in very short-term debt securities They are also called as Cash Investments
Certificate of Deposit
Money Market Mutual Funds Repo Market
Instruments Zero Coupon Bonds, Coupon Bearing Bonds, Capital Index Bonds, Treasury Bills.
Public Sector
PSU Bonds, Debenture, Commercial Paper Debentures, Bonds, Commercial Paper, Floating Rate Bonds, Zero Coupon Bonds, InterCorporate Deposits Certificate of Deposits, Bonds Certificate of Deposits, Bonds
Private
Financial Regulators
Financial Regulators
and Exchange Board of India (SEBI) was first established in the year 1988 Its a non-statutory body for regulating the securities market It became an autonomous of India Security Exchange Board body in 1992
Securities
(SEBI)
Functions Of SEBI
Regulates Capital Market. Checks Trading of securities. Checks the malpractices in securities market.
It enhances investor's knowledge on market by providing education. Functions Of SEBI It regulates the stockbrokers and sub-brokers. To promote Research and Investigation
It tries to develop the securities market. Promotes Investors Interest. Makes rules and regulations for the securities market.
Objectives of SEBI
Sole Control on Brokers For Underwriters For Share Prices For Mutual Funds
Established on April 1, 1935 in accordance with the provisions of the RBI Act, 1934. The Central Office of the Reserve Bank has been in Mumbai. It acts as the apex monetary authority of the country.
Monetary Authority: Formulation and Implementation of monetary policies. Maintaining price stability and ensuring adequate flow of credit to the Productive sectors.
Issuer of currency: Issues and exchanges or destroys currency and coins. Provide the public adequate quantity of supplies of currency notes and coins.
Functions Of RBI
Prescribes broad parameters of banking operations Maintain public confidence, protect depositors' interest and provide cost-effective banking services.
Functions Of RBI
Manages the Foreign Exchange Management Act, 1999. Facilitate external trade, payment, promote orderly development and maintenance of foreign exchange market.
Developmental role:
Banker to the Government: performs merchant banking function for the central and the state governments. Maintains banking accounts of all scheduled banks.
(a) Bank Rate: The Bank Rate was kept unchanged at 6.0 per cent. (b) Reverse Repo Rate: The Repo rate is around 7 per cent and Reverse repo rate is around 6.10 per cent. (c) Cash Reserve Ratio: The cash reserve ratio (CRR) of scheduled banks is currently at 5.0 per cent.
Monetary Measures
Characterized by:
Administered interest rates Industrial licensing and controls Dominant public sector Limited competition High capital-output ratio
Pre-Reforms Period
Banks and financial institutions acted as a deposit agencies. Price discovery process was prevented. Government failed to generate resources for investment and public services. Till 90s it was closed, highly regulated, and segmented system.
Pre-Reforms Period
Objectives
To attain a balance between the goals of financial stability & integrated & efficient markets
Recommendations
Deregulate the insurance industry Drop proposed limits on pension reforms Increase consumer ownership of mutual-fund products Introduce a gold deposit scheme
Recommendations
Speed up the development of electronic payments. Separate the RBI's regulatory and central-bank functions Lift the remaining capital account controls Phase out statutory priority lending and restrictions on asset allocation
Recommendations
The financial system is fairly integrated, stable, efficient. Weaknesses need to be addressed. The reforms have been more capital centric in nature. Foreign capital flows and foreign exchange reserves have increased but absorption of foreign capital is low.
Conclusion
Thank you