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Indianfinancialsystem 124825019661 Phpapp01
Indianfinancialsystem 124825019661 Phpapp01
Dilipraj Dongre
Financial System
y Existence y Promotes y Money
the well being and standard of living of the people of a country and monetary assets the saving investment
y Mobilize y 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 Organized Money lenders Regulators Financial Institutions Financial Markets Financial services Local bankers Traders Landlords Pawn brokers Chit Funds
Joint-Stock Banks
Consolidation Commercial Banks Nationalization Investment Banks Development Financial Institutions Investment/Insurance Companies Stock Exchanges Market Operations Specialized Financial Institutions Merchant Banking Universal Banking
Investors Borrowers
Un-organized Sector
Economy
Regulators
Financial Instruments
Financial Markets
Financial Intermediaries
Forex Market
Capital Market
Money Market
Credit Market
y y y y
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. y They provide liquidity. Liquidity refers to how easily an asset can be transferred without loss of value. y A side benefit of capital markets is that the transaction price provides a measure of the value of the asset.
y
Mobilization of Savings & acceleration of Capital Formation y Promotion of Industrial Growth y Raising of long term Capital y Ready & Continuous Markets y Proper Channelisation of Funds y Provision of a variety of Services
y
Stock Market was for a privileged few y Archaic systems - Out cry method y Lack of Transparency - High tones costs y No use of Technology y Outdated banking system y Volumes - less than Rs. 300 cr per day y No Capital Market - mechanism Indiansettlement guaranteeHistorical - High risks perspective
y
1994-Equity Trading commences on NSE y 1995-All Trading goes Electronic y 1996- Depository comes in to existence y 1999- FIIs Participation- Globalisation y 2000- over 80% trades in Demat form y 2001- Major Stocks move to Rolling Sett y 2003- T+2 settlements in all stocks Indian -Capital markets Exchanges y 2003 Demutualisation of - Chronology
y
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 y Entry of Foreign Investors y Investor awareness programs y Rolling settlements y Inter-action between banking and exchanges Capital Markets - Reforms
y y y y
Corporatisation of exchange memberships y Banning of Badla / ALBM y Introduction of Derivative products - Index / Stock Futures & Options y Reforms/Changes in the margining system y STP - electronic contracts y Margin Lending y Securities Lending Reforms / Initiatives post 2000
y
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
y y y y y y y y y y
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
Raising capital for businesses Mobilizing savings for investment Facilitate company growth Redistribution of wealth
Corporate governance Creates investment opportunities for small investors Government raises capital for development projects Barometer of the economy
270 971
753 1292
1812 2675
2614 3273
3973 6750
9723 25302
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. y Legislative measures y Growing public confidence y Increasing awareness of investment opportunities
y
y Growth
of transparency y Physical settlement y Variety of manipulative practices y Institutional deficiencies y 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
y
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
y y y
Lack of Integration Lack of Rational Interest Rates structure Absence of an organized bill market Shortage of funds in the Money Market Seasonal Stringency of funds and fluctuations in Interest rates Inadequate banking facilities
y y y y y
Treasury Bills Commercial Paper 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
y y y
Securities and Exchange Board of India (SEBI) Reserve Bank of India Ministry of Finance
Financial Regulators
and Exchange Board of India (SEBI) was first established in the year 1988 y Its a non-statutory body for regulating the securities market y It became an autonomous of India Security Exchange Board body in 1992
y Securities
(SEBI)
Functions Of SEBI
y y y
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
y y
y y y
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: y Formulation and Implementation of monetary policies. y Maintaining price stability and ensuring adequate flow of credit to the Productive sectors. Issuer of currency: y Issues and exchanges or destroys currency and coins. y 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:
to the Government: performs merchant banking function for the central and the state governments. y 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
y y y y
y y
The period from the mid 1960s to the early 1990s. Characterized by: Administered interest rates Industrial licensing and controls Dominant public sector Limited competition High capital-output ratio
PrePre-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.
y y
PrePre-Reforms Period
y y y y
Economic reforms initiated in June 1991. The committee appointed under the chairmanship of M Narasimham. He submitted report with all the recommendations Government liberalized the various sectors in the economy.
y y y
Reorientation of the economy Macro economic stability To Increase competitive efficiency in the operations To remove structural rigidities and inefficiencies To attain a balance between the goals of financial stability & integrated & efficient markets
y y
Objectives
Reduce the level of state ownership in banking Lift restrictions on foreign ownership of banks Spur the development of the corporate-bond market Strengthen legal protections
y y
Recommendations
y y y
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
y y
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.
y y
Conclusion
Thank you