Backstab 02

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BACKSTAB02
SEASON 7, ISSUE 2
PARTHASARATHI MAJUMDER RISHABH GHELANI KUNAL BAJAJ
BACKSTAB | SEASON 7, ISSUE 2

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CONTENTS
Sl.
No. Particulars Page No.
1. How to interpret financial statements 3-16

2. Roles and responsibilities of financial institutions in India 17-29
3. How to deal with NPAs 30-39
4. Electoral Process in India 40-53
5. Overview of Indian start up culture 54-62

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1. HOW TO INTERPRET THE FINANCIAL STATEMENTS

1.1 FINANCIAL STATEMENTS
Financial statements are a collection of a business’ financial information for a given
period of time at a given point in time. They indicate the health of a company by showing
the financial position, performance, and the changes in the financial position of the
business, which is then used by readers in making various economic decisions.
The financial statements typically include the following:
• A Balance Sheet or a statement of financial position, which shows a detailed
information about a business’ assets, liabilities and shareholder’s equity.
• An income statement or a statement of profit & loss, which shows how much
revenue was earned by a business in the given time period.
• A cash flow statement or a statement of cash flows, which shows the various
inflows and outflows of cash recorded by a business.
• An equity statement, or a statement of changes in equity, which reports the
changes in equity during the given period.
Financial
Statements
a collection of a
business' financial
information
Balance Sheet Income Statement Cash Flow Changes in equity

Statement

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1.2 INTERPRETING A BALANCE SHEET

A Balance Sheet is a statement that reports the financial position of a business at a point
in time. It lays out the balances of a company’s assets, liabilities, and equity as on a given
date. It is based upon the accounting equation that at all times, the assets of the company
equal its liabilities and equity.
𝐴𝑠𝑠𝑒𝑡𝑠 = 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 + 𝐸𝑞𝑢𝑖𝑡𝑦
The balance sheet allows the users of financial statements to make various decisions about
the company that cannot be found out from the income statement of a company. A
business may be very profitable, but a look at the balance sheet would tell us how
exactly did it become profitable, and whether it would be able to sustain its profitability
for long. A rented apartment, for example, may facilitate a large amount of profit, but
a look at the Balance Sheet would tell us that the profit was only because Rs. 1,00,00,000
was invested into the company. Similarly, a factory may show huge losses, but a look at
the Balance Sheet would tell us that the business owns a lot of valuable equipment,
inventory and property that can be sold at a later date. The balance sheet, thus, provides
the overall strength and capacity of a business at a point in time.
The balance sheet (as per Schedule III of the Companies Act, 2013) is divided into two
halves:
• Equity and Liabilities, presented first, above the assets or the left side of a page
(in case of balance sheets other than as per Schedule III for non-companies)
• Assets, presented below equity and liabilities or the right side of a page (in case
of non-companies)
Let’s take a closer look at these terms:

• Equity: It represents the interest of the shareholders in an organization; or in other
words, the degree of ownership of the shareholders in the assets, after deducting
all the liabilities associated with it. It includes the profits carried forward by the
organization or retained by it for reinvestment into the organization. Equity can
also be called the net worth of an organization, which is nothing but the difference
between assets and liabilities.
𝐸𝑞𝑢𝑖𝑡𝑦 (𝑁𝑒𝑡 𝑊𝑜𝑟𝑡ℎ) = 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
• Liabilities: Liabilities are the debts or obligations owed by the company, to its
owners or outsiders, that originate during the course of doing business. Liabilities

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help fulfil the immediate cash requirements of the company in case finance is not
available to the business. They are vital to an organization because they are used
to finance operations and pay for large expansions. Liabilities include loans,
debentures, accounts payable, etc.
• Assets: Assets represent what the company owns, and what it expects to own in
the future. They are the items of value that help the organization to earn future
economic benefits. Assets help the organization to operate smoothly and earn
revenue. In a balance sheet, assets are sorted according to their capability of
turning into liquid cash, with the most illiquid assets mentioned first, like buildings,
and the most liquid assets mentioned last, like cash and bank balances.
Interpreting the Equity + Liability side

Proforma Balance Sheet of Delete Consulting Co. as at 31.03.2017
Balance as at
Sl. Balance as at
No.
Notes 31.03.2017
Particulars 31.03.2016 (Rs.)
(Rs.)
EQUITY & LIABILITIES
1. Shareholder’s funds
a. Share Capital 15,00,000 10,00,000
b. Reserves & Surplus 2,00,000 1,50,000
c. Money received against - -
share warrants
2. Share application money pending - -
allotment
3. Non-current liabilities
a. Long term borrowings 3,00,000 4,50,000
b. Deferred tax liabilities - -
c. Other long-term liabilities 1,00,000 1,00,000
d. Long term provisions 4,00,000 3,00,000
4. Current liabilities
a. Short-term borrowings 10,00,000 8,00,000
b. Trade payables 7,50,000 6,00,000
c. Other current liabilities 70,000 1,00,000
d. Short term provisions 80,000 80,000
Total 44,00,000 35,80,000
Shareholder’s funds (Equity)

✓ Share Capital: It consists of all the funds that the company has raised
through the issue of shares – both common and preference shares.

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Preference shares are those which are to be paid dividend, as well as

repaid back in case of bankruptcy in preference to the common shares.
𝐴𝑛 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑆ℎ𝑎𝑟𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑔𝑒𝑛𝑒𝑟𝑎𝑙𝑙𝑦 𝑖𝑚𝑝𝑙𝑖𝑒𝑠 𝑡ℎ𝑒 𝑐𝑜𝑚𝑝𝑎𝑛𝑦 ℎ𝑎𝑠 𝑖𝑠𝑠𝑢𝑒𝑑 𝑛𝑒𝑤 𝑠ℎ𝑎𝑟𝑒𝑠
𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑝𝑒𝑟𝑖𝑜𝑑. 𝐼𝑛 𝑡ℎ𝑒 𝑔𝑖𝑣𝑒𝑛 𝐵𝑎𝑙𝑎𝑛𝑐𝑒 𝑆ℎ𝑒𝑒𝑡 𝑜𝑓 𝐷𝑒𝑙𝑒𝑡𝑒 𝐶𝑜𝑛𝑠𝑢𝑙𝑡𝑖𝑛𝑔, 𝑖𝑡 𝑐𝑎𝑛 𝑏𝑒 𝑖𝑛𝑡𝑒𝑟𝑝
− 𝑟𝑒𝑡𝑒𝑑 𝑡ℎ𝑎𝑡 𝑐𝑜𝑚𝑝𝑎𝑛𝑦 ℎ𝑎𝑠 𝑖𝑠𝑠𝑢𝑒𝑑 𝑠ℎ𝑎𝑟𝑒𝑠 𝑤𝑜𝑟𝑡ℎ 𝑅𝑠. 5,00,000 𝑑𝑢𝑟𝑖𝑛𝑔 2016 − 17
✓ Reserves & Surplus: Reserves are usually money earmarked by the company
for specific purposes. Surplus refers to all the profits earned by the
company. Examples of reserves may be:
General Reserve – retained earnings of a company kept aside out of profits
to meet some future obligations; Securities Premium Reserve – the amount
received by the company over the face value of its shares; Capital Reserve –
amount set aside by the company for future capital investment projects.
𝐴𝑛 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑅𝑒𝑠𝑒𝑟𝑣𝑒𝑠 & 𝑆𝑢𝑟𝑝𝑙𝑢𝑠 𝑎𝑐𝑐𝑜𝑢𝑛𝑡 𝑖𝑚𝑝𝑙𝑖𝑒𝑠 𝑡ℎ𝑒 𝑎𝑑𝑑𝑖𝑡𝑖𝑜𝑛 𝑜𝑓 𝑝𝑟𝑜𝑓𝑖𝑡𝑠 𝑡𝑜 𝑡ℎ𝑒
𝑠𝑎𝑚𝑒, 𝑜𝑟 𝑎𝑛 𝑎𝑑𝑑𝑖𝑡𝑖𝑜𝑛 𝑡𝑜 𝑜𝑛𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑅𝑒𝑠𝑒𝑟𝑣𝑒𝑠 𝑎𝑐𝑐𝑜𝑢𝑛𝑡. 𝐼𝑛 𝑡ℎ𝑒 𝑔𝑖𝑣𝑒𝑛 𝑒𝑥𝑎𝑚𝑝𝑙𝑒, 𝑎𝑛 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒
𝑖𝑛 𝑅𝑠. 50,000 𝑚𝑎𝑦 𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑒 𝑡ℎ𝑒 𝑎𝑑𝑑𝑖𝑡𝑖𝑜𝑛 𝑜𝑓 𝑝𝑟𝑜𝑓𝑖𝑡𝑠 𝑡𝑜 𝑡ℎ𝑒 𝑎𝑐𝑐𝑜𝑢𝑛𝑡 𝑜𝑟 𝑡ℎ𝑒 𝑎𝑑𝑑𝑖𝑡𝑖𝑜𝑛 𝑡𝑜
𝑜𝑛𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑟𝑒𝑠𝑒𝑟𝑣𝑒𝑠.
✓ Money received against share warrants: Share warrants are instruments

that show the holder of the same has ownership of the shares of the
company. They are similar to share certificates except that the money on
sale of shares shall be payable to the holder of the share warrant,
irrespective of the fact whether the holder is the real holder or not. Any
money received by selling share warrants of the company is termed as
money received against share warrants.
Non-current liabilities
These are long term financial obligations of a company that are not due within the
present accounting year.
✓ Long term borrowings: These, as the name implies, are the loans and
advances received by a company that are not to be paid back within the
present accounting year.
𝐴𝑛 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑙𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝑏𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔𝑠 𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑒 𝑡ℎ𝑎𝑡 𝑎 𝑙𝑜𝑎𝑛 ℎ𝑎𝑠 𝑏𝑒𝑒𝑛 𝑡𝑎𝑘𝑒𝑛 𝑖𝑛 𝑡ℎ𝑒
𝑙𝑎𝑠𝑡 𝑎𝑐𝑐𝑜𝑢𝑛𝑡𝑖𝑛𝑔 𝑦𝑒𝑎𝑟, 𝑤ℎ𝑒𝑟𝑒𝑎𝑠, 𝑎 𝑑𝑒𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑒 𝑡ℎ𝑒 𝑏𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔 ℎ𝑎𝑠 𝑏𝑒𝑒𝑛 𝑟𝑒𝑝𝑎𝑖𝑑.
𝐼𝑛 𝑡ℎ𝑒 𝑔𝑖𝑣𝑒𝑛 𝑒𝑥𝑎𝑚𝑝𝑙𝑒, 𝑡ℎ𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑏𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔𝑠 ℎ𝑎𝑣𝑒 𝑟𝑒𝑑𝑢𝑐𝑒𝑑 𝑏𝑦 𝑅𝑠. 1,50,000. 𝑇ℎ𝑖𝑠
𝑤𝑜𝑢𝑙𝑑 𝑏𝑒 𝑜𝑛 𝑎𝑐𝑐𝑜𝑢𝑛𝑡 𝑜𝑓 𝑟𝑒𝑝𝑎𝑦𝑚𝑒𝑛𝑡 𝑜𝑓 𝑙𝑜𝑎𝑛 𝑢𝑝𝑡𝑜 𝑡ℎ𝑎𝑡 𝑎𝑚𝑜𝑢𝑛𝑡.

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✓ Deferred tax liabilities: are tax liabilities a company may postpone paying
until sometime in the future, often to encourage activities for public’s good.
✓ Other long-term liabilities: These may include items such as deferred credits,
customers deposits or some estimated tax liabilities.
✓ Long term provisions: Provisions are amounts set aside by a company to pay
for anticipated future losses. These may be general or specific in nature,
specific when they are set aside for one particular event only.
An increase in provision indicates an increase in the amount set aside,
whereas, a decrease in the same indicates the use of previously created
provisional funds.
Current Liabilities: These are short term financial obligations of a company, that
are to be due within the current financial year.
✓ Short term borrowings: As the name implies, these are borrowings that are
to be repaid within the current financial year.
𝐴𝑛 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑠ℎ𝑜𝑟𝑡 𝑡𝑒𝑟𝑚 𝑏𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔𝑠 𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑒𝑠 𝑡ℎ𝑎𝑡 𝑡ℎ𝑒 𝑐𝑜𝑚𝑝𝑎𝑛𝑦 𝑏𝑜𝑟𝑟𝑜𝑤𝑒𝑑 𝑓𝑢𝑛𝑑𝑠
𝑡ℎ𝑎𝑡 𝑎𝑟𝑒 𝑡𝑜 𝑏𝑒 𝑟𝑒𝑝𝑎𝑖𝑑 𝑤𝑖𝑡ℎ𝑖𝑛 12 𝑚𝑜𝑛𝑡ℎ𝑠, 𝑎𝑛𝑑 𝑎 𝑑𝑒𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑒𝑠 𝑟𝑒𝑝𝑎𝑦𝑚𝑒𝑛𝑡.
✓ Trade payables: These are the amounts owed to a supplier for goods or
services, where the amount is not paid immediately, but is billed to be paid
in future.
𝐴𝑛 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑡𝑟𝑎𝑑𝑒 𝑝𝑎𝑦𝑎𝑏𝑙𝑒𝑠 𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑒𝑠 𝑚𝑜𝑟𝑒 𝑔𝑜𝑜𝑑𝑠 𝑤𝑒𝑟𝑒 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑑 𝑏𝑦 𝑡ℎ𝑒 𝑐𝑜𝑚𝑝𝑎𝑛𝑦
𝑜𝑛 𝑐𝑟𝑒𝑑𝑖𝑡, 𝑟𝑎𝑡ℎ𝑒𝑟 𝑡ℎ𝑎𝑛 𝑝𝑎𝑖𝑑 𝑓𝑜𝑟 𝑖𝑚𝑚𝑒𝑑𝑖𝑎𝑡𝑒𝑙𝑦. 𝐴 𝑑𝑒𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛𝑑𝑖𝑐𝑖𝑎𝑡𝑒𝑠 𝑟𝑒𝑝𝑎𝑦𝑚𝑒𝑛𝑡 𝑜𝑓
𝑑𝑢𝑒𝑠 𝑡𝑜 𝑡ℎ𝑒 𝑠𝑢𝑝𝑝𝑙𝑖𝑒𝑟𝑠.
✓ Other current liabilities: Other current liabilities is a balance sheet entry

used by companies to group together current liabilities that are not assigned
to common liabilities such as debt obligations or accounts payable.
✓ Short term provisions: These are provisions created to account for current
speculative losses or other purposes.

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Interpreting the Asset side

Sl. Particulars Notes Balance as Balance as
No. at at
31.03.2017 31.03.2016
(Rs.) (Rs.)
1. Non-current assets
a. Fixed assets 14,00,000 9,32,000
b. Non-current investments 3,00,000 3,00,000
c. Long term loans and advances 4,00,000 1,00,000
2. Current assets
a. Current investments 50,000 25,000
b. Inventory 5,50,000 4,75,000
c. Trade receivables 7,00,000 8,00,000
d. Cash and cash equivalent 9,26,000 8,68,000
e. Short term loans and advances 74,000 80,000
Total 44,00,000 35,80,000
Non-current assets
✓ Fixed Assets: Fixed assets are tangible, long-term assets not intended for
sale that are used by an organization in its operations to generate
income.
These include land, building, machinery equipment, furniture, etc.
𝐴𝑛 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑓𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡𝑠 𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑒𝑠 𝑎𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 𝑜𝑓 𝑛𝑒𝑤 𝑓𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡𝑠, 𝑤ℎ𝑒𝑟𝑒𝑎𝑠 𝑎
𝑑𝑒𝑐𝑟𝑒𝑎𝑠𝑒 𝑚𝑎𝑦 𝑖𝑚𝑝𝑙𝑦 𝑒𝑖𝑡ℎ𝑒𝑟 𝑠𝑎𝑙𝑒 𝑜𝑓 𝑓𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡𝑠, 𝑜𝑟 𝑗𝑢𝑠𝑡 𝑡ℎ𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑒𝑑 𝑜𝑓𝑓
𝑡ℎ𝑒 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑓𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡𝑠. 𝑇ℎ𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑐𝑎𝑛 𝑏𝑒 𝑎𝑠𝑐𝑒𝑟𝑡𝑎𝑖𝑛𝑒𝑑 𝑓𝑟𝑜𝑚
𝑡ℎ𝑒 𝑆𝑡𝑎𝑡𝑒𝑚𝑒𝑛𝑡 𝑜𝑓 𝑜𝑓 𝑃𝑟𝑜𝑓𝑖𝑡 & 𝐿𝑜𝑠𝑠.
✓ Non-current investments: These are the investments held by the company

whose full value will not be realized within the current accounting year.
Examples of non-current investments include investments in other companies,
intangible assets such as goodwill, intellectual property, etc.
✓ Long term loans and advances: These are the money lent by the company
to other companies, or its employees, that won’t be realized in the current
accounting year.
Current assets

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✓ Current investments: These are investments held by the company which are
expected to be converted into cash within a year.
✓ Inventory: Inventory includes raw materials, work-in-progress, and finished
goods that are ready or will be ready to sold as part of the company’s
normal business.
✓ Trade receivables: Trade receivables refer to the customers who have not
cleared their dues with the company yet for the goods or services bought
by them.
✓ Cash and cash equivalent: These refer to the assets of a company that are
cash, or can immediately be converted into cash. Example of cash and cash
equivalents include bank accounts, marketable securities, commercial paper,
treasury bills, etc.
✓ Short term loans and advances: These are the amount lent by the company
to the outsiders or its employees that are expected to be realized in the
current year.

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1.3 INTERPRETING THE STATEMENT OF PROFIT & LOSS

Particulars Notes Figures for Figures for
the year the year
ended ended
31.03.2017 31.03.2016
(Rs.) (Rs.)
1. Revenue from operations
2. Other income
3. Total Revenue (1+2)
4. Expenses:
Cost of material consumed
Purchases of stock-in-trade
Changes in inventory of finished
goods, work-in-progress and stock-in-
trade
Employee benefit expense
Finance cost
Depreciation and amortization
expense
Other expenses
Total expenses
5. Profit before exceptional and
extraordinary items and tax (3-4)
6. Exceptional items
7. Profit before extraordinary items and
tax (5-6)
8. Extraordinary items
9. Profit before tax (7-8)
10. Tax expense
11. Profit / (Loss) for the period
✓ Revenue from operations is the primary source of income earned by the

company from its customers for goods sold or services rendered. An increase in
revenue from operations may occur due to 2 reasons – an increase in sales of
goods or services, or an increase in the selling price of goods or services.
✓ Other income includes revenue earned from all other sources such as interest
from loans and advances, dividends from investments, profit from sale of fixed
assets, etc.

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✓ Cost of material consumed means the sum of all the cost spent on raw material,
store, and consumed to arrive at a final finished goods. An increase in cost of
material consumed may imply increase in the usage of raw material, or an increase
in the cost of raw material.
✓ Purchases of stock-in-trade is the purchases of finished goods made by the

company towards conducting its day to day business.
✓ Changes in inventory of finished goods, raw material and stock-in-trade refers to

the difference between the opening stock as on 31.03.2016 and closing stock as
on 31.03.2017. A negative figure indicates that the company has produced more
goods this year than the last year, and vice versa.
✓ Employee benefit expenses are indirect means of compensating workers, over and
above the normal wages or salaries that they receive. These include insurances for
the workers, incentives, retirement benefits, etc.
✓ Finance cost includes costs such as interests and other costs that an entity incurs in
connection with borrowing of funds for building and purchasing of assets. These
are also known as borrowing costs.
✓ Depreciation and amortization expenses are the non-cash expenses incurred by

the company due to the using of tangible as well as intangible fixed assets. Fixed
assets have a finite life, and over time with their usage, their value falls due to
wear and tear. Amortization expenses are the costs of using intangible assets such
as goodwill, over time.
✓ Other expenses are all those costs incurred in running the business that cannot be
categorized in any of the above mentioned heads. These are generally the
expenses unrelated to the core business of the entity.
✓ Exceptional items are unusually large and uncommon transactions incurred by the
company that need to be recorded in financial statements as prescribed by GAAP.
Even though they may be a part of ordinary business, they need to be recorded
due to their sheer size and frequency.
✓ Extraordinary items are those gains or losses incurred by the company which are
unusual or infrequent in nature. They occur as a result of unforeseen and atypical
events.

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✓ Profit before tax is the difference between the total revenue and all the operating
expenses of a company before accounting for income taxes.
✓ Profit after tax is the final profit earned by a company after accounting for all
the expenses incurred at a business including taxes. This is the actual net profit of
the company.
1.4 INTERPRETING THE CASH FLOW STATEMENT
❖ Cash flow from operating activities includes cash from all the activities that are
conducted by an organization as part of its day to day business operations in a
given period. It typically includes the net income carried forward from the
income statement, adjustments to the same, as well as the changes in working
capital of the organization.
Examples of cash flow from operations include: cash receipts from the sale of
goods and the rendering of services; cash receipts from fees, commission and
other revenue; cash payments to suppliers for goods; cash payments to
employees, and so on.
There are two methods to obtain cash flow from operations:
a. Direct method
b. Indirect method.
In the direct method, cash flow from operations is calculated as below:

The relevant information is obtained by adjusting sales, cost of sales, and
other items in the profit and loss statement for:
a) Changes during the period in inventory, operating receivables and
payables;
b) Other non-cash items such as depreciation on fixed assets, amortization
of intangible assets, preliminary expenses written off, loss or gain on
sale of fixed assets, etc.
c) Other items for which the cash effects are investing or financing cash
flows. Examples include interest received and paid, dividend received
and paid, etc. which are related to financing or investing activities are
shown separately in the cash flow statement.
The direct method provides information which may be useful in estimating future
cash flows and which is not available under the indirect method.
The indirect method of calculating changes in cash flow from operating activities
is more popular in practice than the direct method. Under this method, the net
cash from operating activities is determined by the adjustment of profit or loss

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from the income statement instead of adjusting individual items appearing in the
profit or loss statement. The net profit is adjusted for the following:
a) Changes during the period in inventories, and operating receivables and
payables;
b) Non-cash items such as depreciation and amortization; and
c) All other items for which the cash effects are either investing or financing cash
flows.
For a company to be healthy, the cash from operating activities should be positive, but
the quality of the cash is just as important.
❖ Cash flow from investing activities are those that are related to the acquisition
and disposal of long term assets, non-operating current assets and investments
which results in outflow of cash. Disposal of assets results in inflow of cash,
whereas acquisition results in outflow of cash.
❖ Cash flow from financing activities are those activities that typically relate to the
changes in the capital structure of a company. These activities include redemption
of shares, repayment of borrowings, borrowings affected by the enterprise.
Issue of shares/debentures result in inflow of cash, redemption of
shares/debentures result in outflow of cash, and so on.

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1.5 SOME IMPORTANT RATIOS

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2. MAJOR FINANCIAL INSTITUTIONS OF INDIA

2.1 RESERVE BANK OF INDIA
The Reserve Bank of India, which commenced its operations on 1 April, 1935,
is the apex financial institution of India which regulates other commercial banks
in the country along with other important financial services such as foreign
exchange services, control of inflation, and ensuring monetary stability. In
addition to these, the RBI has played an active developmental role particularly
in the agriculture and rural sectors. Over the years, these functions have
evolved in tandem with national and global developments. The Bank today
focuses, among other things, on maintaining price and financial stability;
ensuring credit flow to productive sectors of the economy; managing supply of
good currency notes within the country; and supervising and taking a lead in
development of financial markets and institutions.
Major functions of RBI include:
▪ Banker to banks and lender of the last resort

RBI does not serve the common man, it only serves as a bank to the
government and other commercial banks. Commercial banks are
required to keep a certain amount (~20%) as a reserve with the RBI in
the form of cash or gold before lending any money to its customers

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(Statutory Liquidity Ratio). Commercial banks are also required to keep

around 4% of its deposits with the RBI as cash reserves, known as the
Cash Reserve Ratio. CRR limits the ability of the banks to pump more
money into the economy, whereas SLR is used to limit the expansion of
bank credit to ensure the solvency of banks.
RBI also acts as the lender of the last resort to the commercial banks.
When a bank is found to be on the losing side, RBI helps the commercial
banks by lending them some money at a certain interest rate, to protect
the interests of the customers and shareholders.
▪ Banker to Central and State Governments

RBI acts as a banker to Central and State governments. The Central as
well as all the State governments are required to maintain a certain
amount to money as deposits with the RBI. This amount varies from State
to State, depending on the economic activity and the budget of the
State. As banker to the Government, the Reserve Bank works out the
overall funds position and sends daily advice showing the balances in
its books, Ways and Means Advances granted to the government and
investments made from the surplus fund. The daily advices are followed
up with monthly statements. The Reserve Bank also manages public debt
on behalf of the Central and the State Governments. It involves issue of
new rupee loans, payment of interest and repayment of these loans and
other operational matters such as debt certificates and their registration.
▪ Currency management
The RBI is the sole authority to issue currencies in India other than the
one-rupee notes and small coins which are issued by the Government of
India. The bulk of the currency is in the form of paper notes which are
currently issued in the denominations of Rs. 2, 5, 10, 20, 50, 100, 200,
500, 2000. The RBI also follows a minimum reserve system whereby it
keeps a certain percentage of the total money issued as a gold and
foreign exchange reserve.
▪ Monetary policy
Monetary policy consists of the actions of a Central Bank that are aimed
towards maintenance of money supply by way of targeting inflation
rates, interest rates to ensure price stability in the country. The primary
objective of monetary policy is price stability while keeping in mind the
objective of growth. There are several instruments used by the RBI that
are used to implement monetary policy in India. These include:
i. Repo Rate is the rate at which the RBI lends money to the
commercial banks against government securities.

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ii. Reverse Repo Rate is the rate at which the RBI borrows money
from the commercial banks on the other hand.
iii. Bank rate is the rate at which the RBI charges interests on the
amount it lends to the commercial banks and other financial
intermediaries.
iv. Open market operations refer to the buying and selling of
government securities in the open market in order to expand or
contract the money supply in the economy.
v. Cash Reserve Ratio
vi. Statutory Liquidity Ratio
▪ Management of foreign exchange reserves

The RBI is the custodian of foreign exchange reserves of the country and
is vested with the responsibility of managing their investment. The RBI
ensures safety, liquidity, and returns as part of its policies related to the
foreign exchange reserve management. The RBI invests in following
kinds of instruments:
1) Deposits with Bank for International Settlements and other central
banks
2) Deposits with foreign commercial banks
3) Debt instruments representing sovereign or sovereign-guaranteed
liability of not more than 10 years of residual maturity
4) Other instruments and institutions as approved by the Central Board
of the Reserve Bank in accordance with the provisions of the Act
5) Certain types of derivatives
The RBI also manages the currency exchange rates which fluctuate on a
daily basis.

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2.2 SECURITIES AND EXCHANGE BOARD OF INDIA
Securities and Exchange Board of India (SEBI) was established in the year 1988
and was given statutory powers on 30 January, 1992 through the SEBI Act of
1992. The Preamble of the Securities and Exchange Board of India describes
the basic functions of the Securities and Exchange Board of India as "...to
protect the interests of investors in securities and to promote the development
of, and to regulate the securities market and for matters connected there with
or incidental there to". It plays a vital role in maintaining a stable and efficient
financial market.
The main objects of SEBI include the regulation of stock exchanges and ensure
safe investments, and to prevent fraudulent practices by striking a balance
between business and its statutory regulations.
Purpose and role of SEBI:

The main purpose of SEBI is to be responsive to the needs of three groups which
constitute the market:
▪ The issuers of securities are provided with a market place in which they
can raise finance easily.
▪ The investors are protected by way of supplying them with accurate and
correct information.

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▪ The market intermediaries are provided with a competitive and

professional environment.
Major functions of SEBI:
The major functions of SEBI are divided into three categories:
a. Protective functions
b. Developmental functions
c. Regulatory functions
Protective functions are performed by the SEBI to protect the interests

of all the investors in the market and provide safety in investment.
As part of its protective functions, following are undertaken:
• It checks on price rigging
Price rigging refers to the manipulation of prices of securities
with the main objective of inflating or deflating the prices. SEBI
prohibits such activities as it leads to misleading of investors.
• It prohibits insider trading

Insiders refer to any person connected with the company such
as directors, promoters, etc. These people have sensitive
information relating to the company which they can use to
make a profit. SEBI keeps a stringent check when insiders buy
the securities and prohibits such insider trading.
• Prohibits fraudulent and unfair practices

SEBI does not allow companies to make misleading statements
which may induce the investors into buying or selling of their
shares.
• SEBI also educates investors so that they are able to evaluate

the securities of various companies and invest in the most
profitable ones.
Developmental functions are performed by the SEBI to

promote and develop activities in the stock market and
increase the business of the stock exchange. The following
functions are performed under this category:
• Promotion of the training of intermediaries of the securities

market.
• Promote activities of the stock exchange by introducing
flexible methods such as internet trading.

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• Initial public offering of shares is permitted through the stock

exchange.
Regulatory functions are performed by the SEBI to regulate
the business in stock exchange. The following activities are
undertaken under this:
(i) SEBI has framed rules and regulations and a code of conduct
to regulate the intermediaries such as merchant bankers,
brokers, underwriters, etc.
(ii) These intermediaries have been brought under the

regulatory purview and private placement has been made
more restrictive.
(iii) SEBI registers and regulates the working of stock brokers,

sub-brokers, share transfer agents, trustees, merchant bankers
and all those who are associated with stock exchange in any
manner.
(iv) SEBI registers and regulates the working of mutual funds

etc.
(v) SEBI regulates takeover of the companies.
(vi) SEBI conducts inquiries and audit of stock exchanges.

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2.3 INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY
Insurance Regulatory and Development Authority of India was constituted by

the Insurance Regulatory and Development Authority Act, 1999, an Act passed
by the Government of India. It was constituted to regulate and develop the
insurance and re-insurance business in India.
Major functions of IRDA include:

▪ Protecting policyholder’s interests
▪ issue to the applicant a certificate of registration, renew, modify,
withdraw, suspend or cancel such registration
▪ protection of the interests of the policy holders in matters concerning
assigning of policy, nomination by policy holders, insurable interest,
settlement of insurance claim, surrender value of policy and other terms
and conditions of contracts of insurance
▪ specifying requisite qualifications, code of conduct and practical training
for intermediary or insurance intermediaries and agents
▪ specifying the code of conduct for surveyors and loss assessors
▪ promoting efficiency in the conduct of insurance business
▪ regulating investment of funds by insurance companies
▪ levying fees and other charges for carrying out the purposed of the IRDA
Act of 1999.

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2.4 FORWARD MARKETS COMMISSION
Forward Market Commission is a statutory body set up under Forward

Contracts (Regulation) Act, 1952. It is a regulatory body for commodity futures
market in India.
The Forward Markets Commission was merged with the Securities and
Exchange Board of India on 28th September, 2015.
The functions of the Forward Markets Commission are as follows:

(a) To advise the Central Government in respect of the recognition or the
withdrawal of recognition from any association or in respect of any other
matter arising out of the administration of the Forward Contracts (Regulation)
Act 1952.
(b) To keep forward markets under observation and to take such action in
relation to them, as it may consider necessary, in exercise of the powers
assigned to it by or under the Act.
(c) To collect and whenever the Commission thinks it necessary, to publish

information regarding the trading conditions in respect of goods to which any
of the provisions of the Act is made applicable, including information regarding
supply, demand and prices, and to submit to the Central Government,
periodical reports on the working of forward markets relating to such goods;

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(d) To make recommendations generally with a view to improving the

organization and working of forward markets;
(e) To undertake the inspection of the accounts and other documents of any
recognized association or registered association or any member of such
association whenever it considers it necessary.
2.5 PENSION FUND REGULATORY AND DEVELOPMENT AUTHORITY
The Pension Fund Regulatory and Development Authority was established by the
Government of India on 23rd August, 2003. PFRDA is an organization to promote old
age income security by establishing, developing and regulating pension funds, to protect
the interests of subscribers to schemes of pension funds and for matters connected
therewith or incidental thereto.
The major functions of PFRDA are:
▪ Promote pension scheme in the country by fostering mandatory as well as voluntary
pension schemes in order to serve the old age income needs of retired personnel
▪ National Pension System, both tier 1 and tier 2 are under the purview of PFRDA
and are dictated by the same
▪ PFRDA performs the function of appointing various intermediate agencies like
Pension Fund Managers, Central Record Keeping Agency (CRA) etc.
▪ Educating the general public and stakeholders about the importance of pension.
▪ Training of intermediaries that perform the task of popularizing and educating
people about the importance of pension.

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▪ Addressing grievances related to various pension schemes in the country.

▪ Addressing and resolving disputes between various intermediaries like banks and
between customers and intermediaries.

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Relation between the major financial institutions

As we read above, RBI is the central bank of our country; SEBI is the securities market
regulator; FMC, which is now merged with SEBI, is the futures commodity market
regulating body of India; IRDA is the insurance and reinsurance business regulating
authority; and PFRDA regulates the pension funds. Even though these regulatory bodies
have completely different functions from each other, they do, however, overlap when it
comes to certain decisions made in the economy.
There have been a number of instances where RBI and SEBI have been at loggerheads
with each other with respect to a decision taken by one of them. In March of 2016, for
example, RBI intervened in the trading of HDFC Bank shares after the overseas holding
was breached. The RBI had asked the foreign investors to not complete the executed
trades. Typically, foreign investment limits are monitored at the end of the day. But on
February 17, when the window was opened for fresh purchases in HDFC Bank Stock, RBI
started collecting the data from stock exchanges, custodians and market participants at
frequent intervals. This was followed by a protest from SEBI. They ruled that such
intervention leads to a market frenzy, the innocent investors are hurt in the process and
hence, the market sanctity is compromised.

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Similarly, in the last quarter of 2017, a SEBI proposal to make listed firms disclose
defaults on their loans within a day of it happening was stuck because RBI had
reservations about the SEBI proposal. RBI's defence for the same was that the banks were
the biggest stakeholders in default data and that such data is not meant for public use.
Another spat had occurred between the SEBI and IRDA in 2003, when the insurance
regulator had raised objection over SEBI’s proposal to allow insurance companies to
become proprietary trading members for debt trading in stock exchanges.
On March 24, 2011, the Government of India set up a body to review and rewrite the
legal-institution architecture of the Indian financial structure. This body was called the
Financial Sector Legislative Reforms Commission (FSLRC). The commission was headed by
a former judge of the Supreme Court of India, Justice BN Srikrishna, along with an eclectic
mix of experts from various fields including economics, finance, law, etc. The panel
proposed a regulatory architecture that would merge FMC, SEBI, IRDA and PFRDA into
a new unified agency. RBI would continue to exist, however.

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3. HOW SHOULD BANKS DEAL WITH NPA
1.DEFINITION:-
All advances given by banks are termed “assets”, as they generate income
for the bank by way of interest or installments. However, a loan turns bad if
the interest or installment remains unpaid even after the due date — and
turns into a nonperforming asset, or NPA, if it remains unpaid for a period of
more than 90 days.
According to a July 2014 RBI circular, all advances where interest and/or
installment of principal remains due for more than 90 days, would be
classified as a “nonperforming asset”. In case of overdraft or cash credit, if
the outstanding balance remains continuously in excess of the sanctioned
limit/drawing power for more than 90 days, it would be classified as an
NPA.
In fact, if any amount to be received by the bank remained overdue for
more than 90 days, it is classified as an NPA.

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2. CLASSIFICATION OF NPAS:-
Assets of a bank are classified in terms of its repayment status. Standard

assets, substandard assets, doubtful assets and loss assets are classifications
of asset quality.
For a bank, classification of assets into different categories should be done
taking into account credit weaknesses and the extent of dependence on
collateral security for realization of dues.
a)Standard Asset is one which does not disclose any problems and which
does not carry more than normal risk attached to the business. Such an asset
should not be an NPA.
b) Substandard asset would be one, which has remained NPA for a period
less than or equal to 12 months.
c)An asset would be classified as Doubtful if it has remained in the sub-
standard category for a period of more than 12 months.
d)A Loss Asset is an NPA for a period of more than 36 months is treated as
a lost asset. Such asset has been identified by the bank or internal or
external auditors or by the RBI inspection but the amount has not been
written off wholly. In other words, such an asset is considered
uncollectible.Loss assets should be written off. If loss assets are permitted to
remain in the books for any reason, 100 percent of the outstanding should
be provided for. This means that full amount of the loss assets should be kept
from some other sources like profit of the bank to meet the loss.The
mechanism of Provisioning is done to address the asset quality deterioration
for a bank’s assets. The worse is the assets’ quality; higher will be the
provisioning coverage ratio. Banks should make provision against sub-
standard assets, doubtful assets and loss assets in a differential manner.

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3. WAYS OF REDUCING NPA:-
1.STRINGENT NPA RULES:-The government has over the years enacted and
tweaked stringent rules to recover assets of defaulters.The Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act or
Sarfaesi Act of 2002 was amended in 2016 as it took banks years to
recover the assets.Experts have pointed out that the NPA problem has to be
tackled before the time a company starts defaulting. This needs a risk
assessment by the lenders and red-flagging the early signs of a possible
default.
2. RBI’s LOAN STRUCTURING SCHEMES:-RBI has over the past few

decades come up with a number of schemes such as corporate debt
restructuring (CDR), formation of joint lenders’ forum (JLF), flexible structuring
for long-term project loans to infrastructure (or 5/25 Scheme), strategic debt
restructuring (SDR) scheme and sustainable structuring of stressed assets
(S4A) to check the menace of NPAs.In many cases, the companies have
failed to make profits and defaulted even after their loans were
restructured.
3. AMENDMENT OF THE BANKING REGULATION LAW:-The Banking Regulation Act

may be amended to give RBI more powers to monitor bank accounts of big
defaulters.The amendment in the banking law will enable setting up of a committee to
oversee companies that have been the biggest defaulters of loans.RBI wants stricter
rules for joint lenders’ forum (JLF) and oversight committee (OC) to curb NPAs.While the
present law allows the government to direct RBI to carry out inspection of a lender,
there is no provision for setting up oversight committees.Also, there could be changes in
the laws, which will bar a bank to extend loans to a defaulting company that has failed
to repay to other banks.
4. WRITING OFF NPA’S:-In the past few quarters, most of the banks especially
PSU lenders, have reported a sharp fall in profits as they set aside hefty amounts
for losses on account of NPAs, which eroded their profits.Given the gravity of the

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problem, the government may ask banks to go for more “hair cut” or write offs
for NPAs.The government and RBI may also come up with a one-time settlement
scheme for top defaulters before initiating stringent steps against them.The
finance ministry and RBI are also considering setting up of a “bad bank” to deal
with the problem of non-performing loans, as it has been suggested by chief
economic adviser Arvind Subramanian in the Economic Survey.Reserve Bank
deputy governor Viral Acharya has also floated the twin concept of Private Asset
Management Company (PAMC) and National Asset Management Company
(NAMC) for resolution of stressed assets.With rule changes and strict regulations,
banks may be asked to restructure about 50 large NPA accounts by December,
2017.
5. SARFESI ACT:-The Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI) empowers Banks /
Financial Institutions to recover their non-performing assets without the intervention
of the Court.The Act provides three alternative methods for recovery of non-
performing assets, namely: -
• Securitisation
• Asset Reconstruction
• Enforcement of Security without the intervention of the Court.
The provisions of this Act are applicable only for NPA loans with outstanding above Rs.
1.00 lac. NPA loan accounts where the amount is less than 20% of the principal and
interest are not eligible to be dealt with under this Act.
Non-performing assets should be backed by securities charged to the Bank by way of
hypothecation or mortgage or assignment. Security Interest by way of Lien, pledge,
hire purchase and lease not liable for attachment under sec.60 of CPC, are not covered
under this Act
The Act empowers the Bank:

(i.) To issue demand notice to the defaulting borrower and guarantor, calling upon them
to discharge their dues in full within 60 days from the date of the notice.
(ii.) To give notice to any person who has acquired any of the secured assets from the
borrower to surrender the same to the Bank.
(iii.) To ask any debtor of the borrower to pay any sum due or becoming due to the
borrower.

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(iv.) Any Security Interest created over Agricultural Land cannot be proceeded with.
If on receipt of demand notice, the borrower makes any representation or raises any
objection, authorised officer shall consider such representation or objection carefully
and if he comes to the conclusion that such representation or objection is not acceptable
or tenable, he shall communicate the reasons for non acceptance within one week of
receipt of such representation or objection.
A borrower / guarantor aggrieved by the action of the Bank can file an appeal with
DRT and then with DRAT, but not with any civil court. The borrower / guarantor has to
deposit 50% of the dues before an appeal with DRAT.
If the borrower fails to comply with the notice, the Bank may take recourse to one or
more of the following measures:
(i) Take possession of the security
(ii) Sale or lease or assign the right over the security
(iii) Manage the same or appoint any person to manage the same
4.RBI’s NEW RULE TO FIX THE NPA PROBLEM:-
As per the RBI directive, banks will now have to agree to a common approach for
restructuring or recovery of each non-performing loan (NPL). The common approach will
be the one adopted by the lead bank, along with a few more banks so as to meet the
thresholds of 60% of lenders by value and 50% by number. The desirability of this
approach assumes that the interests of all banks need to be aligned with or subsumed
within the interest of the lead bank. It is doubtful that the smaller banks would be
happy with this measure for the simple reason that if the same was true, all the
members of the JLF would have anyway agreed with the lead lender and a
prescription by the RBI would not have been required in the first place. Having said
that, this seems to be a fair approach to the extent that the JLF can now move forward
with majority support.
When a troubled asset, like a power project, underlying an NPL, is to be revived or
transacted with an asset reconstruction company (ARC), the fundamental requirement
for an optimal decision process is the data on the costs and benefits involved in the
process. The parties involved would need to have reliable data to put their money on
the table. The required data would include the operational, financial, and regulatory
pay-offs from the power project, post-restructuring or recovery actions. While the data
is more easily available for an operational project, it is not so for an under-construction

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project. For example, the projected operational and financial performance for a
thermal project depends on multiple variables like the power purchase agreement
(PPA), fuel supply agreement (FSA), environmental clearance status, timelines for
construction, etc. Each of these variables is prone to uncertainties.
In the absence of reliable data regarding the elements of the pay-off to the banks,
each bank would adopt a stance that is aligned with its risk appetite and preferences.
It is known that the process of the bank getting back its dues through the legal recovery
process is usually slow, uncertain, and value destructive. There is no market clearing
mechanism to serve as a guide for the pricing decisions in the restructuring or recovery
to be done by the banks. This leads to a widening of the bid-ask spreads, reflecting the
uncertainty in the pricing of risk in the transaction. As a result, the transaction either
does not get consummated or if forced to consummate, leads to a sub-optimal situation
for certain stakeholders. Till now the absence of an agreement within the JLF reflected
the former and in the revised circumstances, the forced agreement within the JLF will
reflect the latter.
5.CURRENT NPA SCENARIO: -

Total bad loans of India's 38 listed commercial banks have crossed Rs 8 lakh crore at
the end of June quarter. This chunk now accounts for nearly 11 percent of the total
loans given by the banking industry.
Over 90 percent of these sticky assets are on the books of government-owned banks.
These banks constitute about 70 percent of the total banking industry, in terms of assets,
meaning the government will have to bear the burden of massive capital requirements
of crisis-ridden industry. Higher bad loans require banks to set aside more money in
terms of provisions. The provision amount varies on a case to case basis.
In recent years, Non-performing assets (NPAs) have emerged as a major headache for
the government and the Reserve Bank of India (RBI). Clearly, both the RBI and
government woke up to the problem too late. The government has so far failed to
infuse the required capital for state-run banks.
The Modi government has time and again blamed the previous UPA-regime for the bad
loan mess, saying NPAs are a legacy issue. It is not yet clear whether the government is
seized of the enormity of the problem. Indeed, the government has taken steps to
address the bad loan problem like the NPA ordinance giving the central bank more
power to direct banks to take action against loan defaulters and passage of Insolvency
and Bankruptcy Code (IBC).

37
While these steps are welcome, these are unlikely to help overcome the bad loan
problem in the immediate future. It will take years before banks can get rid of NPAs
accumulated over the years on account of multiple factors. The following seven charts
give us various aspects of India's bad loan crisis.
The Asset Quality Review (AQR) initiated by RBI under former governor Raghuram
Rajan and implemented from Q3 of FY16 resulted in a massive jump in gross NPAs. The
figure more than doubled to Rs 8.29 lakh crore in June 2017 compared with Rs 3.51
lakh crore in September 2015, an addition of Rs 4.78 lakh crore in just seven quarters.
In the first two quarters of implementation of these guidelines, the sector has seen Rs
2.45 lakh crore jump in gross NPAs. While in December 2015 quarter, gross NPAs
surged by Rs 1 lakh crore, in March 2016 quarter this portion went up by another Rs
1.44 lakh crore. The RBI bad loan clean up process cannot be blamed for the
escalation of NPAs, as it only forced banks to report the actual NPAs that were so far
hidden in their balance sheets. At some point, this process had to be started.
Public sector banks (PSBs), which accounted for 90 percent of the total gross
NPAs of the banking sector, has seen their gross NPAs jumping past Rs 7
lakh crore in June 2017 quarter. In the past seven quarters, it jumped by Rs
4.18 lakh crore or 133 percent to Rs 7.33 lakh crore in June 2017 quarter
from Rs 3.14 lakh crore in September 2015 quarter.
State Bank of India (SBI), India's largest lender by assets, tops the bad loan chart. The
bank has Rs 1.88 lakh crore of gross NPAs as on 30 June 2017. The figures now
includes NPAs of five of its associates after the merger. SBI's combine gross NPAs
surged by 150 percent or Rs 1.13 lakh crore to Rs 1.88 lakh crore in the June
quarter from Rs 75,068 crore in September 2015.
Punjab National Bank (PNB) comes second in the list with Rs 57,721 crore gross NPAs,
followed by Bank of India (Rs 51,019 crore), IDBI Bank (Rs 50,173 crore) and Bank of
Baroda (Rs 46,173 crore).
Among 17 private banks, Jammu & Kashmir Bank tops the bad loan table with gross
NPAs of 10.79 percent of its total advances as of 30 June 2017. ICICI Bank figures
second in the list with 7.99 percent bad loans and Kerala-based Dhanalaxmi Bank
follows next recording 5.62 percent of its loans as bad in the June quarter.

38
6.INSOLVENCY AND BANKRUPTCY CODE-A PANACEA TO NPA:-
Insolvency & Bankruptcy Code is likely to play an important role in addressing the non-
performing assets (NPA) of the banking sector. The banking sector is facing issues due
to the bad loans on its books, which have created a risk of capital erosion. NPAs have
also constrained the banks' ability to lend. Credit is an important ingredient of economic
growth and the lack of credit could lead to economic contraction. It's not just public
sector banks that are staring a mountain of NPAs - private sector banks are also taking
a hit.
As many as 21 listed PSU banks have a combined gross NPAs of Rs 7.3 lakh crore at
the end of Sep 2017 quarter. They grew by more than 27% as compared to Sep
2016 quarter. SBI has the highest share of bad loans (25.4%), followed by Punjab
National Bank (7.8%) and IDBI Bank (7%). The average Gross NPA ratio - the ratio of
bad loans to total advances - of PSU banks has seen a spike, from 12.04% in Sep
2016 to 14.4% in September 2017.
Although private sector NPAs do not seems to be that huge compared to public sector
banks, in terms of growth they have surpassed public sector banks. As many as 17
listed private sector banks have combined gross NPA of Rs 1.06 lakh crore at the end
of Sep 2017 quarter. That represents a growth in NPAs of more than 40%, compared
to September 2016 quarter. ICICI Bank has the highest share of gross NPAs (41.8%),
followed by Axis Bank (25.8%) & HDFC Bank (7.2%) at the end of Sep 2017 quarter.
The average gross NPA ratio for private sector banks jumped from 3.6% in September
2016 to 4% in September 2017.
The IBC seeks strict time-bound initiation of corrective action even at the stage of the
very first default either to the bank or to the business counter parties. By ensuring
certainty and clarity in all aspects of the process, the code hopes to achieve speedy
resolution, higher recoveries and, in course of time, encourage lenders to go in for
higher levels of debt financing.
The IBC seeks to consolidate scattered and unstructured jurisprudence on insolvency
prevalent in various Acts, like the Presidency Towns Insolvency Act, 1909, Sick Industrial
Companies Act, 1985, Limited Liability Partnership Act, 2008, Companies Act, 2013,
etc. A committee has been formed recently under the chairmanship of the secretary,
Union ministry of corporate affairs, for a comprehensive review of the IBC, including
cross-border insolvency, development and regulation of information utilities and
instances of insolvencies in group companies. There is, anyway, bound to be a whirlwind
of judicial pronouncements on various interpretational issues that should result in the
development of robust IBC jurisprudence in the days to come.

39
On the positive side, we are witnessing that debtors are now reconciling with the
‘creditor in control’ scenario, with the committee of creditors (CoC) becoming all-
powerful in the resolution process. It is, therefore, incumbent on this CoC to be fair to all
stakeholders in the stressed company. After all, a company is an amalgam of
stakeholders and its corporate governance norms are expected to maximize the value
of its assets and balance the interests of all entities linked to the company. The IBC
supports this by generally preferring resolution over liquidation.
The success of the IBC is dependent on the alacrity with which the government, courts,
tribunals and Insolvency and Bankruptcy Board of India (IBBI) respond to early-stage
issues arising in their domain, post implementation.

40

41
4 ELECTION PROCESS IN INDIA:
Elections in India are considered to be the very backbone of the Indian democracy. Being
a Parliamentary Republic, the citizens of India are trusted with the responsibility to choose
the head of the country as well as of the state. There are both General and State elections
that are held in the country based on the Federal structure of the Indian Republic. The
elections in India often transcend from being a mere political activity to a high publicized
and often sensationalized national event, with clear cultural ramifications. The entire
nation seems to suddenly come to life at the onset of the elections, particularly the
General Elections. Even the assembly elections, which determine the state government,
are events of great significance. All state elections are closely observed throughout the
nation. Often the results of the state elections are considered to be clear indications of
the mood of the nation.

42
The Election Commission of India
The Election Commission is the apex body that conducts the elections in India. Both the
general and the assembly elections in India are held in accordance with the clear rules
laid down by the Election Commission of India. The Election Commission or the EC
comprises high-ranking government officials and is formed under the guidelines of the
Indian Constitution. The EC is a highly powerful body and is granted with a great degree
of autonomous powers to successfully conduct the elections. Even the judiciary resists from
intervening while the electoral process is on. The work of the Election Commission typically
starts with the announcement of various important dates and deadlines related to the
election, including the dates for voter registration, the filing of nominations, counting and
results. Its activities continue throughout the time-period, when the elections are conducted
in the country. The fact that elections across the country are held in phases and not at the
same time extends the period of its work. The responsibilities of the EC finally concludes
with the submission of the results of the elections.
I.ELECTION PROCESS

43
A. Formation of Constituencies:
The Constitution lays down that after the completion of each census the allocation of seats
in the Lok Sabha to States shall be readjusted. Similarly, the constituencies for elections
to the legislative assemblies are also readjusted.
However, 42nd Amendment Act (1976) provided that until the figures for the first census
after the year 2000 have been published, it shall not be necessary to readjust the
allocation of seats to the States in the Lok Sabha.
B. Filling of Nominations:
The nomination of candidates is an important part of the election process. The regulations
require that the candidate or the person who proposes his name file the nomination
papers with the Returning Officer. In order to be chosen a member of the Rajya Sabha
or the State Legislative Council, a person must be not less than 30 years of age.
For election to the Lok Sabha or the State Legislative Assembly, a person should have
attained an age of 25 years. A person is disqualified for being chosen as a member of
any House,
if he holds any office of profit under the Government of India or of any State (The
offices of Ministers or Deputy Ministers are not regarded as offices of profit for this
purpose)
if he is of unsound mind and stands so declared by a competent court
if he is an un-discharged insolvent
if he has ceased to be a citizen of India
if he is so disqualified under any law made by Parliament.
The Representation of the People act, as amended from time to time disqualifies a person
from the membership of a Legislature:
if he has been found guilty of certain election offenses or corrupt practices in election
if he has been convicted and sentenced to transportation or to imprisonment for not
less than two years.
if he has been dismissed from government service for corruption or disloyalty to the
State.

44
In 1988 many other offenses, such as cruelty towards women, were in-cluded among
those which would cause disqualification for standing for election. But none of these
disqualifications operates for a period of more than six years from the date of such
conviction.
C. Scrutiny of Nominations:
The Returning Officer scrutinizes the nomination papers very carefully. When someone is
dissatisfied, he is officially stopped from contesting election for six years. The candidates
can withdraw their nomination papers even after they have been found in order.
Every candidate standing for election to the Lok Sabha or to State Legislative Assembly
has to make a security deposit of Rs. 10,000 arid Rs. 5,000 respectively. In case the
candidate belongs to any of the Scheduled Castes or Tribes, the security deposit is
reduced by half.
The security deposit of such candidates as having obtained less than one-sixth of the total
number of valid votes polled is forfeited.
D. Election Campaign:

45
Techniques of the election campaign and the tools employed by the parties and the
independent candidates are many:
(i) Election Manifesto:

The parties issue their Election Manifestoes. A Manifesto is a Statement of great
significance. It is “a formal Statement of the Programme and objectives of a political
party” It deals with issues such as restructuring of Centre-State relations, guarantees to
religious or linguistic minorities, justice, and judicial reforms, fiscal reform, economic
growth, social justice, problems of the handicapped, health, nutrition, education,
defense and world peace. The Mani-festo contains programs and promises, with a view
to attracting the largest number of voters.There is a limit set by the Election Comission to
spend in their campaign. Election Commission recently raised the expenditure limits for
Lok Sabha elections from Rs 40 lakh to Rs 70 lakh for each Lok Sabha constituency in
bigger states and from Rs 22 lakh to Rs 54 lakh in smaller states.

46
(ii) Electioneering (Activities and Techniques to Persuade

Voters):
The parties and the candi-dates usually make use of these techniques in order to carry
their message to the voters
(a) public meetings and rallies are organized and processions were taken out. The
party leaders, espe-cially the crowd pullers, are assigned the task to address public
meetings;
(b) the street corner meetings are held;
(c) the candidates, along with the influential persons of the area, do door-to- door
canvassing;
(d) new slogans are coined to attract the masses;
(e) advertisements are re-leased to the press (the popular daily and weekly
newspapers); and
(f) the Radio and the Televi-sion are pressed into service to broadcast the speeches and
panel-discussions of leaders of various parties.

47
Nowadays electronic media plays the most effective role in creating people’s
awareness about programs of the political parties. The party leaders give a series of
interviews to newspapers and television agencies. Wide coverage is being given to all
these events at regular intervals.
E. Polling Process:
The election campaign must be stopped 48 hours before the time when poll concludes
on the polling day.
Presiding Officer supervises the whole of the polling process and ensures that all
persons working under him adhere to the electoral norms and practices.

48
The voter records his vote either by placing the seal-mark against the name of the
candidate he wants to vote for or by pressing the button of the voting machine.
F. Counting of Votes and Declaration of Results:

After the polling has ended the ballot boxes or the voting machines are sealed and
carried under custody to the counting stations. Then the process of counting the votes
begins. In 1979, the practice of booth-wise counting of ballot paper was revived.
It was done in the instance of the parties which insisted on knowing the voting pattern so
that they could woo the voters and work vigorously in the areas where they were weak.
Booth-wise counting was preferred for one more reason.
The parties felt that by doing so it would be easier to detect rigging and take necessary
action. However, there is no hard and fast rule as to the counting of votes and the Election
authorities are free to mix up the ballot papers from all the booths if they feel that it
ensured secrecy with regard to the pattern of voting. The candidate who obtains the
highest number of votes is declared elected.
G. Election Disputes:
The Constitution had originally provided for the appointment of Election Tribunals for
deciding disputes arising in connection with elections. The Nineteenth Amendment Act
(1966) abolished this provision and laid down that the election disputes would be
decided by the High Courts. After every election a lot of disputes arises. The issue over
the reliability of the electronic voting machine (EVM), which has been in use in elections
across India since 1999, has been brought up repeatedly.
For a larger part, most parties have maintained that the machines have been rigged to
favour results towards the BJP. Both BJP and the Election Commission have continuously
asserted that the machines cannot be tampered with.
Amidst controversy over the alleged tampering of Electronic Voting Machines (EVMs) in
the Assembly elections this year, the Union Cabinet led by Prime Minister Narendra Modi
had earlier approved a proposal to buy 16,15,000 Voter Verifiable Paper Audit Trail
(VVPAT) units for use in the General Elections 2019. Each VVPAT unit were to cost around
Rs 19,650 and the total cost of procurement would be around Rs 3173.47 crore
(excluding taxes and freight as applicable) over a period of two years.
A Voter-verified paper audit trail (VVPAT) unit provides feedback to voters using EVMs
for voting. The VVPAT functions as an independent verification system for EVMs and
allows voters to verify that their votes are cast as intended. It also serves as an additional
barrier to changing or destroying votes.

49
II.TYPES OF ELECTIONS IN INDIA
A. Lok Sabha Elections:

After every five years, the entire country gears up to decide their representatives in the
Lower House of Parliament. For Lok Sabha elections (or General Elections), the country is
split into different constituencies, and the winner is elected from each constituency.
As per Article 324 of the Indian Constitution, the power of superintendence, direction,
and control of the conduct of elections is vested with the Election Commission of India. In
its efforts to ensure smooth conduct of the mammoth electoral exercise, the commission is
assisted by two Deputy Election Commissioners, who are appointed from the national civil
services.

50
B. Rajya Sabha Elections:

Unlike Lok Sabha, the members of Rajya Sabha are not directly elected by the
electorates. The elections to the Upper House of the Parliament happen through the
Legislative Assembly of each state by using the single transferable vote system.
Out of the maximum strength of 250 members, 238 are elected by the legislative
assemblies and 12 are nominated by the President of India. The representatives of states
and Union Territories in the Rajya Sabha are elected by the elected members of the
Legislative Assemblies in accordance with the system of proportional representation. With
one-third of its members retiring every two years, the elections to Rajya Sabha happen
at respective intervals.

51
C. State Legislature Elections:

Elections to the Legislative Assembly (Vidhan Sabha) are conducted in the same way the
Lok Sabha elections are carried out. Electorates consisting of citizens in a state above the
age of 18 votes for their state representatives. Each legislative Assembly is formed for
a five-year term following which all seats again go to the polls.
The elections to Legislative Council (Vidhan Parishad) replicate the same process as that
of Rajya Sabha, wherein the representatives are chosen by the members of the lower
house. Besides, the Governor also nominates certain members from the field of art,
science, literature, social service, and co-operative movement. The elections to these
legislative councils are held under the system of proportional representation.
At the state level, the entire electoral process is monitored and supervised by the Election
Commission. The Chief Electoral Officer (CEO) of the state has the responsibility of
ensuring that the polling takes place as per the constitutional provisions. The CEO is
helped by a team of supporting staff.

52
D. Presidential and Vice-Presidential Elections:

The President is indirectly elected by an electoral college consisting of the elected
members of Lok Sabha, Rajya Sabha and the members of the legislative assemblies of
every state and union territory. The presidential election is conducted before the present
president’s term gets over.
As per the provision of Article 55 of Indian Constitution, a uniformity has to be maintained
in the scale of representation of the different states. Hence, the election of the President
is held in accordance with the system of proportional representation and the voting
happens through a secret ballot.
The Vice-President is elected by a direct vote of all members of Lok Sabha and Rajya
Sabha. The system of proportional representation is followed and the votes are cast
through a secret ballot. It’s the Election Commission that conducts the election to the office
of the Vice-President.

53
Elections form the backbone of democracy wherein people elect their political
representatives and decide the composition of the government. Holding free and fair
elections on a state and national level is integral to upholding the principles of
democratic set up in India. From parliamentary elections to the presidential polls, India
goes through the electoral process at regular intervals.

54

55
5. OVERVIEW OF CULTURE OF INDIAN START UPS

1.DEFINITION:-
A startup is a young company that is just beginning to develop. Startups are
usually small and initially financed and operated by a handful of founders or one
individual. These companies offer a product or service that is not currently being
offered elsewhere in the market, or that the founders believe is being offered in
an inferior manner. A startup company (startup or start-up) is an entrepreneurial
venture which is typically a newly emerged, fast-growing business that aims to meet
a marketplace need by developing a viable business model around an innovative
product, service, process or a platform. A startup is usually a company designed to
effectively develop and validate a scalable business model. A startup company is
a newly formed business with particular momentum behind it based on perceived
demand for its product or service. The intention of a startup is to grow rapidly as
a result of offering something that addresses a particular market gap.

56
2.SOURCES OF FUNDING:-
• Self-funding from your savings (if you have it) is always preferred.
Advantages: no time going hat-in-hand to investors and you don't have to
relinquish any control in your company.
• Friends and family. Tap your inner circle before expanding your horizons. As
a rule of thumb, professional investors like to see real skin in the game--your
own, of that of people who trust you.
• Loans or lines of credit. If your company needs only a temporary or small

infusion of cash, try for a Small Business Administration loan (offered at a lower
interest rate because it is guaranteed by the government) or a bank line of
credit.
• Incubators. A start-up incubator is a company, university or other organization

that ponies up resources--laboratories, office space, consulting, cash, marketing-
-in exchange for equity in young companies when they are most vulnerable
• Form a partnership. A more established company may have a strategic interest

in helping to develop your product---and be willing to advance funding to make
it happen. I know several companies that develop customized social networks
for large enterprises, with the expectation of using that funding and experience
to compete in the consumer market some day. Licensing may not be as sexy as
being a consumer brand, but it will cost you a lot less.
• Commit to a major customer Some customers would be willing to cover your

development costs in order to be able to buy your product before the rest of
the world can. Their advantage: control over your production process (to make
sure it meets their requirements) and the promise of dedicated support. Even
large companies look to their best customers to fund new projects--this is the
essence of good business development.

57
3.START UP INDIA-GOVERNMENT PROGRAMME:-

• Startup India campaign is based on an action plan aimed at promoting bank financing
for start-up ventures to boost entrepreneurship and encourage start ups with jobs
creation. The campaign was first announced by Prime Minister Narendra Modi in his
15 August 2015 address from the Red Fort.[1] It is focused on to restrict role of States
in policy domain and to get rid of "license raj" and hindrances like in land permissions,
foreign investment proposal, environmental clearances. It was organized by
Department of Industrial Policy and Promotion (DIPP).[2] A startup is an entity that is
headquartered in India which was opened less than seven years ago and has an annual
turnover less than ₹25 crore (US$3.9 million).[3] The government has already launched
iMADE, an app development platform aimed at producing 1,000,000 apps and
PMMY, the MUDRA Bank, a new institution set up for development and refinancing
activities relating to micro units with a refinance Fund of ₹200 billion (US$3.1 billion).
It’s key initiatives for providing a conducive environment for start ups are as follows:-
• Single Window Clearance even with the help of a mobile application

• 10,000 crore fund of funds
• Reduction in patent registration fee
• Modified and more friendly Bankruptcy Code to ensure 90-day exit window
• Freedom from mystifying inspections for 3 years
• Freedom from Capital Gain Tax for 3 years
• Freedom from tax in profits for 3 years
• Self-certification compliance
• Innovation hub under Atal Innovation Mission
• Starting with 5 lakh schools to target 10 lakh children for innovation
programme
• new schemes to provide IPR protection to start-ups and new firms
• encourage entrepreneurship.
• Stand India across the world as a start-up hub.
It includes the involvement of government and various educational institutions:-
• MINISTRY OF HUMAN RESOURCE DEVELOPMENT
• NATIONAL INSTITUTE OF TECHNOLOGY
• INDIAN INSTITUTE OF TECHNOLOGY
• INDIAN INSTITUTE OF SCIENCE EDUCATION AND RESEARCH
• NATIONAL INSTITUTE OF PHARMACEUTICAL EDUCATION AND RESEARCH
• RESERVE BANK OF INDIA

58
• NATIONAL INSTITUTE OF TECHNOLOGY SILCHAR
It has attracted investments from Soft Bank which has its headquarters in Japan and
invested 2 billion dollars into Indian start ups.Google declared to launch a startup,
based on the highest votes in which the top three startups will be allowed to join
the next Google Launchpad Week, and the final winner could win an amount of
US$100,000 in Google cloud credits. Oracle on 12 February 2016 announced to
set up nine incubation centres in Bengaluru, Chennai, Gurgaon, Hyderabad,
Mumbai, Noida, Pune, Trivandrum, Vijaywada

59
4.EXAMPLES OF INDIAN STARTUPS:-
FRESH DESK:-
A B2B model focusing on improving

customer support management for
companies through their proprietary
interaction management software,
turning gnarly problems into an
organized system. Freshdesk came into existence thanks to an unhappy customer
support incident that the founder went through, and ended up delivering a more
productive and organized solution 6 months later. At an enterprise level, any
increase in employee productivity or improving the customer experience like
Freshdesk does, is bound to be snatched up by companies facing those issues.
MYREFERS:-
A recruitment marketplace based on referrals by individuals/ hr consultants/

current professionals, which leverages social connections and profile data to
analyze and bring out the most relevant candidates to employers.Recruitment
still seems to be an untapped market relative to its market size which is
estimated to be $1 billion. Even a slight improvement in recruitment will make
employers want to jump aboard because of the difficulty of procuring high
quality talent.

60
• CHAAYOS:-
A startup bringing a rendition of the ‘chai adda’ in Delhi to life

has been backed by a lot of funding to open many outlets across Delhi/NCR. It
offers over 25 varieties of tea. Chaayos also targets users who want to meet,
collaborate or work while ordering tea at their outlets. We have seen a plethora
of similar concepts work in Delhi targeting a co-working feel, and Chaayos is
another addition with a unique offering, plain and simple – chai.
FRESH MENU:-
An interesting startup that delivers standardized and fresh cooked meals from its
cloud kitchen.Also having a competitively priced menu brings tiffin services to its
competition. Its meals have met with great feedback from customers. Freshmenu is
successful because it takes its an innovative tech-enabled kitchen model and
executes it beautifully at the right time where delivery services in India were
soaring. Plainly, it’s food is great, it’s inexpensive, it has its own delivery system
and it has a standardized cloud kitchen in multiple cities. So, it has been able to
drive down costs considerably and provide great quality at a competitive price in
the delivery market. Hence, it is a successful venture aimed at metros in India.

61
5.FUTURE OF COUNTRY- INDIAN STARTUPS:-

A conclave on startup India was jointly organised on Monday by professional
development committee and Institute of Chartered Accountants of India (ICAI). The
programme was hosted by Bhilai branch of CIRC of ICAI at civic center. Minister
for railways and coal Piyush Goyal was invited as chief guest and national general
secretary of Bharatiya Janata Party (BJP) Dr Saroj Pandey was invited as the guest
of honor. Addressing the gathering, Goyal said that the use of technology is
increasing in the changing global scenario and the future lies in innovations. He said
that today's youths don't want to follow traditional ways, they want a change and
want to become financially independent. He also said that the upcoming technology
of artificial intelligence is going to change our world entirely. .Speaking at a
conclave on startup India, he said that startup India is a dream project of Prime
Minister Narendra Modi and at a time when traditional business practices are
becoming irrelevant, the future is in start Up India and Stand Up India.
Goyal also appealed to the youths to join the Startup India Scheme. He said that
there is a great need for good people in politics.In the changing scenario of trading,
the importance of technology is increasing and detailed discussion should also be
done on the subjects like artificial intelligence and 3D manufacturing. Traditional
employment opportunities are being eliminated, so in the field of business there is
a need to move forward with new thoughts, he added.During his Chhattisgarh visit,
the Union minister also convened a meeting in Raipur and reviewed the progress
of ongoing projects of railways and Coal India. He instructed the officials to
complete projects within the time limit. He emphasized to increase the use of
technology to improve functioning of both the organizations.

62
6.COMPARISON BETWEEN START UPS IN INDIA AND OTHER COUNTRIES:-

63

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1

BACKSTAB | SEASON 7, ISSUE 2

1. How to interpret financial statements 3-16

BACKSTAB | SEASON 7, ISSUE 2

BACKSTAB | SEASON 7, ISSUE 2

1. HOW TO INTERPRET THE FINANCIAL STATEMENTS

Balance Sheet Income Statement Cash Flow Changes in equity

BACKSTAB | SEASON 7, ISSUE 2

1.2 INTERPRETING A BALANCE SHEET

Let’s take a closer look at these terms:

𝐸𝑞𝑢𝑖𝑡𝑦 (𝑁𝑒𝑡 𝑊𝑜𝑟𝑡ℎ) = 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

BACKSTAB | SEASON 7, ISSUE 2

Interpreting the Equity + Liability side

Shareholder’s funds (Equity)

BACKSTAB | SEASON 7, ISSUE 2

Preference shares are those which are to be paid dividend, as well as

✓ Money received against share warrants: Share warrants are instruments

BACKSTAB | SEASON 7, ISSUE 2

✓ Other current liabilities: Other current liabilities is a balance sheet entry

BACKSTAB | SEASON 7, ISSUE 2

Interpreting the Asset side

Total 44,00,000 35,80,000

✓ Non-current investments: These are the investments held by the company

BACKSTAB | SEASON 7, ISSUE 2

BACKSTAB | SEASON 7, ISSUE 2

1.3 INTERPRETING THE STATEMENT OF PROFIT & LOSS

✓ Revenue from operations is the primary source of income earned by the

BACKSTAB | SEASON 7, ISSUE 2

✓ Purchases of stock-in-trade is the purchases of finished goods made by the

✓ Changes in inventory of finished goods, raw material and stock-in-trade refers to

✓ Depreciation and amortization expenses are the non-cash expenses incurred by

BACKSTAB | SEASON 7, ISSUE 2

1.4 INTERPRETING THE CASH FLOW STATEMENT

In the direct method, cash flow from operations is calculated as below:

BACKSTAB | SEASON 7, ISSUE 2

BACKSTAB | SEASON 7, ISSUE 2

1.5 SOME IMPORTANT RATIOS

BACKSTAB | SEASON 7, ISSUE 2

BACKSTAB | SEASON 7, ISSUE 2

BACKSTAB | SEASON 7, ISSUE 2

2. MAJOR FINANCIAL INSTITUTIONS OF INDIA

Major functions of RBI include:

▪ Banker to banks and lender of the last resort

BACKSTAB | SEASON 7, ISSUE 2

(Statutory Liquidity Ratio). Commercial banks are also required to keep

▪ Banker to Central and State Governments

BACKSTAB | SEASON 7, ISSUE 2

▪ Management of foreign exchange reserves

BACKSTAB | SEASON 7, ISSUE 2

2.2 SECURITIES AND EXCHANGE BOARD OF INDIA

Purpose and role of SEBI:

BACKSTAB | SEASON 7, ISSUE 2

▪ The market intermediaries are provided with a competitive and

Protective functions are performed by the SEBI to protect the interests

• It prohibits insider trading

• Prohibits fraudulent and unfair practices

• SEBI also educates investors so that they are able to evaluate

Developmental functions are performed by the SEBI to

• Promotion of the training of intermediaries of the securities

BACKSTAB | SEASON 7, ISSUE 2

• Initial public offering of shares is permitted through the stock

(ii) These intermediaries have been brought under the

(iii) SEBI registers and regulates the working of stock brokers,

(iv) SEBI registers and regulates the working of mutual funds