SEBI

Securities and Exchange Board of India (SEBI) is a statutory regulatory body entrusted with the
responsibility to regulate the Indian capital markets. It monitors and regulates the securities
market and protects the interests of the investors by enforcing certain rules and regulations. 

SEBI was founded on April 12, 1992, under the SEBI Act, 1992. Headquartered in Mumbai,
India, SEBI has regional offices in New Delhi, Chennai, Kolkata and Ahmedabad along with
other local regional offices across prominent cities in India.

The objective of SEBI is to ensure that the Indian capital market works in a systematic manner
and provide investors with a transparent environment for their investment. To put it simply, the
primary reason for setting up SEBI was to prevent malpractices in the capital market of India and
promote the development of the capital markets. 

Structure of SEBI
SEBI, just like any corporate firm has a hierarchical structure and consists of numerous
departments headed by their respective heads. Following is a list of some of the departments of 
SEBI:

 Foreign Portfolio Investors and Custodians

 Human Resources Department

 Information Technology

 Investment Management Department

 Office of International Affairs

 Commodity and Derivative Market Regulation Department

 National Institute of Securities Market

Apart from the department heads, the senior management of SEBI consists of a Board of
Directors who are appointed as follows:

 1 chairman nominated by the Union Government of India

 2 members from the Union Finance Ministry of India

 1 member from the Reserve Bank of India (RBI)

 5 members nominated by the Union Government of India

Functions of SEBI
The functions and powers of SEBI have been listed in the SEBI Act,1992. SEBI caters to the
needs of three parties operating in the Indian Capital Market. These three participants are
mentioned below:

 Issuers of the Securities: Companies that issue securities are listed on the stock
exchange. They issue shares to raise funds. SEBI ensures that the issuance of Initial
Public Offerings (IPOs) and Follow-up Public Offers (FPOs) can take place in a healthy
and transparent way.

 Protects the Interests of Traders & Investors: It is a fact that the capital markets are
functioning just because the traders exist. SEBI is responsible for safeguarding their
interests and ensuring that the investors do not become victims of any stock market fraud
or manipulation.

 Financial Intermediaries: SEBI acts as a mediator in the stock market to ensure that all
the market transactions take place in a secure and smooth manner. It monitors every
activity of the financial intermediaries, such as broker, sub-broker, NBFCs, etc

Powers of SEBI
Securities and Exchange Board of India has the following three powers:
Quasi-Judicial: With this authority, SEBI can conduct hearings and pass ruling judgements in
cases of unethical and fraudulent trade practices. This ensures transparency, fairness,
accountability and reliability in the capital market. SEBI PACL case is an example of this power.

Quasi-Legislative: Powers under this segment allow SEBI to draft rules and regulations for the
protection of the interests of the investor. One such regulation is SEBI LODR (Listing
Obligation and Disclosure Requirements). It aims at consolidating and streamlining the
provisions of existing listing agreements for several segments of the financial market like equity
shares. This type of regulation formulated by SEBI aims to keep any malpractice and fraudulent
trading activates at bay.

 Quasi-Executive: SEBI is authorised to file a case against anyone who violates its rules and
regulation. It is empowered to inspect account books and other documents as well if it finds
traces of any suspicious activity.

 IRDA

We regulate the Indian insurance industry to protect the interests of the policyholders and work
for the orderly growth of the industry.
 
Background

 1991: Government of India begins the economic reforms programme and financial sector reforms
 1993: Committee on Reforms in the Insurance Sector, headed by Mr. R. N. Malhotra, (Retired Governor,
Reserve Bank of India) set up to recommend reforms.
 1994: The Malhotra Committee recommends certain reforms having studied the sector and hearing out the
stakeholders
 Some recommended reforms
o Private sector companies should be allowed to promote insurance companies
o Foreign promoters should also be allowed
o Government to vest its regulatory powers on an independent regulatory body answerable to
Parliament

 Birth of IRDAI

1. Insurance Regulatory and Development Authority (IRDA) set up as autonomous body under the IRDA Act,
1999
 2. IRDAI’s Mission: To protect the interests of policyholders, to regulate, promote and ensure orderly growth of
the insurance industry and for matters connected therewith or incidental thereto.

IRDAI’s Activities

 Frames regulations for insurance industry in terms of Section 114A of the Insurance Act 1938
 From the year 2000 has registered new insurance companies in accordance with  regulations
 Monitors insurance sector activities for healthy development of the industry and protection of policyholders’
interests

IRDAI’s Mission

Insurance Regulatory and Development Authority (IRDA) Act, 1999 spells out the Mission of IRDAI as:

“... to protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance
industry and for matters connected therewith or incidental thereto......”

Functions and Duties of IRDAI

Section 14 of the IRDA Act, 1999 lays down the duties, powers and functions of IRDA. 

 Registering and regulating insurance companies

 Protecting policyholders’ interests
 Licensing and establishing norms for insurance intermediaries
 Promoting professional organisations in insurance
 Regulating and overseeing premium rates and terms of non-life insurance covers
 Specifying financial reporting norms of insurance companies
 Regulating investment of policyholders’ funds by insurance companies
 Ensuring the maintenance of solvency margin by insurance companies
 Ensuring insurance coverage in rural areas and of vulnerable sections of society

Competition Commission of India (CCI)

The CCI is a statutory body corporate that was established by the government on
14th October 2003. So it is an artificial person that has perpetual succession. The
Central Governmentwill appoint all its six members and the Chairperson forming the
Board.
Now the main aim of the CCI is to implement the modern competition laws and
philosophy of the Competition Act, 2002. It ensures that there are no unfair practices
in the market that have a negative impact on healthy competition. This is because
healthy competition is good for the consumers of a
market. Monopolistic competition or other unfair practices have an adverse effect on
economic growth.

Objectives of the CCI

 Prevent policies and practices which have an adverse effect on constructive

competition in the economy

 Promote and help sustain healthy competition in the market

 Look after the interest of the consumers

 Create awareness and advocate for fair competition practices

 And finally, ensure freedom of trade in the market

Role of the CCI

The preamble of the Competiton Act focuses on the development of the economy
and the country by avoiding unfair competition practices and promoting constructive
competition. To achieve these objectives, the CCI attempts to do the following
activities and practices,

3. Ensure that the markets work for the benefits of the consumers, so the welfare
of the consumers is the main priority.
4. Economic activities are promoting fair competition in the market for growth
and prosperity.

5. Implement the competition practices and policies of the Competition Act. The

aim is the best possible utilization of resources by embracing these policies.

6. Another role of the CCI is to ensure interaction and cooperation with the other
regulating authorities in the economy. This will ensure that the sectoral
regulatory laws are in agreeable with the competition laws.

7. One important role of the CCI is to carry out advocacy about competition and
competition laws. It aims to educate ministries, state governments, regulators,
and other authorities about the modern concepts of competition. And it does so
by conducting workshops, seminars, publishing papers, etc.
Role of CCI as a Business Facilitator
Any economy thrives when there are free trade and fair competition in the market.
Unfair competition practices like monopolies, cartels, etc. thwart the growth of
smaller firms and businesses which are essential to the growth of an economy. The
CCI protects such businessesfrom unfair competition and its adverse effects. It also
ensures that the companies at fault are penalized and discouraged from such
practices in the future.

By promoting competition it also benefits the consumers. The CCI will ensure there is
no dominance of a few firms on the market. And both the small and big firms can co-
exist peacefully in the economy.

The Foreign Exchange Management Act, 1999 (FEMA) is an Act of

the Parliament of India "to consolidate and amend the law relating to
foreign exchange with the objective of facilitating external trade and
payments and for promoting the orderly development and maintenance of
foreign exchange market in India".[1] It was passed in the winter session of
Parliament in 1999, replacing the Foreign Exchange Regulation Act (FERA).
This act makes offences related to foreign exchange civil offenses. It
extends to the whole of India.,[2] replacing FERA, which had become
incompatible with the pro-liberalization policies of the Government of India.
It enabled a new foreign exchange management regime consistent with the
emerging framework of the World Trade Organization (WTO). It also paved
 the way for the introduction of the Prevention of Money Laundering Act,
2002, which came into effect from 1 July 2005.m

Benefits of Credit Rating to Investors

The advantages, importance or benefits of credit rating to the investors are:-

Imgage Credits © Sameer Akrani.

1. Helps in Investment Decision : Credit rating gives an idea to the investors about the credibility of the
issuer company, and the risk factor attached to a particular instrument. So the investors can decide whether to
invest in such companies or not. Higher the rating, the more will be the willingness to invest in these instruments
and vise-versa.
2. Benefits of Rating Reviews : The rating agency regularly reviews the rating given to a particular
instrument. So, the present investors can decide whether to keep the instrument or to sell it. For e.g. if the
instrument is downgraded, then the investor may decide to sell it and if the rating is maintained or upgraded, he
may decide to keep the instrument until the next rating or maturity.
3. Assurance of Safety : High credit rating gives assurance to the investors about the safety of the instrument
and minimum risk of bankruptcy. The companies which get a high rating for their instruments, will try to maintain
healthy financial discipline. This will protect them from bankruptcy. So the investors will be safe.
4. Easy Understandability of Investment Proposal : The rating agencies gives rating symbols to the
instrument, which can be easily understood by investors. This helps them to understand the investment proposal
of an issuer company. For e.g. AAA (Triple A), given by CRISIL for debentures ensures highest safety, whereas
debentures rated D are in default or expect to default on maturity.
5. Choice of Instruments : Credit rating enables an investor to select a particular instrument from many
alternatives available. This choice depends upon the safety or risk of the instrument.
6. Saves Investor's Time and Effort : Credit ratings enable an investor to his save time and effort in
analyzing the financial strength of an issuer company. This is because the investor can depend on the rating done
by professional rating agency, in order to take an investment decision. He need not waste his time and effort to
collect and analyse the financial information about the credit standing of the issuer company.

Benefits of Credit Rating to Company

The merits, advantages, benefits of credit rating to the issuing company are:-

Imgage Credits © Sameer Akrani.

1. Improves Corporate Image : Credit rating helps to improve the corporate image of a company. High credit
rating creates confidence and trust in the minds of the investors about the company. Therefore, the company
enjoys a good corporate image in the market.
2. Lowers Cost of Borrowing : Companies that have high credit rating for their debt instruments will get funds
at lower costs from the market. High rating will enable the company to offer low interest rates on fixed deposits,
debentures and other debt securities. The investors will accept low interest rates because they prefer low risk
instruments. A company with high rating for its instruments can reduce the cost of public issue to raise funds,
because it need not spend heavily on advertising for attracting investors.
3. Wider Audience for Borrowing : A company with high rating for its instruments can get a wider audience
for borrowing. It can approach financial institutions, banks, investing companies. This is because the credit ratings
are easily understood not only by the financial institutions and banks, but also by the general public.
4. Good for Non-Popular Companies : Credit rating is beneficial to the non-popular companies, such as
closely-held companies. If the credit rating is good, the public will invest in these companies, even if they do not
know these companies.
5. Act as a Marketing Tool : Credit rating not only helps to develop a good image of the company among the
investors, but also among the customers, dealers, suppliers, etc. High credit rating can act as a marketing tool to
develop confidence in the minds of customers, dealer, suppliers, etc.
6. Helps in Growth and Expansion : Credit rating enables a company to grow and expand. This is because
better credit rating will enable a company to get finance easily for growth and expansion.

Credit Rating
Definition: Credit Rating can be defined as the assessment of the ability of the borrower, to
discharge their financial obligations. It is an approximation of the creditworthiness of an
individual, entity or commercial instrument, considering various factors, representing the
capability and willingness, to pay financial commitments in time.

Credit rating is instrument specific and is meant to grade various commercial instruments, with
respect to the credit risk and the obligator’s ability to make good the debt obligations, as per the
terms of the agreement. The different types of credit ratings are depicted in the figure below:

Types of Credit Rating

8) Structured obligation:
Structured obligation is also debt obligation different to debenture or bond or fixed
deposit programmes and commercial papers. Structured obligation is generally asset
backed security. Credit rating agencies assessed the risk associated with the transaction
 with the main trust on cash flows emerging from the asset would be sufficient to meet
committed payments, to the investors in worst case scenario.

ADVERTISEMENTS:

(9) Sovereign rating:

Is a rating of a country which is being considered whenever a loan is to be extended or
some major investment is envisaged in a country.

Simply put, credit rating refers to the expression of opinion concerning debt instrument, based on
credit risk evaluation, given by rating agency as on a particular date, indicating the probability of
principal plus interest to be met by the borrower in a timely manner. There are three factors
which are to be considered during default risk assessment and quality rating, they are:

1. Issuers ability to pay.

2. Strength of the instrument owner’s claim on the issue.
3. Economic importance of the marketplace of the issuer.

Expression of Credit Rating is in alphabetical or alphanumerical symbols, that enables the

investor to distinguish the debt instruments, as per their underlying credit quality.
Steps Involved in Credit Rating

Steps involved in Credit Rating

 Request from issuer and analysis: The first step to credit rating is that the enterprise applies to
the rating agency for the rating of a particular instrument. Thereafter, an expert team interacts with
the firm’s those charged with governance and acquires relevant data. Factors which are considered
includes:
 Historical performance
 Financial Policies
 Business Risk profile
 Competitive Position, etc.
 Rating Committee: Based on the information gathered and evaluation performance, the
presentation of the report is made by the expert’s team to the Rating Committee, in which the issuer
is not permitted to take part.
 Communication to management and appeal: The decision of the rating is shared with the issuer
and if he/she does not agree with the decision, then an opportunity of being heard is given. The
issuer is required to provide material information, so as to appeal against the decision. The decision
is reviewed by the committee, but that does not make any change in the ratings.
 Pronouncement of the rating: When the issuer agrees to the rating decision, the agency make a
public announcement, of the rating.
 Monitoring of the assigned rating: The agency which rates the issue, overlooks the performance
of the issuer and the business environment in which it operates.
 Rating Watch: On the basis of continuous critical observation undertaken by the rating agency,
it may place a rated security on Rating Watch.
 Rating Coverage: Credit Ratings are not confined to particular debt instruments, but also covers
public utilities, transport, infrastructure, energy projects, Special Purpose Vehicles etc
 Rating Scores: Rating scores are given by the credit rating agencies like CRISIL, ICRA, CARE,
FITCH.
Credit Rating is of great help, not just in investors protection but to the entire industry, as it
directly mobilizes savings of the individuals.