SEBI

Securities and Exchange Board of India.

Establish on 12th April1988, by Ministry of Finance
Became a Statutory body under SEBI Act, 1992 (12th June 1992)
is a statutory regulatory body that was established by the Government of India in 1992 for
protecting the interests of investors investing in securities along with regulating the
securities market.
SEBI also regulates how the stock market and mutual funds function.
SEBIbas its headquarters at the business district of Bandra Kurla Complex in Mumbai and
has Northern, Eastern, Southern and Western Regional Offices in New Delhi, Kolkata,
Chennai, and Ahmedabad respectivcly.
 Objectives of SEBI
Following are some of the objectives of the SEBI:

1. To Regulate the activity of Stock Exchange

2. Investor Protection: Protecting the interests of investors by providing guidance and
ensuring that the investment done is safe.
3. Preventing the fraudulent practices and malpractices which are related to trading and
regulation of the activities of the stock exchange
4. To develop a code of conduct for the financial intermediaries such as underwriters, brokers,
etc.

5. To maintain a balance between statutory regulations and self regulation.

 Functions of SEBI
SEBI has the following functions
Protective Function
Prohibits insider trading
Check price rigging
Promoting fair practices
Financial education provider
" Regulatory Function
o defined the rules and regulations and formed guidelines and code of conduct that should
be followed by the corporates as well as the financial intermediaries.
Conducting inquirics and audit of stock exchanges
Regulates the working of stock brokers, merchant brokers
Development Function
Training of intermediaries who are a part of the security market
Powers of SEBI
1. SEBI has powers relating to stock
exchanges and intermediaries i.e. It can
ask about information regarding business
transactions for inspection or scrutiny and
other purposes.
2. SEBI has the power to impose monetary
penalties on capital market
intermediaries. It can also impose a
suspension of theirregistration for a small
period.
3.It has the power to initiate actions into
functions assigned.
4. Has the power to regulate insider trading.
5. Also has powers under the securities
contracts act i.e. SEBI has empowered by
the finance ministry to nominate three
members on the governing body of every
stock exchange.[3]
6. It has the pOwer to regulate the busines
of the stock exchange.
What is NPA?

" A loan becomes an NPA when the principal or

interest payment remains overdue for 90 days.

Iypes of NPA

" Sub Standard: A

sub-standard asset is one
that is classified as an NPA for a period not
exceeding twelve months.
" Doubtful: A doubtful asset is one that has
remained as an NPA for a period exXceeding
twelve months.

" Loss: A loss asset is one where loss has

already been identified by the bank or an

external institution, but it is not yet completely
written off, due to its recovery vlue, however
little it may be.
Causes for Banking NPA

" Financial crisis

o Before the financial crisis of 2008 India's

economy was ina boom phase.

o During this period banks lent extensively to

corporates in the expectation that the good
times will continue in future.

" Earning of the corporates

o Low earnings affected their ability to pay
back loans. This is one of the most important
reasons behind the increase in NPA of public
sector banks.

"Relaxed lending norms

o Another major reason for rising NPA was
the relaxed lending norms for corporate
houses.

o Their financial status and credit rating were

not analysed properly.
" Public Sector banks

o It provides a major portion of the credit to

industries and it is this part of the credit
distribution that forms a great portion of
NPA.

" The priority sector lending (PSL) sector

o This has contributed substantially to the
NPAs. Priority sectors include agriculture,
education, housing, MSMEs.
Issues with NPA

" Provisioning
o The bad loans lead to banks having to save
apart of their operating revenue to account
for bad loans which is called Provisioning.

o The technical term used for provisioning is

Capital Adequacy Ratio (CAR) or Capital to
Risk (weighted) Assets Ratio (CRAR).
" Less profitable
o The banks are required to provision for bad
loans out of their operating income.

o The concerned bank becomes less profitable

because it has to use some of its profits from
other loans to make up for the loss on the
bad loans.

" Risk-averse
oThe officials of such banks hesitate from
extending loans to business ventures that
may remotely appear risky for the fear of
aggravating an already high level of non
performing assets (or NPAs).
" Downfall in the share markets

o Any reduction in the perceived valuation of

the banks might lead to loss of share value
of the banks, leading to general downfall in
the share markets. This could result in

wiping out shareholders' wealth from the

financial markets.
 Globalization
Globalization of business means doing business in multiple countries
Globalisation means allowing interaction, integration among the people, companies and govemment of
Importance of Globalisation Guidarnce
different nations by international trade and investment and aided by information technology.

Inerease in Trade (Greater Choice of Goods to Consumers)

Greater Competition (Lower Price)
Dwivedi Guidance
Inerease capital and labour mobility
Economic of scale (More efficient productivity)
Tax Avoidance
Removing Monopoly *Vec
Type of globalisation
Polutical : EU, UN, WHO
Social :by which people's lifestyle is spread over global networks
Economical : Production, Trade, Labour, capital, direct Investment ete.
 Stages of Globalization
Stage 1: Domestic Stage :
Marketing and Production activities limited to Home Country.
Stage 2: International Stage:
Marketing and Production activities expand from home to another country.
Export Increases
Stage 3: Multinational Stage :
idance
Marketing and Production activitices located in many countries.
Stage 4: Global Stage:
Dwivedi Guidarnce
Ownership. control and top management can be dispersed to different countries
Making sale and acquiring resources in country offering best deal.

Features of Globalisation
Liberalisation
Free Trade
Globalisation of Economic
Privatisation
Increased Collaboration
 Foreign Market Entry Strategy
Export: Selling/delivering Products into another country. directly or indirectly.
PiggyBacking: Exporting with the help of another experienced company.
Merger & Acquisition : Doing merger or acquiring an overseas company. Ce
Franchising : Allowing to use trademark and distribution of supplier goods. cx.McD, Food
Outlets
DwivedGuidance
Licensing: quite similar to Franchising. firm transfer the right to use the product and
services by antother company. E.g. Co-Cola
Joint Venture: form of partnership, two companies agree to work together. creating a 3rd
independently managed comoany. E.g. Sony and Ericsson producing Mobile phone with
the brand name Sony Ericsson.
" Turnkey Projects : Facility is build by a company for another company and handed over
after completion of the work.
Greenfield projects : Type of FDI. Parent company create a newly wholly owned
subsidiary in adifferent country.
 LPG Model
(brought under Economic Reform in 1990's by PM PV Narsimha Rao and FM Manmohan Singh)

LPG stands for: Liberalisation, Privatization and Globalisation.

To develop India's Economy LPG Model was followed.
It was aimed at making the Indian economy as fastes growing economy and
globally competitive.
Liberalisation means to free the economy from dircct or physical controls
imposed by the government. (Industrial Licensing system, price control on
goods, import license, foreign exchange controls etc. was liberalised) i.c.
reduction in restrictions.
" Privatisation means allowing the private sector to setup more and more
industries that were previously reserved for public sector. (Joint Venture.
Leasing, Franchising).
Globalisation means allowing interaction, integration amnong the people.
companies and government of different nations by international trade and
investment and aided by information technology.
 BRO
Fiscal Polcy Publi

The means by which the government adjust its spending

levels along with tax rates to influence and monitor the
nation's economy it is known as fiscal policy. Let us learn
the Fiscal Policy of India here.

Table of content

1 Fiscal Policy of India .

1.1 Objectives of a Fiscal Policy

1.2 Various Types of Fiscal Policies
1.3 Contractionary Fiscal Policy
1.4 Expansionary Fiscal Policy
1.5 Neutral Fiscal Policy
1.6 Types of Fiscal Policy Dov
1.7 Expenditure Policy Watc
1.8 Taxation Policy take t
1.9 Surplus and Debt Management
2 Practice Questions on Fiscal Policy

Fiscal Policy of India

PSCAL POLQY A

Fiscal Policy

There are several component policies or a mix of

policies that contribute to the fiscal policy. These include
subsidy, taxation, welfare expenditure, etc. Also, there
are a certain investment and disinvestment policies and
debt and surplus management that contributes to fiscal
policies.
Objectives of a Fiscal Policy

" In order to stabilize the pricing level in the

economy.

" The main objective is to achieve and maintain the

level of full employment in the country.
" Also, to stabilize the growth rate in the economy.
" Also, promote the economic development in a
country.
" In order to maintain the level of balance of
payment in the economy.

Various Types of Fiscal Policies

Contractionary Fiscal Policy

This involves cutting government spending or raising

taxes. Thus, the tax revenue generated is more than
government spending, Also, it cuts on the aggregate
demand in the economy. So, the economic growth
leading to the reduction in inflationary pressures of the
economy.

Expansionary Fiscal Policy

This is generally used to give a boost to the economy.

Thus, it speeds up the growth rate of the economy. Also,
during the recession period when the growth in national
income is not enough to maintain the current living of
the population.

So, a taX cut and an increase in government spending

would boost economic growth and decrease the
unemployment rates. Although this is not a sustainable
solution. Because this can lead to a budget deficit. Thus,
the government should use this with caution.

Neutral Fiscal Policy

This policy implies a balance between government

spending and Furthermore, it means that tax revenue is
fully used for government spending. Also, the overall
budget outcome will have a neutral effect on the level of
economic activities.
Types of Fiscal Policy

There are major components to the fiscal policies and

they are

Expenditure Policy

Government expenditure includes capital expenditure

and revenue expenditure. Also, the government budget
is the most important instrument that embodies
government expenditure policy. Furthermore, the
budget is also for financing the deficit. Thus, it fills the
gal between income and government spending.
Taxation Policy

The government generates its revenue by imposing both

indirect taxes and direct taxes. Thus, it is important for
the government to follow a judicial system for taxation
and impose correct tax rates. This is because of two
reasons. The higher the tax, the reduction in the
purchasing power of the people.

This will lead to a decrease in investment and

production. Furthermore, the lower tax will leave more
money with people that lead to high spending and thus
higher inflation.
Surplus and Debt Management

When the government receives more amount than it

spends than it is known as surplus. Also, when the
spending is more than the income than it is known as a
deficit. In order to fund the deficits, the government
needs to borrow from domestic or foreign sources.
Money and Banking

Monetary Pollcy of Indla

In general terms, the Monetary Policy of a country is a
regulatory policy which enables the central bank or
monetary authority of the country to control the supply
of money, availability of bankcredit, and the cost of
money (or rate of interest). In this article, we will look at
the objectives of the monetary policy in India.

Table of content

1Suggested Videos
2 Monetary Policy in India
3Objectives of the Monetary Policy in India
3.1 Growth with Stability
3.2 Regulati on, Supervision, and Development of Financial Stability
3.3 Promoting Priority Sector
3.4 Employrment Gerneration
3.5 External Stability
3.6 Encouraging Savings and Investments
3.7 Redistribution of income and Wealth

3.8 Regulation of NBFIs

4Solved Question

Suggested Videos

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Utility of
Introduction to Nature of Economics to
Econornics Economics Society

Monetary Policy in India

In India, the Monetary Policy is an important tool for the
economic management of the country. The Reserve Bank
of India (RBI) is the central bank of the monetary
authority of India. it controls the supply of money and
bank credit.

It is responsible for ensuring that the banking system

meets the legitimate credit requirements and not for
unproductive or speculative reasons.
Objectives of the Monetary Policy in India
'Growth with Stability' is the backbone of the monetary
policy inIndia. The policy helpsin the regulation of the
availability, cost, and use of money. Here are the
primary objectives of the monetary policy in India:

Source Pubry

Growth with Stability

Traditionally, the monetary policy in India was focused

on controlling inflation. This was done through the
contraction of money supply and credit. However, this
resulted in poor growth of the economy.

Therefore, RBI adopted a new policy of growth with

stability. In simple terms, this means that the RBI will
provide sufficient credit for the increasing needs of the
different sectors ofthe economy. Also, it will control
inflation within a certain limit.

Regulation, Supervision, and Development of Financial Stability

Financial stability is the ability of an economy to absorb
shocks and ensure that people retain confidence in the
financial system of the country. Internal and External
shocks can threaten the financial stability of a country
and destabilize its financial system.

Therefore, the RBI gives a lot of importance to

maintaining confidence in the country's financial system
through adequate regulation and controls. It also
ensures that the objective of growth is not sacrificed.
Therefore, we can say that the RBI focuses on the
regulation, supervision, and developmentof financial
stability.

Promoting Priority Sector

In India, the priority sector includes agriculture, export,
small-scale enterprises, and the weaker section of the
population. RBI consistentlyensures that the banking
system provides timely and adequate credit to these
sections at affordable costs.
Employment Generation

The monetary policy of a country can influence the rate

of investment and its allocation among the different
economic activities of the country with varying labor
intensities. Therefore, it helps in employment
generation.

External Stability

As the imports and exports are increasing, India's

linkages with the global economy are getting stronger.
Traditionally, the RBI determined the exchange rate and
also controlled the foreign exchange market.

However, now RBI only has indirect control over

external stability through managed flexibility. Through
this mechanism, the RBI influences the exchange rate by
buying or selling foreign currencies in the open market.
Encouraging Savings and Investments
In order to encourage people to save, the RBI offers
attractive interest rates. Further, a high saving rate leads
to investment.

Therefore, the monetary management via influencing

interest rates can mobilize savings and thereby
investments in the country.
Redistribution of Income and Wealth

Since the RBI controls inflation and deploys affordable

credit to the weaker sections of the society, it can
redistribute income and wealth to the weaker sections of
the economy.

Regulation of NBFIs

NBFIS or Non-Banking Financial Institutions like IDBI,

UTI, IFCI, etc. play an important role in the Indian
economy. They help in the deployment of credit and also
the mobilization of savings.

RBI does not directly control the functioning of these

institutions. However, through the monetary policy, it
can indirectly influence the policies and functions of the
NBFIs.