introduction ifs
TRANSCRIPT
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Indian Financial
System
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Financial System
Existence of a well organized financial system
Promotes the well being and standard of living of the people of acountry
Money and monetary assets
Mobilize the saving
Promotes investment
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Financial System
Financial System of any country consists of financialmarkets, financial intermediation and financial instrumentsor financial products
Suppliers of funds
(Mainly households)Flow of financial services
Incomes , and financialclaims
Seekers of funds(Mainly business firms
and government)
Flow of funds (savings)
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Indian Financial System
Non- OrganizedOrganized
Money lendersLocal bankers
Traders
Landlords
Pawn brokers
Chit Funds
Regulators
Financial Institutions
Financial Markets
Financial services
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Barter
Money Lender
Nidhi's/Chit Funds
Indigenous Banking
Cooperative Movement
SocietiesBanks
Joint-Stock Banks
Evolution of FinancialSystem
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Consolidation
Commercial Banks
Nationalization
Investment Banks
Development Financial Institutions
Investment/Insurance Companies
Stock Exchanges
Market Operations
Specialized Financial Institutions
Merchant Banking
Universal Banking
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Financial System
Savers Lenders Households Foreign Sectors
Investors BorrowersCorporate Sector
Govt.Sector
Un-organizedSector
Economy
Interrelation--Financial system &Economy
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Organized Indian Financial System
Money MarketInstrument
Capital MarketInstrument
ForexMarket
CapitalMarket
MoneyMarket
CreditMarket
Primary Market
Financial
InstrumentsFinancialMarkets
FinancialIntermediaries
Secondary Market
Regulators
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Financial Markets
Mechanism which allows people to trade
Affected by forces of supply and demand
Process used
In Finance, Financial markets facilitates
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Why Capital Markets Exist
Capital markets facilitate the transfer of capital (i.e. financial)assets from one owner to another.
They provide liquidity.
Liquidity refers to how easily an asset can be transferred
without loss of value.
A side benefit of capital markets is that the transaction priceprovides a measure of the value of the asset.
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Role of Capital Markets
Mobilization of Savings & acceleration of Capital Formation
Promotion of Industrial Growth
Raising of long term Capital
Ready & Continuous Markets
Proper Channelisation of Funds
Provision of a variety of Services
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Indian Capital Market -Historical perspective Stock Market was for a privileged few
Archaic systems - Out cry method
Lack of Transparency - High tones costs
No use of Technology
Outdated banking system
Volumes - less than Rs. 300 cr per day
No settlement guarantee mechanism - High risks
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Indian Capital markets -Chronology 1994-Equity Trading commences on NSE
1995-All Trading goes Electronic
1996- Depository comes in to existence
1999- FIIs Participation- Globalisation
2000- over 80% trades in Demat form
2001- Major Stocks move to Rolling Sett
2003- T+2 settlements in all stocks
2003 - Demutualisation of Exchanges
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Capital Markets - Reforms
Each scam has brought in reforms - 1992 / 2001
Screen based Trading through NSE
Capital adequacy norms stipulated
Dematerialization of Shares - risks of fraudulent paper eliminated
Entry of Foreign Investors
Investor awareness programs
Rolling settlements
Inter-action between banking and exchanges
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Reforms / Initiatives post 2000 Corporatisation of exchange memberships
Banning of Badla / ALBM
Introduction of Derivative products - Index / Stock Futures &Options
Reforms/Changes in the margining system
STP - electronic contracts
Margin Lending
Securities Lending
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MARKET STRUCTURE(JULY 31, 2005) 22 Stock Exchanges,
Over 10000 Electronic Terminals at over 400 locations all overIndia.
9108 Stock Brokers and 14582 Sub brokers
9644 Listed Companies
2 Depositories and 483 Depository Participants
128 Merchant Bankers, 59 Underwriters
34 Debenture Trustees, 96 Portfolio Managers
83 Registrars & Transfer Agents, 59 Bankers to Issue
4 Credit Rating Agencies
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Indian Capital Market
Market Instruments Intermediaries
Primary Secondary
Equity DebtHybrid
Regulator
BrokersInvestment BankersStock ExchangesUnderwriters
SEBI
Players
Corporate IntermediariesCRA Banks/FI FDI /FIIIndividual
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Stock Exchanges in INDIA Bombay Stock Exchange
(BSE)
National Stock Exchange ofIndia (NSE)
United Stock Exchange ofIndia (USE)
Multi Commodity Exchange
(MCX) MCX Stock Exchange (MCX-
SX)
Over the Counter Exchange ofIndia (OTCEI)
Inter-connected Stock
Exchange of India (ISE) Madras Stock Exchange (MSE)
Hyderabad Stock Exchange(HSE)
Calcutta Stock Exchange(CSE)
Delhi Stock Exchange (DSE)
Bangalore Stock Exchange
Madhya Pradesh Stock
Exchange, Indore Jaipur Stock Exchange (JSE)
Patna stock Exchange (PSE)
UP Stock Exchange (UPSE
Ahmedabad Stock Exchange(ASE)
Cochin Stock Exchange (CSE)
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The role of the stock exchange
Raising capital for businesses
Mobilizing savings for investment
Facilitate company growth
Redistribution of wealth
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The role of the stock exchange
Corporate governance
Creates investment opportunities for small investors
Government raises capital for development projects
Barometer of the economy
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Growth Pattern of the Indian Stock Market
Sl.No.
As on 31stDecember
1946 1961 1971 1975 1980 1985 1991 1995
1No. of
Stock Exchanges
7 7 8 8 9 14 20 22
2No. ofListed Cos.
1125 1203 1599 1552 2265 4344 6229 8593
3No. of StockIssues ofListed Cos.
1506 2111 2838 3230 3697 6174 8967 11784
4Capital of ListedCos. (Cr. Rs.)
270 753 1812 2614 3973 9723 32041 59583
5Market value ofCapital of ListedCos. (Cr. Rs.)
971 1292 2675 3273 6750 25302 110279 478121
6Capital perListed Cos. (4/2)
(Lakh Rs.)
24 63 113 168 175 224 514 693
7
Market Value ofCapital per ListedCos. (Lakh Rs.)(5/2)
86 107 167 211 298 582 1770 5564
8
Appreciated valueof Capital per
Listed Cos. (LakRs.)
358 170 148 126 170 260 344 803
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Capital Market Instruments
ADR / GDR
Equity Debt
Equity
SharesPreference
SharesDebentures Zero coupon
bonds
Deep
Discount
Bonds
Hybrid
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Factors contributing to growthof Indian Capital Market
Establishment of Development banks & Industrial financialinstitution.
Legislative measures
Growing public confidence
Increasing awareness of investment opportunities
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Factors contributing to growthof Indian Capital Market
Growth of underwriting business
Setting up of SEBI
Mutual Funds
Credit Rating Agencies
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Indian Capital Marketdeficiencies
Lack of transparency
Physical settlement
Variety of manipulative practices
Institutional deficiencies
Insider trading
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Money Market
Market for short-term money and financial assets that are nearsubstitutes for money.
Short-Term means generally period upto one year and nearsubstitutes to money is used to denote any financial asset which
can be quickly converted into money with minimum transactioncost
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Money Market
It is a place for Large Institutions and government to managetheir short-term cash needs
It is a subsection of the Fixed Income Market
It specializes in very short-term debt securities
They are also called as Cash Investments
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Defects of Money Market
Lack of Integration
Lack of Rational Interest Rates structure
Absence of an organized bill market
Shortage of funds in the Money Market
Seasonal Stringency of funds and fluctuations in Interest rates
Inadequate banking facilities
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Money Market Instruments
Treasury Bills
Commercial Paper
Certificate of Deposit
Money Market Mutual Funds
Repo Market
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Segment Issuer Instruments
Government CentralGovernment Zero Coupon Bonds, Coupon Bearing Bonds, CapitalIndex Bonds, Treasury Bills.
PublicSector
Government
Agencies /Statutory Bodies
Govt. Guaranteed Bonds, Debentures
Public SectorUnits
PSU Bonds, Debenture, Commercial Paper
Private Corporate Debentures, Bonds, Commercial Paper, Floating RateBonds, Zero Coupon Bonds, Inter-Corporate Deposits
Banks Certificate of Deposits, Bonds
Financial
InstitutionsCertificate of Deposits, Bonds
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Financial
Regulators
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Financial Regulators
Securities and Exchange Board of India (SEBI)
Reserve Bank of India
Ministry of Finance
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Security Exchange Board of India(SEBI)
Securities and Exchange Board of India (SEBI) was firstestablished in the year 1988
Its a non-statutory body for regulating the securities market
It became an autonomous body in 1992
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Functions Of SEBI
Regulates Capital Market.
Checks Trading of securities.
Checks the malpractices in securities market.
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Functions Of SEBI
It enhances investor's knowledge on market by providingeducation.
It regulates the stockbrokers and sub-brokers.
To promote Research and Investigation
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Objectives of SEBI
It tries to develop the securities market.
Promotes Investors Interest.
Makes rules and regulations for the securities market.
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The Recent InitiativesUndertaken
Sole Control on Brokers
For Underwriters
For Share Prices
For Mutual Funds
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Reserve Bank of India
Established on April 1, 1935 in accordance with the provisions ofthe RBI Act, 1934.
The Central Office of the Reserve Bank has been in Mumbai.
It acts as the apex monetary authority of the country.
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Functions Of RBI
Monetary Authority: Formulation and Implementation of monetary policies.
Maintaining price stability and ensuring adequate flow ofcredit to the Productive sectors.
Issuer of currency: Issues and exchanges or destroys currency and coins.
Provide the public adequate quantity of supplies of currencynotes and coins.
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Regulator and supervisor of the financial system:
Prescribes broad parameters of banking operations
Maintain public confidence, protect depositors' interest andprovide cost-effective banking services.
Authority On Foreign Exchange:
Manages the Foreign Exchange Management Act, 1999.
Facilitate external trade, payment, promote orderly development
and maintenance of foreign exchange market.
Functions Of RBI
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Developmental role:
Performs a wide range of promotional functions to supportnational objectives.
Related Functions:
Banker to the Government: performs merchant banking functionfor the central and the state governments.
Maintains banking accounts of all scheduled banks.
Functions Of RBI
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Monetary Measures
(a) Bank Rate:
The Bank Rate was kept unchanged at 6.0 per cent.
(b) Reverse Repo Rate:
The Repo rate is around 8.50 per cent and Reverse repo rateis around 7.50 per cent.
(c) Cash Reserve Ratio:
The cash reserve ratio (CRR) of scheduled banks iscurrently at 6.00 per cent.
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Reforms in the Financial System
Pre-reforms period
Steps taken
Objectives
Conclusion
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Pre-Reforms Period
The period from the mid 1960s to the early 1990s.
Characterized by:
Administered interest rates
Industrial licensing and controls
Dominant public sector
Limited competition
High capital-output ratio
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Pre-Reforms Period
Banks and financial institutions acted as a deposit agencies.
Price discovery process was prevented.
Government failed to generate resources for investment and
public services.
Till 90s it was closed, highly regulated, and segmented system.
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Steps Taken
Economic reforms initiated in June 1991.
The committee appointed under the chairmanship of M Narasimham.
He submitted report with all the recommendations
Government liberalized the various sectors in the economy.
Reform of the public sector and tax system.
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Objectives
Reorientation of the economy
Macro economic stability
To Increase competitive efficiency in the operations
To remove structural rigidities and inefficiencies
To attain a balance between the goals of financial stability &integrated & efficient markets
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Recommendations
Reduce the level of state ownership in banking
Lift restrictions on foreign ownership of banks
Spur the development of the corporate-bond market
Strengthen legal protections
Deregulate the insurance industry
Drop proposed limits on pension reforms
Increase consumer ownership of mutual-fund products
Introduce a gold deposit scheme
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Recommendations
Speed up the development of electronic payments.
Separate the RBI's regulatory and central-bank functions
Lift the remaining capital account controls
Phase out statutory priority lending and restrictions on assetallocation
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Conclusion
The financial system is fairly integrated, stable, efficient.
Weaknesses need to be addressed.
The reforms have been more capital centric in nature.
Foreign capital flows and foreign exchange reserves haveincreased but absorption of foreign capital is low.
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Thank you