role of economic and financial institutions by k. k. krishnan

8/8/2019 Role of Economic and Financial Institutions by k. k. Krishnan

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ROLE OF ECONOMIC ANDROLE OF ECONOMIC AND

FINANCIAL INSTITUTIONSFINANCIAL INSTITUTIONS

PROF. K. K. KRISHNANPROF. K. K. KRISHNAN

FOUNDATION COURSEFOUNDATION COURSE

JUNE 2010JUNE 2010


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IMPORTANT INSTITUTIONSIMPORTANT INSTITUTIONS

Central / State Governments, CBDT, CBECCentral / State Governments, CBDT, CBECPlanning CommissionPlanning CommissionReserve Bank, SEBIReserve Bank, SEBI

IRDA, Insurance Companies, NABARD, SIDBI,IRDA, Insurance Companies, NABARD, SIDBI,IDFC, EXIM BANK, LIC, GIC, HUDCO, NationalIDFC, EXIM BANK, LIC, GIC, HUDCO, NationalHousing Bank (NAB) Asset Management CosHousing Bank (NAB) Asset Management Cos(AMC) etc.(AMC) etc.

NonNon Banking Financial CompaniesBanking Financial Companies(NBFCs)(NBFCs)Developmental And Regulatory roleDevelopmental And Regulatory role


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CONTEXTCONTEXT

Tepid Tepid toto -- torrid transformation sincetorrid transformation since1980s1980sMidnights Children's income doubled overMidnights Children's income doubled over40 years40 years

Their grandchildren (India Shining Their grandchildren (India ShiningGeneration) can expect 6 fold improvementGeneration) can expect 6 fold improvementStrong Institutions bequeathed by Strong Institutions bequeathed by

Founding FathersFounding Fathers Two Views Two Views Free From State Shackles orFree From State Shackles orStrengthening Of InstitutionsStrengthening Of Institutions


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FUNCTIONS OF INSTITUTIONSFUNCTIONS OF INSTITUTIONS

Institutions Create MarketsInstitutions Create MarketsProperty Rights, Contractual Rights, EnsuringProperty Rights, Contractual Rights, EnsuringLaw and Order, Environment and directionsLaw and Order, Environment and directionsfor Businessfor Business

Institutions Regulate and or Substitute MarketsInstitutions Regulate and or Substitute MarketsMarketsMarkets may may notnot deliverdeliver whatwhat isis socially socially desirabledesirable Banks/marketsBanks/markets need need toto bebe regulatedregulated againstagainstexcessiveexcessive riskrisk takingtaking PrivatePrivate sectorsector may may notnotdeliverdeliver literacy,literacy, waterwater etet..


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INSITUTIONSINSITUTIONS (CONTD)(CONTD)Economic / Financial institutions offerEconomic / Financial institutions offerframe work for stability of marketsframe work for stability of markets

Avoidance of financial crisisAvoidance of financial crisis - - they they legitimize markets through the mechanismlegitimize markets through the mechanismof social protection , insuranceof social protection , insurance

Democracy is the overall institutionDemocracy is the overall institution par par excellence excellence

Abandonment of commanding heights by Abandonment of commanding heights by

the statethe state


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PLANNING COMMISSIONPLANNING COMMISSIONA body set up by Govt. of India (1950s) toA body set up by Govt. of India (1950s) toassess material, capital and human resourcesassess material, capital and human resourcesto improve growthto improve growthFormulate Five Year Plan (Long Term StrategicFormulate Five Year Plan (Long Term StrategicVision) to lay down road maps for developmentVision) to lay down road maps for developmentevery 5 Years (12every 5 Years (12 thth FYP 2007FYP 2007 12)12) -- FinancialFinancialInclusion ThemeInclusion ThemeIdentify factors holding up GrowthIdentify factors holding up GrowthReview achievements and fine tune ActivitiesReview achievements and fine tune ActivitiesAllocate resources to StatesAllocate resources to StatesConsultancy within GovernmentConsultancy within GovernmentP.M. Head of Planning CommissionP.M. Head of Planning Commission


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ROLE AND FUNCTIONS OF BANKSROLE AND FUNCTIONS OF BANKS

Financial IntermediationFinancial Intermediation MobilisationMobilisation

of Savingsof Savings Trade and Business Facilitation Trade and Business FacilitationMeeting needs of Financial MarketMeeting needs of Financial Market

DevelopmentsDevelopments


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ROLE AND FUNCTIONSROLE AND FUNCTIONS (CONTD)(CONTD)

Primary And Secondary FunctionsPrimary And Secondary Functions

AcceptingAccepting D eposits, Granting Loans & AdvancesD eposits, Granting Loans & Advances (Long & Short Term) Short Term Financial(Long & Short Term) Short Term Financial

Assistance Assistance

C ash C redit, Overdraft, D iscounting of BillsC ash C redit, Overdraft, D iscounting of Bills


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SECONDARY FUNCTIONSSECONDARY FUNCTIONS

Treasury Operations ( Held to Market Treasury Operations ( Held to MarketSecurities)Securities)Letters of Credit, Travelers Cheques,Letters of Credit, Travelers Cheques,enlisted services, Foreign Exchange,enlisted services, Foreign Exchange,money transfer, Guarantor, Factoringmoney transfer, Guarantor, Factoring

Services, Demand Drafts & Pay Orders,Services, Demand Drafts & Pay Orders,Reports of credit worthinessReports of credit worthinessBancassuranceBancassurance


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AGENCY / UTILITY SERVICESAGENCY / UTILITY SERVICES

Collection and Payment of Cheques,Collection and Payment of Cheques,Dividend, Interest, Rent etc. for clientsDividend, Interest, Rent etc. for clients

Purchase & Sale of SecuritiesPurchase & Sale of SecuritiesActing as a Trustee / ExecutorActing as a Trustee / ExecutorUnderwriting of SharesUnderwriting of Shares

Safe Keeping of ValuablesSafe Keeping of ValuablesForeign Exchange BusinessForeign Exchange BusinessProject Finance, ECBProject Finance, ECB


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TYPES OF BANKSTYPES OF BANKS

Central Bank, RBI (Bankers Banker)Central Bank, RBI (Bankers Banker)Public Sector BanksPublic Sector Banks 2222

Private Sector Indian BanksPrivate Sector Indian Banks 2525Foreign BanksForeign Banks 3232Plus Cooperative & Regional Rural BanksPlus Cooperative & Regional Rural Banks

79,000 Banking Outlets, 15 crore s b a/cs79,000 Banking Outlets, 15 crore s b a/csMerchant Banks, Investment BanksMerchant Banks, Investment BanksRegulatorRegulator RBIRBISelf Self -- RegulationRegulation -- IBAIBA


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INSURANCE COMPANIESINSURANCE COMPANIES

Life (23) and NonLife (23) and Non life companies (22)life companies (22)Role of ins. cos.Role of ins. cos.Savings intermediaries, providers of long termSavings intermediaries, providers of long term

capital, protect life and assets, major role incapital, protect life and assets, major role instock market, eco. devt.stock market, eco. devt.Employment generation (


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MUTUAL FUNDSMUTUAL FUNDS

Run by Asset Management CompaniesRun by Asset Management Companies Trust that pools the savings of a number of Trust that pools the savings of a number of investors who share common financialinvestors who share common financialgoals.goals.Different from portfolio managementDifferent from portfolio managementschemes (PMS)schemes (PMS)Net asset value : (NAV) on a particular dateNet asset value : (NAV) on a particular datereflects the value that the investor will getreflects the value that the investor will getfor each unit that he is holding if thefor each unit that he is holding if thescheme is liquidated on that date.scheme is liquidated on that date.Open ended & close ended schemesOpen ended & close ended schemes

Tax benefits Tax benefitsRegulator SEBIRegulator SEBI

Self RegulationSelf Regulation - - AMFIAMFI


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FUNCTIONS & SUPERVISION OFFUNCTIONS & SUPERVISION OFRESERVE BANK OF INDIARESERVE BANK OF INDIA

To undertake consolidated supervision of To undertake consolidated supervision of the financial sector comprisingthe financial sector comprisingCommercial Banks, FinancialCommercial Banks, FinancialInstitutions and NonInstitutions and Non BankingBankingFinancial InstitutionsFinancial Institutions

Fighting Inflation, Stability of Monetary Fighting Inflation, Stability of Monetary SystemSystemConservative, Interest rate and financialConservative, Interest rate and financialmanagementmanagement


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FUNCTIONSFUNCTIONS (CONTD)(CONTD)

Monetary Authority Monetary Authority Regulator & Supervisor of financialRegulator & Supervisor of financialsystemsystem CRR, Repo, Reverse Repo,CRR, Repo, Reverse Repo,SLR, LAFSLR, LAFManager of Foreign ExchangeManager of Foreign Exchange Managed FloatManaged FloatIssuer of Currency Issuer of Currency M3M3


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FUNCTIONSFUNCTIONS (CONTD)(CONTD)

BASEL, AssetBASEL, Asset Liability Match,Liability Match,Capital Adequacy, NPACapital Adequacy, NPA

Banker to Govt.Banker to Govt. BorrowoingBorrowoing Target TargetBanker to BanksBanker to Banks

Manages Central Govts debtManages Central Govts debt


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ROLE AND FUNCTIONS OF SEBIROLE AND FUNCTIONS OF SEBIRegulation of Stock Exchange and SubsidiariesRegulation of Stock Exchange and SubsidiariesInspection of Stock Exchanges (risk basedInspection of Stock Exchanges (risk basedsupervision)supervision) Exchanges to be fair, equitable &Exchanges to be fair, equitable &offer growing market to investorsoffer growing market to investors

Registration & regulation of the working of Registration & regulation of the working of IntermediariesIntermediaries

Two markets Two markets primary (merchant bankers,primary (merchant bankers,underwriters & portfolio managers)underwriters & portfolio managers) secondary secondary

(stock brokers and sub brokers)(stock brokers and sub brokers)Regulating the working of depositoriesRegulating the working of depositories(participants), custodians of securities, foreign(participants), custodians of securities, foreigninstitutional investors (FIIs) & credit ratinginstitutional investors (FIIs) & credit ratingagenciesagencies


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SEBISEBI (Contd)(Contd)

Registration & Regulation Of MutualRegistration & Regulation Of MutualFunds, Venture Capital Funds &Funds, Venture Capital Funds &Collective Investment SchemesCollective Investment Schemes

Prohibiting Unfair Trade Practices inProhibiting Unfair Trade Practices inthe Securities Marketthe Securities Market Stock WatchStock WatchSystemSystemProhibition of insider tradingProhibition of insider tradingInvestor education & the training of Investor education & the training of IntermediariesIntermediariesVetting of Draft Prospectus in IPOVetting of Draft Prospectus in IPO


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SEBISEBI (Contd)(Contd)

Brokers CodeBrokers CodeSearch and SeizureSearch and Seizure

Clause 49 & Corporate GovernanceClause 49 & Corporate GovernanceDelistingDelistingPublic Issue Guide Lines, IPOPublic Issue Guide Lines, IPODematDematCreeping Acquisition, M&A activity Creeping Acquisition, M&A activity controlcontrol


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role of economic and financial institutions by k. k. krishnan

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