1. Indian Financial System,
2. Financial System Existence of a well organized financial
system Promotes the well being and standard of living of the people of a
country Money and monetary assets Mobilize the saving Promotes investment
3. Financial System Financial System of any country consists
of financial markets, financial intermediation and financial instruments or
financial products Suppliers of funds (Mainly households) Flow of financial
services Incomes , and financial claims Seekers of funds (Mainly business firms
and government) Flow of funds (savings)
4. Indian Financial System Non- Organized Organized Money
lenders Local bankers Traders Landlords Pawn brokers Chit Funds Regulators
Financial Institutions Financial Markets Financial services
5. Evolution of Financial System Barter Money Lender
Nidhi's/Chit Funds Indigenous Banking Cooperative Movement Societies Banks
Joint-Stock Banks
6. Consolidation Commercial Banks Nationalization Investment
Banks Development Financial Institutions Investment/Insurance Companies Stock
Exchanges Market Operations Specialized Financial Institutions Merchant Banking
Universal Banking
7. Financial System Savers Lenders Households Foreign
Sectors Investors Borrowers Corporate Sector Govt. Sector Un-organized Sector
Economy Interrelation--Financial system & Economy
8. Organized Indian Financial System Money Market Instrument
Capital Market Instrument Forex Market Capital Market Money Market Credit
Market Primary Market Financial Instruments Financial Markets Financial
Intermediaries Secondary Market Regulators
9. Financial Markets Mechanism which allows people to trade
Affected by forces of supply and demand Process used In Finance, Financial
markets facilitates
10. 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
price provides a measure of the value of the asset.
11. Role of Capital Markets Mobilization of Savings &
acceleration of Capital Formation Promotion of Industrial Growth Raising of
long term Capital Ready & Continuous Markets Proper Channelization of Funds
Provision of a variety of Services
12. 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
13. Indian Capital markets - Chronology 1994-Equity Trading
commences on NSE 1995-All Trading goes Electronic 1996- Depository comes in to
existence 1999- FIIs Participation- Globalization 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
14. 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
15. 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
16. MARKET STRUCTURE (JULY 31, 2005) 22 Stock Exchanges,
Over 10000 Electronic Terminals at over 400 locations all over India. 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
17. Indian Capital Market Market Instruments Intermediaries
Primary Secondary Equity Debt Hybrid Regulator Brokers Investment Bankers Stock
Exchanges Underwriters SEBI Players Corporate Intermediaries CRA Banks/FI FDI
/FII Individual
18. Stock Exchanges in INDIA Mangalore Stock Exchange
Hyderabad Stock Exchange Uttar Pradesh Stock Exchange Coimbatore Stock Exchange
Cochin Stock Exchange Bangalore Stock Exchange Saurashtra Kutch Stock Exchange
Pune Stock Exchange National Stock Exchange OTC Exchange of India Calcutta
Stock Exchange Inter-connected Stock Exchange (NEW) Madras Stock Exchange
Bombay Stock Exchange Madhya Pradesh Stock Exchange Vadodara Stock Exchange The
Ahmedabad Stock Exchange Magadh Stock Exchange Gauhati Stock Exchange
Bhubaneswar Stock Exchange Jaipur Stock Exchange Delhi Stock Exchange Assoc
Ludhiana Stock Exchange
19. The role of the stock exchange Raising capital for
businesses Mobilizing savings for investment Facilitate company growth
Redistribution of wealth
20. The role of the stock exchange Corporate governance
Creates investment opportunities for small investors Government raises capital
for development projects Barometer of the economy
21. Growth Pattern of the Indian Stock Market Sl.No. As on
31st December 1946 1961 1971 1975 1980 1985 1991 1995 1 No. of Stock Exchanges
7 7 8 8 9 14 20 22 2 No. of Listed Cos. 1125 1203 1599 1552 2265 4344 6229 8593
3 No. of Stock Issues of Listed Cos. 1506 2111 2838 3230 3697 6174 8967 11784 4
Capital of Listed Cos. (Cr. Rs.) 270 753 1812 2614 3973 9723 32041 59583 5
Market value of Capital of Listed Cos. (Cr. Rs.) 971 1292 2675 3273 6750 25302
110279 478121 6 Capital per Listed Cos. (4/2) (Lakh Rs.) 24 63 113 168 175 224
514 693 7 Market Value of Capital per Listed Cos. (Lakh Rs.) (5/2) 86 107 167
211 298 582 1770 5564 8 Appreciated value of Capital per Listed Cos. (Lak Rs.)
358 170 148 126 170 260 344 803
22. Capital Market Instruments ADR / GDR Equity Debt Equity
Shares Preference Shares Debentures Zero coupon bonds Deep Discount Bonds
Hybrid
23. Factors contributing to growth of Indian Capital Market
Establishment of Development banks & Industrial financial institution. Legislative
measures Growing public confidence Increasing awareness of investment
opportunities
24. Factors contributing to growth of Indian Capital Market
Growth of underwriting business Setting up of SEBI Mutual Funds Credit Rating
Agencies
25. Indian Capital Market deficiencies Lack of transparency
Physical settlement Variety of manipulative practices Institutional
deficiencies Insider trading
26. Money Market Market for short-term money and financial
assets that are near substitutes for money. Short-Term means generally period
upto one year and near substitutes to money is used to denote any financial
asset which can be quickly converted into money with minimum transaction cost
27. Money Market It is a place for Large Institutions and
government to manage their 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
28. 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
29. Money Market Instruments Treasury Bills Commercial Paper
Certificate of Deposit Money Market Mutual Funds Repo Market
30. Segment Issuer Instruments Government Central Government
Zero Coupon Bonds, Coupon Bearing Bonds, Capital Index Bonds, Treasury Bills.
Public Sector Government Agencies / Statutory Bodies Govt. Guaranteed Bonds,
Debentures Public Sector Units PSU Bonds, Debenture, Commercial Paper Private
Corporate Debentures, Bonds, Commercial Paper, Floating Rate Bonds, Zero Coupon
Bonds, Inter-Corporate Deposits Banks Certificate of Deposits, Bonds Financial
Institutions Certificate of Deposits, Bonds
31. Financial Regulators
32. Financial Regulators Securities and Exchange Board of
India (SEBI) Reserve Bank of India Ministry of Finance
33. Security Exchange Board of India (SEBI) Securities and
Exchange Board of India (SEBI) was first established in the year 1988 Its a
non-statutory body for regulating the securities market It became an autonomous
body in 1992
34. Functions Of SEBI Regulates Capital Market. Checks
Trading of securities. Checks the malpractices in securities market.
35. Functions Of SEBI It enhances investor's knowledge on
market by providing education. It regulates the stockbrokers and sub-brokers.
To promote Research and Investigation
36. Objectives of SEBI It tries to develop the securities
market. Promotes Investors Interest. Makes rules and regulations for the
securities market.
37. The Recent Initiatives Undertaken Sole Control on
Brokers For Underwriters For Share Prices For Mutual Funds
38. Reserve Bank of India Established on April 1, 1935 in
accordance with the provisions of the RBI Act, 1934. The Central Office of the
Reserve Bank has been in Mumbai. It acts as the apex monetary authority of the
country.
39. Functions Of RBI Monetary Authority: Formulation and
Implementation of monetary policies. Maintaining price stability and ensuring
adequate flow of credit to the Productive sectors. Issuer of currency: Issues
and exchanges or destroys currency and coins. Provide the public adequate
quantity of supplies of currency notes and coins.
40. Regulator and supervisor of the financial system:
Prescribes broad parameters of banking operations Maintain public confidence,
protect depositors' interest and provide 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
41. Developmental role: Performs a wide range of promotional
functions to support national objectives. Related Functions: Banker to the
Government: performs merchant banking function for the central and the state
governments. Maintains banking accounts of all scheduled banks. Functions Of
RBI
42. 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 7 per
cent and Reverse repo rate is around 6.10 per cent. (c) Cash Reserve Ratio: The
cash reserve ratio (CRR) of scheduled banks is currently at 5.0 per cent.
43. Reforms in the Financial System Pre-reforms period Steps
taken Objectives Conclusion
44. 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
45. 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.
46. 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.
47. 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
48. 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
49. Recommendations Deregulate the insurance industry Drop
proposed limits on pension reforms Increase consumer ownership of mutual-fund
products Introduce a gold deposit scheme
50. 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 asset allocation
51. 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
have increased but absorption of foreign capital is low.
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