Mfs Final Ppt (1)

8/6/2019 Mfs Final Ppt (1)

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Indian Financial System byDarshan Toprani

Series 1Indian Financial System


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Presented By:

Pramod Tak (3- 11)

Sibakanta Bal (12- 20)

Subhadeep Ganguly (21-25 & 33-34)Bobby A Thomas (26-29)

Arjun Soma ( 35-36)

Mehebub Hasan (37 & 38)

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Suppliers of funds

(Mainly households)Flow of Financial Services

Incomes , and financial

claims

Seekers of funds

(Mainly business firmsand government)

Flow of Funds (Savings)

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Financial System

Savers Lenders Households Foreign

Sectors

Investors

Borrowers

Corporate Sector

Govt.Sector

Un-organized

Sector

Economy

Interrelation--Financial system & Economy

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FUNCTIONS OF THE FINANCIAL MARKETS:

1) Price discovery process which results from

interaction of buyers & sellers in the market whenthey trade in assets.

2) Provision of liquidity by providing a mechanism foran investor to sell financial assets.

3) Low cost of transactions & information.

4) Optimizing the returns for the investors & ensuring

flow of capital to the best user.


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Indian Financial System

Non- OrganizedOrganized

Money lenders

Local bankers

Traders

Landlords

Pawn brokers

Chit Funds

Regulators

Financial Institutions

Financial Markets

Financial services

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NON ORGANIZED SECTOR :

It consists of relatively less controlled indigenousbankers, pawn brokers, traders, landlords.

This part of the financial system is not directlyamenable to control by RBI .

There are a host of financial companies, investmentcompanies, chit funds which are not regulated by RBI orthe government in a systemic manner.

However they are also governed by the rules &regulations & therefore are in the orbit of monetaryauthorities.


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Barter

Money Lender

Nidhi's/Chit Funds

Indigenous Banking

Cooperative Movement

Societies Banks

Joint-Stock Banks

Evolution of Financial System

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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 9


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STRUCTURE of the FINANCIAL SYSTEM:

The Indian Financial system can be broadly classified

into 2 broad groups:1) Organized Sector 2) Unorganized Sector.

ORGANIZED SECTOR:

Organized financial sector comprises of the following :

Banking system.

Foreign Exchange Markets.

Money Markets.

Capital Markets.

Financial Institutions.


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Organized Indian Financial System

Money Market

InstrumentCapital Market

Instrument

Forex

Market

Capital

Market

Money

Market

Banking

System

Primary Market

FinancialInstruments

FinancialMarkets

FinancialIntermediaries

Secondary Market

Regulators

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Indian Capital Market

Market Instruments Intermediaries

Primary Secondary

Equity Debt

Regulator

Brokers

Investment Bankers

Stock Exchanges

Underwriters

SEBI

Players

Corporate Intermediaries Banks/FI FDI /FIIIndividual

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Capital Market Instruments

EquityDebt

Equity

SharesPreference

Shares

Debentures Zero coupon

bonds

Deep

Discount

Bonds

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Primary Markets Secondary MarketsWhen companies need financial resources for

its expansion, they borrow money from

investors through issue of securities.

The place where such securities are traded by

these investors is known as the secondary

market.

Securities issued

a) Preference Shares

b) Equity Shares

c) Debentures

Securities like Preference Shares and

Debentures cannot be traded in the

secondary market.

Equity shares is issued by the under writersand merchant bankers on behalf of the

company.

Equity shares are tradable through a privatebroker or a brokerage house.

People who apply for these securities are:

a) High networth individual

b) Retail investors

c) Employeesd) Financial Institutions

e) Mutual Fund Houses

f) Banks

Securities that are traded are traded by the

retail investors.

One time activity by the company. Helps in mobilising the funds for the investors

in the short run.


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22 Stock Exchanges,22 Stock Exchanges,

OverOver 10000 Electronic Terminals at over 400 locations all over10000 Electronic Terminals at over 400 locations all over

India.India.

96449644 Listed CompaniesListed Companies

2 Depositories and 483 Depository Participants2 Depositories and 483 Depository Participants

128 Merchant Bankers, 59 Underwriters128 Merchant Bankers, 59 Underwriters

34 Debenture Trustees, 96 Portfolio Managers34 Debenture Trustees, 96 Portfolio Managers

83 Registrars & Transfer Agents, 59 Bankers to Issue83 Registrars & Transfer Agents, 59 Bankers to Issue

4 Credit Rating Agencies4 Credit Rating Agencies

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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 Settlement.

2003- T+2 settlements in all stocks.

2003 De mutualisation ofExchanges. 16


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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,

Interaction between Banking and Exchanges.

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Reforms / Initiatives post 2000

Corporatization of Exchange memberships,

Introduction ofDerivative products - Futures & Options,

IRS, ETFs & Forward Contracts, STP -electronic contracts.

Margin Lending.

Securities Lending.

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Stock Exchanges of INDIA

y Mangalore Stock Exchange

y Hyderabad Stock Exchange

y UttarPradesh Stock Exchange

y Coimbatore Stock Exchange

y Cochin Stock Exchange

yBangalore Stock Exchange

y Saurashtra Kutch StockExchange

y Pune Stock Exchange

y National Stock Exchange

y OTC Exchange of Indiay Calcutta Stock Exchange

y Inter-connected Stock Exchange(NEW)

y Madras Stock Exchange

y Bombay Stock Exchange

y

Madhya Pradesh StockExchange

y Vadodara Stock Exchange

y The Ahmedabad Stock

Exchange

y Magadh Stock Exchange

y Guwahati Stock Exchange

y Bhubaneswar Stock Exchange

y

Jaipur Stock Exchangey Delhi Stock Exchange Assoc

y Ludhiana Stock Exchange

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Growth Pattern of the Indian Stock Market

Sl.No

.

As on 31st

December

1946 1961 1971 1975 1980 1985 1991 1995

1No. of

Stock Exchanges

7 7 8 8 9 14 20 22

2No. 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

4Capital 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

6Capital per

Listed Cos

(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

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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.

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Money Market Instruments

Treasury Bills,

Commercial Paper,

Certificate ofDeposit, Money Market Mutual Funds,

Repo Market.

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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. 23


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Call Money Market

Part of the national money market,

Day-to day surplus funds mainly of banks are traded,

Short term in nature,

Maturity of these loans vary from 1 to 15 days,

Lent for 1 day: Call Money

Lent for more than 1 day but less than 15 days: Notice Money

Convenient interest rate.

Highly liquid loan repayable on demand.


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Segment Issuer Instruments

Government CentralGovernment Zero Coupon Bonds, Coupon Bearing Bonds,Capital Index Bonds, Treasury Bills.

P

ublicSector

Government

Agencies /StatutoryBodies

Govt. Guaranteed Bonds, Debentures

Public SectorUnits

PSU Bonds, Debenture, Commercial Paper

Private CorporateDebentures, Bonds, Commercial Paper, FloatingRate Bonds, Zero Coupon Bonds, Inter-Corporate Deposits

Banks Certificate of Deposits, Bonds

FinancialInstitutions Certificate of Deposits, Bonds25


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Indian Banking System

Central Bank (Reserve Bank ofIndia)

Commercial banks (222)

Co-operative banks

Banks can be classified as: Scheduled (Second Schedule of RBI Act, 1934) - 218

Non-Scheduled - 4

Scheduled banks can be classified as:

Public Sector Banks (28

) Private Sector Banks (Old and New) (27)

Foreign Banks (29)

Regional Rural Banks (133)


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Indigenous Bankers

Individual bankers like Shroffs, Seths, Sahukars, Mahajans, etc.

combine trading and other business with money lending.

Vary in size from petty lenders to substantial shroffs.

Act as money changers and finance internal trade throughhundis (internal bills of exchange).

Indigenous banking is usually family owned business employing

own working capital.

At one point it was estimated that IBs met about 90% of thefinancial requirements of rural India.


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Progress of Banking in India

Deposit Mobilisation: 1951-1971 (20 years)- 700% or 7 times

1971-1991 (20 years)- 3260% or 32.6 times

1991- 2006 (11 years)- 1100% or 11 times

Expansion of Bank Credit: Growing at 20-30% p.a.thanks to rapid growth in industrial and agricultural

output.

Development Oriented Banking: Priority SectorLending.


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Progress of Banking in India

Diversification in banking:

Banking has moved from deposit and lending to

Merchant banking and underwriting

Mutual funds

Retail banking

ATMs

Internet banking

Venture capital funds


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Financial Intermediaries (1)

Mutual Funds- Promote savings and mobilise funds which areinvested in the stock market and bond market

Indirect source of finance to companies.

Pool funds of savers and invest in the stock market/bondmarket.

Their instruments at savers end are called UNITS.

Offer many types of schemes: growth fund, income fund,balanced fund

Regulated by SEBI

.


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Financial Intermediaries (2)

Merchant banking- manage and underwrite new issues,

undertake syndication of credit, advise corporate clients on fund

raising.

Subject to regulation by SEBI and RBI. SEBI regulates them on issue activity and portfolio management

of their business.

RBI supervises those merchant banks which are subsidiaries or

affiliates of commercial banks. Have to adopt stipulated capital adequacy norms and abide by a

code of conduct.


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Financial Regulators

Securities and Exchange Board of India (SEBI).

Reserve Bank of India.

IRDA.

Ministry of Finance.

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Regulator and supervisor of the financial system:

Prescribes broad parameters of banking operations

Maintain public confidence, protect depositors' interest and providecost-effective banking services.

Authority On Foreign Exchange:

Manages the Foreign Exchange Management Act, 1999.

Facilitate external trade, payment, promote orderly development andmaintenance of foreign exchange market.

Functions Of RBI

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Functions Of RBI

Monetary Authority:

Formulation andImplementation 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.

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Security Exchange Board of India

(SEBI)

Securities and Exchange Board of India (SEBI) wasfirst established in the year 1988.

Its a non-statutory body for regulating the securitiesmarket.

It became an autonomous body in 1992.

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Functions Of SEBI Regulates Capital Markets.

Checks Trading of securities.

Checks the malpractices in securities market. It enhances investor's knowledge on market by

providing education.

It regulates the stockbrokers and sub-brokers.

To promote Research and Investigation of frauds.36


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CONCLUSION

There are other financial intermediaries such as NBFCs,Venture Capital Funds, Hire and Leasing Companies, etc.

Indias financial system is quite huge and caters to every

kind of demand for funds.

Banks are at the core of our financial system and therefore,

there is greater expectation from them in terms of reaching

out to the vast populace as well as being competitive.


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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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