13735265 capital markets money markets
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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 a country
Money and monetary assets
Mobilize the saving Promotes investment
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Financial SystemFinancial System of any country consists offinancial 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)
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Indian Financial System
Non- OrganizedOrganized
Money lenders
Local bankers
TradersLandlords
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
Societies Banks
Joint-StockBanks
Evolution of Financial System
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Consolidation
Commercial Banks
Nationalization
Investment Banks
Development Financial Institutions
Investment/Insurance Companies
Stock Exchanges
MarketO
perationsSpecialized Financial Institutions
Merchant Banking
Universal Banking
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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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Organized Indian Financial System
Money Market
InstrumentCapital Market
Instrument
Forex
Market
Capital
Market
Money
Market
Credit
Market
Primary Market
FinancialInstruments
FinancialMarkets
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 ofcapital (i.e. financial) assets from one owner to
another. They provide liquidity.
Liquidity refers to how easily an asset canbe transferred without loss ofvalue.
A side benefit of capital markets is that thetransaction price provides a measure of thevalue of the asset.
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Role of Capital Markets Mobilization of Savings & acceleration ofCapital Formation
Promotion ofIndustrial Growth Raising of long term Capital
Ready & ContinuousMarkets
Proper Channelisation of Funds
Provision of a variety of Services
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Indian Capital Market -
Historical perspective StockMarket was for a privileged few
Archaic systems - Out cry meth
od
Lack ofTransparency - High tones costs
No use ofTechnology
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-A
llT
rading go
esE
lectro
nic 1996- Depository comes in to existence
1999- FIIs Participation- Globalisation
2000- over 80% trades in Demat form
2001-Major Stocks move toRolling Sett
2003- T+2 settlements in all stocks
2003 - Demutualisation ofExchanges
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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
B
anningof
B
adla /A
LBM
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,22 Stock Exchanges,
Over 10000 Electronic Terminals at over 400 locations allOver 10000 Electronic Terminals at over 400 locations all
over India.over India. 9108 Stock Brokers and 14582 Sub brokers9108 Stock Brokers and 14582 Sub brokers
9644 Listed Companies9644 Listed Companies
2 Depositories and 483 Depository Participants2 Depositories and 483 Depository Participants
128 Merchant Bankers, 59 Underwriters128 Merchant Bankers, 59 Underwriters
34 Debenture Trustees, 96Portfolio Managers34 Debenture Trustees, 96Portfolio Managers
83 Registrars & Transfer Agents, 59Bankers toIssue83 Registrars & Transfer Agents, 59Bankers toIssue
4C
reditR
atingA
gencies4
C
reditR
atingA
gencies
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Indian Capital Market
Market Instruments Intermediaries
Primary Secondary
Equity DebtHybrid
Regulator
Brokers
Investment BankersStockExchanges
Underwriters
SEBI
Players
Corporate IntermediariesCRA Banks/FI FDI /FIIIndividual
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Stock Exchanges in INDIA
Mangalore Stock Exchange
Hyderabad Stock Exchange
Uttar Pradesh StockExchange
Coimbatore Stock Exchange Cochin Stock Exchange
Bangalore Stock Exchange
Saurashtra Kutch StockExchange
Pune Stock Exchange
National Stock Exchange OTC Exchange of India Calcutta Stock Exchange
Inter-connected StockExchange (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 StockExchange
Jaipur Stock Exchange
Delhi Stock Exchange Assoc
Ludhiana Stock Exchange
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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 smallinvestors
Government raises capital for development
projects
Barometer of the economy
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Growth Pattern of the Indian Stock MarketSl.No.
As on 31stDecember
1946 1961 1971 1975 1980 1985 1991 1995
1No. ofStock 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
4 Capital 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
6
Capital 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
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 growth of
Indian Capital Market
Establishment of Development banks &Industrial
financial instituti
on.
Legislative measures
Growing public confidence
Increasing awareness of investment
opportunities
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Factors contributing to growth of
Indian Capital Market
Growth of underwriting business
Setting up of SEBI
Mutual Funds
Credit Rating Agencies
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Indian Capital Market
deficiencies
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 near substitutes for money.
Short-Term means generally period upto one yearand near substitutes to money is used to denoteany financial asset which can be quickly converted
into money with minimum transaction cost
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Money Market
It is a place for Large Institutions and government tomanage 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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Defects
ofMo
neyM
arket 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
ZeroCoupon Bonds, Coupon Bearing Bonds,Capital Index Bonds, Treasury Bills.
PublicSector
Government
Agencies /StatutoryBodies
Govt. Guaranteed Bonds, Debentures
Public SectorUnits
PSU Bonds, Debenture, Commercial Paper
Private CorporateDebentures, Bonds, Commercial Paper, FloatingRate Bonds, ZeroCoupon Bonds, Inter-Corporate Deposits
Banks Certificate of Deposits, Bonds
FinancialInstitutions Certificate of Deposits, Bonds
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Financial Regulators
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FinancialR
egulato
rs
Securities and ExchangeBoardofIndia (SEBI)
ReserveBankofIndia
Ministry ofFinance
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Security Exchange Board ofIndia
(SEBI)
Securities and Exchange Board ofIndia
(SEBI) was first established in the year1988
Its a non-statutory body for regulating
the securities market It became an autonomous body in 1992
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It enhances investor's knowledge on marketby providing education.
It regulates the stockbrokers and sub-brokers.
Topro
mo
teR
esearch andInv
estigatio
n
Functions Of SEBI
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Objectiv
esof
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 Initiatives
Undertaken
Sole Control on Brokers
For Underwriters
For Share Prices
For Mutual Funds
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Reser
veB
ankof
India
Established on April 1, 1935 in accordancewith the provisions of the RBIAct, 1934.
The Central Office of the Reserve Bank hasbeen in Mumbai.
It acts as the apex monetary authority of thecountry.
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Functio
ns Of
RBI
Monetary Authority:
Formulation and Implementation of monetary
po
licies. Maintaining price stability and ensuring adequate
flowof 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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Regulator and supervisor of the financial system:
Prescribes broad parameters of banking operations M
aintain public co
nfidence, pr
otect dep
osito
rs'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 offoreign exchangemarket.
Functions OfRBI
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Developmental role:
Performs a wide range of promotional functions to
suppo
rt natio
nalo
bjectiv
es.
Related Functions:
Banker to the Government: performs merchant
bankingfuncti
onfo
r the central and the stategovernments.
Maintains banking accounts of all scheduled banks.
Functions OfRBI
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Monetary
M
easures(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 Reverserepo rate is around 6.10 per cent.
(c) Cash Reserve Ratio:The cash reserve ratio (CRR) of scheduled banks iscurrently at 5.0 per cent.
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Reforms in the Financial
System
Pre-reforms period
Steps taken
Objectives
Conclusion
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P
re-R
efo
rmsP
erio
d 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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Banks and financial institutions acted as adeposit agencies.
Price discovery process was prevented.
Government failed to generate resources for
investment and public services.
Till 90s it was closed, highly regulated, andsegmented system.
P
re-R
efo
rmsP
erio
d
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StepsT
aken 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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R
eco
mmendatio
ns Reduce the level of state ownership inbanking
Lift restrictions on foreign ownership of banks
Spur the development of the corporate-bondmarket
Strengthen legal protections
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Deregulate the insurance industry
Drop proposed limits on pension reforms
Increase consumer ownership of mutual-fund products
Introduce a gold deposit scheme
R
eco
mmendatio
ns
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Speed up the development of electronicpayments.
Separate the RBI's regulatory and central-bank functions
Lift the remaining capital account controls
Phase out statutory priority lending andrestrictions on asset allocation
R
eco
mmendatio
ns
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Co
nclusio
n The financial system is fairly integrated, stable,
efficient.
Weaknesses need to be addressed. The reforms have been more capital centric in
nature.
Fo
reign capitalf
low
s andfo
reign exchangereserves have increased but absorption offoreigncapital is low.
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Thank you
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