ppt on fincancial seervices

Indian Financial System

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

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)

Indian Financial System

Un-Organized Organize

d Money lenders

Local bankers

Traders

Landlords

Pawn brokers

Regulators

Financial Institutions

Financial Markets

Financial services

Financial Instruments

Organized Indian Financial System

Money Market Instrument

Capital Market Instrument

Forex Market

Capital Market

Money Market

Credit Market

Primary Market

Financial Instruments

FinancialMarkets

FinancialIntermediarie

s

Secondary Market

Regulators

1.MoF

2.SEBI

3.RBI

4.IRDA

Indian Capital Market

Market Instruments Intermediaries

Primary Secondary

Equity DebtHybrid

Regulator

•Brokers •Investment Bankers •Stock Exchanges•Underwriters

SEBI

Players

Corporate IntermediariesCRABanks/FI FDI /FIIIndividual

Financial Markets

Mechanism which allows people to trade

Affected by forces of supply and demand

Process used

In Finance, Financial markets facilitates

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.

Role of Capital Markets

Mobilization of Savings & acceleration of Capital Formation

Promotion of Industrial GrowthRaising of long term CapitalReady & Continuous MarketsProper Channelisation of Funds Provision of a variety of Services

Capital Market Instruments

DerivativeMarket1.Exchange Traded2.Future & Optiona.Indexb.Stock

Equity Debt

Primary Market1.Public Issue2. Private Placement a. Domestic Market b. International Market

SecondaryMarket

1.NSE2.BSE

3.OTCEI4.ISE5.RSE

Private Corporate Dept.

PSU Bond Market

Govt. SecuritiesMarket

Primary Segment Secondary Segment

Factors contributing to growth of Indian Capital

Market

Establishment of Development banks & Industrial financial institution.

Legislative measuresGrowing public confidence Increasing awareness of investment

opportunities

Factors contributing to growth of Indian Capital Market

Growth of underwriting businessSetting up of SEBIMutual Funds Credit Rating Agencies

Indian Capital Market deficiencies

Lack of transparency Physical settlement Variety of manipulative practices Institutional deficiencies Insider trading

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

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

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

Money Market Instruments

Treasury Bills Commercial Paper Certificate of Deposit Commercial Bills Term Money 1. Primary Segment 2.Secondary Segment

Call Money Market

FINANCIAL INSTRUMENTS

Money Market Instruments The money market can be defined as a market for short-

term money and financial assets that are near substitutes for money. The term short-term means generally a period up to 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.

Some of the important money market instruments are briefly discussed below;

1. Call/Notice Money 2. Treasury Bills3. Term Money4. Certificate of Deposit5. Commercial Papers

1.Call Money Market

Loan disbursed by commercial banks1 day – 7 daysBank can recall the loan at itsmaturityUsually advanced to bill brokers &stock exchange brokers.

2. Term Money Term Money market for deposits of maturity beyond

14 days is referred to as the term money market. The entry restrictions are the same as those for Call/Notice Money except that, as per existing regulations, the specified entities are not allowed to lend beyond 14 days.

3. Treasury Bills. Government Paper SecuritiesDuration of 91 daysPromissory note of the government to pay a

specified sum after a specified period

4. Certificate of Deposits

Certificates of Deposit (CDs) is a negotiable money market instrument and issued in dematerialized form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period.

Guidelines for issue of CDs are presently governed by various directives issued by the Reserve Bank of India, as amended from time to time.

CDs can be issued by (i) scheduled commercial banks excluding Regional Rural

Banks (RRBs) and Local Area Banks (LABs); and (ii) select all-India Financial Institutions that have been

permitted by RBI to raise short-term resources within the umbrella limit fixed by RBI. Banks have the freedom to issue CDs depending on their requirements.

An FI may issue CDs within the overall umbrella limit fixed by RBI, i.e., issue of CD together with other instruments viz., term money, term deposits, commercial papers and interoperate deposits should not exceed 100 per cent of its net owned funds, as per the latest audited balance sheet.

5. Commercial Paper CP is a note in evidence of the debt obligation of the issuer.

On issuing commercial paper the debt obligation is transformed into an instrument.

CP is thus an unsecured promissory note privately placed with investors at a discount rate to face value determined by market forces.

CP is freely negotiable by endorsement and delivery. A company shall be eligible to issue CP provided - (a) the tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs. 4 crore; (b) the working capital (fund-based) limit of the company from the banking system is not less than Rs.4 crore and (c) the borrowal account of the company is classified as a Standard Asset by the financing bank/s. The minimum maturity period of CP is 7 days.

Capital Market Instruments

Capital Market Instruments

The capital market generally consists of the following long term period i.e., more than one year period, financial instruments; In the equity segment Equity shares, preference shares, convertible preference shares, non-convertible preference shares etc and in the debt segment debentures, zero coupon bonds, deep discount bonds etc.

Equity Market

1 .Primary MarketsHelps companies in raising funds through issue of

securities like shares and debentures.Governed by SEBI (Securities and Exchange Board

of India).Methods of issuing securities in Primary Market:– Public Issue– Rights Issue– Bonus Issue– Private Placement– Bought-out Deals

International CapitalMarkets

Development attributed to following factors:investors’ need to avoid taxes in their own

country and to ensure protection against depreciating home currencies.

emergence of new technologies in the area of financial services, development and deregulation of financial markets

Equity Instruments

GDR: instruments which possess a number of underlying shares held by

the custodian domestic bank of the company. The GDRs are traded on a foreign stock exchange, issued to the non-

resident investors. The GDR’s are denominated in the foreign currency and the

underlying shares are denominated in the local currency of the issuer.

The GDR’s are considered as common equity of the company and are entitled to dividends and voting rights.

ADR

Is a dollar denominated negotiable certificate traded in the US-markets whose underlying securities are of non-US companies.

ADR Level-I :first step for an issuer to enter the US market, minimum disclosure required, need not comply with the American GAAP. Can trade only on the OTC market and not on any national stock exchange.

ADR Level-II: significant disclosures to be made to the SEC, company allowed to list on AMEX, NYSE.

ADR Level-III :fresh capital can be raised company to be registered with the SEC and shall even follow US GAAP.

Euro Bonds

These are the bonds that are issued outside the country of the currency in which it is denominated

Features:No with holding of tax on interest paymentsThese are in bearer form with coupon

interest attachedListed on stock exchanges though traded on

the OTC market

Foreign Bonds

Bonds floated in the domestic markets denominated in the domestic currency by the non-resident.

Yankee BondsSamurai BondsBulldog BondsShibosai Bonds

Yankee bonds

These are US dollar denominated issues by the foreign borrowers in the US markets.

FeaturesRegulated by the SEC. Requires more

disclosure than that given by the prospectus.Foreign borrower to adopt US accounting

policiesBonds sponsored by the underwriting syndicateRequires SEC registration before the sale.To be rated by the US credit rating agencies

Samurai Bonds

Yen denominated bonds issued in the Japanese markets by the non- Japanese companies.

FeaturesMaturity: 3-20 yearsBorrowers in order of priority sovereigns,

supranational and their entities, high quality private corporations having some kind of Japanese trade links.

Bull Dog Bonds

Sterling denominated foreign bonds floated in the UK market.

Features:Maturity 5 for short maturities 25 for long

maturities.Subscribed by the long-term institutional

investors-pension funds, life insurance Co’sBonds offered by placing or offer for sale

process will have to be listed on the London SE

Shibosai Bonds

Privately placed bonds issued in the Japanese market

FeaturesOffered to institutional investors, including

banks the issue’s eligibility, coupon rate, etc governed by the Japan’s MOF guidelines

Pricing done based on base rate and spread which depends on the rating of Co or country.

Forex Markets

Foreign Exchange Market: Deals with transactions in

currencies other than one’s own currency. Exchange rate: The rate at which one currency can be

converted into another currency Participants: – Exporters – Importers – Commercial Banks – Central Banks – Authorized Dealers and Money Changers – Brokers

Equity Market

2. Secondary MarketSecurities already issued in the primary market are

traded in the secondary market. Provides liquidity to the securities held by the investors.

Provides liquidity to the securities held by theinvestors.Operates through stock exchanges that regulate the

trading activities in this market.

Equity Market

3. Derivatives MarketFinancial derivative is a product derived from the market

of an underlying asset.Participants:– Hedgers– Speculators– ArbitratorsTypes of Derivatives:– Futures– Options - Caps - floors and Collars

Debt. Market

Government of India, public sector units and corporations together comprise as dominant issuer of debt markets in India. Local governments, mutual funds and international financial institution issue debt instruments as well but very infrequently. The Central Government mobilizes funds mainly through issue of dated securities and T-bills. Bonds are also issued by government sponsored institutions like the development financial institutions (DFIs) like IFCI and IDBI, banks and public sector units. Some, but not all, of the PSU bonds are tax-exempt. The corporate bond market comprise of commercial papers and bonds. In recent years, there has been an increase in issuance of

Financial Institution

Financial Institution

Financial InstitutionsIndustrial Development Bank of India (IDBI)Industrial Finance Corporation of India (IFCI )Industrial Investment Bank of India (IIBI)Export and Import Bank of IndiaState Financial CorporationsState Industrial Development Corporations

Non-banking financial institution

Non-Banking Financial CompaniesInvestment Trusts or Investment Companies: Close

end organizations, having fixed amount of authorized capital provides services through conserving and managing property for those who cannot manage their own funds.

Mutual Benefit Funds or Nidis: Sources of their funds are share capital, deposits.

Merchant Banks : Offers financial advice & services for fees; Services offered are management, marketing, underwriting of new issue, project promotion & finance, corporate advice, BOD, venture capital etc.

Hire Purchase Finance CompaniesLease Finance CompaniesHousing Finance CompaniesNational Housing Bank : Wholly owned by

subsidiary of RBI, Aim is to promote housing finance Institution at local & regional levels, It refinance housing loans to scheduled commercial & co operative banks, housing finance companies etc.

Venture Capital Funding Companies

DEVELOPMENT FINANCE INSTITUTION

All India Financial InstitutionsIFCI: Industrial Finance Corporation of IndiaThe IFCI, India’s first DFL, was established on 1 July

1948 IFCI principal activities can be categorised into - Financing - Promotional activities

FINANCING ACTIVITIES

Project ActivitiesFinancial ServicesCorporate advisory ServicesCorporate advisory Services to Foreign

Investors

PROMOTIONAL ACTIVITIES

Played a key role in the development of cooperatives in the sugar and textile sector

It has promoted technical consultancy organisation primarily in less developed state, to provide necessary services to the promoters of small and medium- sized industries in collaboration with other banks

and institutions. It has developed many institutions like

Management Development institute Investment and credit rating agency Tourism finance corporation of India

Rashtriya Gramin Vikas Nidhi

DISADVANTAGES

The reasons to this dismal state of affairs of the company are as follows

Operational Inefficiency Political Interference Traditional sector financing Higher provisioning for Non –performing assets

The steps taken for the revival of IFCI are as follows: IFCI constituted an expert committee in 2001 To formulate a medium-to long term strategic plan for IFCI in

the emerging new business environment The committee has laid down the road map plan for the next

five years It has made recommendations covering a wide range of

structural and operational areas It has strengthened its risk management techniques and is

putting in efforts to bring down the NPAs to a manageable level, through corporate debt structuring

It has initiated action against defaulters and has filed suits against defaulter companies

INDUSTRIAL DEVELOPMENT BANK OF INDIA

Established in 1964 by Parliament as a wholly owned subsidiary of the RBI

In 1976, the banks ownership was transferred to the Government of India

IDBI has engineered the development of capital market through helping in setting up of the

- Securities Exchange Board of India (SEBI)- National Stock Exchange of India Limited (NSE)- Credit Analysis and Research Limited (CARE)- Stock Holding corporation of India Limited (SHCIL)- Investors Services of India Limited (ISIL)- National Securities Depository Limited (NSDL)- Clearing Corporation of India Limited (CCIL)

IDBI has undertaken several initiatives to reposition itself as a universal

Bank:- In April 2001, IDBI appointed Boston consulting Group India

Private Limited (BCG) as consultant to draw up a road map for conversion into a universal bank

Formation of high level risk management committee to develop overall risk management policy

The bank has constituted a credit risk management group to evaluate credit risk both at the transaction level and also at the portfolio level

It has pioneered the setting up of Asset Reconstruction Company (India) Limited (ARCIL) in 2002 in association with select banks and financial institutions

IDBI-SERVICES

IDBI provides Merchant banking and wide array of corporate advisory services as part of its fee based activities

This includes professional advice and services for - issue management - private placement of equity/debt instruments - project evaluation - credit syndication - share valuation - corporate restructuring including mergers and acqusitions

and divestment of equity the bank also offers a number of Forex related services on a

commission basis including opening of letters of credit and remittance

of foreign currency on behalf of its assisted companies for import of its goods and services

IIBI

Established in 1985 under the IRBI Act 1984 It is a principal credit & reconstruction agency for re-

habilitation of sick & closed industrial units. The range of its services include provision of infrastructure

facilities , consultancies , managerial & merchant banking facilities & making available machinery & other equipment on a lease or hire purchase bases

It was renamed as industrial investment bank of India & brought under companies act 1956 since March 17 1997.

It finances new projects , modernization work , balancing equipment needs , correcting imbalance in current Assets , relieving strains on cash resources , repayment of pressing liabilities and other activities.

IDFC

Conceived as an institution to facilitate the flow of private finance to commercially viable infrastructure projects & help mitigate commercial & structural risk contain therein , by designing innovative products & processes.

It operates in areas such as energy , telecommunication & IT , integrated transportation , Urban infrastructure & food & agri-business infrastructure.

It offers the variety of services to projects in the infrastructure & advisory services.

It helps promoters raise resources from international markets It intends offering advisory services to these funds to

facilitate & strengthen their connectivity with infrastructure projects.

NABARD

Established in July 1982 under an act of parliament , is an apex dvpt. Bank for promotion & dvpt. Of agriculture , small-scale industries , cottage & village industries & other allied economic activities in rural areas.

Objective is to promote integrated rural development for overall prosperity of rural areas.

Provides long term investment credit to the Farm sector for various approved agricultural & allied activities such as minor irrigation , plantation etc.

It also extends refinance to banks for financing government sponsered programmes like prime minister Rojgar Yojna , Swarna Jayanti Gram Swarozgar Yojna etc.

Other important development includes setting up of micro finance development fund by NABARD.

SIDCS

Established under the companies act 1956, as wholly owned undertakings of the state governments with the specific objective of promoting and developing medium and large industries in the respective states.

It undertakes a range of promotional activities including:-repression of preparation of feasibility reports .-conducting industrial potential surveys.-entrepreneurship training and development programs.-developing industrial estates. It also offer package of developmental services that includeTechnical guidance, assistance in plant location and

coordination with other agencies.

EXIM BANK

Established in 1982, is a wholly government owned financial institution setup for the purpose of financing, facilitating and promoting India’s foreign trade.

Its financing services include a range of fund and non-fund based programs to enhance the exports, competitiveness of Indian companies.

Its major operations presently comprise -financing of projects-products and service exports -building export competitiveness-promotional programs-Financing of research and development activities of exporting

companies.

SFC

It is a state level development bank setup under the SFCs act, 1951, for the development of small and medium scale industries in their respective states.

It aims at bringing about balanced regional development by wider dispersal of industries and generating larger employment opportunities.

It includes composite loan scheme, scheme for women entrepreneurs, modernization scheme, equipment finance scheme etc.

SIDBI

It offer a chain of financial product covering micro finance, business,incubation, venture capital etc.

It also provides support services such as training, market information and advise for enhancing the inherent strength of small scale units.

Products And Services of SIDBI

Direct finance scheme.Bills finance scheme.Re-finance scheme.International finance scheme.Marketing finance and development schemes.SIDBI foundation for micro-credit.Other schemes.Promotional and development activities.Fixed deposit/bond.

Financial Regulators

Financial Regulators

Securities and Exchange Board of India (SEBI)

Reserve Bank of India

Ministry of FinanceIRDA

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

Functions Of SEBI

Regulates Capital Market.

Checks Trading of securities.

Checks the malpractices in securities market.

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

Objectives of SEBI

It tries to develop the securities market.

Promotes Investors Interest.

Makes rules and regulations for the securities market.

The Recent Initiatives Undertaken

Sole Control on Brokers

For Underwriters

For Share Prices

For Mutual Funds

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.

Functions Of RBIMonetary 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.

Regulator and supervisor of the financial system:

Prescribes broad parameters of banking operationsMaintain 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

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

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.

Objectives Of MoF

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

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

Recommendations

Deregulate the insurance industry

Drop proposed limits on pension reforms

Increase consumer ownership of mutual-fund products

Introduce a gold deposit scheme

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

IRDA

Agent RegistrationPortal

Designated Person

(Ins. Co.)

Service Provider-----------------------

1.Care-Site2.Tech Support

Ins. Co.(Development

Officer)

I I I

EXAM

IRDA

Agent TrainingInstitute Agents

IRDA Function….

Data Correction Approval (License)• Shows list of data correction requests by DPs• IRDA can approve these requests Cancellation Approval (License/Certificate)• Shows list of license cancellation requests• IRDA can approve or reject• IRDA can cancel with or without refund Recall Cancellation Approval• Shows list of license recall cancellation requests• IRDA can approve or reject Termination Approval• Shows list of license termination requests by Corporate DP• IRDA can approve or reject termination requests Terminate License

• IRDA can terminate individual/corporate license

Thank you