Professional Documents
Culture Documents
Session topics
The nature and role of financial system Structure of a financial system Functions of financial system Financial system and economic development Indian financial system SEBI Reserve Bank of India-Organisation and management, Role and functions, Monetary Policy of RBI,Recent policy development Financial sector reforms
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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 System
Prasanna chandra:The financial system consists of a variety of institutions, markets and instruments related in a systematic manner and provide the principal means by which savings are transformed into investment. S.B.Gupta:The financial system is a set of institutional arrangements through which financial surpluses available in the economy are mobilised
Financial System
An institutional framework existing in a country to enable financial transactions Three main parts
Financial assets (loans, deposits, bonds, equities, etc.) Financial institutions (banks, mutual funds, insurance companies, etc.) Financial markets (money market, capital market, forex market, etc.)
Regulation is another aspect of the financial system (RBI, SEBI, IRDA, FEMA)
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Financial assets/instruments
Enable channelising funds from surplus units to deficit units There are instruments for savers such as deposits, equities, mutual fund units, etc. There are instruments for borrowers such as loans, overdrafts, etc. Like businesses, governments too raise funds through issuing of bonds, Treasury bills, etc. Instruments like PPF, KVP, etc. are available to savers who wish to lend money to the government
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Financial Institutions
Includes institutions and mechanisms which
Affect generation of savings by the community Mobilisation of savings Effective distribution of savings
Institutions are banks, insurance companies, mutual funds- promote/mobilize savings Individual investors, industrial and trading companies- borrowers
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Financial Markets
Money Market- for short-term funds (less than a year)
Organized (Banks) Unorganized (indeginous banker,money lenders, chit funds, etc.)
Financial System of any country consists of financial markets, financial intermediation and financial instruments or financial products
Financial System
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Non- Organized Organized Money lenders Regulators Financial Institutions Financial Markets Financial services Local bankers Traders Landlords Pawn brokers Chit Funds
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Nidhi's/Chit Funds
Indigenous Banking
Cooperative Movement
Societies
Banks
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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 Financial Markets Banking and IntermediariesDr.Triveni P.
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Investors Borrowers
Un-organized Sector
Economy
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Regulators
Financial Instruments
Financial Markets
Financial Intermediaries
Forex Market
Capital Market
Money Market
Credit Market
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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Instruments Zero Coupon Bonds, Coupon Bearing Bonds, Capital Index Bonds, Treasury Bills.
Public Sector
PSU Bonds, Debenture, Commercial Paper Debentures, Bonds, Commercial Paper, Floating Rate Bonds, Zero Coupon Bonds, InterCorporate Deposits Certificate of Deposits, Bonds
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Private
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Financial Regulators
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Financial Regulators
Securities and Exchange Board of India (SEBI) Reserve Bank of India Ministry of Finance
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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
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Objectives of SEBI
It tries to develop the securities market. Promotes Investors Interest. Makes rules and regulations for the securities market.
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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.
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Functions of RBI
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.
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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.
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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 through hundis (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 the financial requirements of rural India
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The IBs declined to accept the restrictions as well as compensation from the RBI Therefore, the IBs remain out of RBIs purview
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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
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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.
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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
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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
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Recommendations
Deregulate the insurance industry Drop proposed limits on pension reforms Increase consumer ownership of mutual-fund products Introduce a gold deposit scheme
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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
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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 have increased but absorption of foreign capital is low.
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A side benefit of capital markets is that the transaction price provides a measure of the value of the asset.
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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
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Market
Instruments
Intermediaries Regulator
SEBI
Primary
Secondary
Equity
Players
CRA
Corporate Intermediaries
Individual
Banks/FI
FDI /FII
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270 971
753 1292
1812 2675
2614 3273
3973 6750
9723 25302
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63
113
168
175
224
86
107
167
211
298
582
1770
5564
260
344
803
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Equity
Hybrid
Debt
Equity Shares
Preference Shares
ADR / GDR
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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 year and near substitutes to money is used to denote any 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 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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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 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.
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Session topics
Structure of Financial Institutions Functions of Financial Institutions Categories of Financial Institutions Theoretical basis of banking operations- Special role of banks Banking in India Phases in Banking
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Introduction
Financial institutions are those organizations, that are involved in providing various types of financial services to their customers. The financial institutions are controlled and supervised by the rules and regulations delineated by government authorities.
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Financial Institutions
Central Bank (Reserve Bank of India) Commercial banks, Credit rating agencies, Insurance companies Specialized financial institutions
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Various activities
Bonds Debentures Stocks Loans Risk Diversification Insurance Hedging Retirement planning Investment Portfolio management Many other types of related functions
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Banking in India
Prior to introduction of banking people used to keep their money in post offices or in piggy bank and lend money from sahukars. In year 1930, government started direct intervention and led to the birth of banking system in India
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Banking in India
Banking is "accepting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdraw-able by cheques, draft, order or otherwise."
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Phases in Banking
Banking in India has evolved through four distinct phases: Foundation phase Expansion phase Consolidation phase Reforms phase
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Foundation Phase
Foundation phase can be considered to cover 1950s and 1960s till the nationalization of banks in 1969. The focus during this period was to lay the foundation for a sound banking system in the country.
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Foundation Phase
As a result the phase witnessed the development of necessary legislative framework for facilitating reorganization and consolidation of the banking system, for meeting the requirement of Indian economy. A major development was transformation of Imperial Bank of India into State Bank of India in 1955 and nationalization of 14 major private banks during 1969.
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Expansion Phase
Expansion phase had begun in mid-60s but gained momentum after nationalization of banks and continued till 1984. A determined effort was made to make banking facilities available to the masses. Branch network of the banks was widened at a very fast pace covering the rural and semi-urban population, which had no access to banking hitherto.
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Expansion Phase
Most importantly, credit flows were guided towards the priority sectors. However this weakened the lines of supervision and affected the quality of assets of banks and pressurized their profitability and brought competitive efficiency of the system at low ebb.
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Consolidation Phase
Consolidation phase: The phase started in 1985 when a series of policy initiatives were taken by RBI which saw marked slowdown in the branch expansion. Attention was paid to improving house-keeping, customer service, credit management, staff productivity and profitability of banks. Measures were also taken to reduce the structural constraints that obstructed the growth of money market.
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Reforms Phase
Reforms phase the macro-economic crisis faced by the country in 1991 paved the way for extensive financial sector reforms which brought deregulation of interest rates, more competition, and technological changes, prudential guidelines on asset classification and income recognition, capital adequacy, autonomy packages.
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Reforms Phase
The Narsimham Committee report suggested wide ranging reforms for the banking sector in 1992 to introduce internationally accepted banking practices. The amendment of Banking Regulation Act in 1993 saw the entry of new private sector banks.
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Liberalization
It covered the areas of interest rates deregulation and directed credit rules. Statutory preemption and entry deregulation for both domestic and foreign banks, Lowering CRR and SRR Interest rate liberalization. Do away with entry barriers
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Banking Consists of
Banking Segment in India functions under the umbrella of Reserve Bank of India - the regulatory, central bank. This segment broadly consists of: Co-operative Banks Commercial Banks
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Co-operative Banks
Role in rural financing continues to be important even today, and their business in the urban areas also has increased phenomenally in recent years mainly due to the sharp increase in the number of primary co-operative banks.
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Co-operative Banks
While the co-operative banks in rural areas mainly finance agricultural based activities including: Farming Cattle Milk Hatchery Personal finance etc. small scale industries self-employment driven activities
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Co-operative Banks
Co-operative banks in urban areas mainly finance various categories of people for self-employment, industries, small scale units, home finance, consumer finance, personal finance, etc Example of co-operative banks - Saraswat Cooperative Bank , Jankalyan Sahakari Bank,Shamrao Vittala co-operative Bank,etc .
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Commercial Banks
An institution which accepts deposits, makes business loans, and offers related services. Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and time deposit.
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Commercial Bank
These institutions are run to make a profit and owned by a group of individuals, yet some may be members of the Federal Reserve System. While commercial banks offer services to individuals, they are primarily concerned with receiving deposits and lending to businesses.
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Commercial Banks
The commercial banking structure in India consists of: Scheduled Commercial Banks Scheduled
commercial Banks constitute those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934.
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Statistics as on
th 30
June 1999
There are 300 scheduled banks having network of 64918 branches. SB group 8 Nationalized banks 19 Foreign banks 45 Private sector banks 32 Co-op Banks & RRBs
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Transaction Risk
Counterparty Risk
Financial Risks
Credit Risk Portfolio Concentration Risk Liquidity Risk Operational Risk Issuer Risk
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The Central Bank is the Head of the banking system in the country. It has the power of supervision and control over all other banks. It is the symbol of financial power and stability of the country. In India, Central bank is known as RESERVE BANK OF INDIA
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Objective of RBI
The Preamble prescribes the objective as: "to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage."
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Objectives of RBI
Regulate the issue of the bank note Maintain the reserves with a view to securing monetary security To operate the credit and currency of the country to its advantage
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Bank of Issue
Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the Government. The Reserve Bank has a separate Issue Department which is entrusted with the issue of currency notes.
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Bank of Issue
Since 1957, the Reserve Bank of India is required to maintain gold and foreign exchange Reserves of Rs. 200 crores, of which at least Rs. 115 crores should be in gold. The system as it exists today is known as the minimum reserve system.
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Banker to Government
The second important function of the Reserve Bank of India is to act as Government banker, agent and adviser. The Reserve Bank is agent of Central Government and of all State Governments in India excepting that of Jammu and Kashmir. The Reserve Bank has the obligation to transact Government business, viz. to keep the cash balances as deposits free of interest, to receive and to make payments on behalf of the Government and to carry out their exchange remittances and other banking operations.
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Banker to Government
It makes loans and advances to the States and local authorities. It acts as adviser to the Government on all monetary and banking matters.
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Controller of Credit
Central Bank may directly affect the money supply to control its growth or it might act indirectly to affect cost and availability of credit in the economy. In modern times the bulk of money in developed economies consists of bank deposits rather than currencies and coins. So central banks today guide monetary developments with instruments that control over deposit creation and influence general financial conditions. Credit policy is concerned with changes in the supply of credit. Central Bank administers both the Credit and Monetary policy
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Controller of Credit
The Reserve Bank of India is the controller of credit i.e. it has the power to influence the volume of credit created by banks in India. It can do so through changing the Bank rate or through open market operations. According to the Banking Regulation Act of 1949, the Reserve Bank of India can ask any particular bank or the whole banking system not to lend to particular groups or persons on the basis of certain types of securities. Since 1956, selective controls of credit are increasingly being used by the Reserve Bank.
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Controller of Credit
The Reserve Bank of India is armed with many more powers to control the Indian money market. Every bank has to get a licence from the Reserve Bank of India to do banking business within India, the licence can be cancelled by the Reserve Bank of certain stipulated conditions are not fulfilled. Every bank will have to get the permission of the Reserve Bank before it can open a new branch.
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Controller of Credit
Each scheduled bank must send a weekly return to the Reserve Bank showing, in detail, its assets and liabilities. This power of the Bank to call for information is also intended to give it effective control of the credit system. The Reserve Bank has also the power to inspect the accounts of any commercial bank.
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Controller of Credit
As supreme banking authority in the country, the Reserve Bank of India, therefore, has the following powers: (a) It holds the cash reserves of all the scheduled banks. (b) It controls the credit operations of banks through quantitative and qualitative controls. (c) It controls the banking system through the system of licensing, inspection and calling for information. (d) It acts as the lender of the last resort by providing rediscount facilities to scheduled banks.
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Supervisory functions
The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervision and control over commercial and co-operative banks,
Licensing and establishments Branch expansion Liquidity of their assets, management and methods of working Amalgamation, reconstruction, and liquidation. Audit of banks,inspection of branch Credit information services Training and bank education to the personnel
The RBI is authorised to carry out periodical inspections of the banks and to call for returns and necessary information from them.
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Promotional functions
The Reserve Bank was asked to promote banking habit, extend banking facilities to rural and semi-urban areas, and establish and promote new specialised financing agencies apart from these, RBI also promote special financial institutions for industrial finance. RBI also collects and publish the statistics on financial and economic matters.
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Promotional functions
Accordingly, the Reserve Bank has helped in the setting up of the IFCI and the SFC; it set up the Deposit Insurance Corporation in 1962, the Unit Trust of India in 1964, the Industrial Development Bank of India also in 1964, the Agricultural Refinance Corporation of India in 1963 and the Industrial Reconstruction Corporation of India in 1972. These institutions were set up directly or indirectly by the Reserve Bank to promote saving habit and to mobilise savings, and to provide industrial finance as well as agricultural finance.
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Chapter 3
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NBFCs
Increase in no. of NBFCs because as there exists ease of entry, limited fixed assets and absence of any need to hold inventories. Egs. Fullerton India, Muthoot finance , GE group, Citi Financialsetc. While their functions & services are different , the common feature is acceptance of deposits from the public, borrowing from banks and if registered as public limited cos. Accessing the capital market.
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Introduction to NBFCs
As per RBI (Amendment act)1997, a Non banking finance company means : 1. A financial institution which is a company. 2. A non banking institution which is a company and which has as its principal business the receiving of deposits under any scheme or in any other manner or lending in any manner. 3. Such other non banking institution as the bank may specify with the previous approval of the Central Government.
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Why NBFCs ?
Flexible Lower transaction costs Quick decision making Customer orientation Prompt provision of Services
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Categories of NBFCs
1. 2. 3. 4. 5. 6. 7. An equipment leasing company (EL) A hire purchase company (HP) A housing finance company (HFC) An investment company (IC) A loan company (LC) A mutual benefit financial company (MBFC) (i.e. nidhi cos.) A miscellaneous non banking company .i.e. chit fund companies etc.
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Financial Institutions
Any NBFC is a Financial Institution that is a company whose principal business is the receiving of deposits or lending. (except insurance, stock broking, agriculture financing).
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Restrictions on NBFCs
Minimum credit rating: NBFCs must obtain minimum credit rating for their fixed deposits for accepting deposits, at least once a year. Copy of rating to RBI. RBI to be informed about all upgrading/downgrading. This rule does not apply to an equipment leasing or hire purchase company.
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Restrictions on NBFCs
Period of Deposits : NBFCs cannot accept demand deposits. They can accept/renew deposits for a min. period of 12 months to a max. of 60 mths.
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Loan Companies
Major part of NBFCs High interest rates on deposits with higher risk Loans sanctioned by LCs are mostly short-term Over emphasis of LCs can create danger for effective Monetary Policy Other Services Includes Discounting post-dated Cheques Collecting dividends on behalf of customers Purchasing & Discounting Hundis
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Investment Companies
Loans for consumption, commerce and trading purposes Accepts mostly time deposits rather demand deposits Policy Implications Dishonest Managerial practice with risk to depositors interest Loans may be issued for the purpose of speculation and hoarding Undermine the monetary policy objectives
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Lease Finance
New emerging market in India for equipment finance in heavy industries and infrastructure Industry Types of Lease: Operating Lease Financial Lease Sale and Lease Back Direct Lease Leveraged Lease Lease Vs. Hire purchase
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Leasing
A lease is an agreement whereby the lessor conveys to the lessee , in return for rent, the right to use an asset for an agreed period of time. A financing arrangement that provides a firm with an advantage of using an asset, without owning it, may be termed as leasing.
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Characteristics of Leasing
The Parties The Asset The Term The Lease Rentals
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Types of Lease
Financial Lease Operating Lease Conveyance Type lease Leveraged Lease Sale and Leaseback Partial Pay-Out Lease Consumer Leasing Balloon Lease Close end leasing Swap Leasing Wrap Leasing Import Leasing Cross Border leasing International Leasing
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Financial Lease
Also called Capital Lease A contract involving payment over an obligatory period, of specified sums sufficient in total to amortize the capital outlay , besides giving some profit to the lessor. ICAI defines it as : financial lease is a lease under which the present value of the minimum lease payments at the inception of the lease exceeds or is equal to substantially the whole of the fair value of the leased asset.
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Financial Lease
It is non-cancelable in nature. The lessee is responsible for the maintenance of the asset leased. The lease generally provides for the renewal of the lease on expiry of the lease contract. Variants : Full payout lease , True Lease
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Operating Lease
An operating lease is a type of lease whereby the asset is not fully amortized during the noncancelable period of the lease , and where the lessor does not rely on the lease rentals for profits. Short term lease on a period to period basis. Period of the lease is less than useful life of the asset.
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Operating Lease
The lease is cancelable at short notice by the lessee. The lessee has the option of renewing the lease after the expiry of the lease period Asset maintenance and insurance etc. is the responsibility of the lessor and he charges for the same. It is a high risk lease to the lessor, as any time it may be cancelled by the lessee.
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Types of Lease
Net Lease : A variant of operating lease, where the lessor is not concerned with the repairs and maintenance of the leased asset. Lessor does not provide: - repairs, maintenance, servicing of lease property - purchasing parts and accessories. - loan of a replacement/substitute - purchase of insurance for the lessee.
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Types of Lease
Conveyance Type Lease : Very long type of lease applicable to immovable property. Objective to convey the title in property. Lease periods as long as 99 to 999 years. Leveraged Lease Where a financier is involved for the whole or a part of the financial requirement. Used for high value asset. The financier will have charge over the leased asset, over and above the lease rentals
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Types of Lease
Sale and Leaseback: Owner of the asset sells it to the lessor, and gets the asset back under the lease agreement. Ownership transfer from the original owner to the lessor, who again leases out the asset. Immediate financing to the seller company, whose funds are tied up in the asset.
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Types of Lease
Partial pay out lease: Full payment of the lease in several leases. Consumer Leasing :Leasing of consumer durables like Refrigerator, televisions, etc. Balloon Lease : a lease which has zero residual value at the end of the lease period. i.e. low lease rentals at the inception, high in the mid years, and low again at the end of the lease. Close end leasing : the asset is reverted to the lessor at the end of the lease. Open end leasing : the lessee guarantees a minimum value to the lessor , from the sale of the asset at the end of the lease term. If on sale of the asset, the residual value is less , then lessee pays to the lessor the difference amount.
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Types of Lease
Import Leasing : - leasing of imported capital goods. - beneficial to the lessee, because arranging other sources of funds takes long. Lenders do not usually finance the import duty which forms sizable portion of the cost. - during which the prices of imported goods may rise + fluctuation in exchange rates may happen.
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Hire-Purchase Finance
A financing system under which term loans for purchase of goods and services are advanced to be fractionally liquidated through a contractual obligation Hire-purchase credit consumer credit Vs. Instalment Credit and
Two broad category of Finance: By cash instalment credit By commodity instalment credit
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Hire Purchase
Payment of Periodic installments Immediate possession of goods by the buyer Ownership of goods with vendor until full and final payment Vendors right to repossess the goods in case of default by buyer Treatment of installment as a hire charge till the payment of last installment
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Legal Framework
HP act 1972. Two aspects of HPA Bailment of goods , element of sale. Essential Ingredients of Sale : Two parties, Goods, Money Consideration, Transfer of Ownership, Essentials of a valid contract. Sale Vs Bailment : Sales conveyance of property from seller to buyer for a price. Bailment : mere transfer of possession of goods to bailee, with no conveyance intended.
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Legal Framework
Sale vs Hire Purchase : Differences : In HP the possession of the goods with hirer, while ownership with original owner. No agreement to buy, but only option to buy under certain conditions. Ownership to hirer, only when he exercises his option by making full payment. Destruction of goods before making the contract : destruction/damage, without the knowledge of the seller, such that goods do not match the description in Contract, then contract null and void.
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Legal Framework
Destruction of goods, after Agreement to Sell but before Sale : damage without fault of buyer/seller, agreement is void, provided ownership is not passed on. Document of Title to Goods : document which enables to deal with goods as owner. Eg. Cash Memo, bill of lading , dock warrant, lorry receipt, Railway receipt, Delivery order. Earnest Money/Security Deposit : payment by buyer in advance, for due performance of contract. In case of default, liable to be forfeited, and contract goes off. Conditions and Warranties : relating to nature and quality of goods and their fitness for the buyers purpose. Condition stipulation which forms the basis of the contract. Warranty stipulation which is subsidiary to the main purpose of the contract. Legal implications different for both.
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Legal Framework
Implied Conditions : - Condition as to Title in case of Sale/Agreement to sell. - Condition as to Description - Condition as to Merchantability - Condition as to Wholesomeness . Implied Warranties : any of the above plus Quite Possession , Freedom from Encumbrances.
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Legal Framework
Doctrine of Caveat Emptor (let the buyer beware): applicable to all sale contracts when buyer relies on his own skill & judgement for suitability of the goods for his purpose. Then seller cannot be held responsible if there are defects in the goods., except where buyers purpose informed to the seller goods sold by description by a manufacturer/seller. Seller fraudulently misrepresents the latent defects.
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Legal Framework
Transfer of Property in Goods : Two essential requirements : - Goods must be ascertained & The parties must intend to pass the property in the goods. Rules for Transfer of Property Specific goods in Deliverable State : Property in the goods passes to the buyer when the contract is made, irrespective of whether , the time of payment of the price or time of delivery of the goods is postponed. Specific goods to be Put in Deliverable State : property in goods does not pass till the seller converts the goods to a deliverable state.
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Legal Framework
Specific goods to be Weighed or Measured : if seller required to weigh , measure, test the goods for ascertaining the price, then Property does not pass till the same is done, and buyer has notice thereof. Goods sent on approval (sale or return basis): property in goods passes on to the buyer, after he has signified his approval, or if he does not signify the approval, but does not reject it either till the valid date, then property passes to the buyer. Reservation of Rights of Disposal : if seller reserves the rights of disposal of goods until certain conditions are fulfilled, then property does not pass on to the buyer till those conditions are complied with.
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Legal Framework
Delivery of Goods : it may be actual, symbolic or constructive. Rules of Delivery : Part Delivery : a delivery of part of the goods, in progress of the whole delivery, is delivery of the whole. But intentional part delivery is not whole delivery. Buyer to Apply for Delivery : seller not bound to deliver, unless buyer applies for delivery. Sellers Duty to Deliver: he is duty bound to deliver goods on application by buyer , in accordance with the terms of the contract. Place & Time of Delivery : place & time of delivery as per contract. Otherwise delivery at the place of the goods, at the time of agreement. Other rules regarding Cost, quantity, delivery in instalments.
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Legal Framework
Rights of the Unpaid Seller :
Against Goods and Against the Buyer. Right to Lien : an unpaid seller with possession of goods will retain them where The goods are no sold under credit, sold on credit but credit has expired or the buyer becomes insolvent. Right to Stoppage in Transit : if the buyer is insolvent, then unpaid seller has the right to repossess in transit. Right of Resale: allowed under limited situations, where the goods are of perishable nature resale possible without notice to buyer/ or after notice of resale buyer does not pay up/ or when the seller has under the contract right for resale without any prior notice.
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Legal Framework
Buyers Remedies Against the Seller : Suit for Damages for Non Delivery : where there is wrongful neglection or seller refuses to deliver the goods. Suit for price non delivery after payment. Suit for Specific performance where the contract is for specific goods, suit for delivery of the same goods. Suit for Repudiation of Contract before due date where the seller repudiates the contract before the date of delivery, buyer would sue the seller for anticipatory breach.
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Financial Evaluation
For the Hirer Cost of Hire Purchase Vs Cost of Leasing Cost of Hire Purchase is - Down payment + service charges + PV of hire purchase payments (Kd) PV of depreciation tax shield (Kc) PV of net salvage value (Kc). Cost of Leasing is - Lease management fee + PV of lease payments (Kd) PV of tax shield on lease payments (Kc) + PV of interest tax shield on hire purchase
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Financial Evaluation
From the viewpoint of the Vendor : NPV of Hire Purchase Plan: - PV of the Hire purchase installments +Documentation and service fee +PV of tax shield on initial direct cost. - Loan amount - PV of Interest tax of financial income - PV of Income tax of financial income - PV of income tax on documentation
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Consumer Credit
Includes all asset based financing plans offered to individuals. (eg. Cars, scooters,VCRs, TVs, Refrigerators, washing machines etc., personal computers.). Main supplier of consumer credit are Multinational Banks, commercial banks, Finance cos..etc
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Consumer Credit
Salient Features :
Parties to the transaction : Bipartite arrangement - two parties viz borrower/consumer and dealer/financier. Tripartite Transaction - dealer, financier, and customer. The dealer arranges the credit from the financier. Structure of the transaction : Hire-Purchase , Conditional Sale , Credit Sale . Hire Purchase - Most tripartite consumer credit transactions are of this type. Customer option to purchase the asset on completion of the pay back period
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Consumer Credit
Conditional Sale : Ownership not transferred until full payment of purchase price, including the credit charge. The customer cannot terminate the agreement. Credit Sale : Ownership transferred to the customer on first installment payment. But the agreement cannot be cancelled. Payment Period and ROI : Payment period - 12 -60 months. ROI - generally flat rate. Effective Rates generally not disclosed. Sometimes in place of ROI, the EMI for different payment periods is mentioned.
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Consumer Credit
Security :
First charge on assets. The consumer cannot sell the hypothecated asset.
Evaluation
Can be made with Effective Rate of Interest and rebates for early repayments.
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Housing Finance
National Housing Bank (1988) is the apex institution for regulation and supervision Liberalisation of guidelines by RBI for housing finance by commercial banks & the entry of LIC (1991) & GIC (1990) as a serious market player Suppliers of Housing Mortgage Loans Housing and Urban Development Corporation (HUDCO) State Housing Finance Societies (SHFSs) Housing Development Finance Corporation Ltd. (HDFC) Commercial Banks (ex. Canfin Homes Ltd.)
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contd.
Housing Finance institutions must be self sustaining bodies Housing Finance companies should mobilise household savings at market rate of interest Housing Finance companies should stress both supply and demand for dwelling units Policy initiative for the development of secondary market for mortgages
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Features :
They offer savings schemes which are linked with assurance to make credit available when required Local in nature, easy documentation and familiarity Comparative advantage with the commercial bank interest structure
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contd.
Subsidiaries of large financial corporations and banks Private independent specialised firms Publicly funded small business investment corporations Subsidiaries or divisions of large manufacturing corporations Major Market Players: VCF of IDBI VCFs of UTI Technology Development and Information Company (TDICI) Risk Capital and Technology Finance Corporation Ltd. (RCTFC) VCFs of commercial Banks Credit Capital Venture Fund (India) Ltd. (CCVF)
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Factors
A financial institution which manages the collection of accounts receivables for the companies on their behalf and bears the credit risk associated with those accounts Three major parties in a Factoring arrangements: the factor, the client (seller),the buyer Minimises credit risk and exist only for credit transactions Major market player: SBI commercial and Factoring Services Ltd.
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Credit Rating
An Act of assigning values/grades to credit instruments by estimating or assessing the solvency position of the borrower It does not create fiduciary relationship between the credit rating agency (CRA) and the rating user or investor Major Market Players
Credit Rating Information Services of India Ltd. (CRISIL) Investment Information and Credit Rating Agency of India Ltd. (ICRA) Credit Analysis and Research Ltd. (CARE) Onida Individual Credit Rating Agency of India Ltd. (ONICRA)
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contd.
chapter4
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Merchant Banking
Companies raise capital by issuing securities in the market. Merchant bankers act as intermediaries between the issuers of capital and the ultimate investors who purchase these securities.
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Http://topics2c.blogspot.com
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Merchant banking
Merchant banking may be defined as an institution which covers a wide range of activities such as underwriting of shares, portfolio management, project counseling, insurance etcThey render all these services for a fee ORIGIN : The term merchant banking originated from the London who started financing foreign trade through acceptance of bills Later they helped government of under developed countries to raise long term funds Later these merchants formed an association which is now called Merchant Banking and Securities House Association
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Citibank-1970 SBI-1972
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Services Rendered
Organising finance for investment in projects Assistance in financial management Acceptance of house business Raising Eurodollar loans and issue of foreign currency bonds Financing export of capital goods, hydropower Financing of hire-purchase transaction, leasing Mergers, takeovers, valuation of assets
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Regulation
Merchant Bankers Regulations of Securities and Exchange Board of India Company Act 1956 Listing guidelines of Stock Exchanges Securities Contracts (Regulation) Act, 1956 Formation of divisions Subsidiaries companies
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Structure
Category-I to carry on any activity of the issue management, which will inter-alia consist of preparation of prospectus and other information relating to the issue, determining financial structure, tie-up of financiers and final allotment and refund of the subscription; and
to act as adviser, consultant, manager, underwriter, portfolio manager.
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Structure
Category II that is, to act as adviser, consultant, comanager, underwriter, portfolio manager; Category III that is to act as underwriter, adviser, consultant to an issue; Category IV that is to act only as adviser or consultant to an issue.
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Authorized Activities
Issue Management Preparation of prospectus Information relating to the issue Determining financing structure Tie-up of finances and final allotment and/or refund of subscription Corporate advisors to the issue Consultants or advisors to issue and underwriting
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Functions
Corporate advisory services Merchant bankers offer customized solutions to their clients financial problems. The following are the main areas in which their advice is sought: Financial structuring includes determining the right debt-equity ratio and gearing ratio for the client, the appropriate capital structure theory is also framed. Merchant bankers also explore the refinancing alternatives of the client, and evaluate cheaper sources of funds.
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Functions
Another area of advice is rehabilitation and turnaround management. In case of sick units, merchant bankers may design a revival package in coordination with banks and financial institutions. Risk management is another area where advice from a merchant banker is sought. He advises the client on different hedging strategies and suggests the appropriate strategy.
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FUNCTIONS
Project advisory servicesconceptualizing the project idea feasibility studies Preparing different documents like the detailed project report.
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FUNCTIONS
Loan syndicationTie up loans for their clients Analyze the pattern of the clients cash flows Prepares a detailed loan memorandum This takes place in a series of steps. Firstly they, based on which the terms of borrowings can be defined. Then the merchant banker, which is circulated to various banks and financial institutions and they are invited to participate in the syndicate.
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LOAN SYNDICATION : Assistance is rendered to raise loans for projects after determining promoters contribution. These loans can be obtained from a single institution or a consortium.
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ISSUE MANAGEMENT : Management of issues involves marketing of corporate securities ieequity shares, preference shares and debentures by offering them to public.
Pre-issue activities:
They prepare copies of prospectus and send it to to SEBI and then file them to Registrar of Companies They conduct meetings with company representatives and advertising agencies to decide upon the date of opening of issue, closing of issue, launching & publicity campaign etc..
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They help the companies in fixing up the prices for their issues
Post-issue activities:
It includes collection of application forms, screening of applications, deciding allotment procedure, mailing of allotment letters, and refund orders
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UNDERWRITING OF PUBLIC ISSUES : Underwriting is an insurance to the company which makes public issues. Raising of external resources is easy for the issues backed by well known underwriters. MANAGERS,CONSULTANTS OR ADVISERS TO THE ISSUE : SEBI insist that all issues should be managed by atleast one authorised merchant banker but not more than two. For an issue of 100 crores, upto a maximum of four merchant bankers shall be appointed. They help in listing of shares in stock exchange, completion of formalities under Companies Act etc..
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PORTFOLIO MANAGEMENT : Portfolio refers to investment in different kinds of securities such as shares, debenture issued by different companies. It is a combination of assets but a carefully blended asset combination. Portfolio management refers to maintaining proper combination of securities in a manner that they give maximum return Investors are interested in safety, liquidity and profitability of his investment but they cant choose the appropriate securities. So merchant bankers help their investors in choosing the shares. They conduct regular market and economic surveys.
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NRI INVESTMENT : NRIs has to follow lots of complicated rules for investing in the shares in India. Merchant bankers help them in choosing the shares and offer expert advice fulfilling government regulations thus mobilising more resources for corporate sector. ADVISORY SERVICE RELATING TO MERGERS AND TAKEOVERS : Merger is a combination of two or more companies into a singe company where one survives and other loses its existence Takeover is the purchase by one company acquiring controlling interest in the share capital of another company Merchant banker acts as middlemen between offeror and offeree, negotiates mode of payment and gets approval from government.
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Long term foreign currency loan Joint venture abroad Financing exports and imports Foreign collaboration arrangement
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MERCHANT
BANKING
Foreign banks like National Grindlays Bank, Citibank, HSBC bank etc.. Development banks like ICICI,IFCI,IDBI etc.. SFC , SIDCs Private firms like JM Financial and Investment service , DSP Financial Consultants, Ceat Financial Services, Kotak Mahindra, VMC Project Technologies, Morgan Stanley, Jardie Fleming, Klienwort Benson etc
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SEBI stipulates high capital adequacy norms for authorisation which prevents young, specialised professionals into merchant banking business Non co-operation of the issuing companies in timely allotment of securities and refund of application of money etc.. is another problem Yet merchant banking is vast but should develop adequate expertise to provide a full range of merchant banking services
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Chapter 5
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Mutual Funds
WHAT IS A MUTUAL FUND? A Mutual Fund is a trust that pools the savings of a number of investors who share a common investment objective in turn buy assets.
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Mutual Funds
Modern mutual fund was first introduced in Belgium in 1822.This form of investment soon spread to Great Britain and France. Mutual funds became popular in the united states in the 1920s and continue to be popular since 1930s,especially open end mutual funds mutual funds experienced a period of tremendous growth after world war II, and in 1980s and 1990s
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contd.
Valuation of Units
Net Asset Value (NAV) & Expected Rate of Return (RRU) NAV = Total Market Value of the Asset of the Fund Liabilities Number of Funds Outstanding Units RRU = (NAV t NAV t-1 ) + Dividends + Capital Gain NAV t-1
Where, t = Current Year t-1 = Previous Year
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Organisation
Five key Players in a Mutual Fund Company The sponsor(s)/The Board of Trustees (BOT)/Trust Company The Asset Management Company (AMC) The Unit Holders or Investors The Custodian
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Organisation
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II. By Nature
contd.
III. By investment objective: Growth Schemes Income Schemes Balanced Schemes Money Market Schemes Sector Specific Schemes Other schemes Tax Saving Schemes Index Schemes
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contd.
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Growth and Composition of Net Resources Mobilized by mutual Funds (2003-04 to 2005-06)
Years Subsidiaries of Banks (in Crore) Subsidiaries of FIs(in Crore) UTI (in Crore) Private Sector (in Crore)
(Rs. Crore)
Grand Total (in Crore)
1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
888 2352 2140 1204 148 761 111 -------336 518 862 1074 4526 707 4278
315 603 427 760 239 576 221 ------295 1273 613 914 787 -384 2112
5491 3199 8685 11,057 9297 8611 -6314 -3,043 4548 322 -7284 -9434 1050 -2467 3473
----------------------------1,559 1,327 240 556 16,937 9869 12,948 12,026 41,510 7933 40,811
6,694 6,154 11,253 13,021 11,243 11,275 -5.742 -2,313 22,117 11,982 7138 4580 47,873 2789
242 50,674
Other topics
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Universal banking
Definition In universal banking, large banks operate extensive network of branches, provide many different services, hold several claims on firms(including equity and debt) and participate directly in the Corporate Governance of firms that rely on the banks for funding or as insurance underwriters.
Universal banking
Universal banking is a superstore for financial products under one roof. Universal banking refers to those banks that offer a wide range of financial services, beyond the commercial banking functions like, Mutual funds, merchant banking, factoring, credit cards, retail loans, housing finance,auto loans,investment banking, insurance etc.
Universal banking
The phenomenon of Universal Banking as a distinct concept, as different from narrow banking came to the forefront in the Indian context with the Narasimhan Committee (1998) and later the Khan Committee (1998) reports recommending consolidation of the banking industry through mergers and integration of financial activities.
Overview of NABARD
NABARD is set up by the Government of India as a development bank with the mandate of facilitating credit flow for promotion and development of agriculture and integrated rural development. The mandate also covers supporting all other allied economic activities in rural areas, promoting sustainable rural development and ushering in prosperity in the rural areas. With a capital base of Rs 2,000 crore provided by the Government of India and Reserve Bank of India , it operates through its head office at Mumbai, 28 regional offices situated in state capitals and 391 district offices at districts.
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NABARD
It is an apex institution handling matters concerning policy, planning and operations in the field of credit for agriculture and for other economic and developmental activities in rural areas. Essentially, it is a refinancing agency for financial institutions offering production credit and investment credit for promoting agriculture and developmental activities in rural areas.
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NABARD
NABARD is set up as an apex Development Bank with a mandate for facilitating credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts. It also has the mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas. In discharging its role as a facilitator for rural prosperity NABARD is entrusted with 1. Providing refinance to lending institutions in rural areas 2. Bringing about or promoting institutional development and 3. Evaluating, monitoring and inspecting the client banks
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NABARD
Besides this pivotal role, NABARD also: Acts as a coordinator in the operations of rural credit institutions Extends assistance to the government, the RBI and other organizations in matters relating to rural development Offers training and research facilities for banks, cooperatives and organizations working in the field of rural development Helps the state governments in reaching their targets of providing assistance to eligible institutions in agriculture and rural development Acts as regulator for cooperative banks and RRBs
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disbursement under ST-Agri & Others and MT-Conversion/ Liquidity support aggregated Rs.16952.83 crore during 2007-08. Refinance disbursement under Investment Credit to commercial banks, state cooperative banks, state cooperative agriculture and rural development banks, RRBs and other eligible financial institutions during 2007-08 aggregated Rs.9046.27 crore. Through the Rural Infrastructure Development Fund (RIDF) Rs.8034.93 crores were disbursed during 2007-08. With this, a cumulative amount of Rs.74073.41 crore has been sanctioned for 280227 projects as on 31 March 2008 covering irrigation, rural roads and bridges, health and education, soil conservation, drinking water schemes, flood protection, forest management etc.
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Credit functions
NABARD's credit functions cover planning, dispensation and monitoring of credit. This activity involves: Framing policy and guidelines for rural financial institutions Providing credit facilities to issuing organizations Preparation of potential-linked credit plans annually for all districts for identification of credit potential Monitoring the flow of ground level rural credit
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Supervisory function
Giving directions and guidance in respect of policies and on matters relating to supervision and inspection, reviewing the inspection findings, suggesting appropriate measures Reviewing the follow-up action taken by Department of Supervision (DoS) on matters of frauds and internal checks and control Identifying the emerging supervisory issues in the functioning of cooperative banks/RRBs such as NPAs recovery, investment portfolio, credit monitoring system, management practices, frauds, etc. Suggesting necessary follow-up measures Recommending appropriate training for Inspecting Officers of NABARD for imparting necessary skills and knowledge
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Supervisory function
Suggest measures for strengthening of DoS Recommend issue of directions by RBI Oversee the quality of inspections carried out and the reports issued Review the information generated through offsite surveillance and other supplementary vehicles, action taken thereon Undertake any other functions entrusted from time to time by the Board of Directors of NABARD
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Role of training
National Bank Staff College, Lucknow National Bank Training Centre, Lucknow Zonal Training Centre, Hyderabad Regional Training Centre, Mangalore Regional Training Centre, Bolpur Bankers Institute of Rural Development (BIRD), Lucknow
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MONETARY POLICY
MONETARY POLICY Monetary policy refers to the credit control measures adopted by the central bank of a country to influence the level of aggregate demand for goods and services or to influence the trends in certain sectors of the economy. Monetary policy operates through varying the cost availability of credit. There variations affect the demand for . And the supply of credit in the economy, and the nature of economic activities.
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OBJECTIVE OR GOALS OF MONETARY POLICY Full Employment:- one of the objectives of monetary policy is attain full employment. It is not only because unemployment leads to wastage of potential output. But also because of the loss of social standing and self- respect. It also breeds poverty.
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Quantitative measures
Open Market operations: Here, the RBI enters into sale and purchase of government securities and treasury bills. So the RBI can pump money into circulation by buying back the securities and vice versa. In absence of an independent security market (all Banks are state owned), this is not really effective in India. Bank rate policy: Popularly known as repo rate and reverse repo rate, it is the rate at which the RBI and the Banks buy or exchange money. This results into the flow of bank credit and thus effects the money supply. Cash Reserve ratio (CRR): This is the percentage of total deposits that the banks have to keep with RBI. And this instrument can change the money supply overnight. Statutory Liquidity Requirement (SLR): This is the proportion of deposits which Banks have to keep liquid in addition to CRR. This also has a bearing on money supply.
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Qualitative measures
Credit rationing: Imposing limits and charging higher/lower rates of interests in selective sectors is what you see is being done by RBI. Change in lending margins: Or is the risk weightage assigned for the various lendings.?? Moral suasion: We hear of RBI's directive of priority lending in Agriculture sector. Seems more of a directive rather than persuasion!!
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By, Madhuri M
Background
The Committee was formed in response to the messy liquidation of a Bank(Herstatt) in 1974. On 26 June 1974, a number of banks had released Deutsche Mark (German Mark) to the Bank Herstatt in exchange for dollar payments deliverable in New York. On account of differences in the time zones, there was a lag in the dollar payment to the counter-party banks, and during this gap, and before the dollar payments could be effected in New York, the Bank Herstatt was liquidated by German regulators. This incident prompted the G-10 nations to form towards the end of 1974, the Basel Committee on Banking Supervision, under the auspices of the Bank of International Settlements (BIS) located in Basel, Switzerland.
Basel I
Basel I, that is, the 1988 Basel Accord, primarily focused on credit risk. Assets of banks were classified and grouped in five categories according to credit risk, carrying risk weights of zero, ten, twenty, fifty, and up to one hundred percent (this category has, as an example, most corporate debt). Banks with international presence are required to hold capital equal to 8 % of the risk-weighted assets. Since 1988, this framework has been progressively introduced in member countries of G-10, currently comprising 13 countries, Most other countries, currently numbering over 100, have also adopted.
Basel II
. The purpose of Basel II, which was initially published in June 2004, is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face. Basel II attempts to accomplish this by setting up rigorous risk and capital management requirements designed to ensure that a bank holds capital reserves appropriate to the risk the bank exposes itself to through its lending and investment practices . Generally speaking, these rules mean that the greater risk to which the bank is exposed, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economic stability.
Basel III
BASEL III: The new bank capital rules agreed by global regulators on sep 13th 2010 brought relief to worlds banks. The new requirement known as Basel III will demand banks hold top quality capital totaling 7% of their risk bearing assets. The new capital ratio represents a substantial increase from the current requirement of 2%.
Highlights
The predominant component of capital is common equity and retained earnings. The Tier I capital that includes common equity and preferred stock will be raised from 2% to 4.5% in phases starting from January 2013 to be completed within 2015. In addition banks have to set aside another 2.5% as contingency for future stress. The new rules are based on renewed focus of Central Bankers macro prudential stability as global regulators are determined t ensure financial stability of the system as a whole rather than micro regulation of individual bank. Indian banks are not likely to be impacted by the new rules as the capital to risk weighted assets ratio of the Indian banking system stood at 12.4% with Tier I at 9.3%. There may be some negative impact arising from shifting some deductions from Tier I and Tier II capital to common equity.
The original BASEL accord was a rules-based approach to capital adequacy not based on internal risk management practices. Simple formula: Regulatory Capital = 8% x RWA(Risk Weighted Asset % of notional assets) BASEL II recognizes that banks are in the best position to assess their risks and thus tries to align. capital measurement with internal risk measurement.
Pillar One Minimum Capital Requirements Recommends options of increasingly sophisticated frameworks for banks to quantify credit and operational risks and allocate capital commensurate. with these risks Provides a range of methods for calculating the capital requirements; banks may choose (within the bounds of guidance by their supervisor) which approaches to employ. Basel Committee Objective: Provide a more accurate, risk sensitive approach to allocating capital to protect against credit, market and operational risk exposure. Pillar Two Supervisory Review Process Provides a framework and set of principles to guide an expanded review of banks by supervisors. Supervisors will ensure that banks have implemented processes that monitor risks and that capital reserve levels remain adequate and appropriate. Basel Committee Objective: Create a framework to guide bank supervisory authorities in their supervision. Pillar Three Market Discipline Prescribes a detailed set of requirements for public disclosure of banks capital structure, risk profile, risk exposure and capital adequacy both quantitative and qualitative. Basel Committee Objective: Promote market discipline by exposing banks capital structure, risk exposures and mitigation strategies to the public.
Operational Risk
Basel Committee defines operational risk as: "The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The following lists the official Basel II defined event types with some examples for each category: Internal Fraud - misappropriation of assets, tax evasion, intentional mismarking of positions, bribery External Fraud- theft of information, hacking damage, third-party theft and forgery Employment Practices and Workplace Safety - discrimination, workers compensation, employee health and safety Clients, Products, & Business Practice- market manipulation, antitrust, improper trade, product defects, fiduciary breaches, account churning Damage to Physical Assets - natural disasters, terrorism, vandalism Business Disruption & Systems Failures - utility disruptions, software failures, hardware failures Execution, Delivery, & Process Management - data entry errors, accounting errors, failed mandatory reporting, negligent loss of client assets
Hudco
The Housing and Urban Development Corporation
The Housing and Urban Development Corporation Ltd. (HUDCO) was incorporated on April 25, 1970 under the Companies Act 1956, as a fully owned enterprise of the Government of India. HUDCO focus on the social aspect of housing and utility infrastructure provision. Preferential allocation of resources to the socially disadvantaged. The effective span of HUDCO's omnipresent techno-financial umbrella could be gauged by the fact that, on an average, one in every 16 houses in the country has invariably availed HUDCO's financial assistance.
In spite of being commercial in its orientation, it continues to focus on sectors which are more socially relevant rather than only on commercially viable and profitable sectors. HUDCO's technoeconomic focus, its high caliber human resources, and its financial and project re-engineering capabilities has enabled it to continue as an Institution par excellence in the field of housing and urban development. A Unique Institution of Social Relevance
OBJECTIVE
To provide long term finance for construction of houses for residential purposes or finance or undertake housing and urban development programmes in the country. To finance or undertake, wholly or partly, the setting up of new or satellite town. To subscribe to the debentures and bonds to be issued by the State Housing (and or Urban Development) Boards, Improvement Trusts, Development Authorities etc., specifically for the purpose of financing housing and urban development programmes.
To finance or undertake the setting up of industrial enterprises of building material. To administer the moneys received, from time to time, from the Government of India and other sources as grants or otherwise for the purposes of financing or undertaking housing and urban development programmes in the country. To promote, establish, assist, collaborate and provide consultancy services for the projects of designing and planning of works relating to Housing and Urban Development programmes in India and abroad.
MISSION
"TO PROMOTE SUSTAINABLE HABITAT DEVELOPMENT TO ENHANCE THE QUALITY OF LIFE"
VISION
"TO BE AMONG THE LEADING KNOWLEDGE HUBS AND FINANCIAL FACILITATING ORGANISATIONS FOR HABITAT SETTLEMENT"
Major activities
Housing Infrastructure Action Plan Schemes Building Technology Consultancy Disaster Mitigation Research / Training Implementing Agencies
HOUSING
Urban Housing Rural Housing Co-operative Housing Community Toilets and Sanitation Slum Up gradation Staff Housing Repairs & Renewals Private Sector Take out finance Land Acquisition HUDCO Home Loans
INFRASTRUCTURE
Utility Infrastructure Commercial Infrastructure Social Infrastructure Industrial Infrastructure Information/Communication/Entertainment Telecom Innovative Project
HUDCO IN NEWS
HUDCO Records Highest Profit - Pays dividend to the Government Reduction in HUDCO's Interest Rates During 2009-10 HUDCO earmarks 3% profit towards CSR activities HUDCO pays dividend HUDCO accorded 'AAA' rating HUDCO and MoHUPA ( Ministry of Housing and Urban Poverty Alleviation) sign MoU for 2009 10 HUDCO Conferred Enterprise Excellence Award
MICROFINANCE
Nishanth Prathiba Aiyappa
DEFINING MICROFINANCE
Microfinance is the provision of financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking and related services
Supply of loans, savings and other basic financial services to poor, as the financial services of microfinance usually involve small amount of money, small loan, small savings etc The term microfinance helps to differentiate these services from those which formal bank provides.
HISTORY OF MICROFINANCE
Credit union movement, 19th Century in Germany Microfinance movement begins in 1976 Professor Yunus experimentation lead to the initiation of the Grameen Bank in 1983
Microfinance does not satisfy an existing market. Demand for microfinance services emerges after creating institutions to provide such services
POVERTY
Access to microfinance
Increase incomes
Increase food consumption Invest in education & health Invest in housing, water, sanitation
microfinance services
Features of SHGs
Enables exclusion of rich Focus on women Saving first and credit later Intra group appraisal systems Shorter repayment terms Market rates of interest Progressive lending
MFIs
NGO MFIs Societies Registration Act, 1860 or similar Provincial Acts and/or Indian Trust Act,1882 Non-profit Companies Section 25 of the Companies Act, 1956 Cooperative MFIs Cooperative Societies Acts of the State & Central Governments Non-Banking Financial Companies (NBFCs) Indian Companies Act, 1956 Reserve Bank of India Act, 1934
ASA, Bangladesh
ASA has the reputation of being the most rapidly expanding and best-managed MFI in the world ASA has emerged as one of the largest and most efficient Microfinance Institution (MFI) in the world and has been working relentlessly to assist the poor since its inception in 1978 The major drive behind ASA is to gradually eradicate poverty from society As of June 2008, ASA has successfully extended its outreach in Bangladesh through 3,324 branches and its 25,125 staff work relentlessly to serve more than 7.13 million clients in 72,204 villages
THANK U U U.