Institutional Finance
By Radhika
Financial System
• Plays a Vital role in economy
• Bridges the gap between…
• Channelize/ mobilize the vital resources
FUNDS

Financial Intermediaries

Commercial Banks
Insurance Company
DEPOSITES
Mutual Funds
/SHARE
Non-banking financia...
Financial intermediaries
• Commercial Banks
– Public Sector Banks
– Foreign Banks
– Private Sector Banks

• Financial Inst...
Cont.
• Insurance Companies
 LIC
 GIC
 Private sectors
Cont.
• Mutual Funds
– It is financial intermediary that collect savings from
investors
– Different types of investment
– ...
Cont.
• Non-banking Financial Intuitions [NBCI/NBFC]
• According to RBI,
– NBFC means;
i. a financial institution which is...
Cont.
• NBFC are Categorized into:
– An equipment leasing co. [EL]
– A hire-purchase co. [HP]
– A housing finance co. [HFC...
Money Market
•
•
•
•
•
•
•

Introduction
It is a whole sale market
No need of place
Transactions generally settled in dail...
Money Market instruments
1. Treasury Bills
– One of the safest instruments
– Short term borrowing instruments of Central G...
Cont.
• Currently, T-bills are generally available in
– 91-Day T-bills
- auctioned every Friday
– 182- Day T-bills
- aucti...
Cont.
2. Commercial Paper [CP]
– It is an unsecured short term promissory note issued
by creditworthy corporate, primary d...
Cont.
– RBI introduced commercial papers in 1990
– CP can be issued to banks, individuals, companies &
other registered bo...
Cont.
3. Commercial Bills
– CB are negotiable instruments drawn by the seller on
the buyer which, are in turn, accepted & ...
Cont.
– Meanwhile, if the bank requires fund then it can also
re-discount the same with RBI,UTI,LIC,ICICI etc.
– Maturity ...
Cont.

•Seller

•Buyer

Trade Bill

Collected By
Bank
Commercial
Bill

•Bank
Cont.
• Major Types of Commercial Bills
I. Demand Bill v/s Usance Bill
II. Inland Bill v/s Foreign Bill
III. Export Bill v...
Cont.
4. Call/ Notice Money:
• Call Money Market
– It is a short term funds market with maturity period 1
day to 2 weeks
–...
Cont.
– To fulfill mandatory requirements of RBI
commercial banks borrow money from the other
banks & institutions
– The i...
Cont.
5. Certificate of Deposit
– It was introduced in 1989
– CDs are unsecured, negotiable, short term
instruments in bea...
Capital Market
• To achieve growth in various sectors
• To meet the requirements of various investors, borrower
& entrepre...
Primary Market
Cont.
IPO

Issue of
Tender

Right
Issue
Primary
market

Offer for
Sale

Private
Placements
Secondary market
Cont.
• Secondary market popularly known as stock market
• Where outstanding or existing securities are purchased
& sold o...
Cont.
• Distinguishing feature
• In India Secondary market functions as a recognized
stock exchanges operating under certa...
Functions of Secondary market
1.
2.
3.
4.
5.

Marketability
Safety
Performance check
Valuation
Promotion & development
Nature & Role Of Financial System
• Mobilizing funds to productivity
• Provides excellent mechanism for exchange of goods
...
Institutional finanace Unit-5 T Y BBA
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Institutional finanace Unit-5 T Y BBA

  1. 1. Institutional Finance By Radhika
  2. 2. Financial System • Plays a Vital role in economy • Bridges the gap between… • Channelize/ mobilize the vital resources
  3. 3. FUNDS Financial Intermediaries Commercial Banks Insurance Company DEPOSITES Mutual Funds /SHARE Non-banking financial co. Supplier of Funds Individuals Business Government FUNDS Financial System Financial Market FUNDS LOANS Demander of Funds Individuals Business Government FUNDS Money Market Capital Market SECURITIES SECURITIES
  4. 4. Financial intermediaries • Commercial Banks – Public Sector Banks – Foreign Banks – Private Sector Banks • Financial Institutions – IFCI – SIDBI – ICICI – NABARD
  5. 5. Cont. • Insurance Companies  LIC  GIC  Private sectors
  6. 6. Cont. • Mutual Funds – It is financial intermediary that collect savings from investors – Different types of investment – Pool of funds from investors – Advantages of mutual funds are reduction in risk, expert professional mgt., liquidity of investment & tax benefits – SEBI (Mutual Funds) Regulation, 1993
  7. 7. Cont. • Non-banking Financial Intuitions [NBCI/NBFC] • According to RBI, – NBFC means; i. a financial institution which is a co.; ii. a non-banking inst. whiz a co. & has, as its principal business, the receiving of deposits under the scheme or mgt. or any other manner or lending in any manner; iii. such other non-banking institution or class of such inst. as the bank may with the previous approval of the Central Govt. specify
  8. 8. Cont. • NBFC are Categorized into: – An equipment leasing co. [EL] – A hire-purchase co. [HP] – A housing finance co. [HFC] – An investment co. [IC] – A loan co. [LC] – A mutual benefit co. [MBFC] i.e Nidhi Companies – A miscellaneous non-banking co. i.e Chit fund co.
  9. 9. Money Market • • • • • • • Introduction It is a whole sale market No need of place Transactions generally settled in daily basis Important Segment Market for monetary assets of a shot-term nature Money market instruments have the characteristic of liquidity
  10. 10. Money Market instruments 1. Treasury Bills – One of the safest instruments – Short term borrowing instruments of Central Govt. issued by… – Zero Risk instruments hence… – Short term securities that will mature... – Issued at discounted rate and with promise to pay full face vale on maturity – Generally available in minimum of 25K & in multiples thereof
  11. 11. Cont. • Currently, T-bills are generally available in – 91-Day T-bills - auctioned every Friday – 182- Day T-bills - auctioned every alternate Wed. – 364-Day • Types of T-bills – On Tap Bills – Ad-hoc Bills – Auctioned Bills
  12. 12. Cont. 2. Commercial Paper [CP] – It is an unsecured short term promissory note issued by creditworthy corporate, primary dealers & all financial inst. – basically negotiable & transferrable by… – Fixed maturity period – Issued to meet w.c requirements of the firms – Also known as Finance Paper, Industrial Paper or Corporate Paper
  13. 13. Cont. – RBI introduced commercial papers in 1990 – CP can be issued to banks, individuals, companies & other registered bodies – It can also be issued to NRI but… – FII are also permitted to subscribe but to a certain limit fixed by SEBI
  14. 14. Cont. 3. Commercial Bills – CB are negotiable instruments drawn by the seller on the buyer which, are in turn, accepted & discounted by Commercial Banks – These are basically called trade bills & when these bills are accepted by commercial banks, they called.. – Bank accepts the bill from the seller & pays the amount of the bill after charging some discount. – after expiry of the bill collected from the buyer...
  15. 15. Cont. – Meanwhile, if the bank requires fund then it can also re-discount the same with RBI,UTI,LIC,ICICI etc. – Maturity period varies from 30 to 180 days. – Example: • • • • • Bill Amt. – rs. 10000 Discount - 2% Payment made by Bank to seller – 9800 Payment received by bank from buyer – rs.10000 Commission earned by bank – rs. 200
  16. 16. Cont. •Seller •Buyer Trade Bill Collected By Bank Commercial Bill •Bank
  17. 17. Cont. • Major Types of Commercial Bills I. Demand Bill v/s Usance Bill II. Inland Bill v/s Foreign Bill III. Export Bill v/s Import Bill
  18. 18. Cont. 4. Call/ Notice Money: • Call Money Market – It is a short term funds market with maturity period 1 day to 2 weeks – Call money – Notice money – Main aim of growth of this instrument is due to commercial banks requirements
  19. 19. Cont. – To fulfill mandatory requirements of RBI commercial banks borrow money from the other banks & institutions – The interest rate paid on the call/notice money loan is called “CALL RATE”
  20. 20. Cont. 5. Certificate of Deposit – It was introduced in 1989 – CDs are unsecured, negotiable, short term instruments in bearer form issued by commercial banks & financial institutions – Generally CD are time deposits (FD) – CD are transferable & tradable while FD are not. – It can be issued to all even to NRI.
  21. 21. Capital Market • To achieve growth in various sectors • To meet the requirements of various investors, borrower & entrepreneurs • A platform for investors to get greater returns • Provide funds to the Organization to get developed • Buying and selling of long-term debt or equitybacked securities • Provides effective & efficient way to support exchange of various financial instruments for mutual benefit.
  22. 22. Primary Market
  23. 23. Cont. IPO Issue of Tender Right Issue Primary market Offer for Sale Private Placements
  24. 24. Secondary market
  25. 25. Cont. • Secondary market popularly known as stock market • Where outstanding or existing securities are purchased & sold on a continuous basis • Unlike primary markets it facilitates changing of hands (ownership) • Securities issued in primary market are traded • Like ordinary market where there is buyer & seller • Likewise the prices will be determined by the demand & supply forces
  26. 26. Cont. • Distinguishing feature • In India Secondary market functions as a recognized stock exchanges operating under certain rules & regulations duly approved by the government. • Thus, these stock exchanges constitute an organized mechanism under which various public & private securities are traded.
  27. 27. Functions of Secondary market 1. 2. 3. 4. 5. Marketability Safety Performance check Valuation Promotion & development
  28. 28. Nature & Role Of Financial System • Mobilizing funds to productivity • Provides excellent mechanism for exchange of goods &services • Establishment of different institutions • Crucial role in reducing risk

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