Tybaf revised m6 finance
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Tybaf revised m6 finance Tybaf revised m6 finance Presentation Transcript

  • INDIAN ECONOMY: TYBAF REVISED SYLLABUS
  • M- 1 INTRODUCTION : FIVE CHAPTERS M – 2 AGRICULTURAL SECTOR : SIX CHAPTERS M – 3 INDUSTRIAL SECTOR : FOUR CHAPTERS M – 4 SERVICE SECTOR : THREE CHAPTERS M – 5 EXTERNAL SECTOR : FOUR CHAPTERS M – 6 MONEY AND BANKING : FIVE CHAPTERS
  • REVISED PAPER PATTERN NUMBER OF QUESTIONS = 06 NUMBER OF QUESTIONS TO BE ANSWERED = 4 Q.1 – COMPULSORY Q.2 – COMPULSORY; OBJECTIVE TYPE Q.3 – OR Q.4 Q.5 – OR Q.6 – SHORT NOTES
  • MODULE VI -MONEY & BANKING
    • MONEY MARKET
    • COMMERCIAL BANKING
    • RBI’S MONETARY
    • MANAGEMENT
    • CAPITAL MARKET,
    • SEBI & ITS FUNCTIONS
  • MONEY MARKET FUNCTIONS STRUCTURE FEATURES/LIMITATIONS REFORMS MARKET FOR SHORT TERM FUNDS
  • UNIVERSITY QUESTIONS :
    • FEATURES OF MONEY MARKET – SHORT NOTES (APR. 09, NOV 08 & 06)
    • WHAT ARE THE DRAWBACKS OF MONEY MARKET (APRIL 07)
    • EXPLAIN THE STRUCTURE OF MONEY MARKET (NOV 07)
    LIKELY QUESTIONS
    • DISCUSS THE MONEY MARKET REFORMS
    • WRITE A NOTE ON ORGANISED MONEY MARKET
    • WRITE A NOTE ON T-BILLS
  • MONEY MARKET DEALS IN FUNDS AND INSTRUMENTS HAVING A MATURITY OF ONE DAY TO ONE YEAR MARKET PLAYERS RBI- REGULATOR, MERCHANT BANKER GOVERNMENT – BIGGEST BORROWER BANKS AND FINANCIAL INSTITUTIONS – LENDING & BORROWING CORPORATES – BORROWERS INSTITUTIONAL PLAYERS – ( M.F., FII ) AS PER RBI GUIDELINES DISCOUNT HOUSES & PRIMARY DEALERS – INTERMEDIARIES, discounting & rediscounting T-BILLS, COMMERCIAL BILLS PRIMARY DEALERS (1995) – to develop active government securities market
  • FUNCTIONS OF MONEY MARKET
    • It equates demand and supply of short term funds
    • Helps effective implementation of monetary policy
    • Consists of ample avenues of investments
    • Increases supply of funds
    • Helps allocation of short term funds
    • Provided funds in non-inflationary way
  • STRUCTURE OF MONEY MARKET ORGANISED UNORGANISED All INDIA DEBT & INVESTMENT SURVEY 1991 36% OF LOANS IN RURAL AREA.
  • CALL / NOTICE MONEY MARKET: 1 to 14 days; at call money rate fixed by market forces . Participants : commercial banks, co-op banks , primary dealers (FI authorised by RBI) & DFHI,LIC,GIC,UTI etc. only as lenders Location: MUMBAI, KOLKATA, CHENNAI etc. RBI function: provide additional funding to DFHI, increasing liquidity through REPO, mopping liquidity through REVERSE REPO, stabilizing call rates. TREASURY BILL MARKET (TB ) : issued by RBI on behalf of central Govt., Main instrument of short term borrowing of Govt. Issued on auction, interest determined by market forces Eligible security to meet SLR, highly liquid, absence of risk of default Ordinary bills to bankers, but Ad-hoc for deficit financing(discontinued in 1997) Initially 182 days, recently 91,364 days bills are issued. Sold on discount are available for a minimum 25,000 Rupees & multiples of 25,000. Participants : commercial banks, primary dealers, MFs, corporates, FIs, pension funds etc.
  • COMMERCIAL BILL MARKET (CB): Drawn by one merchant firm on another & get liquidity from commercial banks Interest charged is at discount. Maturity upto 90 days Undeveloped – a)cash credit b)no uniformity in drafting bills c) tedious procedure d) heavy stamp duty Share of bill market has fallen fm 11% in 1993-94 to 6.5% in 2002-03 CERTIFICATE OF DEPOSIT (CDs) Introduced in 1989; issued by commercial banks & Development Financial Institutions Are marketable receipts of funds deposited in a bank for a fixed period at a specified Rate of interest. Initially – in multiples of 25 lakh, min size 1 cr.,3 months maturity, 45 days lock in After reforms - min amount 1 lakh, multiples of 1 lakh, at discount rt of market, lock in 15 days, subject to CRR & SLR, scheduled banks other than RRBs fm 15 days to 1 year, financial institutions 1 year to 3 years maturity
  • COMMERCIAL PAPER (CPs) MARKET Introduced in 1990, raising funds by corporates Issuing company tangible net worth not less than 4 cr. & working capital no less than 4 cr. Min rating P2, 07 days to 1 year maturity period, min denomination 5 lakh & its multiples From 2001 in DEMAT form Dealing done by DFHI REPO MARKET Introduced in 1992. two parties transaction agreement of selling & buying back REPO – INJECTION REVERSE REPO – MOPPING LIQUIDITY (current repo- 7.50 R.Repo 6.50) Inter bank repo & RBI repo, rates are changed by RBI Repo of state & central govt. securities, PSU bonds, corporate bonds in DEMAT FORM can be used for SLR, and liquidity control MONEY MARKET MUTUAL FUNDS (MMMFs) April 1992, can be set up by scheduled commercial banks, public financial institutions, Lock in 15 days, regulated by SEBI. Enable small investors to participate in money market. DISCOUNT AND FINANCE HOUSE OF INDIA (DFHI) Set up by RBI in 1988 – owned by RBI, public sector banks, all India financial institutions That have contributed in paid up capital. Developmental & stabilizing role; acts as a intermediary body
  • FEATURES / LIMITATIONS OF MONEY MARKET
    • Unorganized market
    • Lack of Integration
    • Multiple interest rates
    • Inadequate funds
    • Seasonal stringency of money
    • Absence of bill market
    • Absence of well organized banking – U.S. 1200 people = 1 branch, India 15,000 = 1 branch
  • REFORMS OF MONEY MARKET RECOMMENDATIONS OF s. Chakravarty in 1985 & N. Vaghul in 1987
    • Deregulation of Interest – in 1989
    • Introduction of new instruments
    • REPOs in 1996
    • Liquidity Adjustment Facility through Repo to stabilize interest
    • MMMFs in 1992
    • DFHI
    • Development of Call market; more participants are allowed (eg. MFs, NBFCs etc.)
    • CCIL in 2001nwith SBI as a chief promoter to clear all transactions in govt. securities,
    • Repos. Rupees/dollar foreign exchange spot & forward deals.
  • RBIs MONETARY MANAGEMENT Refers to controlled changes in the stock of money to achieve well defined social objectives INSTRUMENTS OF CREDIT CONTROL CRITICAL EVALUATION OF MONETARY MANAGEMENT RECENT CHANGES IN MONETARY MANAGEMENT
  • UNIVERSITY QUESTIONS: EXPLAIN THE MONETARY POLICY OF RBI SINCE 1991 (APR. 06) CRITICALLY EVALUATE THE MONETARY POLICY OF RBI IN POST REFORM PERIOD ( NOV.07) LIKELY QUESTIONS: DISCUSS THE VARIOUS INSTRUMENTS OF CREDIT CONTROL OF RBI WRITE A NOTE ON QUANTITATIVE CREDIT CONTROL
  • OBJECTIVES OF MONETARY POLICY
    • Controlled expansion of money
    • 2) Channelizing credit to desired sectors
    • 3) Employment generation
    • 4) External stability
    • 5) Control of inequality
    • 6) Mobilization of savings
  • INSTRUMENTS OF MONETARY MANAGEMENT IN INDIA GENERAL CREDIT CONTROL SELECTIVE CREDIT CONTROL
    • Bank Rate – 9% in 1998
    • 6.5% in 2001
    • 6% in 2006; current – 6%
    • 2) Reserve Requirement –
    • CRR SLR
    • 3 TO 15% 25% to 40%
    • High before 1991
    • 14% 1994 38.5% 1991
    • 7.5% 2001 25%
    • 4.5% 2003
    • 5% 2006; current CRR =6% & SLR 24%
    • 3) Open Market Operation
    • Margin Requirement
    • Ceiling on Credit
    • Moral Suasion
    • Discriminatory Interest Rate
    • Direct Action
  • Bank rate : 6 INR/USD: 45.1000, INR/EURO : 63/ 7500 Repo rate: 7.50 LENDING /DEPOSIT (BASE RATE) : 9.25/ 10 DEPOSIT RT: 8.25 – 9.10 Reverse repo: 6.50 Crr: 6 Slr: 24
  • RECENT CHANGES IN MONETARY MANAGEMENT
    • LAF (JUNE 2000); TO ADJUST DAILY LIQUIDITY WITH BANKS
    • MICRO FINANCE
    • DISCONTINUED AD-HOC TBs
    • REDUCTION IN SLR
    • REDUCTION IN CRR
    • REDUCTION IN BANK RATE
    • DEREGULATION OF INTEREST ON ADVANCES OF MORE THAN 2 LAKH
    • REPO & REVERSE REPO
    • MARKET STABILAZATION SCHEME ( APR. 04): issue TBs & other Govt. securities
    • ACTIVE GOVT. SECURITIES MARKET
    • a) primary dealers system was introduced
    • b) Liquidity support of RBI to mutual funds dealing in govt. securities
    • c) Delivery vs. payment system
    • d) greater transparency in market
    • f)FII to invest in govt. securities
    • g) new TBs
    • GREATER FLEXIBILITY FOR BANKS
    • The enactment of the ,’ Securitisation Reconstruction of Financial Assets
    • and Enforcement of Security Interest Act 2002 for helping banks to solve
    • problems of NPAs, beyond 60 days possession of assets by creditor.
    • Technology upgradation through the Electronic Fund Transfer
    • A standing committee on International Financial Stds & codes
    • has been set up by RBI
  • EVALUATION
    • BUDGETARY DEFICITS
    • COVERAGE OF ONLY COMMERCIAL BANKS
    • UNORGANIZED MONEY MARKET
    • BLACK MONEY
    • PREDOMINANCE OF CASH
    • LESS ACCOUNTABILITY
    • LESS TRANSPERENCY
    • MORE VOLATILITY
  • PROGRESS OF COMMERCIAL BANKING IN INDIA
    • NATIONALIZATION
    • objectives
    • achievements
    • Limitations
    • NARASIMHAM COMMITTEE
    • REFORMS
  • Development of banking post independence
    • 1949 Banking Regulation Act – RBI
    • Before 1955 all commercial banks were private
    • 1955 Imperial bank was nationalized & was
    • converted into SBI
    • 1969 Lead Bank System for underbanked areas
    • 1969 14 commercial banks were nationalized
    • 1975 RRBs were set up for rural India
  • OBJECTIVES OF NATIONALIZATION
    • DIVERSION OF FUNDS AT CONCESSIONAL RATES TO WEAKER SECTION FOR PRODUCTIVE PURPOSES
    • TO PREVENT MONOPOLIES OF FEW ENTERPRISES
    • TO PROMOTE BANKING FACILITIES TO UNBANKED AREAS
    • TO EXPAND THE ROLE OF COMMERCIAL BANKING IN AGRICULTURAL CREDIT
    • TO REDUCE REGIONAL DISPARITIES
    ACHIEVEMENTS
    • Branch Expansion : 8262 in 1969 – 67,283 in 2004;
    • rural branches 22.2% in 1969 to 48.4% in 2003
    • 2) Deposit mobilization: Rs.4,665 cr. in 1969 – Rs. 16,22,579 cr. In 2004
    • 3) Bank Lending : Rs. 3.399 cr. In 1969 – 10,27,009 cr. In 2004
    • 4) Advances to priority sector : 14% in 1969 to 29% in 1996
    • 5) Contribution to employment generation & poverty eradication : loan to agri. SSI
    • 2.5 lakh educated youth benefitted under Prime minister Rozgar Yojna
    • 18 lakh benefitted under IRDP
    • 6) Indian Banks abroad : indian branches 97-98 during 96-97 ; foreign branches 161- 180
    • 7) Regional balance : upto 1969 only 5 states had more than half no. of bank offices
    • by 1990 share of other states 80%
  • LIMITATIONS OF NATIONALIZATION
    • Inadequate bank facilities
    • Regional imbalance
    • Inadequate mobilization
    • Lower efficiency
    • Political interference
    • Increasing expenditure
    BANKING SECTOR REFORMS Narsimham committee under the chairmanship of M.Narsimham, an ex-governor of RBI In 1991, second report on 26 th Dec 1997 recommendations
    • End of dual control RBI & ministry
    • More pvt & foreign banks to be allowed for competency
    • Abolition of directed credit programme
    • Reduce CRR to 5% from 15%
    • Reduce SLR from 38.5% in 1991 to 25%
    • Capital Adequacy Ratio 10% upto 1996
  • 7) To set up asset reconstruction fund/ tribunal for bad % doubtful debts..NPA 2% by 2002 8) Banking structure – 2-3 banks of international recognition, 8-10 national level, & local banks 9) Guidelines for asset classification, transparency 10) Prudential norms – asset classification, arrangement of bad debt 11) Profit & loss account formats were revised 12) Greater autonomy 13) Interest deregulation 14) Banking ombudsman scheme to address consumer grievances 15) Public sector banks can raise capital from capital market 16) Rating models – CAMELS – capital adequacy, asset quality, management earnings, liquidity & systems CACS capital adequacy, asset quality, compliance & systems
  • CAPITAL MARKET STRUCTURE ROLE GROWTH FACTORS RESPONSIBLE FOR GROWTH PROBLEMS REFORMS SEBI MARKET FOR MEDIUM & LONG TERM LOANS
  • STRUCTURE OF CAPITAL MARKET GILD-EDGED INDUSTRIAL SECURITIES DEVELOPMENT FINANCIAL INTERMEDIARIES FINANCIAL INSTITUTION Primary secondary Primary secondary Finance assistance to Industries IFCI, ICICI,IDBI, EXIM UTI, LIC Subscribe share & debentures Long term loans Merchant banks Mutual funds Leasing companies Venture capital companies ROLE OF CAPITAL MARKET
    • RESOURCE MOBILIZATION
    • RESOURCE ALLOCATION
    • CREATION OF LIQUIDITY
    • RAISING LONG TERM CAPITAL
    • INDUSTRIAL DEVELOPMENT
    • PROPER CHANNELISING FUNDS
    • PROVISION OF SERVICES
  • Growth of capital markets
    • Number of stock exchanges 8 in 1975-76 to 23 2002-03 -TSO
    • Capital issues 98 cr. 1975-76 to 40,816 cr. – TSO
    • %Capital raised of GDS 0.7% in 1975 to 6.9% in 2003-03 – TSO
    • Increase in operation of BSE
    • Increase in operation of NSE
    • Resource mobilization through MF 4580 cr. In 2002-03
    • Increase in turnover in equity derivatives
    • Improvement in price-earning ratio
    FACTORS RESPONSIBLE FOR GROWTH Establishment of DFI SEBI in 1992 Establishment of MF NSE Underwriting Credit rating – credit rating information services of India Ltd (CRSIL) investment information & credit rating agency of India Ltd (ICRA) Growing public confidence Increasing awareness of investment opportunities
  • PROBLEMS OF CAPITAL MARKET
    • Brokers sub-brokers
    • Lack of transparency – more earning for brokers
    • Floor –based trading
    • Paper transactions
    • Scams
    • Fortnightly settlement
    • Monopoly to BSE
    REFORMS
    • SEBI – 1988; statutory body 1992
    • NSE – 1992- working in 1994; IDBI & co sponsored by DFI : debt market – TBs,CDs CPs
    • capital market- equities, convertible debentures
    • network of 2000 satellite terminals, 3500 traders
    • 3 ) Dematerialization
    • 4) Reforms in Govt. securities –
    • auction system
    • Establishment of Securities Trading Corporation of India to develop secondary market in
    • govt. securities
    • Ways & means advances
    • 14 days TB
  • Primary dealers 1995, satellite dealers in 1996 Foreign investors allowed Foreign Investments through the issue of Global Depository Receipts (GDRs) & Foreign Currency Convertible Bonds (FCCBs) Indian companies got access to international market through Euro issue (Indian companies on NASDAQ) Tax exemption on income from govt. securities Negotiated Dealing System 2001 CCIL 5)Credit Rating Agencies CRISIL- 1988, ICRA- 1991, Credit Analysis & research Ltd. CARE, 1993 6)Merchant Banking 7) Rolling settlement 8) depositories NSDL –demat of securities, National Securities Depository Ltd. In 1996 9) screen based trading 10) 1997, L.C. Gupta Committee recommended introduction of derivative trading 11) Insurance Regulatory and Development Authority Act (IRDA) 1999, IRDA set up 2000 12) PAN made compulsory for operating demat. account India INFY Infosys Limited 3/11/1999 India REDF Rediff.com India Limited 6/14/2000 India SIFY Sify Technologies Limited 10/19/1999
  • SEBI FUNCTION /ROLE OF SEBI – 1) protect investors interest – a) frame rules & regulations b) ensures that rules are followed c) handles complaints of investors 2) Regulation of stock brokers activities – registered 3) Formulates guidelines on first capital issue 4) Regulate working of Mutual funds 5)Regulation of Merchant banking- rules, regulation, code of conduct 6) Regulation of Portfolio Management Services 7) Restriction on insider trading 8)Regulation of takeovers & mergers 9) Education & guidelines to investors 10) stricter norms on share transfer( NRI, preferential allotment under SEBI code) Criticism : false claim on success of dealing complaints, large no. of rules, less protection to Investors, corporate friendly, insufficient power