 IDBI  :Industrial Dev Bank Of India IFCI : Industrial finance Corp Of India SIDBI IDFC : Infrastructure Dev Finance C...
Indian Banking system                                   RBI                                                        Non Sch...
BANKING IN INDIA
BANKING IN INDIA Banking in India is governed by BR Act,1949 and RBI Act,1934 Banking in India is controlled/monitored    ...
BANKING REGULATIONACT,1949  (BR ACT)-1 BR Act covers banking companies and     cooperative banks, with certain modificati...
BANKING REGULATION ACT,1949  (BR ACT)-2
RESERVE BANK OF INDIAACT,1934(RBI ACT)-1   RBI Act was enacted to constitute the    Reserve Bank of India   RBI Act has ...
RESERVE BANK OF INDIAACT,1934(RBI ACT)-2RBI Act deals with:incorporation, capital management andbusiness of bankscentral b...
RESERVE BANK OF INDIA - 1 Reserve  Bank of India was established in 1935, after the enactment of the ReserveBank of Indi...
RESERVE BANK OF INDIA – 2
Central BankIt is an apex institution of the monetary andbanking structure of a country. A central bankhas the authority t...
Traditional Function
Supervisory Function of banks
Development Function of RBI
MONETARY POLICY   Monetary policy refers to the credit control measures    adopted by the central bank of a country to in...
CONTD……   Price stability :- Another objective of monetary policy    is to stabilize the price level. Both , rising and f...
CONTD…   Economic growth :-monetary policy can be imposed to    influence the rapid economic growth. Economic growth is  ...
 Exchange Rate Stability : Until 1991 India  followed fixed Exchange Rate system and only  occasionally devalued the rupe...
Quantitative Credit Control
Bank Rate :•It is a standard rate at which the RBIbuys/rediscounts the bills of exchange /othereligible CPs .•The B/R was ...
There are two types of refinance schemesavailable to Banks•Export Credit Refinance•General Refinance( to tide overtemporar...
LAF :One of the most important instruments ofmonetary policy in recent years.The RBI as lender of last resort was providin...
After ILAF a full fledged LAF came into beingin June 2000.The apparent success of LAF resulted inphases out of the CLF Oct...
The LAF operates through the Repoauction.i.e sale of G-Sec from RBI portfolio forabsorption of liquidity.Reverse Repo : Bu...
Maturity : 1-14 days.Min. Bid Size : 5 crore andmultiples of Rs 5 crorethereafter .Securities Traded :All transferable GOI...
Call rates and Discretionary liquidity impacteach other. The RBI balance sheet can bepartitioned into autonomous liquidity...
Autonomous Liquidity : Itessentially comprises of liquidity thatflow to banks without any monetarypolicy action.
CRR : As per the RBI stipulationrelating to the maintenance of CRR bybanks, to choose an optimum strategyof holding CRR de...
The daily min. requirement is 50% ofthe fortnightly required for the 7 days ofthe reporting fortnight and 65% for theremai...
SLR :It refers to that portion oftotal deposits of a commercialbanks which it has to keep inform of liquid reserves•Cash i...
OMO’s : As defined by RBI refer to“the purchase and sale by centralbank of a variety of the assets suchas foreign exchange...
MSS :It was RBI from April 2004 tomop up additional liquidity Under this•The govt will issue T-Bills and /ordated securiti...
• Amount raised under MSS will be  held in separate account titled MSS  account to be maintained and  operated by the RBI.
Impact•It will curb short-term volatility in the Forexmarket.•It is expected to fine tune the structural balancein money m...
Qualitative Credit Control
Other Measures
Money MarketIt refers to that segment of the system / market thatenables the raising of short term funds for meeting thete...
CALL MONEY MARKET•   It deals with the (borrowed and lent)    overnight / one day (call) money and notice    money for per...
CALL MONEY MARKET No collateral security is required to cover this  transaction It is basically an the over the counter ...
COMMERCIAL BILLS MARKET   When trade bills are accepted by commercial    banks they are called commercial bills.   The c...
TREASURY BILLS MARKET It is an instrument of a short term borrowing by  the GOI It is a kind of finance Bill (i.e a bill...
FEATURES OF T-BILLS They are negotiable securities They are issued at discount and are repaid at par  on maturity High ...
AD-HOC TREASURY BILLS It was introduced to replenish Government cash  balances with RBI. It was decided between the RBI ...
CONTD It is net increase in in the net RBI credit to the  Govt . In 1970’s and 1980’s a large proportion of ad-hoc  T-bi...
CONTD It is not a source of financing the Govt deficit It is an overdraft facility of the govt. with the  RBI. They are...
 T-Bills have a primary as well as secondary  market The dealers bids through (negotiated Dealing  System) NDS In secon...
COMMERCIAL PAPER Following the recommendations of the vaghul  committee in March 1989 RBI permitted the issue of CP’s wi...
 It is an unsecured short term promissory note,  negotiable and tranferable by endorsement and  with a fixed maturity per...
CONDITIONS OF ISSUING CP’S The tangible net worth of the company ,as per  audited balance sheet is not less than Rs 4 Cro...
MaturityCP can be issued for maturities between aminimum of 7 days and a maximum upto one yearfrom the date of issue.Deno...
 Effective Cost/Interest Yield As CP’s are issued at a discount and redeemed at  their face value ,their effective pre-t...
PARTICIPANTS Corporate Bodies Banks Mutual Funds The UTI LIC GIC And so on looking out for investment
CERTIFICATE DEPOSITS MARKET This are unsecured ,negotiable , short term  instruments in bearer form issued by commercial ...
 It has liquidity /ready marketability Issued demat form or a usance promissory note  for funds deposited at a bank Iss...
 Bank can issue 7days (min) with maturity and one  year FI’s can issue CD’s with maturity 1-3 yrs I t can issued at a D...
MMMF’S The money market instrument outlined earlier in  the wholesale transactions involving large  amount and are suitab...
    RBI made certain modification in 1995-96 to     make it more flexible and attractive to a large     investors base su...
THE INDIAN CAPITAL MARKET Market for long-term capital. Demand comes  from the industrial, service sector and  government...
THE INDIAN CAPITAL MARKET Development    Financial Institutions   Industrial Finance Corporation of India (IFCI)   Stat...
PRIMARY MARKET   It is the market for new issues. It is the market    for fresh capital. Funds are mobilized through    p...
IPO & FPO1. IPOIt is a offering either of securities or an offer forsale of existing securities or both by an unlistedcom...
RIGHT ISSUE   It is the issue of new shares in which existing    shareholders are given preemptive rights to    subscribe...
PRIVATE PLACEMENT    It refers to the direct sale of newly issued     securities by the issuer to a small number of     i...
PREFERENTIAL ISSUE A public / rights is cumbersome and requires  compliance with statutory provisions . Hence,  many comp...
QIP’S   It has emerged as a new fund raising investment    for listed companies in India.   Through QIP’s issue funds ca...
INTERNATIONAL CAPITAL MARKET
GDR GDRs are essentially equity instruments issued  abroad by authorized overseas corporate bodies  against shares/bonds ...
ADR ADRs are negotiable instruments denominated I  dollars and issued by the US depository bank. A non-Us company that s...
ECBS Indian corporates are allowed to raise foreign  loans for financing infrastructure projects. The Indian companies a...
FCCBS FCCBs are bonds issued by Indian companies  and subscribed to by anon-resident in foreign  currency. They carry a ...
   Till conversion the interest is paid in dollars And if conversion option is not exercised than the  redemption is als...
SECONDARY MARKET The secondary market is a market in which  existing securities are resold or traded. This  market is als...
STOCK EXCHANGE DEFN   A Stock exchange is defined under section 2 (3) of    the securities contract (Regulation) Act, I95...
FUNCTION OF THE SECONDARYMARKET   To Facilitate liquidity and marketability at the    outstanding equity and debt instrum...
   To ensure a measure of safety to improve and fair    dealing to protect investors interest.   To induce companies to ...
PREFERENCE SHARES TYPES1.CUMULATIVE      preference Shares     Share where the arrears of dividends intimes of and for le...
Non-Cumulative   preference shares, Shares wherethe carry forward of the arrears of dividends is notpossible.Participati...
   Redeemable preference shares    Shares that are to be repaid at the end of the    term of issue, the max. period of re...
Fully convertible cumulative preference sharesShares comprises of two parts   Part A is convertible into equity shares
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
Finacial institutions
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Finacial institutions

  1. 1.  IDBI :Industrial Dev Bank Of India IFCI : Industrial finance Corp Of India SIDBI IDFC : Infrastructure Dev Finance Comp . IIBI : Industrial Invt Bank of India NABARD EXIM Bank SFC SIDC : State Ind Dev. Corp. ECGC :Export Credit Guarantee Corporation Of India DICGS : Deposit Insurance and credit Guarantee corp
  2. 2. Indian Banking system RBI Non Scheduled BankSchedule BanksState Coop. Commercial Central Coop. bank Bank Bank and Primary CreditBanks Societies Indian Foreign Commercial Bank PSU Pvt. Sector Bank BanksSBI & its Other nationalized Regional ruralsubsidaries bank bank
  3. 3. BANKING IN INDIA
  4. 4. BANKING IN INDIA Banking in India is governed by BR Act,1949 and RBI Act,1934 Banking in India is controlled/monitored by RBI and Govt. of India The controls for different banks are different based on whether the bank/s is/are a) statutory corporation b) a banking company c) a cooperative society
  5. 5. BANKING REGULATIONACT,1949 (BR ACT)-1 BR Act covers banking companies and cooperative banks, with certain modifications. BR Act is not applicable to a) primaryagricultural credit societies b) land development banks BR Act allows RBI (Sec 22) to issue license for banks
  6. 6. BANKING REGULATION ACT,1949 (BR ACT)-2
  7. 7. RESERVE BANK OF INDIAACT,1934(RBI ACT)-1 RBI Act was enacted to constitute the Reserve Bank of India RBI Act has been amended from time to time RBI Act deals with the constitution, powers and functions of RBI
  8. 8. RESERVE BANK OF INDIAACT,1934(RBI ACT)-2RBI Act deals with:incorporation, capital management andbusiness of bankscentral banking functionsfinancial supervision of banks andfinancial institutionsmanagement of forex/reservescontrol functions : bank rate,audit,accountspenalities for violation
  9. 9. RESERVE BANK OF INDIA - 1 Reserve Bank of India was established in 1935, after the enactment of the ReserveBank of India Act 1934 (RBI Act). Banking Regulation Act,1949 (BR Act) gave wide powers to RBI as regards to establishment of new banks/mergers and amalgamation of banks, opening of new branches, etc BR Act,1949 gave RBI powers to regulate, supervise and develop the banking system in India
  10. 10. RESERVE BANK OF INDIA – 2
  11. 11. Central BankIt is an apex institution of the monetary andbanking structure of a country. A central bankhas the authority to regulate and control thebanking business and monetary system of acountry. Its main function are
  12. 12. Traditional Function
  13. 13. Supervisory Function of banks
  14. 14. Development Function of RBI
  15. 15. 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.
  16. 16. CONTD…… Price stability :- Another objective of monetary policy is to stabilize the price level. Both , rising and falling prices are bad as the bring unnecessary loss to some and undue advantage to others. They are associated with business cycles. So a policy of price stability keeps the value of money stable, eliminates cyclical fluctuations. Brings economic stability, helps in reducing inequalities of income and wealth, secures social justice and promotes economic welfare
  17. 17. CONTD… Economic growth :-monetary policy can be imposed to influence the rapid economic growth. Economic growth is defined as “the process whereby the real per capita income of a country increases over a long period of time “it is measured by the increase in the amount of goods and services produced in a country. A growing economy produces more goods and services in each successive time period. Thus, growth occurs when an economy’s thus, economic growth implies raising the standard of living of the people, and reducing inequalities of inequalities of income distribution.
  18. 18.  Exchange Rate Stability : Until 1991 India followed fixed Exchange Rate system and only occasionally devalued the rupee. The policies of floating exchange rate and increasing globalisation of Indian Economy openness and adopted since 1991. This had made exch . rate more volatile
  19. 19. Quantitative Credit Control
  20. 20. Bank Rate :•It is a standard rate at which the RBIbuys/rediscounts the bills of exchange /othereligible CPs .•The B/R was not changed frequently due to theRBIs reluctance to adversely affects the yield andmkt for G-Sec .•In post 1997 the B/R was reactivated by linkingthe rate to accomodation and refinance from RBI.•It reflects the prime lending rates of the Banks
  21. 21. There are two types of refinance schemesavailable to Banks•Export Credit Refinance•General Refinance( to tide overtemporary liquidity shortages face byBanks. It has been now replaced bycollateral lending facility within overallframe work of LAF
  22. 22. LAF :One of the most important instruments ofmonetary policy in recent years.The RBI as lender of last resort was providingvarious general and sector –specific refinancefacilities to the banks.ILAF April 1999, the general finance facilityreplaced by CLF upto 0.25 % of fortnightlyaverage outstanding deposit in 1997-98 whichwould be available for 2 weeks at Bank Rate.An ACLF available for an equivalent amount ofCLF at B/R plus 2% .
  23. 23. After ILAF a full fledged LAF came into beingin June 2000.The apparent success of LAF resulted inphases out of the CLF October 2002.
  24. 24. The LAF operates through the Repoauction.i.e sale of G-Sec from RBI portfolio forabsorption of liquidity.Reverse Repo : Buying of G-Sec forinjection of liquidity on a daily basis ther bycreating a corridor for the call money marketand other mismatches in liquidity.
  25. 25. Maturity : 1-14 days.Min. Bid Size : 5 crore andmultiples of Rs 5 crorethereafter .Securities Traded :All transferable GOI datedsecurities/ T-Bills can be tradedin Repo and Reverse repomarkets.
  26. 26. Call rates and Discretionary liquidity impacteach other. The RBI balance sheet can bepartitioned into autonomous liquidity anddiscretionary liquidity.Discretionary Liquidity : It is the sum of theBalance sheet flows that arises out of its money marketoperation.It represent changes in total liquidity in the system whichoccurs due to monetary policy action.It comprises of policy induced flows from RBI to banksand PD’s.
  27. 27. Autonomous Liquidity : Itessentially comprises of liquidity thatflow to banks without any monetarypolicy action.
  28. 28. CRR : As per the RBI stipulationrelating to the maintenance of CRR bybanks, to choose an optimum strategyof holding CRR depending upon theirintra-period cash flows.Banks are allowed to maintain the CRRon the last Friday of the secondpreceding fortnight.
  29. 29. The daily min. requirement is 50% ofthe fortnightly required for the 7 days ofthe reporting fortnight and 65% for theremaining 7 days including the reportingFriday.The daily Min. was reduced to enablethe smooth adjustment of liquidity forroper cash management in over nightcall rates
  30. 30. SLR :It refers to that portion oftotal deposits of a commercialbanks which it has to keep inform of liquid reserves•Cash in Hand•Reserves with RBI,GovernmentSecurities and the approvedsecurities like IDBI,NABARD ,IFCI and State electricity androad transport undertakings•Co-operative debentures
  31. 31. OMO’s : As defined by RBI refer to“the purchase and sale by centralbank of a variety of the assets suchas foreign exchange , gold , govtsecurities and even company shares”In practice it is confined to purcaseand sale of govt securities
  32. 32. MSS :It was RBI from April 2004 tomop up additional liquidity Under this•The govt will issue T-Bills and /ordated securities in addition to its normalborrowings requirements for absorbingliquidity from the system.•It will be issued by way of auctionconducted by RBI.
  33. 33. • Amount raised under MSS will be held in separate account titled MSS account to be maintained and operated by the RBI.
  34. 34. Impact•It will curb short-term volatility in the Forexmarket.•It is expected to fine tune the structural balancein money market and maintain a grip over short-term interest rate.•The cost of sterilization will be borne by the govt.•The size of govt bond will increase.
  35. 35. Qualitative Credit Control
  36. 36. Other Measures
  37. 37. Money MarketIt refers to that segment of the system / market thatenables the raising of short term funds for meeting thetemporary shortages of cash and obligations and thetemporary deployment of excess funds for earningreturns
  38. 38. CALL MONEY MARKET• It deals with the (borrowed and lent) overnight / one day (call) money and notice money for periods of up to 14 days.• It primarily serves as the balancing the short term liquidity positions of banks.• It is the market for short term funds repayable on demand and with maturity period varying between one day to a fortnight.
  39. 39. CALL MONEY MARKET No collateral security is required to cover this transaction It is basically an the over the counter market without the intermediation of brokers. Call money is required by banks to meet their CRR requirement. The rate of interest on call loans is known as the call rate . It varies from day to day and often hour to hour.
  40. 40. COMMERCIAL BILLS MARKET When trade bills are accepted by commercial banks they are called commercial bills. The cost of funds raised was lower than the cost of inter-bank deposits or loans of over 60 days and also this inter-bank deposits was subjected to reserve requirements
  41. 41. TREASURY BILLS MARKET It is an instrument of a short term borrowing by the GOI It is a kind of finance Bill (i.e a bill does not arise from any genuine transaction in goods) or a promissory note issued by the RBI on behalf of the Government. The T-Bills are issued to raise short term funds to bridge seasonal/temporary gaps between receipts and expenditure of GOI.
  42. 42. FEATURES OF T-BILLS They are negotiable securities They are issued at discount and are repaid at par on maturity High liquidity on account of short tenure (i.e 91 days and 364 days) and inter bank repos Absence of default risk due to government guarantee and RBI’s willingness to always purchase them negligible capital depreciation. Assured yield Low transaction cost Eligibility for inclusion in SLR Purchases/sales affected through the SGL.
  43. 43. AD-HOC TREASURY BILLS It was introduced to replenish Government cash balances with RBI. It was decided between the RBI and the GOI that the govt could maintain with the reserve bank a cash of not less than Rs 50 crore on Friday and Rs 4 crore on other days Free of obligation to pay interest there on Whenever the balance fell below the minimum. The govt. account would be replenished by the creation of ad-hoc bills in favour of Reserve Bank. Ad-hoc 91 days T-Bills were created to replenish the govt’s cash balances with the Reserve bank.
  44. 44. CONTD It is net increase in in the net RBI credit to the Govt . In 1970’s and 1980’s a large proportion of ad-hoc T-bills were converted in to long term dated/undated G-sec. This coversion referred to as funding. This put an constraints on the conduct of monetary policy. This lead to ad-hoc T-bill replaced by WMA’s in 1997. It is an arrangement to cover temporary mismatch of the govt. revenue and expenditure.
  45. 45. CONTD It is not a source of financing the Govt deficit It is an overdraft facility of the govt. with the RBI. They are issued on Yield basis and not on price basis. The yield on T-bill is calculated as per the following formula Y= (100-P) * 365 *100/P*D. P= Price Y= Discounted Yield D= Days of maturity
  46. 46.  T-Bills have a primary as well as secondary market The dealers bids through (negotiated Dealing System) NDS In secondary market the already ssued T-bills are traded in by banks, FI’s and MF’s The quotes for T-bills in the secondary market are on a yield basis. Two way yield are quoted (Bid and Ask) Bid yield is higher than the ask yield
  47. 47. COMMERCIAL PAPER Following the recommendations of the vaghul committee in March 1989 RBI permitted the issue of CP’s within the framework of its guidelines It can be issued to individuals ,banks ,companies and other registered Indian corporate bodies and Unincorporated bodies NRI’s can be issued a CP only on anon- tranferable and non-repatriable basis. FII’s are eligible to invest in CP’s but within the limits set for their investment by the SEBI
  48. 48.  It is an unsecured short term promissory note, negotiable and tranferable by endorsement and with a fixed maturity period. It is issued at discount by a leading credit worthy ness and highly rated corporates to meet their working capital requirements. It is also known as finance paper ,industrial paper or corporate paper. The PD’s and All India financial institution can also issue CP’s It can also be issued in interest –bearing form.
  49. 49. CONDITIONS OF ISSUING CP’S The tangible net worth of the company ,as per audited balance sheet is not less than Rs 4 Crore A company has been sanctioned working lmit by banks or all-India FI’s. The borrowal account of the company is classified as a standard asset by the financing banks/institution. Working capital limit means the aggregate limits including those by way purchase/discount of bills sanctioned by way of purchase/discount of bills sanctioned by banks/FI’s for meeting working capital requirements.
  50. 50. MaturityCP can be issued for maturities between aminimum of 7 days and a maximum upto one yearfrom the date of issue.DenominationCP can be issued in denomination of Rs 5 Lakh(face value)Mode of issuanceIt is either in the form of a promissory note or in ademat form through any depository approved byand registered with the SEBI
  51. 51.  Effective Cost/Interest Yield As CP’s are issued at a discount and redeemed at their face value ,their effective pre-tax interest yield [ Face value –Net amt realised /Net amt realised ]*[360/maturity periods] Net amt realised = face value- discount-issuing company and paying agent IPA Charges i.e stamp duty ,rating charges, dealing bank fee and fee for stand by facility.
  52. 52. PARTICIPANTS Corporate Bodies Banks Mutual Funds The UTI LIC GIC And so on looking out for investment
  53. 53. CERTIFICATE DEPOSITS MARKET This are unsecured ,negotiable , short term instruments in bearer form issued by commercial Banks and DFI’s It was introduced in 1989 and are marketable receipts of funds deposited in abank for period at a specified rate of interest. They are attractive both to the bankers and the investors in the sense that the banker is not required to encash the deposit prematurely While can sell the CD’s in the secondary narket before its maturity
  54. 54.  It has liquidity /ready marketability Issued demat form or a usance promissory note for funds deposited at a bank Issued by commercial banks (excluding the RRB’s/LAB’s) Select all-India FI’s permitted by thr RBI to raise short-term resources within the limit fixed by it Min. isssue Rs 1 lakh or issued in the mutiples of Rs 1 lakh. Individual /corporations /companies/trusts/funds/associations and so on
  55. 55.  Bank can issue 7days (min) with maturity and one year FI’s can issue CD’s with maturity 1-3 yrs I t can issued at a Discount on face value and can also issue on floating rate basis The interest rate should be set periodically according to pre-determined formula Issuer is free to issue or determine discount/coupon rate. Bank have to maintain SLR and CRR on the issue of the CD’s No lock in period and can be freely transferred by endorsement and delivery
  56. 56. MMMF’S The money market instrument outlined earlier in the wholesale transactions involving large amount and are suitable for large corporates and institutional investors to enable small investors to come or participate MMMF’s started or introduced through that can earn market related yield. It bridges the gap between small individuals and money market.
  57. 57.  RBI made certain modification in 1995-96 to make it more flexible and attractive to a large investors base such as banks FI’s and corporates besides individuals. Modification donei. Removal of ceiling for raising resourcesii. Allowing Private sector to set up MMMF’s.iii. Permission to MMMF’s to invest in rated bands and debenturesiv. Min lock-in period 15daysv. MMMMF’s allowed to offer a cheque writing facility in tie up with banks to provide more liquidity to unit holders.vi. MMMF’s have to be setup as a separate entity only in form of a trustvii.It is Under SEBI since March 2007.
  58. 58. THE INDIAN CAPITAL MARKET Market for long-term capital. Demand comes from the industrial, service sector and government Supply comes from individuals, corporates, banks, financial institutions, etc. Can be classified into:  Gilt-edged market  Industrial securities market (new issues and stock market)
  59. 59. THE INDIAN CAPITAL MARKET Development Financial Institutions  Industrial Finance Corporation of India (IFCI)  State Finance Corporations (SFCs)  Industrial Development Finance Corporation (IDFC) Financial Intermediaries  Merchant Banks  Mutual Funds  Leasing Companies  Venture Capital Companies
  60. 60. PRIMARY MARKET It is the market for new issues. It is the market for fresh capital. Funds are mobilized through prospectus , right issue, and the private placement.
  61. 61. IPO & FPO1. IPOIt is a offering either of securities or an offer forsale of existing securities or both by an unlistedcompany for the first time to the public.2. FPOIt is an offering of either a fresh issue of securitiesor an offer for sale to the public by an alreadylisted company through an offer documentsInvestors participating in these offerings takeinformed decisions based on its track record andperformance.
  62. 62. RIGHT ISSUE It is the issue of new shares in which existing shareholders are given preemptive rights to subscribe to the new issue on a pro-rata basis. The right is given in the form of an offer to existing shareholders to subscribe to a proportionate number of fresh ,extra at a pre- determined price.
  63. 63. PRIVATE PLACEMENT It refers to the direct sale of newly issued securities by the issuer to a small number of investors through merchant bankers.i. Investorsii. Financial Institutionsiii. Corporatesiv. Banks and High net worth individuals
  64. 64. PREFERENTIAL ISSUE A public / rights is cumbersome and requires compliance with statutory provisions . Hence, many companies opt for preferential allotment of shares for raising funds. Such allotments are made to various strategic groups including promoters ,Foreign Partners, Technical collaborators and .Private funds.
  65. 65. QIP’S It has emerged as a new fund raising investment for listed companies in India. Through QIP’s issue funds can be raised from foreign as well as domestic institutional investors without getting listed on a foreign exchange ,which is lengthy and cumbersome.
  66. 66. INTERNATIONAL CAPITAL MARKET
  67. 67. GDR GDRs are essentially equity instruments issued abroad by authorized overseas corporate bodies against shares/bonds of Indian companies held with nominated custodian banks. The issue of GDR creates equity shares of the issuing company which kept with a designated bank . GDR are freely transferable outside India and dividend in respect of the shares represented by GDR is paid in Indian rupees.
  68. 68. ADR ADRs are negotiable instruments denominated I dollars and issued by the US depository bank. A non-Us company that seeks to list in the US ,deposits it shares with a bank and receive a receipt which enables the company to issue the American depository shares. These ADS serve as a stock certificates and are used interchangeably with the ADR which represents ownership of deposited shares There is no legal or technical difference between an GDR and ADR.
  69. 69. ECBS Indian corporates are allowed to raise foreign loans for financing infrastructure projects. The Indian companies are free to raise ECBs from any internationally recognized source, such as bank, export credit agencies, suppliers of equipments,foreign collaborators, foreign equity holders, and international capital markets . ECBs are linked to federal reserve board rate which is 3% since April 2005.
  70. 70. FCCBS FCCBs are bonds issued by Indian companies and subscribed to by anon-resident in foreign currency. They carry a fixed interest or coupon rate and are convertible into a certain number of ordinary shares at a preferred price. They are convertible into ordinary shares of the issuing company either in whole or a part on the basis of any equity-related warrants attached to the debt instruments . This bonds are listed and traded abroad.
  71. 71.  Till conversion the interest is paid in dollars And if conversion option is not exercised than the redemption is also made in dollars. Thus Foreigners prefer FCCBs and Indian companies prefer to issue GDRs. The rate of interest is less but the exchange risk is more in FCCBs as interest is payable in foreign currency.
  72. 72. SECONDARY MARKET The secondary market is a market in which existing securities are resold or traded. This market is also Known as the Stock market In India secondary market consist of recognized Stock exchanges operating under rules, by-laws and regulation duly approved by the government. These stock exchanges Constitute an organize Stock market where securities are issued by the central and State govt, public bodies and joint stock companies are traded.
  73. 73. STOCK EXCHANGE DEFN A Stock exchange is defined under section 2 (3) of the securities contract (Regulation) Act, I956, as any body of individuals whether incorporated or not, constituted toe the purpose or assisting, Regulating or controlling the business of buying selling, or dealing in securities.
  74. 74. FUNCTION OF THE SECONDARYMARKET To Facilitate liquidity and marketability at the outstanding equity and debt instruments To contribute to economic growth through allocation of funds to the most efficient Channel through the process of disinvestment to reinvestment. To provide instant valuation at securities caused by Changes in the internal environment (company-wide and industy wide factors). such valuation facilitates the measurement of the cost of capital and the rate of return of the economic entities at the micro level.
  75. 75.  To ensure a measure of safety to improve and fair dealing to protect investors interest. To induce companies to improve performance Since the market price at the Stocks exchanges reflects the performance and this market price is readily available to investors.
  76. 76. PREFERENCE SHARES TYPES1.CUMULATIVE preference Shares Share where the arrears of dividends intimes of and for lean profits can be accumulatedand paid in the year in which the company earnsgood profits. This is the type of preference share onwhich dividend accumulates if it is remainsunpaid. All arrears of preference dividend have tobe paid out before paying dividend on equityShares.
  77. 77. Non-Cumulative preference shares, Shares wherethe carry forward of the arrears of dividends is notpossible.Participating preference shares: shares that enjoythe right to participate in surplus profits orSurplus assets on the liquidation of a company orin both, if the Articles of Association provides for it.
  78. 78.  Redeemable preference shares Shares that are to be repaid at the end of the term of issue, the max. period of redemption being 20 years redeemed with effect from 1/03/1997 under the companies amendment act , 1996. Since they are similar to debentures . Only fully paid shares are redeemed Where redemption is made out of profits a capital redemption Reserve Account is opened to which a sum equal to the nominal value off the shares is transferred, It is treated as paid-up Share capital of the company.
  79. 79. Fully convertible cumulative preference sharesShares comprises of two parts Part A is convertible into equity shares

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