2. Financial System
īExistence of a well organized financial
system
īPromotes the well being and standard of
living of the people of a country
īMoney and monetary assets
īMobilize the saving
īPromotes investment
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3. Financial System of any country consists
of financial markets, financial
intermediation and financial instruments
or financial products
Suppliers of funds
(Mainly households)Flow of financial services
Incomes , and financial
claims
Seekers of funds
(Mainly business firms
and government)
Flow of funds (savings)
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4. Indian Financial System
Un-Organized
Organized
Money lenders
Local bankers
Traders
Landlords
Pawn brokers
Regulators
Financial Institutions
Financial Markets
Financial services
Financial Instruments
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5. Organized Indian Financial System
Money Market
Instrument
Capital Market
Instrument
Forex
Market
Capital
Market
Money
Market
Credit
Market
Primary Market
Financial
Instruments
Financial
Markets
Financial
Intermediaries
Secondary Market
Regulators
1.MoF
2.SEBI
3.RBI
4.IRDA
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6. Indian Capital Market
Market Instruments Intermediaries
Primary Secondary
Equity DebtHybrid
Regulator
âĸBrokers
âĸInvestment Bankers
âĸStock Exchanges
âĸUnderwriters
SEBI
Players
Corporate IntermediariesCRA
Banks/FI FDI /FIIIndividual
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7. Financial Markets
īMechanism which allows people to trade
īAffected by forces of supply and demand
īProcess used
īIn Finance, Financial markets facilitates
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8. Why Capital Markets Exist
īCapital markets facilitate the transfer of capital (i.e.
financial) assets from one owner to another.
īThey provide liquidity.
īĄ Liquidity refers to how easily an asset can be
transferred without loss of value.
īA side benefit of capital markets is that the
transaction price provides a measure of the value of
the asset.
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9. Role of Capital Markets
īMobilization of Savings & acceleration of Capital
Formation
īPromotion of Industrial Growth
īRaising of long term Capital
īReady & Continuous Markets
īProper Channelisation of Funds
ī Provision of a variety of Services
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10. Capital Market Instruments
Derivative
Market
1.Exchange
Traded
2.Future & Option
a.Index
b.Stock
Equity Debt
Primary
Market
1.Public
Issue
2. Private
Placement
a. Domestic Market
b. International Market
Secondary
Market
1.NSE
2.BSE
3.OTCEI
4.ISE
5.RSE
Private
Corporate
Dept.
PSU Bond
Market
Govt.
Securities
Market
Primary Segment Secondary Segment
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11. Factors contributing to growth of Indian Capital Market
īEstablishment of Development banks &
Industrial financial institution.
īLegislative measures
īGrowing public confidence
īIncreasing awareness of investment
opportunities
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12. Factors contributing to growth of Indian Capital Market
īGrowth of underwriting business
īSetting up of SEBI
īMutual Funds
īCredit Rating Agencies
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13. Indian Capital Market deficiencies
īLack of transparency
īPhysical settlement
īVariety of manipulative practices
īInstitutional deficiencies
īInsider trading
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14. Money Market
īMarket for short-term money and financial assets
that are near substitutes for money.
ī 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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15. Money Market
īIt is a place for Large Institutions and government
to manage their short-term cash needs
īIt is a subsection of the Fixed Income Market
īIt specializes in very short-term debt securities
ī They are also called as Cash Investments
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16. Defects of Money Market
īLack of Integration
īLack of Rational Interest Rates structure
īAbsence of an organized bill market
īShortage of funds in the Money Market
īSeasonal Stringency of funds and fluctuations in
Interest rates
īInadequate banking facilities
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17. Money Market Instruments
ī Treasury Bills
ī Commercial Paper
ī Certificate of Deposit
ī Commercial Bills
ī Term Money
1. Primary Segment
2.Secondary Segment
ī Call Money Market
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18. FINANCIAL INSTRUMENTS
ī Money Market Instruments
ī The money market can be defined as a market for short-term
money and financial assets that are near substitutes for
money. The term short-term means generally a period up to
one year and near substitutes to money is used to denote any
financial asset which can be quickly converted into money
with minimum transaction cost.
Some of the important money market instruments are briefly
discussed below;
1. Call/Notice Money
2. Treasury Bills
3. Term Money
4. Certificate of Deposit
5. Commercial Papers
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19. 1.Call Money Market
īLoan disbursed by commercial banks
ī1 day â 7 days
īBank can recall the loan at its
īmaturity
īUsually advanced to bill brokers &
īstock exchange brokers.
ī2. Term Money
Term Money market for deposits of maturity beyond 14 days
is referred to as the term money market. The entry
restrictions are the same as those for Call/Notice Money
except that, as per existing regulations, the specified entities
are not allowed to lend beyond 14 days.
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20. 3. Treasury Bills.
īGovernment Paper Securities
īDuration of 91 days
īPromissory note of the government to pay a specified
sum after a specified period
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21. 4. Certificate of Deposits
ī Certificates of Deposit (CDs) is a negotiable money market instrument
and issued in dematerialized form or as a Usance Promissory Note, for
funds deposited at a bank or other eligible financial institution for a
specified time period.
ī Guidelines for issue of CDs are presently governed by various directives
issued by the Reserve Bank of India, as amended from time to time.
ī CDs can be issued by
(i) scheduled commercial banks excluding Regional Rural Banks (RRBs)
and Local Area Banks (LABs); and
(ii) select all-India Financial Institutions that have been permitted by RBI
to raise short-term resources within the umbrella limit fixed by RBI.
Banks have the freedom to issue CDs depending on their requirements.
ī An FI may issue CDs within the overall umbrella limit fixed by RBI, i.e.,
issue of CD together with other instruments viz., term money, term
deposits, commercial papers and interoperate deposits should not
exceed 100 per cent of its net owned funds, as per the latest audited
balance sheet.
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22. ī5. Commercial Paper
ī CP is a note in evidence of the debt obligation of the issuer. On issuing
commercial paper the debt obligation is transformed into an
instrument.
ī CP is thus an unsecured promissory note privately placed with
investors at a discount rate to face value determined by market forces.
ī CP is freely negotiable by endorsement and delivery. A company shall
be eligible to issue CP provided - (a) the tangible net worth of the
company, as per the latest audited balance sheet, is not less than Rs. 4
crore; (b) the working capital (fund-based) limit of the company from
the banking system is not less than Rs.4 crore and (c) the borrowal
account of the company is classified as a Standard Asset by the
financing bank/s. The minimum maturity period of CP is 7 days.
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23. Capital Market Instruments
īCapital Market Instruments
The capital market generally consists of the following long
term period i.e., more than one year period, financial
instruments; In the equity segment Equity shares,
preference shares, convertible preference shares, non-
convertible preference shares etc and in the debt segment
debentures, zero coupon bonds, deep discount bonds etc.
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24. Equity Market
1 .Primary Markets
īHelps companies in raising funds through issue of
securities like shares and debentures.
īGoverned by SEBI (Securities and Exchange Board of
India).
īMethods of issuing securities in Primary Market:
īâ Public Issue
īâ Rights Issue
īâ Bonus Issue
īâ Private Placement
īâ Bought-out Deals
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26. International Capital
Markets
īDevelopment attributed to following factors:
īinvestorsâ need to avoid taxes in their own country
and to ensure protection against depreciating home
currencies.
īemergence of new technologies in the area of
financial services, development and deregulation of
financial markets
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27. Equity Instruments
GDR:
ī instruments which possess a number of underlying shares held by the
custodian domestic bank of the company.
ī The GDRs are traded on a foreign stock exchange, issued to the non-resident
investors.
ī The GDRâs are denominated in the foreign currency and the underlying shares
are denominated in the local currency of the issuer.
ī The GDRâs are considered as common equity of the company and are entitled to
dividends and voting rights.
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28. ADR
ī Is a dollar denominated negotiable certificate traded in the US-markets
whose underlying securities are of non-US companies.
ī ADR Level-I :first step for an issuer to enter the US market, minimum
disclosure required, need not comply with the American GAAP. Can
trade only on the OTC market and not on any national stock exchange.
ī ADR Level-II: significant disclosures to be made to the SEC, company
allowed to list on AMEX, NYSE.
ī ADR Level-III :fresh capital can be raised company to be registered
with the SEC and shall even follow US GAAP.
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29. Euro Bonds
īThese are the bonds that are issued outside the
country of the currency in which it is denominated
īFeatures:
īNo with holding of tax on interest payments
īThese are in bearer form with coupon interest
attached
īListed on stock exchanges though traded on the OTC
market
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30. Foreign Bonds
īBonds floated in the domestic markets denominated
in the domestic currency by the non-resident.
īYankee Bonds
īSamurai Bonds
īBulldog Bonds
īShibosai Bonds
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31. Yankee bonds
īThese are US dollar denominated issues by the
foreign borrowers in the US markets.
īFeatures
īRegulated by the SEC. Requires more disclosure
than that given by the prospectus.
īForeign borrower to adopt US accounting policies
īBonds sponsored by the underwriting syndicate
īRequires SEC registration before the sale.
īTo be rated by the US credit rating agencies
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32. Samurai Bonds
īYen denominated bonds issued in the Japanese
markets by the non- Japanese companies.
īFeatures
īMaturity: 3-20 years
īBorrowers in order of priority sovereigns,
supranational and their entities, high quality private
corporations having some kind of Japanese trade
links.
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33. Bull Dog Bonds
īSterling denominated foreign bonds floated in the
UK market.
īFeatures:
īMaturity 5 for short maturities 25 for long
maturities.
īSubscribed by the long-term institutional investors-
pension funds, life insurance Coâs
īBonds offered by placing or offer for sale process will
have to be listed on the London SE
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34. Shibosai Bonds
īPrivately placed bonds issued in the Japanese
market
īFeatures
īOffered to institutional investors, including banks
the issueâs eligibility, coupon rate, etc governed by
the Japanâs MOF guidelines
īPricing done based on base rate and spread which
depends on the rating of Co or country.
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35. Forex Markets
ī Foreign Exchange Market: Deals with transactions in currencies
other than oneâs own currency.
ī Exchange rate: The rate at which one currency can be converted
into another currency
ī Participants:
ī â Exporters
ī â Importers
ī â Commercial Banks
ī â Central Banks
ī â Authorized Dealers and Money Changers
ī â Brokers
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36. Equity Market
2. Secondary Market
īSecurities already issued in the primary market are traded
in the secondary market. Provides liquidity to the securities
held by the investors.
īProvides liquidity to the securities held by the
īinvestors.
īOperates through stock exchanges that regulate the trading
activities in this market.
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37. Equity Market
3. Derivatives Market
īFinancial derivative is a product derived from the market of an
underlying asset.
īParticipants:
īâ Hedgers
īâ Speculators
īâ Arbitrators
īTypes of Derivatives:
īâ Futures
īâ Options
ī- Caps
ī- floors and Collars
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38. Debt. Market
īGovernment of India, public sector units and corporations
together comprise as dominant issuer of debt markets in
India. Local governments, mutual funds and international
financial institution issue debt instruments as well but very
infrequently. The Central Government mobilizes funds
mainly through issue of dated securities and T-bills. Bonds are
also issued by government sponsored institutions like the
development financial institutions (DFIs) like IFCI and IDBI,
banks and public sector units. Some, but not all, of the PSU
bonds are tax-exempt. The corporate bond market comprise of
commercial papers and bonds. In recent years, there has been
an increase in issuance of
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40. Financial Institution
īFinancial Institutions
īIndustrial Development Bank of India (IDBI)
īIndustrial Finance Corporation of India (IFCI )
īIndustrial Investment Bank of India (IIBI)
īExport and Import Bank of India
īState Financial Corporations
īState Industrial Development Corporations
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41. Non-banking financial institution
īNon-Banking Financial Companies
īInvestment Trusts or Investment Companies: Close end
organizations, having fixed amount of authorized capital
provides services through conserving and managing
property for those who cannot manage their own funds.
īMutual Benefit Funds or Nidis: Sources of their funds are
share capital, deposits.
īMerchant Banks : Offers financial advice & services for
fees; Services offered are management, marketing,
underwriting of new issue, project promotion & finance,
corporate advice, BOD, venture capital etc.
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42. īHire Purchase Finance Companies
īLease Finance Companies
īHousing Finance Companies
īNational Housing Bank : Wholly owned by subsidiary of
RBI, Aim is to promote housing finance Institution at
local & regional levels, It refinance housing loans to
scheduled commercial & co operative banks, housing
finance companies etc.
īVenture Capital Funding Companies
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43. DEVELOPMENT FINANCE INSTITUTION
All India Financial Institutions
īIFCI: Industrial Finance Corporation of India
The IFCI, Indiaâs first DFL, was established on 1 July 1948
īIFCI principal activities can be categorised into
- Financing
- Promotional activities
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45. PROMOTIONAL ACTIVITIES
ī Played a key role in the development of cooperatives in the sugar and
textile sector
ī It has promoted technical consultancy organisation
primarily in less developed state, to provide
necessary services to the promoters of small and
medium- sized industries in collaboration with other banks and
institutions.
ī It has developed many institutions like
ī Management Development institute
ī Investment and credit rating agency
ī Tourism finance corporation of India
ī Rashtriya Gramin Vikas Nidhi
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46. DISADVANTAGES
The reasons to this dismal state of affairs of the company are as follows
ī Operational Inefficiency
ī Political Interference
ī Traditional sector financing
ī Higher provisioning for Non âperforming assets
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47. The steps taken for the revival of IFCI are as follows:
IFCI constituted an expert committee in 2001
ī To formulate a medium-to long term strategic plan for IFCI in the
emerging new business environment
ī The committee has laid down the road map plan for the next five years
ī It has made recommendations covering a wide range of structural and
operational areas
ī It has strengthened its risk management techniques and is putting in
efforts to bring down the NPAs to a manageable level, through
corporate debt structuring
ī It has initiated action against defaulters and has filed suits against
defaulter companies
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48. INDUSTRIAL DEVELOPMENT BANK OF INDIA
ī Established in 1964 by Parliament as a wholly owned subsidiary of the
RBI
ī In 1976, the banks ownership was transferred to the Government of
India
ī IDBI has engineered the development of capital market through
helping in setting up of the
- Securities Exchange Board of India (SEBI)
- National Stock Exchange of India Limited (NSE)
- Credit Analysis and Research Limited (CARE)
- Stock Holding corporation of India Limited (SHCIL)
- Investors Services of India Limited (ISIL)
- National Securities Depository Limited (NSDL)
- Clearing Corporation of India Limited (CCIL)
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49. IDBI has undertaken several initiatives to reposition itself as a universal
Bank:-
ī In April 2001, IDBI appointed Boston consulting Group India Private
Limited (BCG) as consultant to draw up a road map for conversion into
a universal bank
ī Formation of high level risk management committee to develop overall
risk management policy
ī The bank has constituted a credit risk management group to evaluate
credit risk both at the transaction level and also at the portfolio level
ī It has pioneered the setting up of Asset Reconstruction Company
(India) Limited (ARCIL) in 2002 in association with select banks and
financial institutions
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50. IDBI-SERVICES
ī IDBI provides Merchant banking and wide array of corporate advisory
services as part of its fee based activities
ī This includes professional advice and services for
- issue management
- private placement of equity/debt instruments
- project evaluation
- credit syndication
- share valuation
- corporate restructuring including mergers and acqusitions and
divestment of equity
ī the bank also offers a number of Forex related services on a
commission basis including opening of letters of credit and remittance
of foreign currency on behalf of its assisted companies for import of
its goods and services
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51. IIBI
ī Established in 1985 under the IRBI Act 1984
ī It is a principal credit & reconstruction agency for re-habilitation of sick
& closed industrial units.
ī The range of its services include provision of infrastructure facilities ,
consultancies , managerial & merchant banking facilities & making
available machinery & other equipment on a lease or hire purchase
bases
ī It was renamed as industrial investment bank of India & brought
under companies act 1956 since March 17 1997.
ī It finances new projects , modernization work , balancing equipment
needs , correcting imbalance in current Assets , relieving strains on
cash resources , repayment of pressing liabilities and other activities.
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52. IDFC
ī Conceived as an institution to facilitate the flow of private finance to
commercially viable infrastructure projects & help mitigate commercial
& structural risk contain therein , by designing innovative products &
processes.
ī It operates in areas such as energy , telecommunication & IT ,
integrated transportation , Urban infrastructure & food & agri-business
infrastructure.
ī It offers the variety of services to projects in the infrastructure &
advisory services.
ī It helps promoters raise resources from international markets
ī It intends offering advisory services to these funds to facilitate &
strengthen their connectivity with infrastructure projects.
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53. NABARD
ī Established in July 1982 under an act of parliament , is an apex dvpt.
Bank for promotion & dvpt. Of agriculture , small-scale industries ,
cottage & village industries & other allied economic activities in rural
areas.
ī Objective is to promote integrated rural development for overall
prosperity of rural areas.
ī Provides long term investment credit to the Farm sector for various
approved agricultural & allied activities such as minor irrigation ,
plantation etc.
ī It also extends refinance to banks for financing government sponsered
programmes like prime minister Rojgar Yojna , Swarna Jayanti Gram
Swarozgar Yojna etc.
ī Other important development includes setting up of micro finance
development fund by NABARD.
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54. SIDCS
ī Established under the companies act 1956, as wholly owned
undertakings of the state governments with the specific objective of
promoting and developing medium and large industries in the
respective states.
ī It undertakes a range of promotional activities including:
-repression of preparation of feasibility reports .
-conducting industrial potential surveys.
-entrepreneurship training and development programs.
-developing industrial estates.
ī It also offer package of developmental services that include
Technical guidance, assistance in plant location and coordination with
other agencies.
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55. EXIM BANK
ī Established in 1982, is a wholly government owned financial institution
setup for the purpose of financing, facilitating and promoting Indiaâs
foreign trade.
ī Its financing services include a range of fund and non-fund based
programs to enhance the exports, competitiveness of Indian
companies.
ī Its major operations presently comprise
-financing of projects
-products and service exports
-building export competitiveness
-promotional programs
-Financing of research and development activities of exporting
companies.
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56. SFC
īIt is a state level development bank setup under the
SFCs act, 1951, for the development of small and
medium scale industries in their respective states.
īIt aims at bringing about balanced regional
development by wider dispersal of industries and
generating larger employment opportunities.
īIt includes composite loan scheme, scheme for
women entrepreneurs, modernization scheme,
equipment finance scheme etc.
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57. SIDBI
īIt offer a chain of financial product covering micro
finance, business,incubation, venture capital etc.
īIt also provides support services such as training,
market information and advise for enhancing the
inherent strength of small scale units.
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58. Products And Services of SIDBI
īDirect finance scheme.
īBills finance scheme.
īRe-finance scheme.
īInternational finance scheme.
īMarketing finance and development schemes.
īSIDBI foundation for micro-credit.
īOther schemes.
īPromotional and development activities.
īFixed deposit/bond.
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61. Security Exchange Board of India
(SEBI)
īSecurities and Exchange Board of India
(SEBI) was first established in the year
1988
īIts a non-statutory body for regulating
the securities market
īIt became an autonomous body in 1992
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62. Functions Of SEBI
īRegulates Capital Market.
īChecks Trading of securities.
īChecks the malpractices in securities market.
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63. Functions Of SEBI
īIt enhances investor's knowledge on market by
providing education.
īIt regulates the stockbrokers and sub-brokers.
īTo promote Research and Investigation
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64. Objectives of SEBI
īIt tries to develop the securities market.
īPromotes Investors Interest.
īMakes rules and regulations for the securities
market.
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66. Reserve Bank of India
īEstablished on April 1, 1935 in accordance with the
provisions of the RBI Act, 1934.
īThe Central Office of the Reserve Bank has been in
Mumbai.
īIt acts as the apex monetary authority of the country.
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67. Functions Of RBI
Monetary Authority:
īFormulation and Implementation of monetary
policies.
īMaintaining price stability and ensuring adequate
flow of credit to the Productive sectors.
Issuer of currency:
īIssues and exchanges or destroys currency and coins.
īProvide the public adequate quantity of supplies of
currency notes and coins.
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68. Regulator and supervisor of the financial system:
īPrescribes broad parameters of banking operations
īMaintain public confidence, protect depositors' interest
and provide cost-effective banking services.
Authority On Foreign Exchange:
īManages the Foreign Exchange Management Act, 1999.
īFacilitate external trade, payment, promote orderly
development and maintenance of foreign exchange
market.
Functions Of RBI
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69. Developmental role:
ī Performs a wide range of promotional functions to
support national objectives.
Related Functions:
ī Banker to the Government: performs merchant banking
function for the central and the state governments.
ī Maintains banking accounts of all scheduled banks.
Functions Of RBI
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70. Monetary Measures
(a) Bank Rate:
The Bank Rate was kept unchanged at 6.0 per cent.
(b) Reverse Repo Rate:
The Repo rate is around 7 per cent and Reverse repo
rate is around 6.10 per cent.
(c) Cash Reserve Ratio:
The cash reserve ratio (CRR) of scheduled banks is
currently at 5.0 per cent.
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71. Objectives Of MoF
īReorientation of the economy
īMacro economic stability
īTo Increase competitive efficiency in the
operations
īTo remove structural rigidities and inefficiencies
īTo attain a balance between the goals of financial
stability & integrated & efficient markets
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72. Recommendations
īReduce the level of state ownership in banking
īLift restrictions on foreign ownership of banks
īSpur the development of the corporate-bond
market
īStrengthen legal protections
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73. Recommendations
īDeregulate the insurance industry
īDrop proposed limits on pension reforms
īIncrease consumer ownership of mutual-fund
products
īIntroduce a gold deposit scheme
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74. Recommendations
īSpeed up the development of electronic payments.
īSeparate the RBI's regulatory and central-bank
functions
īLift the remaining capital account controls
īPhase out statutory priority lending and
restrictions on asset allocation
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76. IRDA FunctionâĻ.
ī Data Correction Approval (License)
âĸ Shows list of data correction requests by DPs
âĸ IRDA can approve these requests
ī Cancellation Approval (License/Certificate)
âĸ Shows list of license cancellation requests
âĸ IRDA can approve or reject
âĸ IRDA can cancel with or without refund
ī Recall Cancellation Approval
âĸ Shows list of license recall cancellation requests
âĸ IRDA can approve or reject
ī Termination Approval
âĸ Shows list of license termination requests by Corporate DP
âĸ IRDA can approve or reject termination requests
ī Terminate License
âĸ IRDA can terminate individual/corporate license
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