This document discusses capital markets and related topics in India. It defines capital markets as the market for borrowing and lending long-term capital funds. It outlines the key constituents of the Indian capital market, including the government security market regulated by the Banking Regulation Act and the industrial security market. It also discusses the primary and secondary markets, stock exchanges such as BSE and NSE, regulatory authorities such as SEBI, various capital market instruments, and methods of issuing and marketing securities.

1. By Dr. Ajit Kumar
AGM, MoF
CAB, PUNE

2. CAPITAL MARKET
 Definition- borrow/lend lond term capital fund
 Capital Market vs Bank Finance
 Advantages and Disadvantages
 Constituents of Indian capital Market
 1.Government Security market-B.R.Act
 2. Industrial Security market

3. Segments of Security Market
 1. Primary Market-helps in growth of economy
 2. Secondary Market-does not help
 Primary market is also known as NIM

4. Why Secondary market
 For the efficient growth of primary market, a
sound secondary market is an essential
requirement. It provides liquidity to the investors
as also a high profit expectation. NIM can’t exist
without SM.

5. Stock Exchanges
 Subject to Govt supervision & control
 Total no. of stock exchanges –23
 Two national stock exchanges-
 1.BSE
 2.NSE
 BSE- estd. In 1857, in fact oldest in Asia
 NSE- set up in 1993, has 70% share of total trading
 Out of 21 Regional stock exchanges 15 stock exchanges
reported NIL transaction.
 NSE is harbinger of reforms in capital market

6. Who Regulates ?
 Stock market is regulated by SEBI under
‘Securities Contracts Regulation Act’ 1956
(SCRA)
 concurrently with GOI(MOF+MOC), RBI also
has a regulatory role with regard to FII & FDI.
 SEBI was set up in 1988 but SEBI Act was passed
in 1992.

7.  Prior to SEBI it was regulated by Controller of
Capital Issues.

8. Capital Market Instruments
 1.Preference Share
 2. Equity Share- min.25% public offer req for new issues for listing
 3. Non-voting Equity share-Abid Hussain committee
 4. Convertible Cumulative Preference Share
 5. Company Fixed Deposit
 6. Debenture & Bonds- issued under common seal of the company
 7. Warrants-10 to30% above market price- sweeteners

9. Methods of Marketing Securities I
 1. Pure Prospectus Method-exclusively from general public, adv
 2. Offer for Sale – sale to intermediaries at agreed price,adv
 3. Private Placement – not more than 50, for listed,lockin5yr
 4. Bought Out Deals- same as ppfor unlisted,lock in 18m,adv
 5. Rights Issue- existing shareholders,only by listed companies
 6. Bonus Issue- accumulated reserves and surplus of
profits converted into paid-up capital.Free of charge.
 7. Book Building Method- merchant banker-qualified
institutional buyers,price bids,free to determine private placement &

10. Methods of Marketing securities II
 8. Stock Option Method (ESOP)- only for listed companies,
with prior approval of shareholders through a special resolution.
 9.Initial Public Offer (IPO)-1 time,unlisted only if net worth>3c,profit
 Under this method securities are issued to successful
applicants on the basis of the order placed by them
through their broker.
 Red herring clause- A preliminary prospectus (also known
as red herring) often with words with letters which say it
is preliminary and the price is not yet set.
 Green shoe option- additional subscription can be offered
by the issuer (15%)

11. Intermediaries of the Market
 Merchant Bankers/ Lead Managers- regulated by SEBI
 Registrars and share transfer agents
 Underwriters- CARE-a bank can’t uw > 15% of the issue,
can’t uw >400 times of it’s net worth, underwriting is
eligible for computation of capital market exposure.
 Bankers to Issue- certificate of registration from SEBI required
 Rating Agencies (CRISIL, ICRA, Fitch)
 Brokers & Sub-brokers- 9400 Broking outfits out of
which 29 are foreign brokers

12. Depositories
 Depositories-Depository Act –1996, It’s a company under
the Companies Act 1956.We have multi depository
system.Depository is a custodian where investors deposit
their assets and it executes certain orders of the investors-
National Securities Depository Ltd.(NSDL), Centralised
Depository Services Ltd. (CSDL)
 Depository Participants- It is base level branch of a bank
or a non-bank maintaining deposit on behalf of investors-
total number 295.

13. WHY EXPO0SURE NORMS
 Why limit on Capital Market Exposure?- Risk
 Why emphsis on CD ratio?
 Bank Finance- appraisal based/ merit based
 Capital Market – theoretically appraisal based but
practically confidence based
 Bank in a position to monitor by way of post credit
supervision, no such mechanism in case of capital market
exposure.-guided by market perception and manipulation.

14.  Glass Steagall Act was enacted in USA after 1929
stock market crash. The bank was not allowed to
take direct exposure in stock market. Banks were
required to have a firewall between bank’s
investment portfolio and others.
 Abolished during Reagan regime.
 Extant Exposure norms- India

15. It’s time to say
Thank
You