UNIVERSITY OF MUMBAI

A PROJECT ON REGULATORS IN FINANCIAL SERVICES BACHELOR OF FINANCIAL MARKETS THIRD YEAR SEMESTER V (2013-2014) SUBMITTED BY: NAME: VIPUL RAO PROJECT GUIDE: MS. KOEL ROY CHOUDHURY

SIES (NERUL) COLLEGE OF ARTS, SCIENCE & COMMERCE PLOT 1-C, SECTOR-V, NERUL, NAVI-MUMBAI - 400706

CERTIFICATE
This is to certify that Mr.VIPUL RAO has satisfactorily carried out the project work on the topic REGULATORS IN FINANCIAL SERVICES under the guidance of Ms.Koel Roy Choudhury, in partial fulfillment of Bachelor of Financial Markets (BFM) Semester V as per the curriculum laid down by the University of Mumbai, during the academic year 2013 - 2014.

Project Guide: Ms.Koel Roy Choudhury

Course Co-ordinator : Ms.Koel Roy Choudhury

Principal Mrs.Rita.Basu

Internal Examiner

External Examiner

DECLARATION

I, VIPUL RAO a student of SIES College of Arts, Science & Commerce T.Y.BFM, hereby declare that I have completed the project on the topic REGULATORS IN FINANCIAL SERVICES for the academic year 2013-2014, under the kind guidance of Prof. Koel Roy Choudhury as a partial fulfillment of the course curriculum in the third year Bachelor Of Financial Markets, Semester V. The information submitted herein is true and original to the best of my knowledge.

DATE: _____________ VIPUL RAO

ACKNOWLEDGEMENT

I would like to express my heartfelt gratitude towards SIES college of Arts, Science and Commerce for providing me with necessary infrastructure facilities like library, computer lab etc. I would like to thank my project guide and course co-ordinator Ms.Koel Roy Choudhury for motivating and helping me in every possible way. Lastly I thank my parents for providing strong moral support for the completion of this project.

VIPUL RAO.

INDEX
CHAPTER NO. 1 2 3 4 5 6 7 CHAPTER NAME PAGE NO.

CONCLUSION

Chapter 1

Economy

INTRODUCTION An economy consists of the economic system of a country or other area, the labour, capital and land resources, and the economic agents that socially participate in the production, exchange, distribution, and consumption of goods and services of that area. A given economy is the end result of a process that involves its technological evolution, history and social organization, as well as its geography, natural resource endowment, and ecology, as main factors. These factors give context, content, and set the conditions and parameters in which an economy functions. What Does Economy Mean? The large set of inter-related economic production and consumption activities which aid in determining how scarce resources are allocated.

DEFINITION Activities related to production & distribution of goods & services in the particular geographical region & also efficient use of resources.

TYPES OF ECONOMY

Command economy

Where the government owns most businesses. The government decides what and how much will be produced. Russia and China used to have planned economies. Traditional economy - an economic system in which people make economic decisions based on customs and beliefs that have been handed down from one generation to the next. Planned Economies A planned economy is an economic system in which the state or government manages the economy. Its most extensive form is referred to as a command economy, centrally planned economy, or command and control economy. In this type of economy the state or government controls manufacturing and formulates all decisions about their use and about the distribution of income. The planners decide what should be produced and direct companies to produce these goods. Planned economies are in contrast to market economies where production, distribution, and pricing decisions are made by the private owners of the factors of production based upon their own and their customers' interests.

Market Economies A free market is a place where prices and quantities of goods and services are arranged completely by the mutual consent of sellers and buyers, determined generally by the supply and demand law of the price mechanism with no government interference in the regulation of costs, supply and demand. A market economy is an economy in which the government does not interfere with, like changing supply and demand or market prices.

Mixed Economies A mixed economy, as the name suggests, uses attributes from both a command economy and a market economy. Resources are distributed by both the public and

private sector. In most cases, the private sector, by following the price mechanism of demand and supply, distributes resources for goods and services that are commonly regarded as 'wants', such as CD's(customer demands), but not needs. The public sector, gaining resources through taxation or the owning of land, distribute resources to supply the 'needs' that people 'shouldn't have to pay for'. The state is also responsible for regulating and maintaining the private sector, to ensure fair competition and the integrity of the market.

TYPES OF GOVERNMENT SYSTEMS A governmental system exercises authority over the performance and function of a political unit such as a country, state, city or town. Countries around the world use various systems of government to maintain their political structure.

Federal/Federation A federal or federation government, such as that in Russia, divides the sovereign power between a central government and smaller units such as states, usually by means of a constitution. Each smaller unit maintains some power, but the central power still has some control over both the smaller governmental units and individual citizens.

Socialism Socialist governments, such as that of Norway, generally allow the public limited financial independence, own many of the major industries and control education, health care and welfare. Communism

In a communist government such as that of Cuba, the government owns all businesses and industry, and controls all public services such as health care, education and welfare.

Republic In a republic, such as the United States, the people elect political leaders who then maintain office for a set period of time. Dictatorship In a dictatorship, there is one leader who makes the laws and maintains total control, generally by force. Iraq was a dictatorship until the fall of Saddam Hussein.

Chapter 2

Indian Economy

INTRODUCTION The Economy of India is the tenth largest in the world by nominal GDP and the fourth largest by purchasing power parity(PPP). Following strong economic reforms from the post-independence socialist economy, the country's economic growth progressed at a rapid pace, as free market principles were initiated in 1991 for international competition and foreign investment. Despite fast economic growth India continues to face massive income inequalities, high unemployment and malnutrition.

TYPES OF ECONOMY IN INDIA

Capitalistic Economy A capitalistic economy otherwise called as the free market economy can be defined as an economic activity, where the means of production are privately owned. Most of the economies over the world have enriched their economic system by implementing capitalist norm in the recent years. Here in such form of economy there is no Government interference.

Socialistic economy Socialistic economy is a structure of the economy which aims at providing greater equality or working class greater ownership over the means of production. In a normative sense, a socialist economy or a socialist state believes that socialism is the most equitable and socially serviceable form of an economic arrangement designed to achieve human potentialities.

Communistic Economy Communistic economy is an economy managed economy of communist state.

Mixed economy A mixed economy' is an economy that includes a variety of private and public enterprise, reflecting characteristics of both capitalism and socialism. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety of government-sponsored aspects

Chapter 3

Overview of market regulators

INTRODUCTION Financial regulation is a form of regulation or supervision, which subjects financial institution to certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system. This may be handled by either a government or non-government organization.

Why does Securities Market need regulator?

The absence of conditions of perfect competition in the securities market makes the role of the Regulator extremely important. The regulator ensures that the market participants behave in a desired manner so that securities market continues to be a major source of finance for corporate and government and the interest of investors are protected.

Who regulates the Securities Market? The responsibility for regulating the securities market is shared by Department of Economic Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI).

SEBI

What is SEBI and what is its role? The Securities and Exchange Board of India (SEBI) is the regulatory authority in India established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of Securities and Exchange Board of India (SEBI) with statutory powers for (a) protecting the interests of investors in securities (b) promoting the development of the securities market and (c) regulating the securities market. Its regulatory jurisdiction extends over corporate in the issuance of capital and transfer of securities, in addition to all intermediaries and persons associated with securities market. SEBI has been obligated to perform the aforesaid functions by such measures as it thinks fit. In particular, it has powers for: o Regulating the business in stock exchanges and any other securities markets. o Registering and regulating the working of stock brokers, subbrokers etc. o Promoting and regulating self-regulatory organizations. o Prohibiting fraudulent and unfair trade practices. o Calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, intermediaries, self regulatory organizations, mutual funds and other persons associated with the securities market. The orders of SEBI are appealable before a Securities Appellate Tribunal. Most of the powers of SCRA (Securities Contract Regulation Act) is exercisable by DEA while a few other by SEBI. The powers of DEA under SCRA are concurrently exercised by SEBI.

RESERVE BANK OF INDIA (RBI) RBI is the central bank of India. There were first 4 presidency banks & were amalgamated to form Imperial bank of India , then government felt the need of setting up of independent central bank for India .After which imperial bank was made into RBI, RBI was nationalised in 1935. RBI performs various functions like banker to government, issuer of currency, control of foreign exchange etc.

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA) Insurance Regulatory & Development Authority is a regulatory & development authority under government of India in order to protect the interest of policyholders & to regulate, promote & ensure orderly growth of the insurance industry. It is basically a 10 members team consisting of chairman, 5 full time members & 4 part time members , all appointed by government of India. This organisation came into being on 19april 2000 after bill of IRDA was passed in the Indian parliament in 1999.

DEPARTMENT OF ECONOMIC AFFAIRS (DEA) Department of Economic Affairs is known to be the nodal agency of the Union Government and works under the Right to Information (RTI) Act. The main activity of the department is to prepare the Union Budget annually, except the railway budget. It also formulates and monitors the internal and external aspects of the economic life of the country. This monitoring of economic system of the country is highly linked with the Capital market, which includes Stock Exchange. It plays a important role in increasing the external resources with the help of multilateral and bilateral official development assistance, and manufacturing of

bank notes and coins. The department of economic affairs also works for raising the internal resources with the help of taxation, market lending and so on.

DEPARTMENT OF COMPANY AFFAIRS (DCA) The DCA is also known as Ministry of Corporate Affairs (MCA). The Ministry of Company Affairs (MCA) is an Indian government ministry. It is charged with administering the Company Act 1956 and other acts related to Indian private sector. It is responsible mainly for regulation of Indian enterprises in Industrial and Services sector. The current minister of corporate affairs is Veerappa Moily. The previous minister was Murli Deora.

GOVERNMENT A government is a group of people that has the power to rule in a territory, according to the law. This territory may be a country, a state or province within a country, or a region. The Government of India, officially known as the Union Government, and also known as, the central government was established by the constitution of India, and is the governing authority of the union of 28 states & 7 union territories, collectively called the Republic Of India. It is seated in New Delhi, the capital of India.

ROLE OF SECURITIES MARKET FOR ECONOMIC GROWTH Securities markets play a critical role for economic growth and financial stability. The confidence that investors have in the fairness and effective functioning of securities markets has a significant impact on the amount of capital available for

businesses. One of the main functions of securities markets is being an alternative to banks in the transformation of savings into financing as well as providing an efficient mechanism for asset pricing. Securities markets also play a fundamental role in diversifying risk. The adequate regulation of securities markets is therefore crucial to a countrys financial development, stability, and integration into the global market.

IMPORTANT PRINCIPALS Some of the principles related to the Regulator are: They should have clearly and objectively stated responsibilities; The Regulator should have operational independence and accountability in the exercise of its powers and functions. They should adopt clear and consistent regulatory processes. They should observe the highest professional standards including appropriate standards of confidentiality.

OBJECTIVES OF REGULATORS

The protection of Investors No leap of logic is required to conclude that investors have to be protected from being mislead or manipulated or from fraudulent practices including insider trading and misuse of client assets. One key aspect of investor protection is information. As long as the investor has access to material information which is as full and accurate as the Regulator can ensure, then the investor can better assess the potential risks and rewards of their investment and protect their interests.

Ensuring that Markets are Fair, Efficient & Transparent The issue of fairness in the market is inter related with protection of the investor. The laws, regulations and rules which ensure that the investor is protected also tend to ensure that the market is fair. However, investor information is also a substantial part of the fairness and transparency of the market. The degree and speed that information is transmitted and propagated through the market defines the transparency of the market. The ideal situation is one where both pre-trade and post-trade information is made available to the public as the transactions occur. As the Americans like to say in real time.

Reduction of Systemic Risk No amount of regulation or oversight can guarantee against the possibility of financial failure of a market intermediary. However, regulation can and should aim to reduce the risk of failure. Where such failure does occur, it is the role of the Regulator to seek to reduce the impact of that failure and to attempt to isolate the risk solely to the failing institution. Market intermediaries should be subject to adequate and ongoing capital requirements along with any other prudential requirements as may be necessary. The ideal situation, insofar as there can be any ideal in the case of a failure, in the case of a failure of an intermediary should be the ability to wind down the business without loss to the customers and counterparties and without systemic damage.

IMPORTANT GUIDELINES 1) Prohibition of short selling of securities The Primary Dealers (PDs) should not put through any sale transaction without actually holding the security in its portfolio i.e. under no circumstances, a PD should hold a oversold position in any security. 2) Concurrent audit of securities transactions Securities transactions should be separately subjected to a concurrent audit by internal/external auditors to the extent of 100% and the results of the audit should be placed before the CEO(Chief Operating Officer)/ CMD(Chief Managing Director) of the PD once every month. The compliance wing should monitor the compliance on ongoing basis, with the laid down policies and prescribed procedures, the applicable legal and regulatory requirements, the deficiencies pointed out in the audits and report directly to the management. 3) All problem exposures where security of doubtful value to be provided for All problem exposures, if any, which are not backed by any security or backed by security of doubtful value should be fully provided for. 4) Provision also for suits Even in cases where a PD has filed suit against another party for recovery, such exposures should be evaluated and provisions should be made to the satisfaction of auditors. 5) Claims against the PD to be taken note of and provisions made Any claim against the PD should also be taken note of and provisions made to the satisfaction of auditors. 6) Problem exposures to be reflected clearly in Profit and Loss Account The profit and loss account should reflect the problem exposures, if any, as also the effect of valuation of portfolio, as per the instructions issued by the Reserve Bank, if any, from time to time. The report of the statutory auditors should contain a certification to this effect.

Chapter 4

Reserve Bank Of India (RBI)

INTRODUCTION The Reserve Bank of India is the central bank institution of India and controls the monetary policy of the rupee as well as US $ 300.21 billion.21 billion (2010) of currency reserves. The institution was established on 1 April 1935 during the British Raj in accordance with the provisions of the Reserve Bank of India Act, 1934 and plays an important part in the development strategy of the government. It is a member bank of the Asian Clearing Union. The central bank till now was governed by 21 governors. The 22nd, Current Governor of Reserve Bank of India is MR. RAGHURAM RAJAN

HISTORY Central bank is a regulatory institution which has the responsibility of regulating & monitoring the financial system of the country . RBI is central Bank of India. The RBI was established in year 1935 as a shareholders bank. However the history of

central bank in India traces back to 1773 the establishment of 4 presidency banks at Bombay, Delhi, Kolkata, Madras by the east India company. In 1921 these presidency banks were amalgamated into a simple bank called as Imperial Bank of India, with their additional responsibility of managing the currency system. In 1934, Hilton commission recommended the establishment of central bank as a part of industrial reforms of India. Accordingly RBI was established in 1935 as a shareholders bank with a paid up capital of 5cr of Rs 100/share, out of which 2,20,000 shares were subscribed by government & remaining by private shareholders. After independence the government of India realized the need for a independent central bank, accordingly RBI was nationalised by taking over the shares held by private sector at the price of Rs 118. It was the outcome of RBI act, 1948. The share capital of RBI continues to remain 5 Crs even today.

FUNCTIONS

Monetary authority The Reserve Bank of India is the main monetary authority of the country and beside that the central bank acts as the bank of the national and state governments. It formulates implements and monitors the monetary policy as well as it has to ensure an adequate flow of credit to productive sectors. Objectives are maintaining price stability and ensuring adequate flow of credit to productive sectors. Manager of exchange control The central bank manages to reach the goals of the Foreign Exchange Management Act, 1999. Main objective is to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

Issuer of currency The bank issues and exchanges or destroys currency and coins not fit for circulation. The objectives are giving the public adequate supply of currency of good quality and to provide loans to commercial banks to maintain or improve the GDP. The basic objectives of RBI are to issue bank notes, to maintain the currency and credit system of the country to utilize it in its best advantage, and to maintain the reserves. RBI maintains the economic structure of the country so that it can achieve the objective of price stability as well as economic development, because both objectives are diverse in themselves. Developmental role The central bank has to perform a wide range of promotional functions to support national objectives and industries. The RBI faces a lot of inter-sectored and local inflation-related problems. Some of this problems are results of the dominant part of the public sector.

Related functions The RBI is also a banker to the government and performs merchant banking function for the central and the state governments. It also acts as their banker. The National Housing Bank (NHB) was established in 1988 to promote private real estate acquisition .The institution maintains banking accounts of all scheduled banks, too.

PARTICIPATION IN THE ECONOMY

Policy rates and Reserve ratios Bank Rate: RBI lends to the commercial banks through its discount window to help the banks meet depositors demands and reserve requirements. The interest rate the RBI charges the banks for this purpose is called bank rate. If the RBI wants to increase the liquidity and money supply in the market, it will decrease the bank rate and if it wants to reduce the liquidity and money supply in the system, it will increase the bank rate. As of 5 May, 2011 the bank rate was 6%. Cash Reserve Ratio (CRR): Every commercial bank has to keep certain minimum cash reserves with RBI. RBI can vary this rate between 3% and 15%. RBI uses this tool to increase or decrease the reserve requirement depending on whether it wants to affect a decrease or an increase in the money supply. An increase in Cash Reserve Ratio (CRR) will make it mandatory on the part of the banks to hold a large proportion of their deposits in the form of deposits with the RBI. This will reduce the size of their deposits and they will lend less. This will in turn decrease the money supply. The current rate is 6%.

Statutory Liquidity Ratio (SLR): Apart from the CRR, banks are required to maintain liquid assets in the form of gold, cash and approved securities. Higher liquidity ratio forces commercial banks to maintain a larger proportion of their resources in liquid form and thus reduces their capacity to grant loans and advances, thus it is an anti-inflationary impact. A higher liquidity ratio diverts the bank funds from loans and advances to investment in government and approved securities.

OPEN MARKET OPERATION DONE BY RBI IN DEVELOPED COUNTRIES In well developed economies, central banks use open market operations buying and selling of eligible securities by central bank in the money market to influence the volume of cash reserves with commercial banks and thus influence the volume of loans and advances they can make to the commercial and industrial sectors. In the open money market, government securities are traded at market related rates of interest. The RBI is resorting more to open market operations in the more recent years.

TYPES OF CREDIT CONTROL Generally RBI uses three kinds of selective credit controls: 1. Minimum margins for lending against specific securities. 2. Ceiling on the amounts of credit for certain purposes. 3. Discriminatory rate of interest charged on certain types of advances. Direct credit controls in India are of three types: 1. Part of the interest rate structure i.e. on small savings and provident funds, are administratively set. 2. Banks are mandatorily required to keep 24% of their deposits in the form of government securities. 3. Banks are required to lend to the priority sectors to the extent of 40% of their advances. 4. Department of Currency Management

Chapter 5

Securities & Exchange Board of India (SEBI)

INTRODUCTION The Securities and Exchange Board of India (frequently abbreviated SEBI) is the regulator for the securities market in India.

CHAIRMAN OF SEBI. Upendra Kumar Sinha

HISTORY It was formed officially by the Government of India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. SEBI is headquartered in the business district of Bandra-Kurla complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices in New Delhi, Kolkata, Chennai and Ahmedabad.

Controller of Capital Issues was the regulatory authority before SEBI came into existence, it derived authority from the Capital Issues (Control) Act, 1947. Initially SEBI was a non statutory body without any statutory power. However in 1995, the SEBI was given additional statutory power by the Government of India through an amendment to the securities and Exchange Board of India Act 1992. In April, 1998 the SEBI was constituted as the regulator of capital market market in India under a resolution of the Government of India.

POWERS For the discharge of its functions efficiently, SEBI has been invested with the necessary powers. SEBI is invested with the following powers: 1. To approve bylaws of stock exchanges. 2. To require the stock exchange to amend their bylaws. 3. Inspect the books of accounts and call for periodical returns from recognised stock exchanges. 4. Inspect the books of accounts of a financial intermediaries. 5. Compel certain companies to list their shares in one or more stock exchanges. 6. Levy fees and other charges on the intermediaries for performing its functions. 7. Grant licence to any person for the purpose of dealing in certain areas. 8. Delegate powers exercisable by it. 9. Prosecute and judge directly the violation of certain provisions of the companies Act.

RESPONSIBLILITY SEBI has to be responsive to the needs of three groups, which constitute the market:
The The The

issuers of securities investors market intermediaries

FUNCTIONS/ OBJECTIVES OF SEBI The basic objectives of the Board were identified as:

To protect the interests of investors in securities; To promote the development of Securities Market; To regulate the securities market and For matters connected therewith or incidental thereto.

Functions of SEBI are of two types Functions

Regulatory Functions

Developmental Functions

REGULATORY FUNCTION a) Registration of brokers and sub-brokers and other players in the market. b) Registration of collective investments schemes and Mutual Funds. c) Regulation of stock exchanges and other self-regulatory organisations (SRO) merchant banks etc.

d) Prohibition of all fraudulent and unfair trade practices. e) Controlling Insider Trading and take over bids and imposing penalties for such practices.

DEVELOPMENTAL FUNCTION a) Investor education. b) Training of intermediaries. c) Promotion of fair practices and Code of conduct for all S.R.O.s. d) Conducting Research and Publishing information useful to all market participants.

SERVICES Market regulator SEBI has decided to outsource its investor helpline service to a third-party call centre, where at least 500 agents would be required to attend to investors calls on issues like IPOs and trading. The decision to outsource its investor helpline comes within weeks of SEBI deciding to rope in third-party agencies for processing and maintenance of investor grievances. Faced with the difficult task of handling lakhs of investor complaints, SEBI in March last week had decided to outsource such activities to help it resolve the investor complaints on a fast-track basis.Now, SEBI has decided to empanel a third-party call centre to run its nationwide toll-free investor helpline, where the investors calls would be initially attended to between 9.30 a.m. to 5 p.m. on weekdays, an official said.The timings and hours might be extended further after three months. Incidentally, SEBI is in the process of finalising a set of regulations for outsourcing of work by various market intermediaries such as brokers, mutual funds and investment bankers. The regulator is said to be against outsourcing of the market entities core and investor-sensitive activities.

The investor helpline call centre would be required to attend investors calls on matters like procedure for lodging complaints, opening of trading accounts, complaint status and assistance in issues like transfer and transmission of shares, IPOs, etc. Besides, the call centre would also need to provide guidance on status of companies on whether they are unlisted, sick, vanished or delisted, matters pertaining to other regulators that are not under the SEBI purview. The agency would also require to record and track the calls, inform the SEBI about status of processing of calls, but would not provide legal opinions and investment advice. SEBI wants the call centre agency to have at least five years of experience in BPO business and an authorisation from the telecom ministry for running a call centre. Besides other necessary infrastructure and experience, SEBI also wants the company to have a minimum of 500-seat operation capacity for one shift and a 1,500-seat capacity for three-shift operations, with equal number of call centre agents working on its roll. SEBI wants the agency to provide the call centre service from Mumbai and provide space for one of its offices in its premises. On the previously proposed outsourcing of investor grievance processing and maintenance work, the activities to be outsourced by SEBI include receipt of complaints, forwarding them to the concerned market entities and companies, tracking their status and conduct follow-ups. Besides, the agencies would also be responsible for entry of the complaints into SEBIs computerised grievance redressal system with proper categorisation and updating of the system with Action Taken Reports (ATRs) and keeping investors informed about progress on their complaints. SEBI is putting in place this web-based centralised system, named SEBI Complaints Redress System (SCORES), for speedy redressal of grievances. SEBIs existing investor grievance redressal mechanism lacks a centralised database and the resolution of the complaints often gets delayed due to physical movement of files from one desk to the another across its various offices. Besides

reducing time gap between receipt and redressal of a complaint, the new system would also help in storage of the investor grievances, whose numbers have swelled to over 2.7 million since SEBIs inception. SEBI received more than 32,300 investor complaints in 2009-10, while the numbers are even higher at over 39,600 in the first nine months of the current fiscal. The new system would have a centralised tracking system for all grievances at various offices and divisions of SEBI. Currently, the list of investor grievances is maintained at various divisions and regional offices of SEBI. SEBI has told the prospective agencies to be empanelled by it for handing investor grievances to dedicate at least 10 skilled persons for the job initially and wants them to have prior experience in handling registrar and transfer activities, depository services or investor matters.

PARTICIPATION SEBI (Disclosure and Investor Protection) Guidelines: These guidelines include instructions for eligibility standards for companies issuing securities, pricing of securities to be issued by companies, requirements relating to promoter contribution, and lock-in period for securities and more. The guidelines also describe the information that should be included in offer documents to the public, like a prospectus, abridged prospectus, and letter of offer.

How does SEBI ensure that the guidelines are complied with? The Merchant Bankers are responsible for ensuring that all the requirements of Disclosure and Investor Protection Guidelines are complied with at the time of submitting the draft offers documents to SEBI. SEBI on its part evaluates if the guidelines are being followed and all required disclosures are made in the offer documents.

INVESTOR PROTECTION The Zeal for Investors Protection Now lets go through some important guidelines that are offered by the SEBI dedicated to the cause of investors protection. Eligibility Norms for Companies Issuing Securities No company shall make any issue of a public issue of securities, unless a draft prospectus has been filed with the Board, through an eligible Merchant Banker, at least 21 days prior to the filing of Prospectus with the Registrar of Companies (ROCs). Provided that if, within 21 days from the date of submission of draft Prospectus, the Board specifies changes, if any, in the draft Prospectus (without being under any obligation to do so), the issuer or the Lead Merchant banker shall carry out such changes in the draft prospectus before filing the prospectus with ROCs. No listed company shall make any issue of security through a rights issue where the aggregate value of securities, including premium, if any, exceeds Rs.50 lacs, unless the letter of offer is filed with the Board, through an eligible Merchant Banker, at least 21 days prior to the filing of the Letter of Offer with RSE. Provided that if, within 21 days from the date of filing of draft letter of offer, the Board specifies changes, if any, in the draft letter of offer, (without being under any obligation to do so), the issuer or the Lead Merchant banker shall carry out such changes before filing the draft letter of offer. No company shall make an issue of securities if the company has been prohibited from accessing the capital market under any order or direction passed by the Board.

Pricing By Companies Issuing Securities A listed company whose equity shares are listed on a stock exchange, may freely price its equity shares and any security convertible into equity at a later date, offered through a public or rights issue. An unlisted company eligible to make a public issue and desirous of getting its securities listed on a recognised stock exchange pursuant to a public issue, may freely price its equity shares or any securities convertible at a later date into equity shares. An eligible company shall be free to make public or rights issue of equity shares in any denomination determined by it in accordance with Sub-section (4) of Section 13 of the Companies Act, 1956 and in compliance with the following and other norms as may be specified by SEBI from time to time: Pre- Issue Obligations
The lead merchant banker shall exercise due diligence.

The standard of due diligence shall be such that the merchant banker shall satisfy himself about all the aspects of offering, veracity and adequacy of disclosure in the offer documents. The liability of the merchant banker shall continue even after the completion of issue process. No company shall make an issue of security through a public or rights issue unless a Memorandum of Understanding has been entered into between a lead merchant banker and the issuer company specifying their mutual rights, liabilities and obligations relating to the issue. Contents of Offer Document In addition to the disclosures specified in Schedule II of the Companies Act, 1956, the prospectus shall also contain all material information which shall be true and adequate so as to enable the investors to make informed decision on the investments in the issue.

Consequence of Non-Observance Of The Guidelines SEBI in case of non-observance of these guidelines (Section 11B) as it seems to be a bar from doing such things which may prejudice the interest of the investors the board can give the following directions:-

Direct the persons concerned to refund any money collected under an issue to the investors with or without requisite interest, as the case may be, direct the persons concerned not to access the capital market for a particular period, direct the stock exchange concerned not to list or permit trading in the securities, direct the stock exchange concerned to forfeit the security deposit deposited by the issuer company, any other direction which the Board may deem fit and proper in the circumstances of the case. Future Overcast of the Investors SEBI being a premiere institution for dealing with the problems relating to securities has advanced a long way towards protecting the investors from the hazards of the predators existing in the market. As already stated before it has compiled a great bunch of guidelines dedicated to this cause. But the real scenario which came as a consequence was that only the big fishes could escape the net and the small ones were still striving to uphold their existence. In this matter, according to a daily newspaper it has become clear that SEBI had already received suggestion and advice regarding the need for a separate enactment concerning the small investors. As far as it is concerned, the Government has thought of introducing an independent legislation on investor protection to safeguard the interests of small investors. A separate legislation had also been recommended in the report prepared by Mr. Mitra, who was commissioned by the Finance Ministry to draw up the terms of reference for a new Bill. A debate has been on over the need for a separate legislation for protecting the interests of small investors, considering that there are

multiple agencies involved in policing companies that raise funds from the public be it public listed companies, or NBFCs (Non Banking Financial Companies). These include the capital markets regulator, SEBI, the banking regulator, RBI, and the Department of Company Affairs (DCA) which is responsible for regulating unlisted companies. SEBI has been in favour of a separate regulatory agency for the protection of small investors. The regulator had earlier submitted a proposal to the Finance Ministry, outlining the need for a new Act. The setting up of a comprehensive fund for the protection of investors has also been recommended by Mr. Mitra which we see in reality to have been already existing today. In fact, the report has suggested that the existing Investor Protection Fund, the corpus of which is to come from unclaimed dividends, should be merged with the new fund. Investor Protection Fund (IPF) The market regulator decided to set up an investor protection fund. It also approved delisting guidelines, regulation of investment advisors and the consent order scheme. According to a source, around 20 decisions were taken. When the Board discussed issues related to corporate bonds. The investor protection fund will be started with an initial contribution of Rs 10 crore (Rs 100 million) by SEBI. The SEBI also plans starting a nation-wide investors' education campaign. The Board decided not to wait for an amendment to the Securities Contracts Regulation Act for the investor protection fund. The Board also cleared the delisting guidelines with some modifications in its draft. The new guidelines will provide fair opportunities to companies opting for a delisting option even as they take care of investor interests. The market regulator also approved the consent order scheme. The scheme provides for settlement of cases of violations by paying a penalty. The SEBI has also decided to frame regulations for investment advisors. The registration of advisors and the implementation of the norms will be the responsibility of a self-regulatory organisation, which is yet to be formed. This will be the first instance of an Self Regulatory Organisation (SRO) being appointed for

any market intermediary. Earlier, brokers had proposed that their association was prepared to take up the responsibilities of an SRO. The Association of Mutual Funds of India is also studying the possibility of becoming an SRO for mutual funds. The SEBI has decided that the SRO will regulate those investment advisers, who provide advisory services related to securities under the SEBI regulations. The financial standards planning Board has also shown interest in becoming an SRO for investment advisers. SEBI has not taken any final decision on who will be acting as an SRO. For advisory services other than securities, such as those related to commodity markets, the matter will be forwarded to the regulators concerned and a decision will be taken in coordination with the respective regulators. The Board also discussed the issue of exchangeable bonds. In the previous Board meeting, short-selling of securities was also cleared. Now, the SEBI is waiting for clarification from the Central Board of Direct Taxes (CBDT) as lending and borrowing of securities will not be treated as their sale and purchase .The RBI will also have to clarify on the FEMA-related issues.

Chapter 6

Insurance Regulatory and Development Authority (IRDA)

INTRODUCTION The Insurance Regulatory and Development Authority (IRDA) is a national agency of the Government of India, based in Hyderabad. It was formed by an act of Indian Parliament known as IRDA Act 1999, which was amended in 2002 to incorporate some emerging requirements. Mission of IRDA as stated in the act is "to protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto."

Chairman: Hari Narayana

HISTORY 1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era, however, was dominated by foreign insurance offices which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian offices were up for hard competition from the foreign companies. The history of general insurance dates back to the Industrial Revolution in the west and the consequent growth of sea-faring trade and commerce in the 17th century. It came to India as a legacy of British occupation. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of general insurance business. 1957 saw the formation of the General Insurance Council, a wing of the Insurance Association of India. In 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins. In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The

General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1sst 1973. Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000. In December, 2000, the subsidiaries of the General Insurance Corporation of India were restructured as independent companies and at the same time GIC was converted into a national re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002.

DUTIES, POWERS AND FUNCTIONS Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA 1. Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. 2. Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include, Issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration. Protection of the interests of the policy holders Specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents. Specifying the code of conduct for surveyors and loss assessors. Promoting efficiency in the conduct of insurance business.

 Promoting and regulating professional organisations connected with the insurance and re-insurance business. Levying fees and other charges for carrying out the purposes of this Act. Calling for information Control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business. Specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries. Regulating investment of funds by insurance companies. Regulating maintenance of margin of solvency. Adjudication of disputes between insurers and intermediaries or insurance intermediaries. Supervising the functioning of the Tariff Advisory Committee. Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organisations referred to in clause (f). Specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector. Exercising such other powers as may be prescribed from time to time.

Chapter 7

Government

INTRODUCTION The Government of India, officially known as the Union Government, and also known as, the central government was established by the constitution of India, and is the governing authority of the union of 28 states & 7 union territories, collectively called the Republic Of India. It is seated in New Delhi, the capital of India.

ROLE OF GOVERNMENT IN ECONOMY Monetary policy Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment. Monetary theory provides insight into how to craft optimal monetary policy.

RBI Hikes Key Policy Rates Like Air India pilots, even equity shares seem to have gone on strike against RBIs move to hike key policy rates by 50 bps. Benchmark BSE Sensex corrected a whopping 463 points indicating its disliking against the decision. On the other hand, RBI says that the calibrated tightening last year was justified by the trend of moderating inflation and consolidated growth. However, the resurgence of inflation in the last quarter of 2010-11 became a matter of concern with spill over of higher input costs into domestic manufactured good. In its Annual Monetary Policy for 2011-12, the countrys apex banker has raised lending and borrowing rates by 50 bps to 7.25% and 6.25% respectively, with inflation hovering around 9%, much above RBIs comfort zone. The CRR remained unchanged at 6%.

RBI urges to Hike Fuel Prices In a rare cautionary statement, RBI called for immediate hike in prices of petro products, even if it adds to inflationary pressures and moderates economic growth. Currently, petrol is undersold by Rs.8.50 per litre despite the fact that it was decontrolled in June last year. Diesel prices are under-priced by a whopping Rs.18 per litre if retail prices are to be brought at international parity. Further, RBI chief feels that the likelihood of oil prices moderating significantly is low. RBI Raises Savings Deposit Rate to 4% RBIs intention of deregulating interest rates on saving bank account deposits. Though, rate tinkering on saving deposits was highly probable an event, we didnt expect an announcement on it as soon as in few days. In a surprising move which has been hailed by deposit-holders, RBI decided to hike interest rate on money

lying in savings bank account by half a percentage point to 4%, with immediate effect. Eventually, this will lead to slight surge in cost of borrowing for the banks which leverage high on CASA deposits, but benefit deposit-holders. However, the decision on deregulating saving deposit rates is still being reviewed for a final decision; even as RBI went on to revise the saving bank rate to 4%, to give higher returns to depositors in the wake of high inflation.

Fiscal policy of government The fiscal policy is concerned with the raising of government revenue and incurring of government expenditure. To generate revenue and to incur expenditure, the government frames a policy called budgetary policy or fiscal policy. So, the fiscal policy is concerned with government expenditure and government revenue. Main Objectives of Fiscal Policy in India The fiscal policy is designed to achieve certain objectives as follows Development by effective Mobilisation of Resources The principal objective of fiscal policy is to ensure rapid economic growth and development. This objective of economic growth and development can be achieved by Mobilisation of Financial Resources The central and the state governments in India have used fiscal policy to mobilise resources. The financial resources can be mobilised by

Taxation: Through effective fiscal policies, the government aims to mobilise resources by way of direct taxes as well as indirect taxes because most important source of resource mobilisation in India is taxation. Public Savings: The resources can be mobilised through public savings by reducing government expenditure and increasing surpluses of public sector enterprises. Private Savings: Through effective fiscal measures such as tax benefits, the government can raise resources from private sector and households. Resources can be mobilised through government borrowings by ways of treasury bills, issue of government bonds, etc., loans from domestic and foreign parties and by deficit financing. Efficient allocation of Financial Resources The central and state governments have tried to make efficient allocation of financial resources. These resources are allocated for Development Activities which includes expenditure on railways, infrastructure, etc. While Nondevelopment Activities includes expenditure on defence, interest payments, subsidies, etc. But generally the fiscal policy should ensure that the resources are allocated for generation of goods and services which are socially desirable. Therefore, India's fiscal policy is designed in such a manner so as to encourage production of desirable goods and discourage those goods which are socially undesirable.

Reduction in inequalities of Income and Wealth Fiscal policy aims at achieving equity or social justice by reducing income inequalities among different sections of the society. The direct taxes such as income tax are charged more on the rich people as compared to lower income groups. Indirect taxes are also more in the case of semi-luxury and luxury items, which are mostly consumed by the upper middle class and the upper class. The government invests a significant proportion of its tax revenue in the implementation of Poverty Alleviation Programmes to improve the conditions of poor people in society. Price Stability and Control of Inflation One of the main objectives of fiscal policy is to control inflation and stabilize price. Therefore, the government always aims to control the inflation by reducing fiscal deficits, introducing tax savings schemes, Productive use of financial resources, etc.

Employment Generation The government is making every possible effort to increase employment in the country through effective fiscal measure. Investment in infrastructure has resulted in direct and indirect employment. Lower taxes and duties on small-scale industrial (SSI) units encourage more investment and consequently generates more employment. Various rural employment programmes have been undertaken by the Government of India to solve problems in rural areas. Similarly, self employment scheme is taken to provide employment to technically qualified persons in the urban areas.

Balanced Regional Development Another main objective of the fiscal policy is to bring about a balanced regional development. There are various incentives from the government for setting up projects in backward areas such as Cash subsidy, Concession in taxes and duties in the form of tax holidays, Finance at concessional interest rates, etc. Reducing the Deficit in the Balance of Payment Fiscal policy attempts to encourage more exports by way of fiscal measures like Exemption of income tax on export earnings, Exemption of central excise duties and customs, Exemption of sales tax and octroi, etc. The foreign exchange is also conserved by providing fiscal benefits to import substitute industries, imposing customs duties on imports, etc. The foreign exchange earned by way of exports and saved by way of import substitutes helps to solve balance of payments problem. In this way adverse balance of payment can be corrected either by imposing duties on imports or by giving subsidies to export.

Capital Formation The objective of fiscal policy in India is also to increase the rate of capital formation so as to accelerate the rate of economic growth. An underdeveloped country is trapped in vicious circle of poverty mainly on account of capital deficiency. In order to increase the rate of capital formation, the fiscal policy must be efficiently designed to encourage savings and discourage and reduce spending.

Increasing National Income The fiscal policy aims to increase the national income of a country. This is because fiscal policy facilitates the capital formation. This results in economic growth, which in turn increases the GDP, per capita income and national income of the country.

Development of Infrastructure Government has placed emphasis on the infrastructure development for the purpose of achieving economic growth. The fiscal policy measure such as taxation generates revenue to the government. A part of the government's revenue is invested in the infrastructure development. Due to this, all sectors of the economy get a boost.

Foreign Exchange Earnings Fiscal policy attempts to encourage more exports by way of Fiscal Measures like, exemption of income tax on export earnings, exemption of sales tax and octroi, etc. Foreign exchange provides fiscal benefits to import substitute industries. The foreign exchange earned by way of exports and saved by way of import substitutes helps to solve balance of payments problem.

Conclusion on Fiscal Policy The objectives of fiscal policy such as economic development, price stability, social justice, etc. can be achieved only if the tools of policy like Public Expenditure, Taxation, Borrowing and deficit financing are effectively used. Though there are gaps in India's fiscal policy, there is also an urgent need for

making India's fiscal policy a rationalised and growth oriented one. The success of fiscal policy depends upon taking timely measures and their effective administration during implementation.

INCOME TAX POLICIES OF THE GOVERNMENT The government of India imposes an income tax on taxable income of individuals, Hindu Undivided Families (HUFs), companies, firms, co-operative societies and trusts (identified as body of individuals and association of persons) and any other artificial person. Levy of tax is separate on each of the persons. The levy is governed by the Indian Income Tax Act, 1961. The Indian Income Tax Department is governed by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue under the Ministry of Finance, Govt. of India. There were 33 million income taxpayers in 2008. At one point or another you are required to pay taxes on the capital gains you have acquired. When you invest in stocks both your capital gains and dividend income can be taxed. We first take a look at the capital gains tax implications and then we move to the taxation issues of dividend income. Capital Gains Tax Implications When you sell a stock you obtain a capital gain. In order to determine the capital gains tax you are subject to you should find the difference between the price at which you have sold the stock and your basis in the stock. After deducting them you will get your profit or loss. The basis represents the price at which you have purchased the stock. If you haven't bought the stock, but have inherited it, the price of the stock at the time the owner has died is taken as the basis.

There are cases in which the difference can be a negative number. As a result you have incurred a loss. This loss can be turned into your advantage by offsetting the capital gains taxes.

Types of Capital Gains Basically there are two types of capital gains. The first one is short-term capital gains, whereas the second one is the long-term capital gains. 1. Short-Term Capital Gains

Capital gains of a short-term character are those that have been in the possession of the investor for less than a year. The profit that is obtained is taxed at the same rate as an ordinary income. This rate is typically 25% or more of the profit you have acquired.

2.

Long-Term Capital Gains

Capital gains of a long-term character are those that have been in the possession of the investor for more than a year. If you fall in the 25% income tax bracket or higher you will be liable to 15% tax rate on your stock profits. If you are in the 15% income tax bracket or lower, you will be charged as little as 5%.

Dividend Tax Implications If you receive dividends from your stock you are liable to taxes. The current tax rate of 15% is about to expire in 2008. Investors hope that this rate will be renewed after it expires. If not renewed, the dividends you receive will be subject to a tax rate equal to rate you are charged for your ordinary income.

If you are unwilling to pay taxes on your dividends you can consider the option of making the stock a part of a retirement plan. You should include the option of making automatic dividend reinvestment.

Additional Tax Advices Once you are sure that your capital gains fall in the long-term category, you can see whether you are experiencing capital losses from any of your stocks. These losses can be turned into your advantage by using it to offset any capital gains. On the other hand, you should not get rid of a stock just because it has lost its positions and you want to offset capital gains. You may dump a stock that may provide you with profits. The selling of losing stocks for the purposes of offsetting capital gains is one of the reasons why the market decreases with the nearing of the end of the year. Final Piece of Advice Whenever you feel uncertain about the tax implications of your stocks, call your tax advisor and ask for his professional advice on how you can minimize your stock tax burden. To be a successful investor you need two main things - the knowledge and the right trading platform.

BUDGET STOCKS

BY

GOVERNMENT

AFFECTING

THE

MARKET

Broking house, First Global has come out with Budget impact on various sectors.

Automobiles - R&D tax credit the only good news. Banking- Budget turns out to be a bit unexciting for banks. Cement- Focus on infrastructure may not bring the zing back to cement stock

IT Services- Introduction of MAT to impact bottomline Pharmaceuticals- Incentives for R&D and biotechnology but no indications on drug pricing policy

First Global report Budget Impact on Automobiles The proposal to extend weighted deduction of 150% on R&D for tax credit u/s 35(2AB) of the Income Tax Act for a period of 5 more years will help auto companies reduce their taxes, while simultaneously helping them scale up technologies to global standards. The proposed reduction in customs duty on most chemicals and plastics from 12.5% to 7.5% will help marginally reduce raw materials costs. In Auto space broking house has recommended outperform rating on Mahindra and Mahindra, Bajaj Auto and Hero Honda. Auto Ancillaries Budget offers little growth to continue Budget Impact on Auto Ancillaries The proposal to extend weighted deduction of 150% on R&D for tax credit u/s 35(2AB) of the Income Tax Act for a period of 5 more years will help auto companies reduce their taxes, while simultaneously helping them scale up technologies to global standards. The proposed reduction in customs duty on most chemicals and plastics from 12.5% to 7.5% will help marginally reduce raw materials costs. In this sector firm has maintained long term outperform rating on MICO, while it has moderate outperform rating on Sona Koyo and Lumax. Banking Budget turns out to be a bit unexciting for banks Budget Impact on banking

The governments overall focus in the Budget on agriculture sector will enhance rural income, which in turn, will help banks, particularly PSU banks, expand their rural operations. The Securitisation and Reconstruction of Financial Assets and Enforcement of Securitisation of Interest (SARFAESI) Act is to be extended to loans advanced by Regional Rural Bank (RRBs). This is positive for the Banking sector, as it will strengthen the overall sector. Cement Focus on infrastructure may not bring the zing back to cement stocks Budget Impact on Cement Excise duty to be raised to Rs.600 per tonne on cement retail price higher than Rs.190 per bag. Excise duty cut from Rs.400 per tonne to Rs.350 per tonne on cement if retail price is over Rs.190 per bag. This will be negative for all cement companies, since cement prices are ruling above Rs.190 per bag in most regions. Higher allocation for roads under NHDP National Highways Development Projects to benefit cement companies. Proposed reduction of 6% in rail freight cost for transportation of limestone. This will be neutral for all cement companies, since most cement plants are located close to limestone mines. First Global has underperform rating on ACC, Gujarat Ambuja, UltraTech, Grasim and Jaiprakash Associates. IT Services Introduction of MAT to impact bottom-line

Budget Impact on Technology Companies that benefit from tax exemption under the provisions of the Section 10A and 10B of the Income-Tax Act will have to pay an effective minimum alternate tax of 11.22% from FY08. This will result in a higher effective tax rate for the companies and impact their bottom-line.

The broking house has outperformed rating on Infosys, TCS, HCL Technologies and Polaris. However they have moderate outperformer rating on Wipro, Satyam and Mastek. Pharmaceuticals Incentives for R&D and biotechnology but no indications on drug pricing policy

Budget Impact on Pharma Extension of the 150% weighted average deduction on R&D expenditure until FY07 to be extended by another 5 years. Service tax exemption on clinical trials of new drugs. The broking house has recommended outperform rating on Aurobindo and Lupin while, they have long term outperformer rating on Ranbaxy. Telecom Nothing much to cheer about Budget Impact on Telecom Constitution of a DoT committee to study and recommend on the issue of replacing current multiple duties, fees, charges, etc., with a single levy: While the proposal is positive, as it means a step towards bringing down the overall burden of levies and duties on the industry, the actual impact will depend on the committees recommendations. It has been proposed to extend the exemption from additional customs duty of 4% on cell phones parts, components and accessories set to expire on April 30, 2007 until June 30, 2009. The proposal is marginally positive, as it will help keep handset prices low. It has been proposed to impose service tax on the development and supply of content for use in telecom. This might lead to an increase in value added services (VAS) charges. However, the impact will be marginal, as data services contribute a small proportion (5-8%) of overall revenues.

The firm has maintained market perform rating on Bharti Airtel and Reliance Communications. Sugar the beleaguered sector gets no relief The firm has recommended sell rating on Balrampur Chini, Bajaj Hindusthan and Renuka Sugars. Construction Benefits of Section 80IA may not be available to construction companies. Power- More investment incentives to power rapid expansion.

Chapter 8

Department of Economic Affairs

INTRODUCTION Department of Economic Affairs is known to be the nodal agency of the Union Government and works under the Right to Information (RTI) Act. The main activity of the department is to prepare the Union Budget annually, except the railway budget. It also formulates and monitors the internal and external aspects of the economic life of the country. This monitoring of economic system of the country is highly linked with the Capital market, which includes Stock Exchange. It plays a cardinal role in increasing the external resources with the help of multilateral and bilateral official development assistance, and manufacturing of bank notes and coins. The department of economic affairs also works for raising the internal resources with the help of taxation, market lending and so on.

FUNCTIONS

It formulates as well as monitors the economic life of the country at macro level that is connected with the Capital Market inclusive of Stock Exchange

It manages both the internal and external aspects of the economic policies and programmes of the country

The department prepares the Union Budget on a yearly basis exclusive of the Railway Budget system

It also lifts up external resources of the country's economy with the help of multilateral and bilateral official development assistance along with commercial borrowings from overseas countries, foreign direct investments, preserving foreign exchange resources, and balance of payment.

The department contributes in raising the internal resources of the country's economy with the help of market borrowings, taxation, gathering of small savings, and ordinance of money supply system

It plays an important role in manufacturing bank notes and coins available in varied denominations.

It also makes available the postal stationery, postal stamps, and many more. The department of economic affairs takes substantial interest in planning and training of the Indian Economic Service (IES) career

It is highly responsible for the disbursement of loans as well debt servicing of the loans.

ADMINISTRATIVE DIVISION

Bilateral Cooperation Division Budget Division Capital Market Division Economic Division Finance Division Foreign Trade Division Fund Bank Division Infrastructure Division Aid, Accounts, and Audit Division

SERVICES Bilateral Cooperation Division BC Division deals with Bilateral Development Assistance from all G-8 countries. One of the main functions of the Division is to extend concessional Lines of Credit to other developing countries. It administers all short term foreign training programmes.

Budget Division Apart from preparation of Union Budget and other allied issues like market borrowings, accounting and auditing procedures and financial relationship with the State Governments. This Division also deals with mobilization of small savings through the National Savings Institute (NSI).

Capital Market Division It is primarily responsible for policy issues related to development of the securities markets (i.e. share, debt and derivatives), External Commercial Borrowing and administration of Foreign Exchange Management Act (FEMA), 1999. It also looks after the administrative matters of the Specified Undertaking of Unit Trust of India (SUUTI), the Securities and Exchange Board of India (SEBI), Securities Appellate Tribunal (SAT), FSB, Financial Action Task Force (FATF).

Economic Division It tenders economic advice to the Government on important policy issues relating to macro management of the economy.

Integrated Finance Division The Integrated Finance Division is responsible for tendering of financial advice on all matters involving government expenditure of the Department of Economic Affairs and the Department of Financial Services. The Division is also responsible for preparation of the Budget and administering the Detailed Demands for Grants in respect of these Departments. Coordination, compilation and printing of the Detailed Demands for Grants and the Outcome Budget of the Ministry of Finance is also handled by this Division.

Multilateral Relations Division With a view to provide focused and outcome oriented engagement with multilateral organizations and Trade Related issues, Multilateral Relations Division has been created recently by merging Sections from Foreign Trade Division and Fund Bank Division specifically dealing with related issues. The MR Division is headed by JS (MR) and comprises five sections. Under the present schematic framework, MR-I Section has been assigned the job of rendering advice and dealing all matters related to G-20, G-24, G-8, ASEM(Asia Europe Meeting), OECD (Organisation of economic Co-operation & Development) and EC (European Committee), MR-II Section deals with UN related matters and all policy related matters of UNDP (United Nation Development Programme) comes under its purview. MR-III Section advises on WTO and SAARC (South Asian Association Of Regional Corporation) related matters. MR-IV Section is responsible for all matters related to Colombo Plan and Technical Cooperation framed there under. MR-V Section renders advice to Ministry of Commerce on issues arising out of and consequent to implementation of Foreign Trade Policy.

Chapter 9

Department of corporate affairs (DCA)

INTRODUCTION The Ministry is primarily concerned with administration of the Companies Act, 1956, other allied Acts and rules & regulations framed there-under mainly for regulating the functioning of the corporate sector in accordance with law. The Ministry is also responsible for administering the Competition Act, 2002 which will eventually replace the Monopolies and Restrictive Trade Practices Act, 1969 under which the Monopolies and Restrictive Trade Practices Commission (MRTPC) is functioning. Besides, it exercises supervision over the three professional bodies, namely, Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India(ICSI) and the Institute of Cost and Works Accountants of India (ICWAI) which are constituted under three separate Acts of the Parliament for proper and orderly growth of the professions concerned. The Ministry also has the responsibility of carrying out the functions of the Central Government relating to administration of Partnership Act, 1932, the Companies (Donations to National Funds) Act, 1951 and Societies Registration Act, 1980.

SERVICES TOWARDS THE COMPANY Obtain a Digital Signature Certificate (DSCs) The Information Technology Act, 2000 provides for use of Digital Signatures on the documents submitted in electronic form in order to ensure the security and authenticity of the documents filed electronically. This is the only secure and authentic way that a document can be submitted electronically. As such, all filings done by the companies under MCA21 e-Governance programme are required to be filed with the use of Digital Signatures by the person authorised to sign the documents.

Legal Warning One can use only the valid Digital Signatures issued to you. It is illegal to use Digital Signatures of anybody other than the one to whom it is issued. Validity of Digital Signatures The DSCs are typically issued with one year validity and two year validity. These are renewable on expiry of the period of initial issue. Costing/ Pricing of Digital Signatures It includes the cost of medium (a UBS token which is a one time cost), the cost of issuance of DSC and the renewal cost after the period of validity. The company representatives and professionals required to obtain DSCs are free to procure the same from any one of the approved Certification Agencies as per the web site. The issuance costs in respect of each Agency vary and are market driven.

Director Identification Number The concept of a Director Identification Number (DIN) has been introduced for the first time with the insertion of Sections 266A to 266G of Companies (Amendment) Act, 2006. As such, all the existing and intending Directors have to obtain DIN within the prescribed time-frame as notified.

Annual Filing As a part of Annual e-Filing, Companies incorporated under the Companies Act, 1956 are required to e-file the following documents with the Registrar of Companies (ROC). Sr. No. 1 2 3 4 5 Document Balance-Sheet Profit & Account e-Form Form 23AC to be filed by all Companies*

Loss Form 23ACA to be filed by all Companies Form 20B to be filed by Companies having share capital Form 21A to be filed by companies without share capital Form 66 to be filed by Companies having paid up capital of Rs.10 lakh to Rs. 5 crore

Annual Return Annual Return Compliance Certificate

Important Points to Remember

Balance Sheet and Profit & Loss Accounts are to be filed as two separate documents with different e-Forms;

Each e-Form along with the relevant attachment(s) should be less than 2.5 MB.

The Balance Sheet, Profit & Loss Account and Annual Return are filed as attachments to the respective e-Forms. A scanned copy considerably increases the size of the document besides being more expensive. You are therefore, advised to convert the Text file/ Excel sheets by using the PDF converter software (PDF conversion facility is also available on the MCA portal for business users) and upload these attachments as PDF documents.

The MCA database in respect of Authorised Capital and Paid-up Capital needs to be verified by the respective Companies, as it may not be correct. The Companies are requested to apply for correction of Master Data, should they find any discrepancies. In the meantime, the Companies can declare the correct amount of Authorised Capital and Paid-up Capital in the respective annual filing Forms.

How to do the Filing Companies can do e-Filing in three different ways:

The Company representative can upload the e-Forms on the MCA portal through the Annual Filing Corner link (after registering oneself as a user of the portal) at his convenience from his office/ home. This is the most convenient way of eFiling.

The Company representative can prepare the e-Forms as per guidelines, get them digitally signed by the authorized signatory, copy them in a CD or a pen drive and visit the nearest Registrars Front Office (RFO). RFO staff will assist in uploading of e-Forms on MCA portal.

The Company representative can also contact any of the Certified Filing Centers (CFCs) for the Annual Filing of e-Forms by paying the service charges to the CFCs.

Company Master Data and Charge Documents The Company Master Data and Charge data has been migrated from the legacy system. There are possibilities that the Company Master Data and Charge Data are incorrect. The facility of correction of Master Data has been made available without any charge. However, this facility, without any charges, would be available only for a limited period of time (up to 31 March 2009). Accordingly, all the companies are requested to view their Company Master Data and take appropriate steps. A similar facility has also been made available in respect of the 'Register of Charges' for the companies by clicking on to the 'View Index of Charges'. Register Digital Signature Certificate Role check for Indian companies is to be implemented in the MCA application. Role check can be performed only after the signatories have registered their Digital signature certificates (DSC) with MCA. Once the role check is implemented, system shall verify whether the signature on the e-form filed, is of signatory of the company. To register or start a new Indian company To register a company, you need to first apply for a Director Identification Number (DIN) which can be done by filing e-Form for acquiring the DIN. You would then need to acquire your Digital Certificate and register the same on the portal. Thereafter, you need to get the company name approved by the Ministry. Once the company name is approved , you can register the company by filing the incorporation form depending on the type of company

Step 1 : Application For DIN The concept of a Director Identification Number (DIN) has been introduced for the first time with the insertion of Sections 266A to 266G of Companies (Amendment) Act, 2006. As such, all the existing and intending Directors have to obtain DIN within the prescribed time-frame as notified.

You need to file e-Form DIN-1 in order to obtain DIN.

Step 2 : Acquire/ Register DSC The Information Technology Act, 2000 provides for use of Digital Signatures on the documents submitted in electronic form in order to ensure the security and authenticity of the documents filed electronically. This is the only secure and authentic way that a document can be submitted electronically. As such, all filings done by the companies under MCA21 e-Governance programme are required to be filed with the use of Digital Signatures by the person authorised to sign the documents. Acquire DSC -A licensed Certifying Authority (CA) issues the digital signature. Certifying Authority (CA) means a person who has been granted a license to issue a digital signature certificate under Section 24 of the Indian IT-Act 2000. Register DSC -Role check for Indian companies is to be implemented in the MCA application. Role check can be performed only after the signatories have registered their Digital signature certificates (DSC) with MCA. Step 3: New User Registration To file an e-Form or to avail any paid service on MCA portal, you are first required to register yourself as a user in the relevant user category, such as registered and business user.

Step 4: Incorporate a Company Apply for the name of the company to be registered by filing Form1A for the same. After that depending upon the proposed company type file required incorporation forms listed below.

Form 1 : Application or declaration for incorporation of a company Form 18 : Notice of situation or change of situation of registered office Form 32 : Particulars of appointment of managing director, directors, manager and secretary and the changes among them or consent of candidate to act as a managing director or director or manager or secretary of a company and/ or undertaking to take and pay for qualification shares

Once the form has been approved by the concerned official of the Ministry, you will receive an email regarding the same and the status of the form will get changed to Approved. Closure of the company A company can be closed by adopting the following ways:(A) (B) Strike off a company under Section 560 : Section 560, of the Companies Act, 1956, deals with strike off provisions of

a defunct company. Any defunct company desirous to strike off its name from the register of Registrar of company can apply in Form FTE for strike off its name from the register maintained by ROC as per Guidelines for FAST TRACK EXIT MODE issued vide General Circular No. 36/2011 dated 7.6.2011. Similarly, ROC has also power to strike off any defunct company after satisfying himself of the need to strike off a defunct company and has reasonable cause. But before passing any order in this regard, an opportunity of being heard must be provided to the defunct company by following the due procedure u/s 560.

WINDING UP Section 425, of Companies Act, 1956, deals with modes of winding up. The winding up of a company may be either (a) By the Tribunal (also known as compulsory winding up) (b) Voluntary winding up (c) subject to the supervision of the Court

Overview of Winding up You can get a general picture from the following steps of winding up which are summarized below (except Voluntary winding up) 1. Issuing a written demand for debt payments to the target company. 2. Present a winding up petition to the court and the company 3. Court hearing for the petition 4. Granting of winding up order by the court 5. Meeting of creditors and other relevant parties 6. Appointment of liquidator. 7. Realization and distribution of companys assets to the creditors 8. Realize of duties for liquidator 9. Dissolution of the company. Voluntary Winding up Voluntary winding up which may be: i) Members Voluntary winding up. ii) Creditors Voluntary winding up. In case of voluntary winding up, the entire process is done without court supervision. When the winding up is complete, relevant documents are filed before the court for obtaining the order of dissolution. A Voluntary winding up can be

done by members or creditors. The circumstances in which company may be wound up voluntarily are: a) When the period fixed for the duration of the company in its articles has expired. b) When an event on the happening of which the company is to be dissolved as per its articles happen. c) The company resolves by special resolution at any general meeting to be voluntary winding up.

SERVICES TOWARDS INVESTORS Investor Education & Protection Fund (IEPF) Investor Education and Protection Fund (IEPF) is for promotion of investors awareness and protection of the interests of investors. Investor helpline In cases which are as followsNon receipt of refund order/allotment advice related. This form covers all the problems related to allotments or offerings incase of public or right offerings. The investors needs to act in accordance of terms & conditions of the offer document & if as result face any problem they can register here for redressal of their grievance. The grievance included in this form includes the following Non receipt of refund order or advice. Interest on delayed refund orders. Non receipt of duplicate refund orders. Refund order after revalidation. Refund order after revaluation.

Non receipt of dividend It covers problems related to non receipt of dividend warrant within the due date. The investor need to provide company with bank details in case of electronic clearing services & holding the detail as on record date for quick response from company side. Non recei pt of share certificate Non receipt of debentures / bonds certificate or interest redemption amount Offer for right issue. Non receipt of share certificate after allotment/transfer/bonus transmission etc. Non receipt of annual report Grievance redressal mechanism Public Grievances pertaining to identified issues in respect of 20 Central Government Organisations are being handled by Directorate of Public Grievances (DPG), Cabinet Secretariat. If your Grievance falls under the purview of Directorate of Public Grievances, Cabinet Secretariat.

CONCLUSION
Thus, to conclude regulators are required for the proper functioning of economy, financial markets & financial services. Regulators have set certain guidelines which need to be followed by market participants. Regulators performs many functions mainly keeping into mind protection of interest of investors in securities market. RBI is the main regulator of banking sector. It regulates the working of commercial banks & also looks after reserve requirements of the commercial banks & also whether they are properly kept by these banks with central bank. Reserve Bank also performs various functions important for the betterment of economy. Securities & Exchange Board of India is the main regulator of securities market. It regulates the working of companies who wants raise capital in securities market also looks after the default made in the process of raising capital. The main function is to promote the development of securities market, protect the interest of investors, etc & numerous other functions. Insurance & Regulatory Development Authority of India (IRDA) is the regulator of insurance sector. It is set for the protection of policyholders interest various amendments made there-under were adopted in 2002. Government is the main regulator of all activities happening in the country. It looks after all decisions taken by regulators in India. Thus to sum up government is the overall regulator of a country & the activities happening in it. Department Of Economic Affairs looks after economic affairs or decisions in the country. It looks into all the factors affecting the economy & how to prevent the loopholes if in any formulation of the economic policy. Department Of Company Affairs also known as ministry of corporate affairs looks after the regulation of companies act, 1956 & look that all the requirements are properly met by the companies existing in market.

Recommendations & Suggestions

Though regulators are present & have became strict because of which there have been a development in securities market. But in spite of certain strict regulation by the regulators there has been scams happening in the country so it is required for the regulators to tighten their regulation more, development is still required in regulators working. Over regulations in certain sector also leads to low growth of economy. Hence it is important for every regulator in the financial service to identify where the regulations are necessary and where not.

BIBLOGRAPHY
Information has been sourced from namely, books, newspapers, journals, industry portals, government agencies, industry news and developments and through access to database.

Books
RBI: Functions & Working Indian Economy 62nd edition SEBI Manual 2002: Covering guidelines for disclosure & Investor protection/sebi act/rules & regulations/guidelines

Author
RBI

Publication
RBI

Datt, Gaurav Mahajan, Aswani SEBI

S Chand & Company Taxmann Publication

From Websites www.wikipedia.com www.investopedia.com www.bseindia.com www.nseindia.com www.letslearnfinance.com Search Engines www.google.com www.yahoo.com