Economic growth Promoting savings and investment in the country Provision of efficient financial services Investor protections

Types of regulatory framework

Institutional regulations Investor regulations Internal regulations Self regulations Legislative regulations

Australia Reserve bank of Australia Brazil Banco Central Do Brasil Belgium Nationale Bank van Belgie Canada Bank of Canada Cuba Bank de cuba European union European Central Bank Finland Bank of Finland France Banque of France Greece bank of greece Germany Deutsche Bundesbank

RESERVE BANK OF INDIA

INTRODUCTION: The need for a central bank in India was felt as early as 1773 when Warren Hastings, Governor of Bengal Recommended the establishment of Central Bank of Bengal and Bihar. In the year 1926, the commission on Indian Currency and Finance, also known as Hilton Young Commission suggested the establishment of RBI. 1927 a bill was introduced. September 8 1934 a fresh bill was passed RBI Act was passed in September 1934. The RBI started functioning form 1st April ,1935.

Constitutions of RBI
RBI has been constituted as a corporate body having perpetual succession and a common seal. established with an authorised capital of Rs. 5 crores divided in shares of Rs. 100 each. The bank was nationalised in 1949

Organisation and Management

The management of RBI is vest with the Central Board of Directors comprising of 20 members. 1 governor and 4 deputy governors appointed by the central government. 4 directors nominated by the central government. 10 directors to be nominated by the central government one from each of the local board. 1 government official nominated by the central government.

Local Board
For each of the regional areas of the country there is a local board with headquarters at Bombay, Calcutta, Madras and New Delhi. The local board consists of 5 members appointed by the central government. The member should represent, as far as possible, territorial and economic interest and interest of co-operative and indigenous banks. Appointed for a period of 4 years.

Functions of the board

Advising the central board Performing other duties delegated by the central board from time to time.

The board has delegated some of its functions to a committee called Committee of the central board. It consists of the Governor, the deputy Governors and the directors representing or resident of the area in which the meeting is held. The committee meets once in a week

Objectives of RBI
The preamble of the RBI Act, 1934 states that whereas it is expedient to constitute a RBI to regulate the issue of bank notes and the keeping of reserves with a view to securing monetary stability in (India) and generally to operate the currency and credit system of the country to its advantage

The main objectives of RBI are:

To maintain stability in the country. To maintain monetary stability and ensure that financial institutions can conduct their business with confidence. To maintain stable payment system To ensure that the credit allocation by the financial institutions broadly reflects the national economic priorities and societal objectives. To regulate overall volume of money and credit in the economy.

Organisation Structure of RBI

Issue department Banking department Banking development department Department of Banking operations Department of non-banking companies Department of legal affairs Exchange control department Department of agricultural credit Department of industrial finance Economics department

Department of research and statistics. Inspection department Department of planning and reorganisation RBI service board Department of accounts and expenditure Department of supervision Control department External investment and operations Press relations divisions Industrial and export credit etc.

Functions of the RBI

1.As Currency Authority 2.Banker To the Government Sec 20 and 21 the Bank has the obligation to transact the banking business of the central Government who, in turn are obliged to entrust the conduct of such business to the bank. Sec 21A, the bank performs similar functions on behalf of the government As a manager of public department.

3. Advisor to the Government 4. Bankers Bank 5. Lender of the Last Resort 6. Supervision of Banks 7. Controller of Money supply and Credit 8. Foreign Exchange Control and Management 9.Monetary data and Publications 10.Promotional Functions

Prohibitory functions of RBI

Reserve Bank neither participate nor provide any direct financial assistance. It cannot purchase its won shares It can not purchase shares of any commercial or industrial undertakings. It cannot purchase immovable property except for the establishment of its offices, It cannot give interest on deposits held by it. It cannot give loans on the security of shares and immovable property.

 Monetary Policy refers to the use of official instruments under the control of the central bank to regulate the availability, cost and use of money and credit with the aim of achieving optimum levels of output and employment, price stability, balance of payment equilibrium or any other goals set by the state.

Monetary Policy
Meaning: it refers to the measures adopted by the central monetary authority of the country to control money supply in order to achieve the objective of general economic policy. it is a powerful instruments of ecomonic management.

Objectives monetary policy

Price stability Stability of Foreign exchange Full employment High rate of economic growth Equitable Distribution of income and wealth.

Credit Control Measures used by RBI

Quantitative Credit Control (General) the main objective of quantitative credit control is to have a control over the total quantity of credit in the country. Qualitative Credit control (Selective) it relates to the distribution or direction of available credit supplies.

Quantitative Credit Control

1.Bank Rate: sec 49of RBI Act the standard rate at which it is prepared to buy or rediscount bills of exchange or other commercial paper eligible for purchase under this Act. It is the rate on advances by the bank

 Expansion of Credit: Contraction of credit:

2. Variable Reserves Requirements

U/S 42(1) of the RBI Act scheduled banks were required to maintain with the Reserve Bank at the close of business on any day a minimum cash reserves. Two techniques: Cash Reserve Ratio Statutory Liquid Ratio

3. Open Market Operation

It refers to the purchase and sale, by the central bank, of a variety of assets such as gold, government securities, foreign exchange and even company shares. They are confined to the purchase and sale of government securities only.

 Section 17(8) of the RBI Act authorises the bank to engage in the purchase and sale of securities of the central, state Governments or of such securities of a local authority as may be specified on behalf of this by the central government. It has two interrelated aspects: 1.They are instruments of monetary policy. 2.Public debt management.

4. Net Liquidity ratio

In sep 1974 a new system was introduced. Net liquidity is defined as the total of banks cash and balances with reserve bank Plus cash and balances with other notified bank plus balance in Current A/c with other bank and investment in government or other approves s Less: Borrowings from RBI and Borrowings from the SBI and Industrial Development Bank

Selective or Qualitative Credit Control

Section 21 of the Banking regulation Act confers on the Reserve Bank to control advances by banks. Section 35 gives powers to the bank to give directions to commercial banks

Methods of selective Credit control

Minimum margin for long lending against specific securities. Rationing Moral Suasion Discriminatory rates on interest on certain types of advances; Direct Actions

Securities and Exchange Board of India

the capital issue control was introduced in India for the first time in may 1943, by a rule framed under the Defence of India Act, 1939 The Act was place permanently on the statute Book in 1956. The control was administered by the Ministry of Finance through the office of the Controller of capital Issues.

Capital issue (Control) Act Objectives:

To further the growth of companies with sound capital structure. To avoid overcrowding of public issues in a particular period. To ensure that investment takes place in conformity with the objectives of Five year plan. To ensure orderly and healthy growth of capital market

Deficiencies in the market

Lack of diversity in financial instruments Disclosure of financial information Poor liquidity Lack of control over Brokers Delay in settlements

SEBI
SEBI was set up on April 12, 1988. It took almost four years for the Government to bring about a separate legislation in the name of Securities Exchange Board of India Act, 1992 conferring statutory powers

Purposes of the SEBI Act

To protect the interest of investors in securities; To promote the development of the securities market; To regulate the securities market; To promote efficiency services by brokers and other intermediaries.

Functions of SEBI (sec11)

1.Regulatory Function Regulation of S.E and other securities market Registration and regulation of stock brokers, sub-br0kers, share transfer agents, merchant bankers, underwriters etc., Registration and regulation of working of the collective investments schemes. Registration and regulating of the depositors, participants, custodian of securities,.

 Prohibition of fraudulent and unfair trade practices. Prohibition of insider trading in securities. Regulation of substantial acquisition of shares. Performing functions under the provision of securities contract Act 1956 Calling for information

2. Development Function
Promoting investors education and training of intermediaries Conducting of research and published information Promotion of fair practices Levying fees or other charges. perfoming such other functions as may be prescribed.

POWERS of SEBI
Power to call for a periodical returns from recognised S.E Power to call for any information or explanation from S.E and their members Power to direct enquires to be made in to functioning of S.E Power to grant approval to bye-laws of recognised S.E Power to make or amend laws

 Power to compel listing of securities by public company Power to control and regulate stock exchanges Power to grant registration of market intermediaries Power to levy fees or other charges Power to declare applicability of sec17

Organisation
Formation of the board: as per sec 4 of the SEBI Act, 1992 as amended SEBI Act 2002, 1.A chariman 2. Two members form central Government Official 3. One member form officials of RBI 4. Five other mambers

 The Terms and Conditions Removal of Member from the office. 1.Insolvent 2.Unsound mind 3.Convicted of an offence 4.Has so abused his position Meetings

Operational department of SEBI

Primary market Department Issue Management and intermediaries Dept., Secondary Market Department Institutional Investment Department. legal department. Investigation Department.

Measures taken by SEBI

Guidelines for disclosure and investor protection Guidelines for merchant Bankers Guidelines for EURO issues Guidelines of Mutual fund and AMCs Guidelines for FII for Development FI for disclosure Guidelines for Book Building, ESOS and ESPS Guidelines for OTCEI issues External Commercial Borrowing. Regulatory Measures.

Powers of SEBI
1. Power of Inspection 2. Powers of Court. 3 Powers in the inters of Securities Market. suspend the trading of any security Restrain the person from assessing the securities Suspend any office bearer of any S.E Retain the proceeds or securities in respect of any transaction which is under investigation. Direct any intermediary not to dispose of and asset -- investigation.

4. Powers Regarding Protection of Investors a) Specify, by resolution the matters relating to issue of capital, transfer of securities. The manner in which such matters shall be disclosed by the companies; b) By general or special orders Prohibit any company from issuing prospectus, Specify the condition

5. Power to Issue Directions In the interest of investors or orderly development of securities. To prevent the affairs of any intermediary To secure proper management of any intermediary

6.Powers of Investigation Where the Board has reasonable ground to believe that Duty of every manager, M.D - all documents May require any intermediary to furnish the information. Notes of any examination shall be taken down in writing Seizure of books.

 Power to cease and Desist Proceedings Registration of Stock Brokers, Sub-brokers , share transfer agents,

SEBI Guidelines
Guide lines for Primary Market 1.New Company 2.New Company set up by existing company 3.Private and closely held companies. 4.Existing Listed Companys Composite Issues

Guidelines for Public Issues

Prospectus has to be attached with every application. The company has to highlight the risk factors Objective of issue and cost Companys management, past history and present business Justification of premium Subscription list for public issues -3to 10 Collection centers Collection agents are not to collect application money in cash The quantum of issue Report should be submitted to SEBI 45 days The capital issue should be fully paid up within 120 days Underwriting has been made mandatory.

Guidelines for secondary market

1. Stock Exchanges BOD should be reconstituted. Capital Adequacy norms (CAR) have been laid down Working hours for all S.E All Recognised S.E will have to inform about the transaction within 24 hours.

Brokers
Registration of brokers and sub-brokers is made compulsory. Capital adequacy norms for brokers. Compulsory audit of brokers book. Transparency- mandatory to disclose transaction price and brokerage separately. % to underwrite the public issue.

Buyback of shares
The government recently promulgated an ordinance amending the companies Act, 1956 to permit buyback of shares by promoters of companies. A company can buyback is own shares and other securities to the extent of 25% of the paid up capital and free reserves

What is Buyback
It is method of cancellation of share capital. It leads to reduction in the share capital of a company as opposed to issue of shares which results in an increase in share capital

Why Buyback
To reduce equity base To prevent take over To return surplus cash to shareholders. To support the share price during the periods of temporary weakness. To maintain a target capital structure.