Existence of a well organized financial

system
Promotes the well being and standard of
living of the people of a country
Money and monetary assets
Mobilize the saving
Promotes investment
 Financial System of any country consists
of financial markets, financial
intermediation and financial instruments
or financial products
Flow of funds (savings)
Seekers of funds
Suppliers of funds
(Mainly business firms
Flow of financial services (Mainly households)
and government)
Incomes , and financial
claims
 Non- Organized
Organized
Money lenders
Regulators
Local bankers
Financial Institutions
Traders
Financial Markets
Landlords
Financial services
Pawn brokers
Chit Funds
 Barter

Money Lender

Nidhi's/Chit Funds

Indigenous Banking

Cooperative Movement

Societies Banks

Joint-Stock Banks
 Consolidation

Commercial Banks

Nationalization

Investment Banks

Development Financial Institutions

Investment/Insurance Companies
Stock Exchanges
Market Operations
Specialized Financial Institutions

Merchant Banking
Universal Banking
 Interrelation--Financial system & Economy

Financial System

Savers Lenders Households Foreign

Sectors

Corporate Sector Un-organized

Investors
Govt.Sector Sector
Borrowers

Economy
 Organized Indian Financial System

Regulators Financial Financial Financial

Instruments Markets Intermediaries

Forex Capital Money Credit

Market Market Market Market

Primary Market

Secondary Market

Money Market Capital Market

Instrument Instrument
Mechanism which allows people to trade

Affected by forces of supply and demand

Process used

In Finance, Financial markets facilitates

Capital markets facilitate the transfer of capital
(i.e. financial) assets from one owner to
another.
They provide liquidity.
 Liquidity refers to how easily an asset can be
transferred without loss of value.
A side benefit of capital markets is that the
transaction price provides a measure of the
value of the asset.
Mobilization of Savings & acceleration of
Capital Formation
Promotion of Industrial Growth
Raising of long term Capital
Ready & Continuous Markets
Proper Channelisation of Funds
Provision of a variety of Services
Stock Market was for a privileged few
Archaic systems - Out cry method
Lack of Transparency - High tones costs
No use of Technology
Outdated banking system
Volumes - less than Rs. 300 cr per day
No settlement guarantee mechanism - High
risks
1994-Equity Trading commences on NSE
1995-All Trading goes Electronic
1996- Depository comes in to existence
1999- FIIs Participation- Globalisation
2000- over 80% trades in Demat form
2001- Major Stocks move to Rolling Sett
2003- T+2 settlements in all stocks
2003 - Demutualisation of Exchanges
Each scam has brought in reforms - 1992 / 2001
Screen based Trading through NSE
Capital adequacy norms stipulated
Dematerialization of Shares - risks of
fraudulent paper eliminated
Entry of Foreign Investors
Investor awareness programs
Rolling settlements
Inter-action between banking and exchanges
Corporatisation of exchange memberships
Banning of Badla / ALBM
Introduction of Derivative products - Index
/ Stock Futures & Options
Reforms/Changes in the margining system
STP - electronic contracts
Margin Lending
Securities Lending
• 22 Stock Exchanges,
• Over 10000 Electronic Terminals at over 400 locations all
over India.
• 9108 Stock Brokers and 14582 Sub brokers
• 9644 Listed Companies
• 2 Depositories and 483 Depository Participants
• 128 Merchant Bankers, 59 Underwriters
• 34 Debenture Trustees, 96 Portfolio Managers
• 83 Registrars & Transfer Agents, 59 Bankers to Issue
• 4 Credit Rating Agencies
 Indian Capital Market

Market Instruments Intermediaries Regulator

SEBI
•Brokers
•Investment Bankers
Primary Secondary •Stock Exchanges
•Underwriters

Equity Hybrid Debt

Players

CRA Corporate Intermediaries Individual Banks/FI FDI /FII

Mangalore Stock Exchange Bombay Stock Exchange
Hyderabad Stock Exchange Madhya Pradesh Stock
Uttar Pradesh Stock Exchange
Exchange
Coimbatore Stock Exchange Vadodara Stock Exchange
Cochin Stock Exchange The Ahmedabad Stock
Bangalore Stock Exchange Exchange
Saurashtra Kutch Stock Magadh Stock Exchange
Exchange
Pune Stock Exchange Gauhati Stock Exchange
National Stock Exchange Bhubaneswar Stock
OTC Exchange of India Exchange
Calcutta Stock Exchange Jaipur Stock Exchange
Inter-connected Stock Delhi Stock Exchange Assoc
Exchange (NEW)
Madras Stock Exchange Ludhiana Stock Exchange
Raising capital for businesses

Mobilizing savings for investment

Facilitate company growth

Redistribution of wealth
Corporate governance

Creates investment opportunities for small investors

Government raises capital for development projects

Barometer of the economy

 Growth Pattern of the Indian Stock Market
Sl.N As on 31st 1946 1961 1971 1975 1980 1985 1991 1995
o. December
No. of 7 7 8 8 9 14 20 22
1
Stock Exchanges
No. of 1125 1203 1599 1552 2265 4344 6229 8593
2
Listed Cos.
No. of Stock 1506 2111 2838 3230 3697 6174 8967 11784
3 Issues of
Listed Cos.
Capital of Listed 270 753 1812 2614 3973 9723 32041 59583
4
Cos. (Cr. Rs.)
Market value of 971 1292 2675 3273 6750 25302 11027 47812
5 Capital of Listed 9 1
Cos. (Cr. Rs.)
Capital per 24 63 113 168 175 224 514 693
6 Listed Cos. (4/2)
(Lakh Rs.)
Market Value of 86 107 167 211 298 582 1770 5564
Capital per Listed
7
Cos. (Lakh Rs.)
(5/2)
Appreciated value 358 170 148 126 170 260 344 803
of Capital per
8
 Equity Hybrid Debt

Deep
Equity Preference ADR / GDR Debentures Zero coupon
Shares bonds Discount
Shares
Bonds
Establishment of Development banks &
Industrial financial institution.
Legislative measures
Growing public confidence
Increasing awareness of investment
opportunities
Growth of underwriting business
Setting up of SEBI
Mutual Funds
Credit Rating Agencies
Lack of transparency
Physical settlement
Variety of manipulative practices
Institutional deficiencies
Insider trading
Market for short-term money and financial
assets that are near substitutes for money.

Short-Term means generally period upto one

year and near substitutes to money is used to
denote any financial asset which can be quickly
converted into money with minimum
transaction cost
It is a place for Large Institutions and
government to manage their short-term cash
needs

It is a subsection of the Fixed Income Market

It specializes in very short-term debt securities

They are also called as Cash Investments

Lack of Integration
Lack of Rational Interest Rates structure
Absence of an organized bill market
Shortage of funds in the Money Market
Seasonal Stringency of funds and fluctuations in
Interest rates
Inadequate banking facilities
Treasury Bills
Commercial Paper
Certificate of Deposit
Money Market Mutual Funds
Repo Market
Segment Issuer Instruments

Govern Central Zero Coupon Bonds, Coupon Bearing Bonds,

ment Government Capital Index Bonds, Treasury Bills.

Government
Public Agencies /
Govt. Guaranteed Bonds, Debentures
Sector Statutory
Bodies
Public Sector
PSU Bonds, Debenture, Commercial Paper
Units
Debentures, Bonds, Commercial Paper, Floating
Private Corporate Rate Bonds, Zero Coupon Bonds, Inter-
Corporate Deposits
Banks Certificate of Deposits, Bonds
Financial
Certificate of Deposits, Bonds
Institutions
Securities and Exchange Board of India
(SEBI)

Reserve Bank of India

Ministry of Finance
Securities and Exchange Board of India
(SEBI) was first established in the year
1988
Its a non-statutory body for regulating
the securities market
It became an autonomous body in 1992
Regulates Capital Market.

Checks Trading of securities.

Checks the malpractices in securities

market.
It enhances investor's knowledge on market by
providing education.

It regulates the stockbrokers and sub-brokers.

To promote Research and Investigation

It tries to develop the securities market.

Promotes Investors Interest.

Makes rules and regulations for the securities

market.
Sole Control on Brokers

For Underwriters

For Share Prices

For Mutual Funds

Established on April 1, 1935 in accordance with
the provisions of the RBI Act, 1934.

The Central Office of the Reserve Bank has

been in Mumbai.

It acts as the apex monetary authority of the

country.
Monetary Authority:
Formulation and Implementation of monetary
policies.
Maintaining price stability and ensuring adequate
flow of credit to the Productive sectors.
Issuer of currency:
Issues and exchanges or destroys currency and
coins.
Provide the public adequate quantity of supplies of
currency notes and coins.
 Functions Of RBI
Regulator and supervisor of the financial system:
Prescribes broad parameters of banking operations
Maintain public confidence, protect depositors' interest
and provide cost-effective banking services.

Authority On Foreign Exchange:

Manages the Foreign Exchange Management Act, 1999.
Facilitate external trade, payment, promote orderly
development and maintenance of foreign exchange
market.
 Functions Of RBI
Developmental role:
Performs a wide range of promotional functions to
support national objectives.

Related Functions:
Banker to the Government: performs merchant banking
function for the central and the state governments.
Maintains banking accounts of all scheduled banks.
(a) Bank Rate:
The Bank Rate was kept unchanged at 6.0 per cent.
(b) Reverse Repo Rate:
The Repo rate is around 7 per cent and Reverse repo
rate is around 6.10 per cent.
(c) Cash Reserve Ratio:
The cash reserve ratio (CRR) of scheduled banks is
currently at 5.0 per cent.
Pre-reforms period

Steps taken

Objectives

Conclusion
The period from the mid 1960s to the early 1990s.

Characterized by:

 Administered interest rates

 Industrial licensing and controls
 Dominant public sector
 Limited competition
 High capital-output ratio
Banks and financial institutions acted as a
deposit agencies.

Price discovery process was prevented.

Government failed to generate resources for

investment and public services.

Till 90s it was closed, highly regulated, and

segmented system.
Economic reforms initiated in June 1991.
The committee appointed under the chairmanship
of M Narasimham.
He submitted report with all the
recommendations
Government liberalized the various sectors in the
economy.
Reform of the public sector and tax system.
Reorientation of the economy
Macro economic stability
To Increase competitive efficiency in the
operations
To remove structural rigidities and
inefficiencies
To attain a balance between the goals of
financial stability & integrated & efficient
markets
Reduce the level of state ownership in
banking

Lift restrictions on foreign ownership of

banks

Spur the development of the corporate-bond

market

Strengthen legal protections

Deregulate the insurance industry

Drop proposed limits on pension reforms

Increase consumer ownership of mutual-fund

products

Introduce a gold deposit scheme

Speed up the development of electronic
payments.

Separate the RBI's regulatory and central-

bank functions
Lift the remaining capital account controls
Phase out statutory priority lending and
restrictions on asset allocation
The financial system is fairly integrated, stable,
efficient.
Weaknesses need to be addressed.
The reforms have been more capital centric in
nature.
Foreign capital flows and foreign exchange
reserves have increased but absorption of foreign
capital is low.
Thank you