1.

INTRODUCTION

The economic scene in the post independence period has seen change; the end
result being that he economy has made enormous progress in diverse fields. There has
been a quantitative expansion as well as diversification of economic activities. The
Experiences of the 1980s have led to the conclusion that to obtain all the benefits of
greater reliance on voluntary, market – based decision – making, Indian needs efficient
financial systems.

1. The word system means an ordered, organized and comprehensive assemblage

of facts, principals or components relating to a particular field and working for a
specified purpose.

2. Finance is a bridge between the present and the future and whether it can be the
mobilization of savings or their efficient, effective and equitable allocation for
investment.

3. A Financial system in an integral and major part of a modern economy.

4. The financial system is possibly the most important institutional and functional
vehicle for economic transformation.

5. The word system in the term “Financial system” represents a set of closely held
financial institutions, financial services and financial instruments or claims.

6. The Financial system of a country can be defined as a set of organization,

instruments, market, services and methods of operations, procedures that are
closely inter-related with each other.

1
 7. Van Horne defined the financial system as the purpose of financial markets to
allocate savings efficiently in an economy to ultimate users either for
investment in real assets or for consumption. The objective of the financial
system is to “supply funds to various sectors and activities of the economy in
ways that promote the fullest possible utilization of resources.

Financial Systems in India has a financial system that is regulated by

independent regulators in the sectors of banking, competition, insurance, capital
markets, and different services sectors. In finance, the financial system is the system
that allows the transfer of money between savers and borrowers. It comprises a set of
complex and closely interconnected financial institutions, services, markets,
instruments, practices, and transactions, Developing financial system is very important
as financial systems and capacity help the organization to make sound decisions based
on cash flow and available resources, monitoring funds, or comparing actual income
and expenses versus budgeted amounts, helps managers ensure that the necessary funds
are in place to complete and activity and etc. The principal role of a financial role of a
financial system is to brings together economic agents with surplus financial resources
and those with net financial needs. The parties can be brought together directly or
indirectly.

2
CIEOAPNVTMLS
F
I
N
A
N
C
I
A
L
2. CONCEPT OF INDIAN FINANCIAL SYSTEM

Explanation:-
Above diagram shows that, the basic concept of financial system include process of
savings and investment which involves financial institutions, markets, instruments and
services.
Goldsmith said that “…. A case for the hypothesis that the separation of the functions
of savings and investment which is made possible by the introduction of financial
instruments as well as enlargement of the range of financial assets which follows from
the creation of financial institutions increase the efficiency of investments and raise the
ratio of capital formation to national production and financial activities and through
these two channels increase the rate of growth …..”

3
 3. BASIC REQUIREMENTS OF INDIAN FINANCIAL SYSTEM

1. Efficient Monetary System: -

Efficient money is the basic requirement of any financial system. It indicates an

efficiency of medium of exchange for the goods and services in the country.

2. Facilities for creation of capital:-

The financial system helps to meet such demands by mobilizing the savings of the
surplus units to the demanding units.

3. Efficient Financial Market:-

Financial markets and methodologies, which facilitates the process of transfer of

resources and the conversion of financial claims into money.

4. Flexibility:-

Financial system should be flexible. India’s financial system performs various

activities such as controlling, directing etc.
Flexibility helps in achieving various objective of the economy.

4
 4. COMPONENTS OF INDIAN
FINANCIAL SYSTEM

Indian Financial System

Organized Unorganized
-Financial Regulatory -Money Lenders
-Financial Markets -Local Bankers
-Financial Intermediaries -Landlords
-Financial Service -Chit Funds

Organized Components:-

1. Financial Regulatory:-
Financial Regulatory are the apex institutions which monitors, direct and control the
overall activities of the financial institution. They frame the rules and norms relating to
the activities of financial intermediaries.

2. Financial Markets:-
Financial Markets can be classified as primary and secondary markets. A Primary
Market deals with new issues and secondary markets is meant for trading in existing
securities.

3. Financial Intermediaries:-
Financial Institution can be classified as banking and non banking institutions. Banking
Institutions are creators and purveyors of credit while non banking financial institutions
are purveyors of credit.

5
4. Financial Services:-
Financial services are those, which help with borrowing and funding, buying and
selling securities, leading and investing, making and enabling payments and settlements
and managing risk exposures in financial markets.

Unorganized Components:-

1. Money Lenders:-
I. A money lender provides short-term loans to individuals purchasing a
product or services. This financing is also available for land purchases.
II. Investors use had-money lenders to acquire investment properties relatively
quickly. Hard – money lenders are considered private lenders, and do not
use conventional standards to extend credit to borrowers.

2. Local bankers:-
I. A local bank is a bank that operates within your local area and is primarily
owned or controlled by people who live within or near your local area.
II. It provides the shor-0term finance to the people who require the money for
their own purpose or business purpose.

3. Landlords:-
An owner of real property who lease (rents) that property to a tenant under a
lease agreement. He is bound to perform certain duties and is entitled to certain
rights. They are as follows : -
I. To receive the rent agreed upon and to enforce all the express covenants into
which the tenant may have entered.

6
 II. To require the lessee to treat the premises demised in such manner that no
injury be done to the inheritance and prevent waste.
III. To have the possession of the premises after the expiration of the lease.

4. Chit - Fund:-
I. A Chit fund is kind of savings scheme practiced in India. A Chit fund
company means a company managing, conducting or supervising, as
foremen, agent or in any other capacity, chits as defined in Section 2 of the
Chit Funds Act, 1982.
II. Chits are also known as Kuri. Such chit fund schemes may be conducted by
unorganized schemes conducted between friends or relatives. There are also
variations of chits where the savings are done for a specific purpose.
III. Chit funds also played an important role in the financial development of
people of south Indian state of Kerala, by providing easier access to credit.
In Kerala, Chitty (Chit fund) is a common phenomenon practiced by all
sections of the society.

7
 5. FUNCTIONS OF FINANCIAL SYSTEM IN INDIA

1. Saving function:-
Public saving finds their way into the hands of those in production through the
financial system. Financial claims are issued in the money and capital markets
which promise future income flows :

2. Liquidity function:-
The financial markets provide the investor with the opportunity to liquidate
investments like stocks bonds debentures whenever they need the fund.

3. Payment function:-
The financial system offers a very convenient mode for payment of goods and
services. Cheque system, credit cards system etc are the easiest methods of
payments. The cost and time of transactions are drastically reduced.

4. Risk function:-
The financial markets provide protection against life, health and income risks.
These are accomplished through the sale of life and health insurance and
property insurance policies. The financial markets provide immense
opportunities for the investor to hedge himself against or reduce the possible
risks involved in various investments.

5. Policy Function:-
The government intervenes in the financial system to influence macroeconomic
variables like interest rates or inflation so if country needs more money

8
 government would cut rate of interest through various financial instruments and
policies.

6. GROWTH OF THE FINANCIAL SYSTEM IN INDIA

Graph 1

Explanation:-
As per above Graph,
1. India has grown by leaps and bounds in recent years and is emerging as
a major world economic power.

9
2. After lumbering along at a pace of about 4-5 percent GDP growth a year
in the 1980s and the 1990s

3. The economy has surged in its decade, positing an average annual

growth of 8.5 percent since 2005 (see Chart 1).
4. India’s financial system – comprising its banks, equity markets, bond
markets, and myriad other financial institutions – is a crucial
determinant of the country’s future growth trajectory.

5. The financial system’s ability to channel domestic savings and foreign

capital into productive investment and to provide financial services –
such as payments, savings, insurance, and pensions – to a vast majority
of householders will influence economic as well as social stability.

6. While India’s financial institutions and regulatory structures have been

developing gradually, the time has come to make a more concerted push
toward the next generation of financial reforms.

7. A growing and increasingly complex market – oriented economy, and its

greater integration with global trade and finance, will require deeper,
more efficient, and well – regulated financial markets.

8. The main conclusion for this is India’s financial system is not providing
adequate services to the majority of domestic retails customers, small
and medium-sized enterprises, or large corporations.

9. Government ownership of 70 percent of the banking system and

development of corporate debts and derivatives markets have stunted

10
 financial development. This will inevitably become a barrier to high
growth.

Graph 2

11
Explanation:-
As per above Graph,
1. However, in terms of overall financial depth – the size of the financial system
relative to the economy – India does not compare favorable with other countries
or even most other emerging markets at a similar stage of development.
2. Despite the apparent strength of the banking system, the ratio of private sector
credit to GDP is still low by international standards (see graph 2)

12
3. Some of the restrictions on the banking system, and the incentives for banks to
hold government bounds rather than make loans, have stifled leading.

4. Consequently, the average ratio of loans to deposits in the Indian banking

system is much olwer than in most other countries.

5. The government bond market appears large – public debt amounts to about 70
percent of GDP-but much of the stock of government bonds is held by banks, a
requirement prescribed by the “statutory liquidity ratio,” and is not trade.

6. The corporate bond market remains woefully underdeveloped, with the total
capitalization amounting to less than 10 percent of GDP.

7. Regulatory restrictions have also kept certain derivatives markets, especially for
currency derivatives, from developing.

7. FINANCIAL MEASURES

13
For a long time, an alarming increase of sickness in the Indian financial system
had required urgent remedial measures or reforms which were introduced in
1991. Main and sub-objectives of financial measures introduced in 1991 :-
1. To develop a market-oriented, competitive, world-integrated,
Diversified, autonomous, transparent financial system.

2. To increase the allocative efficiency of available savings and to promote

accelerated growth of the real sector.

3. To increase or bring about the effectiveness, accountability, profitability,

viability, vibrancy, balanced growth, operational economy and
flexibility, professionalism depoliticisation in the financial sector.

4. To increase the rate of return on real investment

5. To promote competition by creating level-playing fields and facilitating

free entry and exit for institutions and market players.

6. To ensure that the rationalization of interest rates structure occurs, that

interest rates are flexible, market – determined or market – related, and
that the system offers to its users a reasonable level of positive real
interest rates. In other words, the goal has been to dismantle the
administered system of interest rates.

7. To reduce the levels of resource pre-emption and to improve the

effectiveness of directed credit programmer.

8. To build a financial infrastructure relating to supervision, audit,

technology, and legal matters.

9. To modernize the instruments of monetary control so as to make them

more suitable for the conduct of monetary policy in a market economy.

8. FINANCIAL REGULATORIES IN INDIA

14
RBI: (Reserve Bank of India)

15
 Introduction:-
1. The Reserve Bank of India (RBI) is the central banking institution of India and
controls the monetary police of the rupees as well as of currency reserves in
India.

2. 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. Reserve
Bank of India was nationalized in the year 949.

3. The share capital was divided into shares of Rs. 100 each fully paid which was
entirely owned by private shareholders in the beginning.

4. Reserve Bank of India plays an important part in the development strategy of

the government. It is a member bank of the Asian Clearing Union.

5. Under the RBI’s supervision and inspection, the working of banks has greatly
improved.

6. Commercial banks have developed into financially and operationally sound and
viable units.

7. The RBI’s powers of supervision have now been extended to non-banking

financial intermediaries.

8. Since independence, particularly after its nationalization 1949, the RBI has
followed the promotional functions vigorously and has been responsible for
strong financial support to industrial and agricultural development in the
country.

16
Main Functions Of RBI:-
1. Bank of Issue :-
I. Under Section 22 of the Reserve Bank of India Act, the Bank has the
sole riht to issue bank notes of all denominations.
II. The distribution of one rupee notes and coins and small coins all over
the country is undertaken by the Reserve Bank as agent of the
Government.
III. The Reserve Bank has a separate Issue Department which is entrusted
with the issue of currency notes.
IV. The assets and liabilities of the Issue Department are kept separate from
the Banking Department.
V. Since 1957, the Reserve Bank of India is required to maintain gold and
foreign exchange reserves of Rs. 200 crores, of which at least. Rs. 115
crores should be in gold. The system as it exists today is known as the
minimum reserve system.

2. Monetary Authority:-
I. 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.
II. It formulates implements and monitors the monetary policy as well as it
has to ensure an adequate flow of credit to productive sectors.
III. The institution is also the regulator and supervisor of the financial
system and prescribes broad parameters of banking operations within
which the country’s banking and financial system functions.
IV. Objectives are to maintain public confidence in the system, protect
depositor’s interest and provide cost effective banking services to the
public.

17
 V. The RBI controls the monetary supply monitors economic indicators
like the gross domestic product and has to decide the design of the rupee
banknotes as well as coins.

3. Manager of exchange control:-

I. The central bank manages to reach the goals of the Foreign Exchange
Management Act, 1999.
II. Objective : to facilitate external trade and payment and promote orderly
development and maintenance of foreign exchange market in India.

4. Clearing house for Transfer and Settlement:-

I. Reserve Bank provides clearing house facilities to the member banks.
The customers of various bank issue cheques drawn on their bank.
II. It is very easy to settle claims between them by making transfer entries
in their account because the commercial bank keeps their cash reserve
with the RBI.
III. So it is simple, economical and time saving device for settling the claims
of commercial bank on each other.

5. Issuer of Currency:-
I. The bank issues and exchanges or destroys currency and coins not fit for
circulation.
II. 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.
III. 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.
IV. RBI maintains the economic structure of the country so that it can achieve the
objective of price stability as well as economic development.

18
 6. Supervisory Functions:-
I. In addition to its traditional central banking functions, the Reserve bank has
certain non-monetary functions of the nature of supervision of banks and
promotion of sound banking in India.
II. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given
the RBI wide powers of supervision and control over commercial and co-
operative banks.
III. It is relating to licensing and establishments, branch expansion, liquidity of their
assets, management and methods of working, amalgamation, reconstruction,
and liquidation.
IV. The RBI is authorized to carry out periodical inspections of the banks and to
call for returns and necessary information from them.
V. The Supervisory functions of the RBI have helped a great deal in improving the
standard of banking in India to develop on sound lines and to improve the
methods of their operation.

7. Promotional Functions:-
I. Since Independence, The Bank now performs a variety of developmental
and promotional functions, which, at one time, were regarded as outside
the normal scope of central banking.
II. The Reserve Bank was asked to promote banking habit, extend banking
facilities to rural and semi-urban areas, and establish and promote new
specialized financing agencies.
III. Accordingly, the Reserve Bank has helped in the setting up of the IFCI
and the SFC; it set up the Deposit Insurance Corporation in 1962, the
Unit Trust of India in 1964, the Industrial Development Bank of India
also in 1964, the Agricultural Refinance Corporation of India in 1963
and the Industrial Reconstruction Corporation of India in 1972.
IV. These institutions were set up directly or indirectly by the Reserve Bank
to promote saving habit and to mobilize savings, and to provide
industrial finance as well as agricultural finance.

19
 V. As far back as 1935 the Reserve Bank of India set up the Agricultural
Credit Department to provide agricultural credit. But only since 1951 the
Bank’s role in this field has become extremely important.
VI. The Bank has developed the co-operative credit movement to encourage
saving, to eliminate moneylenders from the villages and to route its
short term credit to agriculture.

8. Developmental Functions:-
I. The central bank has to perform a wide range of developmental
functions to support national objectives and industries.
II. The RBI faces a lot of inter-sectoral and local inflation-related problems.
Some of these problems are results of the dominant part of the public
sector.

Role of RBI in Indian Economy:-

1. Banker to Government:-
I. The very important role of the Reserve bank of India is to act as
Government banker, agent and adviser.
II. The Reserve Bank is agent of Central government and of all State
Governments in India excepting that of Jammu and Kashmir.
III. The Reserve Bank of India helps the Government – both the Union and
the States to float new loans and to manage public debt.
IV. The Bank makes ways and means advances to the Governments for 90
days. It makes loans and advances to the States and local authorities.
V. It acts as adviser to the Government on all monetary and banking
matters.

2. Banker’s Bank and Lender of the Last Resort:-

I. The Reserve Bank of India acts as the banker’s bank.

20
 II. According to the provisions of the Banking Companies Act of 1949,
every scheduled bank was required to maintain with the Reserve Bank a
cash balance equivalent to 5% of its demand.
III. The minimum cash requirements can be changed by the Reserve Bank
of India. The scheduled banks can borrow from the Reserve Bank of
India on the basis of eligible securities.
IV. Since commercial banks can always expect the Reserve Bank of India to
come to their help in times of banking crisis the Reserve Bank becomes
not only the banker’s bank but also the leader of the last resort.

3. Controller of Credit:-
I. The Reserve Bank of India is the controller of credit i.e. it has the power
to influence the volume of credit created by banks in India.
II. According to the Banking Regulation Act of 1949, the Reserve Bank of
India can ask any particular bank or the whole banking system not to
lend to particular groups or persons on the basis of certain types of
securities.
III. Since 1956, selective controls of credit are increasingly being used by
the Reserve Bank.
IV. The Reserve Bank of India is armed with many more powers to control
the Indian money market.
V. Every bank has to get a license from the Reserve Bank of India to do
banking business within India, the license can be cancelled by the
Reserve Bank of certain stipulated conditions are not fulfilled.
VI. Every bank will have to get the permission of the Reserve Bank before it
can open a new branch.
VII. Each scheduled bank must send a weekly return to the Reserve Bank
showing, in details, its assets and liabilities.
VIII. This power of the Bank to call for information is also intended to give it
effective control of
IX. the credit system.
X. The Reserve Bank has also the power to inspect the accounts of any
commercial bank.

21
 4. Custodian of Foreign Reserves:-
I. The Reserve Bank of India has the responsibility to maintain
the official rate of exchange.
II. According to the Reserve Bank of India Act of 1934, the Bank
was required to buy and sell at fixed rates any amount of
sterling in lots of not less than Rs. 10,000.
III. After India became a member of the International Monetary
Fund tin 1946, the Reserve Bank has the responsibility of
maintaining fixed exchange rates with all other member
countries of the I.M.F.
IV. Besides maintaining the rate of exchange of the rupee, the
Reserve Bank has to act as the custodian of India’s reserve of
international currencies.
Finally, these are some of the main and important functions and role of RBI. RBI is the
apex body which deals with financial control of every banks. Before any action banks
should take permission from the RBI. Now-a-days, RBI deals with the various
monetary and non-monetary Policies. RBI also provides some regulations for the micro
finance companies. This will helps to improve the economic development of the
country.

22
Interest Rates And Reserve Ratio:-

Explanation:-

1. According to this diagram, from 2005 to 2007 the rate of interest will increase
by 6% to 7.9%.

2. But rate of interest was constant from 2007 to 2008 and at the end of 2008 it
was at highest rate i.e. 9%.

23
 3. From 2008 to 2010, the rate of interest was decreased in higher rate i.e. below
5% .

4. Finally, Since March 2010 till the date, RBI has been raising rates.
RBI controls how much currency is printed; it can bloody well stop printing, if
it were really serious about inflation.

POLICY RATS, RESERVE RATIOS, LENDING, AND DEPOSIT

RATES

1. Bank Rate:-
RBI lends to the commercial banks through its discount window to help the banks
meet depositor’s 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 its wants to reduce the liquidity and money supply in the system, it
will increase the bank rate. Bank rate is the very important rate among all the rates
fixed by RBI.

2. Cash Reserve Ratio (CRR):-

Every commercial bank has to keep certain minimum cash reserves with RBI. RBI
can very this rate between 3% and 15%. RBI uses this tool to increase or the reserve
requirement depending on 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.

3. Statutory Liquidity Ratio (SLR):-

24
 Apart from the CRR, banks are required to maintain liquid assets in the form of
gold, cash an 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.

4. Repo Rates :-
Whenever the banks have any shortage of funds they can borrow it from RBI. Repo
rate is the rate at which our banks borrow rupees from RBI. A reduction in the repo rate
will help banks to get money at a cheaper rate. When the repo rate increase borrowing
from RBI becomes more expensive. The rate charged by RBI for its Repo operations is
5% and Reverse Repo rate is 3.5% When RBI lends money to bankers against approved
securities for meeting their day to day requirements or to fill short term gap. It takes
approved securities as security and lends money. These types of operations are
generally for overnight operations.

25
Gold Held By Central Banks Of Various Countries:-

26
Explanation:-
Gold is increasingly viewed in two kinds of angles, by seriously literate people all
over the world.
1. That there will be inflation, and thus, gold will be our savior.

2. There is no real safe currency anymore, so we must purchase gold.

Now-a-days, Gold is the very important element in means of finance. Today many
countries are deals with the gold. The prices of gold increases day by day. This will
help to cover the profit of the country. These countries are deals with the heavy range of
quality of gold. This is because the purchasing power of gold increases more rapidly.
The latest World Gold Council report details the global gold reserves at the end of
2012, as held by central banks. In this article, we show the latest figures in the top 40
gold reserve holdings and highlight some 2012 trends.

The countries that have added most actively to their gold reserves in 2012, were
the developing markets. They continue to diversify their dollar and euro based holdings
. Gold gives the security and stability that a currency deserves, especially in uncertain
times of ongoing “global currency wars” (as detailed in one of our latest articles).
In terms of global gold reserves in 2012, the report describes the general tendency:
Central banks garnered a greater share of gold demand in 2012, accounting for 12% of
the total compared with a 10% share in 2011. Total net purchases by central banks of
534.6 tones exceeded 2011′s already strong total and signaled a return to levels of
buying last seen almost 50 years ago.

27
SEBI: (Securities and Exchange board of India)

28
Introduction:-

29
 1. The Government of India established the Securities and Exchange Board of
India, the regulatory body of stock markets in 1988.

2. Within a short period of time, SEBI became an autonomous body.

3. The SEBI Act passed in 1992, which defined responsibilities that cover both
development & regulation of the market while also giving the board
independent powers.

4. Comprehensive regulatory measures introduced by SEBI ensured that end

investors benefited from safe and transparent dealings in securities.

5. SEBI is the regulatory body for the investment market in India.

6. The purpose of this board is to maintain stable and efficient markets by creating
and enforcing regulations in the marketplace.

Objective Of SEBI:-
1. The main objective or the purpose of SEBI is to protect the interests of investors
who invest their funds in securities.

2. SEBI is required to promote the development of Securities Market.

3. One of the important objectives of SEBI is to regulate the Securities Market

because it acts as a regulator.

4. SEBI has contributed to the improvement of the Securities Market by

introducing measures like capitalization requirements, margining and
establishment of clearing corporations that reduced the risk of credit.

30
 5. SEBI has introduced the comprehensive regulatory measures, prescribed
registration norms, the eligibility criteria, the code of obligations and the code
of conduct.

6. This norm helps different intermediaries like, bankers to issue, merchant

bankers, brokers and sub-brokers, registrars, portfolio managers, credit rating
agencies, underwriters and others.

7. SEBI has framed bye-laws, risk identification and risk management systems for
Clearing houses of stock exchanges, surveillance system etc. which has made
dealing in securities both safe and transparent to the end investor.

Responsibilities of SEBI:-
SEBI has to be responsive to the needs of three groups, which constitute the market.

1. The issuers of securities:-

One of the major responsibility performed by SEBI is it issues securities to the
investors. SEBI is the whole authority to issue securities.

2. Protection of investors:-
Subject to the provisions of this Act it shall be the duty of the Board to protect the
interests of investors in securities and to promote the development of, and to regulate
the securities market.

3. Regulator:-
It regulates the business in stock exchanges and any other Securities markets and
registering and regulating the working of Stock Brokers, sub-brokers, share transfer
agents, bankers to an Issue, Trustees of trust deeds, registrars to an issue, merchant
Bankers, Underwriters, portfolio managers, investment advisers And such other
Intermediaries who may be associated with Securities markets.

31
 4. Prohibition:-
It functions as prohibiting fraudulent and unfair trade practices relating to
securities markets and prohibiting insider trading in Securities.

Powers Of SEBI:-
For the discharge of its functions efficiently, SEBI has been with the necessary
powers which are:-
1. SEBI has main power to approve by-laws of stock exchanges.

2. To require the stock exchange to amend their by-laws.

3. Inspect the books of accounts and call for periodical returns from recognized
stock exchanges.

4. Compel certain companies to list their shares in one or more stock exchanges.

5. Levy fees and other charges on the intermediaries for performing its function.

6. Grant license to any person for the purpose of dealing in certain areas.

7. SEBI has power to prosecute and judge directly the violation of certain
provisions of the companies Act.

32
 Demat Service:-

Explanation:-
1. The term DEMAT, in India, refers to a dematerialized account. This is more
common in country like India.

2. This service helps the individual Indian citizens to trade in listed stocks or
debentures.

3. In this service, Individual can deals with the many shares and debentures of the
company.

4. The Securities Exchange Board of India (SEBI) requires the investor to

maintain a Demat account.

33
5. Because demat account is now a day’s necessity of the both the parties. Such as
controller authority and individual.

6. In a demat account shares and securities are held in electronic from instead of
taking actual possession of certificates.

7. A Demat Account is opened by the investor while registering with an

investment broker or sub broker.

8. The Demat account number which is quoted for all transactions to enable
electronic settlements of trades to take place.

9. Access to the demat account requires an internet password and a transaction

password as well as initiating and confirming transfers or purchases of
securities.

10. Purchases and sales of securities on the Demat account are automatically made
once transactions are executed and completed.

11. Demat Service is the best service provide by SEBI.

34
Advantages of Demat Service:-

1. A Demat account reduces brokerage charges which are usually around 0.5% .

2. Makes pledging/hypothecation of shares easier.

3. Enables quick ownership of securities on settlement resulting in increased

liquidity.

4. Avoids confusion in the ownership title of securities.

5. Provides easy receipts for public issue allotments or IPOs.

6. A demat account also helps avoid problems typically associated with physical
share certificates, for ex: delivery failures caused by signature mismatch, postal
delays and loss of certificate during transit.

7. Further, it eliminates the risks associated with forgery and loss due to damaged
stock certificates.

8. Demat account holders also avoid stamp duty and filling up of transfer deeds.

35
Insurance Regulatory and Development Authority (IRDA)

36
History:-

1. The history of the Indian insurance sector dates back to 1818, when the Oriental
Life Insurance Company was formed in Kolkata.

37
 2. A new era began in the India insurance sector, with the passing of the Life
Insurance Act of 1912.

3. The Indian Insurance Companies Act was passed in 1928. This act empowered
the government of India to gather necessary information about the life insurance
and non-life insurance organizations operating in the Indian financial markets.

4. The Triton Insurance Company Ltd. formed in 1850 and was the first of its kind
in the general insurance sector in India.

5. Established in 1907, Indian Mercantile Insurance Limited was the first company
to handle all forms of Indian insurance.

Introduction:-
1. The Insurance Regulatory and Development Authority (IRDA) is a national
agency of the Government of India, based in Hyderabad.

2. It was formed by an act of Indian Parliament known as IRDA Act 1999, which
was amended in 2002 to incorporate some emerging requirements.

3. Mission of IRDA as stated in the act is “to protect the interest of the
Policyholders, to regulate, promote growth of the Insurance industry and for
matters connected therewith or incidental thereto.”

4. In 2010, the Government of India ruled that the Unit Linked Insurance Plane
(ULIPs) will be governed by IRDA, and not the market regulator Securities
and Exchange Board of India.

Duties, Powers and Functions of IRDA:-

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

38
insurance business and re-insurance business. Section 14 of IRDA Act, 1999 lays down
the duties, powers and functions of IRDA.
1. Issue to the applicant a certificate of registration, renew, modify, withdraw,
suspend or cancel such registration.

2. Protection of the interests of the policy holders in matters concerning assigning

of policy, nomination by policy holders, insurable interest, settlement of
Insurance claim, surrender value of policy and other terms and conditions of
contracts of insurance.

3. Specifying requisite qualifications, code of conduct and practical training for

intermediary or insurance intermediaries and agents.

4. Specifying the code of conduct for surveyors and loss assessors.

5. Promoting efficiency in the conduct of insurance business.

6. Promoting and regulating professional organizations connected with the

insurance and re-insurance business.

7. Levying fees and other charges for carrying out the purpose of this Act.

8. Calling for information from, undertaking inspection of conducting enquiries

and investigations including audit of the insurers, intermediaries, insurance
intermediaries and other organizations connected with the insurance business.

9. Control and regulation of the rates, advantages, terms and conditions that may
be offered by insurers in respect of general insurance business not so controlled
and regulated by the Tariff Advisory Committee under section 64U of the
Insurance Act, 1938.
10. 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.

39
 11. Regulating investment of funds by insurance companies.

12. Regulating maintenance of margin of solvency.

13. Adjudication of disputes between insurers and intermediaries or insurance

intermediaries.

14. Supervising the functioning of the Tariff Advisory Committee.

15. Specifying the percentage of premium income of the insurer to finance schemes
for promoting and regulating professional organizations referred to in clause.

16. 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.

Advisory Committee:-
1. IRDA consists of a Chairman and some permanent as well as part time
members.

2. The regulations, however, are enacted under the guidance of a statutory

advisory committee.

3. There is provision for a panel of other members and part time members.

4. IRDA formed a high powered Insurance Law Reforms Committee known as

KPN Committee with important insurance advisors.

5. IRDA is perceived as a silent regulator with activities confined to its local

existence.

40
 6. Advisory Committee plays a very important role in the management of the
IRDA.

7. The total management of IRDA is in the hands of Advisory Committee.

8. Advisory Committee is the backbone of the each and every regulatory in India.

Protection of the interest of policy holders:-

IRDA has the responsibility of protecting the interest of insurance policyholders.
Towards achieving this objective, the Authority has taken the following steps :-
1. IRDA has notified Protection of Policy holders Interest Regulations 2001 to
provide for; policy proposal documents in easily understandable language;
claims procedure in both life and non-life; setting up of grievance redressal
machinery; speedy settlement provides for payment of interest by insurers for
the delay in settlement of claim.

2. The insurers are required to maintain solvency margins so that they are in a
position to meet their obligations towards policyholders with regard to payment
of claims.

3. It is obligatory on the part of the insurance companies to disclose clearly the

benefits, terms and conditions under the policy. The advertisements issued by
the insurers should not mislead the insuring public.

4. All insurers are required to set up proper grievance redress machinery in their
head office and at their other offices.

5. The Authority takes up with the insurers any complaint received from the
policyholders in connection with services provided by them under the insurance
contract.
The law of India has following expectations from IRDA:-

41
1. To protect the interest of and secure fair treatment to policyholders.

2. To bring about speedy and orderly growth of the insurance industry, for the
benefit of the common man, and to provide long term funds for accelerating
growth of the economy.

3. To set, promote, monitor and enforce high standards of integrity, financial

soundness air dealing and competence of those it regulates.

4. To ensure that insurance customers receive precise, clear and correct

information about products and services and make them aware of their
responsibilities and duties in this regard.

5. To ensure speedy settlement of genuine claims, to prevent insurance frauds and

other malpractices and put in place effective grievance redresses machinery.

6. To promote fairness, transparency and orderly conduct in Financial markets

dealing with insurance and build a reliable management information system to
enforce high standards of financial soundness amongst market players.

7. To take action where such standards are inadequate or ineffectively enforced.

8. Top bring about optimum amount of Self-regulation in day to day working of

the industry consistent with the requirements of prudential regulations.

Forward Markets Commission (FMC)

42
Introduction:-
1. The Forward Markets Commission (FMC) is the chief regulator of forwards and
futures markets in India. As of March 2009, it regulated Rs. 52 trillion worth of
commodity trades in India.

2. It is headquartered in Mumbai and unusually for a financial regulatory agency is

overseen by the Ministry of Consumer Affairs, Food and Public Distribution
(India).

3. Forward Markets Commission (FMC) headquartered at Mumbai, is a regulatory

authority which is overseen by the Ministry of Consumer Affairs, Food and
Public Distribution, Govt. of India.

4. It is a statutory body set up in 1953 under the Forward Contracts (Regulation)

Act, 1952.
History:-

43
 1. Established in 1953 under the provisions of the Forward Contracts (Regulation)
Act, 1952 it consists of two to four members, all appointed by the Indian
Government.

2. Currently, the Commission allows commodity trading in 22 exchanges in India,

of which three are national.

3. Uniquely the FMC falls under the Ministry of Consumer Affairs, Food and
Public Distribution and not the finance ministry as in most countries.

4. This is because futures, traded in India, are traditionally on food commodities.

5. However, this has been changing and there have been calls for change in the
industry and in regulation.

6. One proposal is the merging the commodities derivatives and securities

regulation by including the Forward Market Commission within the Securities
and Exchange Board of India (SEBI), the primary securities regulator in India.

Characteristic of Futures Trading:-

A “Futures Contract” is a highly standardized contract with certain distinct features.
Some of the important features are as under :-
1. Futures’ trading is necessarily organized under the auspices of a market
association so that such trading is confined to or conducted through members of
the association in accordance with the procedure laid down in the Rules & Bye-
laws of the association.

2. It is invariably entered into for a standard variety known as the “basis variety”
with permission to deliver other identified varieties known as “tenderable
varieties”

3. The units of price quotation and trading are fixed in these contracts, parties to
the contracts not being capable of altering these units.

44
 4. The delivery periods are specified.

5. The seller in futures market has the choice to decide whether to deliver goods
against outstanding sale contracts. In case he decides to deliver goods, he can do
so not only at the location of the Association through which trading is organized
but also at a number of other pre-specified delivery centers.

6. In futures market actual delivery of goods takes place only in a very few cases.

7. Transactions are mostly squared up before the due date of the contract and
contract are settled by payment of differences without any physical delivery of
goods taking place.

Development of the Industry:-

1. India has a long history of trading commodities and considered the pioneer in
some forms of derivatives trading.

2. The first derivative market was set up in 1875 in Mumbai, where futures cotton
was traded.

3. This was followed by establishment of futures markets in edible oilseeds

complex, raw jute and jute goods and bullion.

4. This became an active industry with volumes reported to be large.

5. However, in 1935 a law was passed allowing the government to in part restrict
and directly control food production.

6. This included the ability to restrict or ban the trading in derivatives on those
food commodities.

45
7. Just at the time the FMC was established, the government felt that derivative
markets increased speculation which led to increased costs and price
instabilities.

8. In the 1970 as futures and options markets began to develop in the rest of the
world, Indian derivatives markets were left behind.

9. This left the India with a large number of small and isolated regional futures
markets. The futures markets are fragmented, with separate trading
communities in different regions with little contact with one another.

10. The exchanges generally have yet to embrace modern technology or modern
business practices. Next to the officially approved exchanges, there are many
markets.

11. Most of these unofficial commodity exchanges have operated for many decades.
Some unofficial markets trade 20-30 times the volume of the “official” futures
exchanges.

12. Absence of regulation and proper clearing arrangements, however, mean that
these markets are mostly “regulated” by the reputation of the main players.

46
Responsibilities and functions:-

The functions of the Forward Markets Commission are as follows:-

1. To advise the Central Government in respect of the recognition or the
withdrawal of recognition from any association or in respect of any other matter
arising out of the administration of the Forward Contracts (Regulation) Act
1952.

2. To keep forward markets under observation and to take such action in relation
to them, as it may consider necessary, in exercise of the powers assigned to it by
or under the Act.

3. To collect and whenever the Commission thinks it necessary, to publish

information regarding the trading conditions in respect of goods to which any of
the provisions of the act is made applicable, including information regarding
supply, demand and prices, and to submit to the Central Government, periodical
reports on the working of forward markets relating to such goods.

4. To make recommendations generally with a view to improving the organization

and working of forward markets.

5. To undertake the inspection of the accounts and other documents of any

recognized association or registered association or any member of such
association whenever it considers it necessary.

47
 9. FINANCIAL MARKETS
A Financial Markets can be defined as the market in which financial assets are
created or transferred. As against a real transaction that involves exchange of money for
real goods or services, a financial transaction involves creation or transfer of a financial
asset. Financial “Assets or Financial Instruments represents a claim to the payment of a
sum of money sometime in the future and/or periodic payment in the form of interest or
dividend.

Capital Market:-
The capital market is designed to finance the long-term investments. The transactions
taking place in this market will be for periods over a year.

Need of Capital Market:-

1. Capital Market facilitates the transfer of capital, i.e. financial assets from one
owner to another.
2. They provide liquidity. Liquidity refers to how easily an asset can be transferred
without loss of value.
3. A side benefit of capital markets is that the transaction price provides a measure
of the value of the asset.
4. Capital Market is needed to deals with the long-term investments of the
company.

Role of Capital Market: -

1. Capital market Mobilizes of savings and acceleration of capital formation in
market.
2. Capital market also helps in promotion of industrial growth.
3. Capital market is required for rising of long-term capital in the market place.
4. It is also known as ready and continuous market.
5. Capital market also helps in proper Management of funds.
6. It also required for provision of a variety of services.

48
Functions contributing to growth of Indian capital market:-
1. Establishment of development banks and industrial financial institutions is the
major function of Capital market.
2. Capital market required to generate legislative measures.
3. Capital market helps to grow confidence in the minds of the public.
4. It also helps in increasing awareness of investment among the public.
5. Capital market leads to growth of underwriting business.
6. Capital market focuses on setting up of SEBI, Mutual Fund and Credit rating
Agencies.

Problems facing by capital markets:-

1. The major problem of capital market is Lack of transparency. It means the there
is no proper management of transactions.
2. In Indian capital market physical settlements takes place.
3. Now-a-days, every market Variety of manipulative practices is done, but these
practices are harmful to the market.
4. Institutional Deficiencies are one of the important problems facing by the
capital market.
5. Insider’s trading is the problem when the BOD of the company trades with the
shares of their own company.

Money Market:-
Introduction:-
1. Market for short-term money and financial assets that are near substitute for
money.
2. Short-tem means generally period up to one year and near substitutes to money
is used to denote any financial asset, which can be quickly converted into
money with minimum cost.
3. The money market it’s a wholesale debt market for low-risk, highly liquid,
short-term instrument. Funds are available in this market for periods ranging
from a single day up to a year.

49
 4. This market is dominated mostly by government, banks and financial
institutions.
5. It is a place for institutions and government to manage their short-tem cash
needs.
6. Money market is a subsection of fixed income market.
7. Money market specializes in very short-term debt securities.
8. They are also called as cash investments.

Problems of Money Market:-

1. The Major problem facing by India’s Money Market is Lack of Integration in
their activities.
2. Lack of Rational Interest rate Structure is leading problem of money market of
India.
3. Now-a-days there is need of bill market. But absence of an Organized Bill
Market is major problem.
4. Fluctuation of Interest Rate is leads to confusion in the minds of the people in
the money market.
5. Today, Improper and Inadequate banking Facilities is the leading problem.

Credit Market:-
1. Credit market is a place where banks. Fls and NBFCS purvey short. Medium
and long–term loan to corporate and individuals.
2. The broad market for companies looking to rise funds though debt issuance.
The credit market encompasses investment grade bonds and junk bonds, as well
as short- term commercial paper.
3. The Credit Market is not an actual place but an abstract idea which refers to
buying and selling of fixed income securities are financial instruments
collateralized by some type of loan or credit instrument
4. These securities and their derivatives are bought and sold by investors to derive
the income provided or for speculative purposes.
5. The difference between the domestic and global credit market is that the latter
includes all international buyers and sellers of fixed income instruments.

50
Forex Market:-
The Forex market deals with the multicurrency requirements which are met by the
exchange of currencies. Depending on the exchange rate that is applicable, the transfer
of funds takes place in this market. This is one or the most developed and integrated
market across the globe.

Explanation:-
As per above diagram,
1. The size of the financial reserves reflects the importance of Indian assets in
global portfolio.

2. In this graph, the total reserves and the total foreign currency reserves are goes
on decreasing.

Finally, the forex market deals with the multi-currency requirements of the market
at large.

51
 10. FINANCIAL INSTRUMENTS
The money market can be defined as a market for short-term money and financial
asset that are near substitutes for money. The term short-term means generally a period
up to one year and near substitutes to money is used to denote any financial asset which
can be quickly converted into money with minimum transaction cost.
Some of the important money market instruments are briefly discussed below:-
1. Call /Notice Money
2. Term Money
3. Treasury Bills
4. Certificate of Deposit
5. Commercial Papers.

Explanation:-
1. Call/ Notice-Money:-
I. Call /Notice money is the money borrowed or lent on demand for a very
short period. When money is borrowed or lent for a day, it is known as Call
(Overnight) Money.
II. Intervening holidays and /or Sunday are excluded for this purpose Thus
money. Borrowed on a day and repaid on the next working day,
(irrespective of the number of intervening holiday) is “call money”.
III. When money is borrowed or lent for more than a day and up to 14 days, it
is “Notice Money” No collateral security is required to cover these
transactions.

2. Inter -Bank Term Money:-

I. Inter-bank market for deposits of maturity beyond 14 days is referred to as
the term money market.

52
 II. The entry restrictions are the same as those for Call/Notice Money except
that, as per existing regulations. The specified entities are not allowed to
lend beyond 14 days.

3. Treasury Bills:-
I. Treasury Bills are short term (up to one year) borrowing instruments of the
union government.
II. It is an IOU of the Government. it is a promise by the Government pay a stated
sum after expiry of the stated period from the date of issue (14/91/182/364 days
i.e less than one year).
III. They are issued at a discount to the face value, and on maturity the face value is
paid to the holder.
IV. The rate of discount and the corresponding issue price are determined at each
auction.

4. Certificate of Deposits:-
I. Certificate of Deposit (CDs) is a negotiable money market instrument and
issued in dematerimmalized form or as a Askance Promissory Note. For funds
deposited at a bank or other eligible financial intuition for a specified time
period.
II. Guidelines for issue of CDs are presently governed by various directives issued
by the Reserve Bank of India, as amended form time to time.
III. CDs can be issued by
IV. Scheduled commercial banks excluding Regional Rural Banks (RRBs) and
Local Area Banks(LABs);
V. Select all-India Financial institution that has been permitted by RBI to raise
short-term resource within the umbrella limit fixed by RBI.
VI. Banks have the freedom to issue CDs depending on their requirements.
VII. An FI may issue CD within the overall umbrella limit fixed by RBI, I.E., issue
of CD together with other instruments viz., term money, term deposits,

53
 commercial papers and inter-corporate deposits should not exceed 100 per cent
of its net owned funds, as per the latest audited balance sheet.

5. Commercial Paper:-
I. CP is a note in evidence of the debt obligation of the issuer. On issuing
commercial paper the debt obligation is transformed into an instrument.
II. CP in thus an unsecured promissory note promissory note privately placed with
investors at a discount rate to face value determined by market forces.
III. The minimum maturity period of CP is 7 days. The minimum credit rating shall
be p-2 of CRISIL or such equivalent rating by other agencies.
IV. CP is freely negotiable by endorsement and delivery. A company shall be
eligible to issue CP provided:-
V. The tangible net worth of the company, as per the latest audited balance sheet, is
not less than Rs. 4 core;
VI. The working capital (fun-based) limit of the company from the banking system
is not less than Rs. 4 core and
VII. The borrower account of the company is classified as a standard Asset by the
financing bank/s.

Capital Market Instruments:-

The capital market generally consists of the following long term period i.e. more
than one year period, financial instruments; In the equity segment Equity shares,
preference shares, convertible preference shares, non-convertible preference shares, etc
and in the debt segment debentures, zero coupon bonds, deep discount bonds etc.

Hybrid Instruments:-
I. Hybrid instruments have both the features of equity and debenture.

54
 II. This kind of instruments is called as hybrid instruments. Examples are
convertible debentures warrants etc.

11. BANKING IN INDIA

Introduction:-
A bank is a financial institution and a financial intermediary that accepts deposits
and channels those deposits into lending activities, either directly or through capital
markets. Due to their critical status within the financial system and the economy

55
generally, banks are highly regulated in most countries. Most banks operate under a
system know as fractional reserve banking where they hold only a small reserve of the
funds deposit and lend out the for profit. They are generally subject to minimum capital
requirements.

Definition:-
1. “banking business” means the business of receiving money on current or
deposit account, paying and collecting cherubs drawn by or paid in by
customers, the marking of advances to customers, and includes such other
business as the Authority may prescribe for the purposes of this Act (Banking
Act (Singapore), Section 2.Interpretation)
2. “banking business” means the business of either or both of the following:
3. Receiving from the general public money on current, deposit, saving or other
similar account repayable on demand or within less than (3 months)… oir with
a period of call or notice of less than that period.
4. Paying or collecting checks drawn by paid in by customers.

Standard Activities of Banking:-

1. Banks act as payment agents by conducting checking or current account for
customers.
2. Paying check drawn by customers on the bank. Collecting checks deposited to
customers’ current accounts.
3. Banks also enable customer payments via other payment methods such as
AUTOMATED Clearing House(ACH), Wire transfers or telegraphic transfer,
EFTPOS, and automated teller machine (ATM).
4. Banks lend money by making advances to customers on current accounts, by
making installment loans, and by investing in marketable debt securities and
other forms of money lending.
5. Banks provide almost all payment services, and a bank account is considered
indispensable by businesses, individuals and governments.

56
 6. Non-banks that provide payment services such as remittance companies are not
normally considered an adequate substitute for having a bank account.
7. Banks borrow most funds from households and non-financial businesses, and
lend most funds to households and non-financial business.
8. Banks also provide saving facilities to their customers. This will help in
increase their investments.

Economic functions of Banks:-

1. Issue of money:-
Issue of money in the form of banknotes and current accounts subject to check
or payment at the customer’s order. These claims on banks can act as money
because they are negotiable or repayable on demand, and hence valued at par. They
are effectively transferable by mere delivery, in the case of banknotes, or by
drawing a check that the payee may bank or cash.

2. Netting and settlement of payments:-

Banks act as both collation and paying agents for customers, participating in
interbank clearing and element systems to collect present , be presented with,
and pay payment instruments. This enables banks to economize on reserves
hold for settlement of Payments, since inward and outward payments offset
each other.

3. Credit intermediation:-
Banks borrow and lend back –to-back on their own account as middle men.
They lend money for private and business purpose. On this they charge some
percentage of interest.

4. Credit quality improvement:-

Banks lend money to ordinary commercial personal borrowers (ordinay credit
quality). But are high quality borrowers. The improvement comes from diversification

57
of the bank’s assets and capital which provides a buffer to absorb losses without
defaulting on its obligations.

5. Maturity transformation:-
Banks borrow more on demand debt and short term belt. But provide more long
term loans. In other words, they borrow short and lend long. With a stronger credit
quality than most other borrowers banks can do this by aggregating issues e.g.
accepting deposits and sluing banknotes and redemptions e.g withdrawals and
redemption of banknotes, maintaining reserves of cash, investing in marketable
securities that can be readily converted to cash ig needed, and raising replacement
funding as needed from various sources e.g. wholesale cash markets and securities
markets.

6. Money creation:-
Whenever a bank gives of a loan in fractional- reserve banking system, a new of
virtual money is created. This money is created from the interest percentage received
by them.

Types of banks

1. Commercial bank:-
The term used for normal bank to distinguish it from an investment bank. After
the great Depression, the U.S Congress required that banks only engage in banking
activities, whereas investment banks to be under separate ownership some use the term
“commercial bank” to refer to a bank or a division of a bank that mostly deals with
deposits and loans from corporations or large businesses.

2. Community banks:-
Locally operated financial institutions that empower employees to make local
decisions, to serve their customers and the partners.

3. Community development banks:-

58
 Regulated banks that provide financial services and credit to underserved
markets or populations.

4. Credit unions:-
Not –for-profit cooperatives owned by the depositors and often offering rates
more favorable than for- profit banks. Typically, membership is restricted to employees
of a particular company, residents of a defined neighborhood, members of a certain
labor union or religious.

5. Postal saving banks:-

Saving banks associated with postal systems. It is the main important bank
which deals with the postal services.

6. Private Banks:-
Banks that manage the assets of high net worth individuals. Historically a
minimum of USD 1 million was required to open an account, however, over the last
years many private banks have lowered their entry hurdles to USD 250, 0000 for
private investors.

7. Saving banks:-
in India, savings banks took their roots in the 19th or sometimes even in the
18th century. Their original objective was to provide easily accessible savings banks
products to all strata of the population. In some countries, savings banks were
created on public initiative; in others, socially committed individuals created on
public initiative; in others, socially committed individuals created foundations to
put in place the necessary infrastructure nowadays, savings products, credits and
insurances for individuals or small and medium-sized enterprises.

8. Investment banks:-

59
 “Underwrite” guarantee the sale of stock and bond issues, trade for their own
accounts, make markets, and advice corporations on capital market activities such
as mergers and acquisitions.

9. Merchant banks:-
Traditionally banks which engaged in trade finance. The modern definition,
however, refers to banks which provide capital to firms in the form of shares rather
than loans. Unlike venture capital firms, they tend not to invest in new companies.

12. FINANCIAL SCAM

60
61
Meaning:-
Financial scam is the attractive but false presentation of financial assets, transactions or
schemes, by manipulators whose real aim is to pocket those investor savings.
Modern asset markets and financial institutions are assumed to be well regulated and
monitored.

The Top Scams in India

1) 2G Spectrum Scam
We have had a number of scams in India; but none bigger than the scam involving the
process of allocating unified access service licenses. At the heart of this Rs.1.76-lakh
core worth of scam is the former Telecom minister A Raja – who according to the CAG,
has evaded norms at every level as he carried out the dubious 2G license awards in
2008 at a throw-away price which were pegged at 2001 prices.

2) Commonwealth Games Scam

Another feather in the cap of Indian scandal list is Commonwealth Games loot. Yes,
literally a loot! Even before the long awaited sporting bonanza could see the day of
light, the grand event was soaked in the allegations of corruption. It is estimated that
out of Rs. 70000 crore spent on the Games, only half the said amount was spent on
Indian sportspersons.
The Central Vigilance Commission, involved in probing the alleged corruption in
various Commonwealth Games-related projects, has found discrepancies in tenders –
like payment to non-existent parties, will-ful delays in execution of contracts, over-
inflated price and bungling in purchase of equipment through tendering – and
misappropriation of funds.

3) Telgi Scam
As they say, every scam must have something unique in it to make money out of it in
an unscrupulous manner- and Telgi scam had all the suspense and drama that the
scandal needed to thrive and be busted.
Abdul Karim Telgi had mastered the art of forgery in printing duplicate stamp papers
and sold them to banks and other institutions. The tentacles of the fake stamp and stamp

62
paper case had penetrated 12 states and was estimated at a whooping Rs. 20000 crore
plus. The Telgi clearly had a lot of support from government departments that were
responsible for the production and sale of high security stamps.

4) Satyam Scam
The scam at Satyam Computer Services is something that will shatter the peace and
tranquillity of Indian investors and shareholder community beyond repair. Satyam is
the biggest fraud in the corporate history to the tune of Rs. 14000 crore.
The company’s disgraced former chairman Ramalinga Raju kept everyone in the dark
for a decade by fudging the books of accounts for several years and inflating revenues
and profit figures of Satyam. Finally, the company was taken over by the Tech
Mahindra which has done wonderfully well to revive the brand Satyam.

5) Bofors Scam
The Bofors scandal is known as the hallmark of Indian corruption. The Bofors scam
was a major corruption scandal in India in the 1980s; when the then PM Rajiv Gandhi
and several others including a powerful NRI family named the Hindujas, were accused
of receiving kickbacks from Bofors AB for winning a bid to supply India’s 155 mm
field howitzer.
The Swedish State Radio had broadcast a startling report about an undercover operation
carried out by Bofors, Sweden’s biggest arms manufacturer, whereby $16 million were
allegedly paid to members of PM Rajiv Gandhi’s Congress.
Most of all, the Bofors scam had a strong emotional appeal because it was a scam
related to the defense services and India’s security interests.

6) The Fodder Scam

If you haven’t heard of Bihar’s fodder scam of 1996, you might still be able to
recognize it by the name of “Chara Ghotala ,” as it is popularly known in the vernacular
language.
In this corruption scandal worth Rs.900 crore, an unholy nexus was traced involved in
fabrication of “vast herds of fictitious livestock” for which fodder, medicine and animal
husbandry equipment was supposedly procured.

63
7) The Hawala Scandal
The Hawala case to the tune of $18 million bribery scandal, which came in the open in
1996, involved payments allegedly received by country’s leading politicians through
hawala brokers. From the list of those accused also included Lal Krishna Advani who
was then the Leader of Opposition.
Thus, for the first time in Indian politics, it gave a feeling of open loot all around the
public, involving all the major political players being accused of having accepted bribes
and also alleged connections about payments being channelled to Hizbul Mujahideen
militants in Kashmir.

8) IPL Scam
Most of us are aware about the recent scam in IPL and embezzlement with respect to
bidding for various franchisees. The scandal already claimed the portfolios of two big-
wigs in the form of Shashi Tharoor and former IPL chief Lalit Modi.

9,10) Harshad Mehta & Ketan Parekh Stock Market Scam.

Although not corruption scams, these have affected many people. There is no
way that the investor community could forget the unfortunate Rs. 4000 crore Harshad
Mehta scam and over Rs. 1000 crore Ketan Parekh scam which eroded the shareholders
wealth in form of big market jolt.

64
 13. INTERVIEW

(1)

Name :- Prof. Paras Shah.

Education :- B.Com, M.Com, Bed, Mphil, PGDFM, PHD(appear),

NET(appear)

Job Profile :- Lecturer in Nirmal Degree College Kandivali (Last 8 yr)

Contact No.:- 9323979479

1. What do you think about Indian Financial System? Please give

your views on Indian Financial System?

The Indian Financial System inculcates a great since of planning for

the economists & also for young generation. Students can conduct
various talks and workshops. They can study the system in great
detail and put into practice. When they enter the job market, Indian
financial system helps to know about the Indian economic condition
with clear evidences and facts.

2. What do you think, Where are we lacking? & Where we have to

improve?

The system is becoming more complex with warning of bank asset

quality and renewed pressures on systemic liquidity. Steps are
needed to improve and promote deeper fixed income market
including prudent reduction in Banks minimum statutory holding of
government in line with evolving international liquidity
requirements which would support liquidity requirements which
would support liquidity in the secondary market.

65
 (2)

Name :- Miss. Afroz Baig.

Education :- MA(Economics).

Job Profile :- Professor of economics in Vandan tutorials & Prabhat

Coaching classes.

Contact No.:- 9930496321.

1. What do you think about Indian Financial System? Please give

your views on Indian Financial System?

The Indian Financial System plays a very important role in

economic development. It also develops the habits of saving &
investment. It gives proper knowledge to every citizen and gives
idea about economic planning. It supervises the function of the
financial institutions and regulates the market.

2. What do you think, Where are we lacking? & Where we have to

improve?

India has made remarkable progress towards developing a stable

financial system but confronts a buildup of financial sector
vulnerabilities. India being an agrarian economy, a major portion of
Indian population still depends on unorganized sector for credit
needs. We lag behind in trusting Indian Financial System. There
should be use of capital markets to refinancing infrastructure loans
which would help to alienate pressure on banks.

66
 14. CONCLUSION

The Indian financial system has changed radically in the last decade the system
has acquired a kind of dynamism never seen before and is continually transforming to
make itself compatible with the changing economic scenario, however this
transformation change in its components like institution markets instruments and
services has rendered it somewhat complex.

1. The financial system is fairly integrated stable and efficient system.

2. The weaknesses of the financial system needed to addressed properly.

3. Foreign capital flows and foreign exchange reserves have increased

but absorption of foreign capital is low.

RBI and SEBI plays vital role in Indian financial system. It monitors and controls
financial activities and deals with securities efficiently. Recently RBI had issued New
finance regulations with the country’s political climate growing increasingly hostile
toward microfinance institution (MFI) the reserve bank of India has accepted with
some modifications, the broad regulatory framework proposed by a committee tasked
with reviewing the country’s microcredit system.

In case of banking sector, there has been a huge reduction to the barriers of
global competition in the banking industry increases in telecommunications and other
financial technologies, have allowed banks to extend their reach all over the world
since they no longer have to beanery customers to manage both their finances their risk
the growth in cross-border activities has also increased the demand for banks that can
provide various services across buffers to different nationalities. However despite these
reductions in barriers and growth in cross-border activists, the banking industry is
nowhere near as globalized as some other industries.

67
 One reason the banking industry has not been fully globalized is that it is more
convenient to have local banks is in since the cooptation’s financial information is
available around the globe.

Finally, Indian financial system is strongest financial system in what world and it
can be concluded, financial regulatory of India are performing in good ways and
standards, but still there is scope for preventing further financial scams.

68
 15. BIBLIOGRAPHY

1. Finance related books

I. Indian financial system,
Author- Bharati V. Pathkar.

II. The Future financial Regulations,

Author- Lain MacNeil and Justin O Brien.

2. Newspapers
I. Economic times.
II. Hindustan times.
III. Times Of India

3. Internet
I. www.rbi.org.in
II. www.sebi.gov.in
III. www.irda.gov.in
IV. www.fmc.gov.in
V. www.indiamba.com
VI. www.timesofindia.com
VII. www.economicstimes.com
VIII. www.indiamba.com
IX. www.google.com
X. www.wikipedia.com

69