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INTRODUCTION:
Financial system is the broader term which includes Financial Market and
Financial Institutions which support the system of providing financial inputs for
production and productivity. The major assets traded in the Financial market
are Money and monetary Assets. The responsibility of financial market is to
mobilize the savings in the forms of money and monetary assets and invest
them in to the productive venture for overall economic development of the
nation.
The study of the above reveals that the financial system acts as mediator
between saver and investors to promote faster economic development.
Functions of Indian Financial
System:
• Provision of Liquidity
• Mobilization of Savings
Concepts used in Indian Financial
System.
• Financial Assets.
• Financial Intermediaries
• Financial Markets
• Financial Rate of Return
• Financial Instruments.
Financial Assets:
Financial assets are those which are used for Production or
consumption or for further creation of assets. Financial assets are
different from physical assets as physical assets are not useful for
further production of goods or for earning income.
operative banks
Financial Markets:
The Places where financial transactions take place. Therefore, financial market may be
centre or arrangement which facilitates buying and selling of financial assets.
a. Unorganized Market
b. Organized Market
Organized Market:
In this market, standardized rules and regulation exists to govern the financial dealings of
participants. These markets are under direct control of RBI and other regulatory
bodies.
a. Capital Market
b. Money Market
CAPITAL MARKET:
This is the market for financial assets which
have a long and indefinite maturity.
Hence, this market deals with long term
securities. Capital market is again divided
in to three types, viz,
• Company must have obtained the permission from the comptroller of Capital Issue.
• Company must have appointed Bankers and Underwriter for the issue
• Company must have been listed in the recognized Stock Exchange in India
• Company must have raised the minimum issue within the prescribed period.
• Company will have to attach the Prospectus with every application for Share Subscription.
• Company shall have to return the share money deposited by the public in the collection centre if share are not
allotted within the prescribed period.
• Issue of shares will be only at par if the Company is completely new one.
• Issue of shares by new company established by existing company (with 5 year Track record) can freely issue
shares at premium
• Private and closely held company shall be permitted to price their issue freely.
• Existing listed company will be allowed to raise fresh capital by freely pricing issue provided promoter’s
contribution is 50% on 1st 100 Corers, 30% on next 100 corers and 15% on the balance issue.
SECONDARY MARKET:
Introduction:
• There must be at least 10 public shareholders for every 1 lakh share of fresh issue and 20 in case of subsequent issue.
• A company with 5 crore paid up capital must list its securities in more than one stock exchange. Listing in regional stock exchange is
compulsory.
• Expenditure of Public Issue must within the limit fixed by SEBI from time to time.
In the Defence Rule of India, 1943, provision were made to check the flow of capital in to the production of
essential commodities during the II World War period. This provision was temporary and after the war, it was
culminated in to the Capita Issue (Control) Act, 1947. The objectives of this act were;
For achieving these objectives, an office of the Comptroller of Capital Issue (CCI) was set up to regulate the
capital issue in the country. CCI was vested with the power to approve the kind of instruments, size, timing and
premium of issue.
It was proved that the Capita Issue (Control) Act, 1947 were totally inadequate to regulate the growing dimensions
of capital market activity. The government realized the necessity of creating a more secure environment for the
business to grow. This led to enactment of companies act and Securities Contract (Regulation) Act, 1956. Due to
remarkable changes in the industrial policy during 6th Five year plan, it was necessary for the government to
control the activities of stock market of high importance. Government tried to erode the Malpractices and
defiencies of Capital market and to achieve this Government set up an apex body to develop and regulate Stock
Market in India. This led to set up of Securities and Exchange Board of India on April 12, 1988 and it took almost
4 years for the government to bring about a separate legislation in the name of Securities and Exchange Board of
India Act, 1992 conferring statutory power.
Objective:
• Protection of investor’s interest
• Regulate securities market to ensure fair
practice.
• Promote efficient services of brokers,
bankers, etc to make them professional
Functions
Section 11 SEBI Act, 1992 Functions of
SEBI are classified in to two categories;
• REGULATORY FUNCTIONS
• DEVELOPMENTAL FUNCTIONS
Regulatory Functions;
• Regulation of stock exchange and self regulatory organization