In Today's time "Feel good" factor for the indian economy is arising at Global level.Investors confident for the indian market specially Sensex is looking attractive then ever before.Indian foreign exchange reserve is rising to more than $300 billion.As per as Regulation is concern indian financial market is going in very suitable phase as the RBI and SEBI is regulation indian financial market.
In recent years indian economy seen greatest transformation from closed,slow and controlled economy to the more open,liberalised and one of the fastest growing economy in the world.Economy reform in india scince 1991 accelerate growth,enhance stability and strength both external and internal financial sector.
In india the Saving rate is growth at very high rate wich push the growth rate of the GDP of the country,shows the economy is tranfering to sustanable and high growth tragectory.
Financial Intermidiaries:
A structural change was noticed in the Indian financial system with the establishment of a host of financial intermediaries during the second phase of evolution of the system.Financial intermediaries comprises of public financial institutions, NBFCs, mutual funds,commercial banks, housing bank etc.
Foreign Currency Borrowings:
In India External debt exposure to financial intermediaries is regulated. Their foreign currency borrowings have been subject to the prudential limit of 25 per cent of their Tier-Icapital. These limits amounted to US $ 2.7 billion as of March 31, 2006. With a view to enabling banks to raise resources overseas, the latest monetary policy announcement on October 31, 2006 has enhanced this limit to 50 per cent of their Tier I capital, or US $ 10 million, whichever is higher. With a move towards fuller capital account convertibility,banks are likely to access forex markets more, underscoring the need for further enhancement of the risk management capabilities of the banking system.
Banking Companies:
The banking sector is the soul-life-blood of the financial system in India. Significant progress has been made with respect to the banking sector in the post liberalization period. The financial health of the commercial banks has improved manifolds with respect to capital adequacy, profitability, asset quality and risk management. Further, deregulation has opened new opportunities for banks to increase revenue by diversifying into investment banking, insurance, credit cards, depository services, mortgage, securitization, etc. Liberalization has created a more competitive environment in the banking sector. The aggregate foreign investment (FDI plus FII) limit for the private sector banking has been raised to 74 percent in the recent country budget. The competition has increased within the banking sector (with the emergence of new private banks and foreign banks) as well as from other segments of the financial sector such as mutual funds, Non Banking Finance Companies, post offices and capital markets.
The banking sector is the soul-life-blood of the financial system in India. Significant progress has been made with respect to the banking sector in the post liberalization period. The financial health of the commercial banks has improved manifolds with respect to capital adequacy, profitability, asset quality and risk management. Further, deregulation has opened new opportunities for banks to increase revenue by diversifying into investment banking, insurance, credit cards, depository services, mortgage, securitization, etc. Liberalization has created a more competitive environment in the banking sector. The aggregate foreign investment (FDI plus FII) limit for the private sector banking has been raised to 74 percent in the recent country budget. The competition has increased within the banking sector (with the emergence of new private banks and foreign banks) as well as from other segments of the financial sector such as mutual funds, Non Banking Finance Companies, post offices and capital markets.
Cash Reserve Ratio (CRR):
CRR is the amount of cash reserve that is required to be maintained by commercial banks in India with the RBI. The RBI hiked the CRR by 50 basis points to 5.5 per cent in two stages on 23 December 2006 and 6 January 2007. Currently the CRR is 5.75% of the net demand and time liability. From the fortnight beginning from March 3, 2007, the CRR will be 6%.
CRR is the amount of cash reserve that is required to be maintained by commercial banks in India with the RBI. The RBI hiked the CRR by 50 basis points to 5.5 per cent in two stages on 23 December 2006 and 6 January 2007. Currently the CRR is 5.75% of the net demand and time liability. From the fortnight beginning from March 3, 2007, the CRR will be 6%.
Statutory Liquidity Ratio (SLR):
SLR is an instrument in the hands of RBI to impose supplementary reserve requirements on the banking system. The maximum limit of SLR in India is 40%. It was 20% in 1963 and rose to 38.5% in 1990. The current limit is 25%. The Government has issued ordinance giving more flexibility to the RBI to fix SLR below the current stipulated limit of 25%.
SLR is an instrument in the hands of RBI to impose supplementary reserve requirements on the banking system. The maximum limit of SLR in India is 40%. It was 20% in 1963 and rose to 38.5% in 1990. The current limit is 25%. The Government has issued ordinance giving more flexibility to the RBI to fix SLR below the current stipulated limit of 25%.
Specialised financial entities – Housing finance companies:
A company, which mainly carries on the business of housing finance or has as one of the main objects in its Memorandum of Association, business of providing finance for the housing. To start business of housing finance, the Housing Finance Companies has to get it registered with the National Housing Bank. The principal mandate of the Bank is to promote housing finance institutions to improve/strengthen the credit delivery network for housing finance in the country. The Bank has played a facilitator role in this regard instead of itself opening such dedicated housing finance institutions.
A company, which mainly carries on the business of housing finance or has as one of the main objects in its Memorandum of Association, business of providing finance for the housing. To start business of housing finance, the Housing Finance Companies has to get it registered with the National Housing Bank. The principal mandate of the Bank is to promote housing finance institutions to improve/strengthen the credit delivery network for housing finance in the country. The Bank has played a facilitator role in this regard instead of itself opening such dedicated housing finance institutions.
Non- Banking Finance Companies
Non-Banking Financial Companies are under the regulatory framework of Reserve Bank of India by virtue of powers vested in Chapter III B of the Reserve Bank of India Act, 1934.
Non-Banking Financial Companies are under the regulatory framework of Reserve Bank of India by virtue of powers vested in Chapter III B of the Reserve Bank of India Act, 1934.
At the end of June 2006, there were 13014 NBFCs registered with the Reserve Bank of India, including 428 NBFCs, which are accepting public deposits. During the year 2005-06,Net-owned funds of NBFCs increased by 562 crores despite a decline in the number of reporting NBFCs. Total assets/liabilities of NBFCs (excluding reporting NBFCs) at the end of March 2006 were Rs. 35561 crores, down marginally by 1.2 percent from 36003 crores at end of March 2005. in the year 2005-06, there was a significant decline in fee-based income of the NBFCs while there was a marginal increase in fund-based income.
A slight overview of NBFCs vs. Banks:
1. NBFCs have a much lighter regulation than that applicable to banks.
2. Formation of an NBFC is much easier than forming a bank.
3. Foreign direct investments in NBFCs are also much easier than those in case of
banks.
banks.
4. A NBFC cannot accept demand deposits like banks
5. It is not a part of the payment and settlement system and as such cannot issue
cheques to its customers.
cheques to its customers.
Investment Intermediaries
Mutual funds:
Mutual funds:
It is an instrument which pool money from the large numbers of investors and invest in predetermine objectives.
The pioneer in the field of mutual fund is Unit Trust of India established in 1964. Net mobilisation of resources by mutual funds increased by more than four-fold to Rs. 104950 crores in 2006 from Rs. 25454 crore in 2005. The share of UTI and other public sector mutual funds in the total amount mobilised was around 22.5% in 2005 and 17.8% in 2006. The total assets under the management of mutual funds during at the end of 2006 was recorded at 323598 crores.
Capital market: primary:
The market wherein resources are mobilised by companies through issue of new securities is termed as the primary market. In India, the primary market has grown exponentially during the last decades. Funds mobilisation from the market reached its peak in the year 1993-94, 1994-95 and 1997-98. During the year 2006, a total of Rs.161769 crores was mobilised through primary market by a combination of equity issue, debt issue, private placement and Euro issues (ADR/GDR).
Capital market is firmly regulated by the Securities and Exchange Board of India (SEBI) to offer better protection to the investors. The introduction of SEBI Guidelines for Disclosure and Investor Protection during 1992 revolutionised the Indian capital market. Later it was replaced by the Guidelines issued in 2000 and SEBI is frequently updating these guidelines to suit the need of the present time. SEBI has also prescribed regulations for the Intermediaries, such as the brokers, underwriters, Merchant Bankers, Mutual Funds etc.
The market wherein resources are mobilised by companies through issue of new securities is termed as the primary market. In India, the primary market has grown exponentially during the last decades. Funds mobilisation from the market reached its peak in the year 1993-94, 1994-95 and 1997-98. During the year 2006, a total of Rs.161769 crores was mobilised through primary market by a combination of equity issue, debt issue, private placement and Euro issues (ADR/GDR).
Capital market is firmly regulated by the Securities and Exchange Board of India (SEBI) to offer better protection to the investors. The introduction of SEBI Guidelines for Disclosure and Investor Protection during 1992 revolutionised the Indian capital market. Later it was replaced by the Guidelines issued in 2000 and SEBI is frequently updating these guidelines to suit the need of the present time. SEBI has also prescribed regulations for the Intermediaries, such as the brokers, underwriters, Merchant Bankers, Mutual Funds etc.
Capital market: secondary:
Secondary market popularly known as the Stock Exchange is referred to as the “Barometer of the economy”. The stock exchanges are the exclusive centres for trading in equities. The stock market is touching new heights year after year since 2003, with the BSE and NSE indices crossing 14000 and 4000, respectively in January 2007. The 3rd of January witnessed the highest closing indices of 14015 at BSE and 4025 at NSE. NSE continued to occupy the third position after NASDAQ and NYSE in terms of number of transactions occurring during the calendar year 2006.
Secondary market popularly known as the Stock Exchange is referred to as the “Barometer of the economy”. The stock exchanges are the exclusive centres for trading in equities. The stock market is touching new heights year after year since 2003, with the BSE and NSE indices crossing 14000 and 4000, respectively in January 2007. The 3rd of January witnessed the highest closing indices of 14015 at BSE and 4025 at NSE. NSE continued to occupy the third position after NASDAQ and NYSE in terms of number of transactions occurring during the calendar year 2006.
Debt:
In a developing country like India, debt market plays a very crucial role. Debt Markets are markets for the issuance, trading and settlement in fixed income securities of various types and features. Almost all legal entity like Central and State Governments, Public Bodies, Statutory corporations, Banks and Institutions and Corporate Bodies issue Fixed income securities to secure money. Current debt market has become more efficient, transparent and vibrant with significant retail participation. Government of India (GOI) securities continued to account for the major part of activity In the secondary debt market. The gross issuance of GOI dated securities in 2006 amounted to Rs.14 000 crores as compared to Rs. 129,350 crore in 2005.
In a developing country like India, debt market plays a very crucial role. Debt Markets are markets for the issuance, trading and settlement in fixed income securities of various types and features. Almost all legal entity like Central and State Governments, Public Bodies, Statutory corporations, Banks and Institutions and Corporate Bodies issue Fixed income securities to secure money. Current debt market has become more efficient, transparent and vibrant with significant retail participation. Government of India (GOI) securities continued to account for the major part of activity In the secondary debt market. The gross issuance of GOI dated securities in 2006 amounted to Rs.14 000 crores as compared to Rs. 129,350 crore in 2005.
Derivatives:
In India, derivatives trading take place under the provisions of the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992. The turnover recorded during the calendar year 2006 in NSE derivative market is 7046665 crores and in BSE derivative market is 4012 crores showing significant growth over the previous years.
In India, derivatives trading take place under the provisions of the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992. The turnover recorded during the calendar year 2006 in NSE derivative market is 7046665 crores and in BSE derivative market is 4012 crores showing significant growth over the previous years.
Commodities market:
Commodities Futures trading is a class of Derivatives trading, in which futures contracts derive their value from the ruling price of underlying commodities. This is a mechanism by which participants can enter into transactions for purchase and sale of commodities at a price, where the performance of delivery and payment obligation becomes due on a future date.
As compared to 59 commodities in January 2005, 94 commodities were traded in the commodities futures market as of December 2006, and these included major agricultural commodities, spices, metals, bullion, crude oil, natural gas and polymer, among others. Gold accounted for the largest share (31 per cent) of trade in terms of value, followed by silver (19 per cent), guar seed (11 per cent) and chana (10 per cent). The growth in the commodity derivative trading witnessed in 2005-06 continued during 2006-07. Total volume of trade rose sharply from Rs. 1.29 lakh crore in 2003-04 to Rs. 27.39 lakh crore in 2006-07 (till December 2006).
Commodities Futures trading is a class of Derivatives trading, in which futures contracts derive their value from the ruling price of underlying commodities. This is a mechanism by which participants can enter into transactions for purchase and sale of commodities at a price, where the performance of delivery and payment obligation becomes due on a future date.
As compared to 59 commodities in January 2005, 94 commodities were traded in the commodities futures market as of December 2006, and these included major agricultural commodities, spices, metals, bullion, crude oil, natural gas and polymer, among others. Gold accounted for the largest share (31 per cent) of trade in terms of value, followed by silver (19 per cent), guar seed (11 per cent) and chana (10 per cent). The growth in the commodity derivative trading witnessed in 2005-06 continued during 2006-07. Total volume of trade rose sharply from Rs. 1.29 lakh crore in 2003-04 to Rs. 27.39 lakh crore in 2006-07 (till December 2006).
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