ABR Mba Sem III B F I PPT r 2

04/10/2304/10/23 11ABR mba ii BFI ABR mba ii BFI 11

BANKING AND FINANCIAL INSTITUTIONS The term "finance" in our simple understanding is generally perceived The term "finance" in our simple understanding is generally perceived as equivalent to 'Money'. We read about Money and banking,as equivalent to 'Money'. We read about Money and banking, Monetary Theory and about "Public Finance" in Economics. But Monetary Theory and about "Public Finance" in Economics. But finance exactly is not money, it is the process of “acquisition of funds finance exactly is not money, it is the process of “acquisition of funds for a particular activity , for optimum utilization thereof in various for a particular activity , for optimum utilization thereof in various assets of the firm . assets of the firm . Similarly public finance does not mean the money with the Similarly public finance does not mean the money with the Government, but it refers to sources of raising revenue for the Government, but it refers to sources of raising revenue for the activities and functions of a Government. activities and functions of a Government. The word "system", in the term "financial system", implies a set of The word "system", in the term "financial system", implies a set of complex and closely connected or interlined institutions, agents, complex and closely connected or interlined institutions, agents, practices, markets, transactions, claims, and liabilities in the practices, markets, transactions, claims, and liabilities in the economy. The financial system is concerned about money, credit and economy. The financial system is concerned about money, credit and finance-the three terms are intimately related yet are somewhat finance-the three terms are intimately related yet are somewhat different from each other. Indian financial system consists of financial different from each other. Indian financial system consists of financial market, financial instruments and financial intermediation. market, financial instruments and financial intermediation.


Constituents of a Financial System


Financial System

Providers Users

Institution Markets Unorganized Organized Stock Market Agriculture Indigenous Bankers Financial Non Industries Banking Money Market Money Lenders Regulatory Financial Mfg; Trading Banking Fund based [Instruments Service Pawn Brokers viz. Shares, Co-operative Non Fund Bonds, C P Based C D,D. W.] Developmental SEBI Banking

04/10/2304/10/23 44

Post-1991 Phase Organization of the Indian financial System

Privatization of financial institution

Banks

Mutual-Fund

Insurance Companies

Reorganization of Structure

DFIs/PFIs Banks NBFCs Mutual-funds CapitalMarket

Money-Market

PrimaryStock-exchange

Investor Protection:

SEBI

Prudential Norms:

Credit/advance portfolio

Investment Portfolio

Capital adequacy

ExposureNorms:

Securitization,Asset

ReconstructionAnd Enforcement

Of SecurityInterest

Asset-LiabilityManagement Credit Risk

Management

Country Risk Management

44ABR mba ii BFI ABR mba ii BFI

04/10/2304/10/23 55

FINANCIAL MARKETSFINANCIAL MARKETS

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

FINANCIAL MARKETS FINANCIAL MARKETS

FOREX CAPITAL MONEY CREDIT FOREX CAPITAL MONEY CREDIT

Primary Market Primary Market Secondary Market Secondary Market

Money market Instru. Call Market Instru. Hybrid Instru.Money market Instru. Call Market Instru. Hybrid Instru.

Financial Assets /Instruments

Financial Intermediaries


04/10/2304/10/23 66

Call /Notice-Money Market : 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. 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 holidays) is "Call Money". 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.

Inter-Bank Term Money: Inter-Bank Term Money: Inter-bank market for deposits of maturity beyond 14 days is

referred to as the term money market. 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.


04/10/2304/10/23 77

Treasury Bills:Treasury Bills are short term (up to one year) borrowing instruments of the union government. It is an IOU of the Government. It is a promise by the Government to 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). They are issued at a discount to the face value, and on maturity the face value is paid to the holder. The rate of discount and the corresponding issue price are determined at each auction.


FORX MARKET: One of the important Financial markets in the Country as also in the International Financial System. In India it operates in a Three – Tire System. FOREX MARKET

R B I (Controller of Foreign Exchange) D.G.F.T. --- Customs (Controller of Foreign Trade)

Authorised Dealers (A. D.) Banks Other Exchange Companies

Customers – F. Exchange Money Changers Instruments

T.T. M.T. D.D. Travelers Cheques Cheques


FINANCIAL INSTRUMENTS FINANCIAL INSTRUMENTS

Money Market Instruments : The money market can be defined as a market for short-term money and financial assets 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 ;

1. Call/Notice Money 2. Treasury Bills 3. Term Money 4. Certificate of Deposit 5. Commercial Papers 6. Capital Market Instruments

7. Hybrid Instruments


Capital Market Instruments

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 Hybrid instruments have both the features of equity and debenture. This kind of instruments is called as hybrid instruments. Examples are convertible debentures, warrants etc.

04/10/2304/10/23 1111

Certificate of Deposits : Certificates of Deposit (CDs) is a negotiable money market instrument and issued in dematerialized form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period. Guidelines for issue of CDs are presently governed by various directives issued by the Reserve Bank of India, as amended from time to time. CDs can be issued by (i) scheduled commercial banks excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs); and (ii) select all-India Financial Institutions that have been permitted by RBI to raise short-term resources within the umbrella limit fixed by RBI. Banks have the freedom to issue CDs depending on their requirements. An FI may issue CDs within the overall umbrella limit fixed by RBI, i.e., issue of CD together with other instruments viz., term money, term deposits, commercial papers and interoperate deposits should not exceed 100 per cent of its net owned funds, as per the latest audited B/ sheet. Commercial Paper: 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. CP is thus an unsecured promissory note privately placed with investors at a discount rate to face value determined by market forces. CP is freely negotiable by endorsement and delivery. A company shall be eligible to issue CP provided - (a) the tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs. 4 crore; (b) the working capital (fund-based) limit of the company from the banking system is not less than Rs.4 crore and (c) the borrowal account of the company is classified as a Standard Asset by the financing bank/s. Min. maturity period of CP is 7 days.



FINANCIAL INTERMEDIARIES - I

Banks NBFC Mutual Insurance

Funds Organization Central - Leasing Companies -Regulatory Hire-Purchase/ Commercial- Consumer Finance Co. -Nationalized Housing Finance Co. -Co-operative Venture Capital Funds - Private-Foreign Merchant Bankers Developmental Credit Rating Agencies Factoring Org., Stock broking firms Depositories

04/10/2304/10/23 1313abr MBA II sem BFI 13

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 and engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/ securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property.

It has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company (Residuary non-banking company).

04/10/2304/10/23 1414ABR mba ii BFI ABR mba ii BFI

NON BANKING FINANCIAL INTERMEDIARIES

Fund Based Activities Non-Fund Based (financial services )

NBFC NBFSC Loan Companies Merchant Banks Investment Companies Venture Capital funds Hire Purchase finance Factors. Lease finance companies Credit Rating Agencies Housing finance Companies Depository Services Mutual Benefit financial Companies (NIDHI’S) Residuary Non- Banking Co; (Chit funds)

1414


NON BANK STATUTORY FINANCIAL ORGANISATION’S NBSFO Industrial financial corporation and India (IFCI) July 1988- IFEIACT 1948

National industrial Development Corporation. (NIDC)Oct-1954- Statutory Corporation of the Govt. of India Industrial Credit and Investment Corporation of India. (ICICI) 5TH Jan 1955 -Public Lt Co- constituted by The G.O.I. - The World Bank and Representatives of Indian Industries. Industrial Development Bank of India. (IDBI Act) 1ST July 1961 –as Subsidiary of the RBI (statute) by merging Industrial Refinance Corporation of India which was set up by the G.O.I. in 1958 -delinked from the RBI in Feb.1976 and established as separate Govt . Entity. Export - Import Bank of India (Exim-Bank) Jan 1982, by statute -wholly owned by the Central Govt. Industrial Reconstruction Bank of India (IRBI) April 1971 (by GOI&IRCI) IRCI reconstituted in 1985 by statute To IRBI y IRBI Act.

04/10/2304/10/23 1616

Shipping Credit and Invertment Corporation of India-(SCICI Pub. Ltd Co. 1986 Infrastructure Leasing & Financial Services LTD.(IL and FS) - May 1988 by CBI, UTI, HDFC as subsidiary of the Central Bank of India) Technology Development Information Co. of India Ltd (TDICI) - July 1988 – set up under Co. Act - by ICICI, UTI

Risk capital and technology finance corpn LTD. (RCTFC)- -Venture Capital fund of IFCI, Jan 1988. Tourism Finance Corporation of India P Ltd (TFCI) set up as public Ltd; Co; on 1 Feb 1989, by IFCI and other .

04/10/2304/10/23 1717

NATIONAL BANK FOR AGRICULTURAL AND RURAL DEVELOPMENT (NABARD)-12 July 1982 by statute, c. Govt. –by GOI, the RBI . taking over (Agricultural Refinance and Development Grlm) 1963. Agricultural finance consultants Ltd. (AFC) 88-89 by Feconstitution of Agnil. Fin. Corpm .of 1968.

ABR Mba Sem III B F I PPT r 2

Documents

Transcript of ABR Mba Sem III B F I PPT r 2