10.  IDBI :Industrial Dev Bank Of India
 IFCI : Industrial finance Corp Of India
 SIDBI
 IDFC : Infrastructure Dev Finance Comp .
 IIBI : Industrial Invt Bank of India
 NABARD
 EXIM Bank
 SFC
 SIDC : State Ind Dev. Corp.
 ECGC :Export Credit Guarantee Corporation Of
India
 DICGS : Deposit Insurance and credit Guarantee
corp

11. Indian Banking system
RBI
Non Scheduled Bank
Schedule Banks
State Coop. Commercial Central Coop. bank
Bank Bank and Primary Credit
Banks Societies
Indian Foreign Commercial
Bank
PSU Pvt. Sector
Bank
Banks
SBI & its Other nationalized Regional rural
subsidaries bank bank

12. BANKING IN INDIA

13. BANKING IN INDIA
Banking in India is governed by BR
Act,1949 and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are
different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society

14. BANKING REGULATION
ACT,1949 (BR ACT)-1
 BR Act covers banking companies and
cooperative banks, with certain
modifications.
 BR Act is not applicable to
a) primaryagricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks

15. BANKING REGULATION ACT,1949
(BR ACT)-2

16. RESERVE BANK OF INDIA
ACT,1934(RBI ACT)-1
 RBI Act was enacted to constitute the
Reserve Bank of India
 RBI Act has been amended from time to time
 RBI Act deals with the constitution,
powers and functions of RBI

17. RESERVE BANK OF INDIA
ACT,1934(RBI ACT)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex/reserves
control functions : bank rate,audit,accounts
penalities for violation

18. RESERVE BANK OF INDIA - 1
 Reserve Bank of India was established in
 1935, after the enactment of the Reserve
Bank of India Act 1934 (RBI Act).
 Banking Regulation Act,1949 (BR Act)
gave wide powers to RBI as regards to
establishment of new banks/mergers and
amalgamation of banks, opening of new
branches, etc
 BR Act,1949 gave RBI powers to regulate,
supervise and develop the banking system
in India

19. RESERVE BANK OF INDIA – 2

20. Central Bank
It is an apex institution of the monetary and
banking structure of a country. A central bank
has the authority to regulate and control the
banking business and monetary system of a
country. Its main function are

21. Traditional Function

23. Supervisory Function of banks

25. Development Function of RBI

27. MONETARY POLICY
 Monetary policy refers to the credit control measures
adopted by the central bank of a country to influence the
level of aggregate demand for goods and services or to
influence the trends in certain sectors of the economy.
 Monetary policy operates through varying the cost
availability of credit. There variations affect the demand
for . And the supply of credit in the economy, and the
nature of economic activities.

28. CONTD……
 Price stability :- Another objective of monetary policy
is to stabilize the price level. Both , rising and falling
prices are bad as the bring unnecessary loss to some
and undue advantage to others. They are associated
with business cycles. So a policy of price stability
keeps the value of money stable, eliminates cyclical
fluctuations. Brings economic stability, helps in
reducing inequalities of income and wealth, secures
social justice and promotes economic welfare

29. CONTD…
 Economic growth :-monetary policy can be imposed to
influence the rapid economic growth. Economic growth is
defined as “the process whereby the real per capita income of a
country increases over a long period of time “it is measured by
the increase in the amount of goods and services produced in a
country. A growing economy produces more goods and
services in each successive time period. Thus, growth occurs
when an economy’s thus, economic growth implies raising the
standard of living of the people, and reducing inequalities of
inequalities of income distribution.

30.  Exchange Rate Stability : Until 1991 India
followed fixed Exchange Rate system and only
occasionally devalued the rupee. The policies of
floating exchange rate and increasing
globalisation of Indian Economy openness and
adopted since 1991.
 This had made exch . rate more volatile

32. Quantitative Credit Control

33. Bank Rate :
•It is a standard rate at which the RBI
buys/rediscounts the bills of exchange /other
eligible CPs .
•The B/R was not changed frequently due to the
RBIs reluctance to adversely affects the yield and
mkt for G-Sec .
•In post 1997 the B/R was reactivated by linking
the rate to accomodation and refinance from RBI.
•It reflects the prime lending rates of the Banks

34. There are two types of refinance schemes
available to Banks
•Export Credit Refinance
•General Refinance( to tide over
temporary liquidity shortages face by
Banks. It has been now replaced by
collateral lending facility within overall
frame work of LAF

35. LAF :
One of the most important instruments of
monetary policy in recent years.
The RBI as lender of last resort was providing
various general and sector –specific refinance
facilities to the banks.
ILAF April 1999, the general finance facility
replaced by CLF upto 0.25 % of fortnightly
average outstanding deposit in 1997-98 which
would be available for 2 weeks at Bank Rate.
An ACLF available for an equivalent amount of
CLF at B/R plus 2% .

36. After ILAF a full fledged LAF came into being
in June 2000.
The apparent success of LAF resulted in
phases out of the CLF October 2002.

37. The LAF operates through the Repo
auction.
i.e sale of G-Sec from RBI portfolio for
absorption of liquidity.
Reverse Repo : Buying of G-Sec for
injection of liquidity on a daily basis ther by
creating a corridor for the call money market
and other mismatches in liquidity.

38. Maturity : 1-14 days.
Min. Bid Size : 5 crore and
multiples of Rs 5 crore
thereafter .
Securities Traded :
All transferable GOI dated
securities/ T-Bills can be traded
in Repo and Reverse repo
markets.

39. Call rates and Discretionary liquidity impact
each other. The RBI balance sheet can be
partitioned into autonomous liquidity and
discretionary liquidity.
Discretionary Liquidity : It is the sum of the
Balance sheet flows that arises out of its money market
operation.
It represent changes in total liquidity in the system which
occurs due to monetary policy action.
It comprises of policy induced flows from RBI to banks
and PD’s.

40. Autonomous Liquidity : It
essentially comprises of liquidity that
flow to banks without any monetary
policy action.

41. CRR : As per the RBI stipulation
relating to the maintenance of CRR by
banks, to choose an optimum strategy
of holding CRR depending upon their
intra-period cash flows.
Banks are allowed to maintain the CRR
on the last Friday of the second
preceding fortnight.

42. The daily min. requirement is 50% of
the fortnightly required for the 7 days of
the reporting fortnight and 65% for the
remaining 7 days including the reporting
Friday.
The daily Min. was reduced to enable
the smooth adjustment of liquidity for
roper cash management in over night
call rates

43. SLR :It refers to that portion of
total deposits of a commercial
banks which it has to keep in
form of liquid reserves
•Cash in Hand
•Reserves with RBI,Government
Securities and the approved
securities like IDBI,NABARD ,
IFCI and State electricity and
road transport undertakings
•Co-operative debentures

44. OMO’s : As defined by RBI refer to
“the purchase and sale by central
bank of a variety of the assets such
as foreign exchange , gold , govt
securities and even company shares”
In practice it is confined to purcase
and sale of govt securities

45. MSS :It was RBI from April 2004 to
mop up additional liquidity Under this
•The govt will issue T-Bills and /or
dated securities in addition to its normal
borrowings requirements for absorbing
liquidity from the system.
•It will be issued by way of auction
conducted by RBI.

46. • Amount raised under MSS will be
held in separate account titled MSS
account to be maintained and
operated by the RBI.

47. Impact
•It will curb short-term volatility in the Forex
market.
•It is expected to fine tune the structural balance
in money market and maintain a grip over short-
term interest rate.
•The cost of sterilization will be borne by the govt.
•The size of govt bond will increase.

57. Qualitative Credit Control

58. Other Measures

62. Money Market
It refers to that segment of the system / market that
enables the raising of short term funds for meeting the
temporary shortages of cash and obligations and the
temporary deployment of excess funds for earning
returns

63. CALL MONEY MARKET
• It deals with the (borrowed and lent)
overnight / one day (call) money and notice
money for periods of up to 14 days.
• It primarily serves as the balancing the
short term liquidity positions of banks.
• It is the market for short term funds
repayable on demand and with maturity
period varying between one day to a
fortnight.

64. CALL MONEY MARKET
 No collateral security is required to cover this
transaction
 It is basically an the over the counter market
without the intermediation of brokers.
 Call money is required by banks to meet their
CRR requirement.
 The rate of interest on call loans is known as the
call rate .
 It varies from day to day and often hour to hour.

65. COMMERCIAL BILLS MARKET
 When trade bills are accepted by commercial
banks they are called commercial bills.
 The cost of funds raised was lower than the cost
of inter-bank deposits or loans of over 60 days
and also this inter-bank deposits was subjected
to reserve requirements

66. TREASURY BILLS MARKET
 It is an instrument of a short term borrowing by
the GOI
 It is a kind of finance Bill (i.e a bill does not arise
from any genuine transaction in goods) or a
promissory note issued by the RBI on behalf of
the Government.
 The T-Bills are issued to raise short term funds
to bridge seasonal/temporary gaps between
receipts and expenditure of GOI.

67. FEATURES OF T-BILLS
 They are negotiable securities
 They are issued at discount and are repaid at par
on maturity
 High liquidity on account of short tenure (i.e 91
days and 364 days) and inter bank repos
 Absence of default risk due to government
guarantee and RBI’s willingness to always
purchase them negligible capital depreciation.
 Assured yield
 Low transaction cost
 Eligibility for inclusion in SLR
 Purchases/sales affected through the SGL.

68. AD-HOC TREASURY BILLS
 It was introduced to replenish Government cash
balances with RBI.
 It was decided between the RBI and the GOI that
the govt could maintain with the reserve bank a
cash of not less than Rs 50 crore on Friday and
Rs 4 crore on other days
 Free of obligation to pay interest there on
 Whenever the balance fell below the minimum.
 The govt. account would be replenished by the
creation of ad-hoc bills in favour of Reserve Bank.
 Ad-hoc 91 days T-Bills were created to replenish
the govt’s cash balances with the Reserve bank.

69. CONTD
 It is net increase in in the net RBI credit to the
Govt .
 In 1970’s and 1980’s a large proportion of ad-hoc
T-bills were converted in to long term
dated/undated G-sec.
 This coversion referred to as funding.
 This put an constraints on the conduct of
monetary policy.
 This lead to ad-hoc T-bill replaced by WMA’s in
1997.
 It is an arrangement to cover temporary
mismatch of the govt. revenue and expenditure.

70. CONTD
 It is not a source of financing the Govt deficit
 It is an overdraft facility of the govt. with the
RBI.
 They are issued on Yield basis and not on price
basis.
 The yield on T-bill is calculated as per the
following formula
 Y= (100-P) * 365 *100/P*D.
 P= Price
 Y= Discounted Yield
 D= Days of maturity

71.  T-Bills have a primary as well as secondary
market
 The dealers bids through (negotiated Dealing
System) NDS
 In secondary market the already ssued T-bills
are traded in by banks, FI’s and MF’s
 The quotes for T-bills in the secondary market
are on a yield basis.
 Two way yield are quoted (Bid and Ask)
 Bid yield is higher than the ask yield

72. COMMERCIAL PAPER
 Following the recommendations of the vaghul
committee in March 1989
 RBI permitted the issue of CP’s within the
framework of its guidelines
 It can be issued to individuals ,banks ,companies
and other registered Indian corporate bodies and
Unincorporated bodies
 NRI’s can be issued a CP only on anon-
tranferable and non-repatriable basis.
 FII’s are eligible to invest in CP’s but within the
limits set for their investment by the SEBI

73.  It is an unsecured short term promissory note,
negotiable and tranferable by endorsement and
with a fixed maturity period.
 It is issued at discount by a leading credit worthy
ness and highly rated corporates to meet their
working capital requirements. It is also known as
finance paper ,industrial paper or corporate
paper. The PD’s and All India financial
institution can also issue CP’s
 It can also be issued in interest –bearing form.

74. CONDITIONS OF ISSUING CP’S
 The tangible net worth of the company ,as per
audited balance sheet is not less than Rs 4 Crore
 A company has been sanctioned working lmit by
banks or all-India FI’s.
 The borrowal account of the company is classified
as a standard asset by the financing
banks/institution.
 Working capital limit means the aggregate limits
including those by way purchase/discount of bills
sanctioned by way of purchase/discount of bills
sanctioned by banks/FI’s for meeting working
capital requirements.

75. Maturity
CP can be issued for maturities between a
minimum of 7 days and a maximum upto one year
from the date of issue.
Denomination
CP can be issued in denomination of Rs 5 Lakh
(face value)
Mode of issuance
It is either in the form of a promissory note or in a
demat form through any depository approved by
and registered with the SEBI

76.  Effective Cost/Interest Yield
 As CP’s are issued at a discount and redeemed at
their face value ,their effective pre-tax interest
yield
 [ Face value –Net amt realised /Net amt
realised ]*[360/maturity periods]
 Net amt realised = face value- discount-issuing
company and paying agent IPA Charges
 i.e stamp duty ,rating charges, dealing bank fee
and fee for stand by facility.

77. PARTICIPANTS
 Corporate Bodies
 Banks
 Mutual Funds
 The UTI
 LIC
 GIC
 And so on looking out for investment

78. CERTIFICATE DEPOSITS MARKET
 This are unsecured ,negotiable , short term
instruments in bearer form issued by commercial
Banks and DFI’s
 It was introduced in 1989 and are marketable
receipts of funds deposited in abank for period at
a specified rate of interest.
 They are attractive both to the bankers and the
investors in the sense that the banker is not
required to encash the deposit prematurely
 While can sell the CD’s in the secondary narket
before its maturity

79.  It has liquidity /ready marketability
 Issued demat form or a usance promissory note
for funds deposited at a bank
 Issued by commercial banks (excluding the
RRB’s/LAB’s)
 Select all-India FI’s permitted by thr RBI to raise
short-term resources within the limit fixed by it
 Min. isssue Rs 1 lakh or issued in the mutiples of
Rs 1 lakh.
 Individual /corporations
/companies/trusts/funds/associations and so on

80.  Bank can issue 7days (min) with maturity and one
year
 FI’s can issue CD’s with maturity 1-3 yrs
 I t can issued at a Discount on face value and can also
issue on floating rate basis
 The interest rate should be set periodically according
to pre-determined formula
 Issuer is free to issue or determine discount/coupon
rate.
 Bank have to maintain SLR and CRR on the issue of
the CD’s
 No lock in period and can be freely transferred by
endorsement and delivery

81. MMMF’S
 The money market instrument outlined earlier in
the wholesale transactions involving large
amount and are suitable for large corporates and
institutional investors to enable small investors
to come or participate MMMF’s started or
introduced through that can earn market related
yield.
 It bridges the gap between small individuals and
money market.

82.  RBI made certain modification in 1995-96 to
make it more flexible and attractive to a large
investors base such as banks FI’s and corporates
besides individuals.
 Modification done
i. Removal of ceiling for raising resources
ii. Allowing Private sector to set up MMMF’s.
iii. Permission to MMMF’s to invest in rated bands
and debentures
iv. Min lock-in period 15days
v. MMMMF’s allowed to offer a cheque writing
facility in tie up with banks to provide more
liquidity to unit holders.
vi. MMMF’s have to be setup as a separate entity
only in form of a trust
vii.It is Under SEBI since March 2007.

83. THE INDIAN CAPITAL MARKET
 Market for long-term capital. Demand comes
from the industrial, service sector and
government
 Supply comes from individuals, corporates,
banks, financial institutions, etc.
 Can be classified into:
 Gilt-edged market
 Industrial securities market (new issues and stock
market)

84. THE INDIAN CAPITAL MARKET
 Development Financial Institutions
 Industrial Finance Corporation of India (IFCI)
 State Finance Corporations (SFCs)
 Industrial Development Finance Corporation
(IDFC)
 Financial Intermediaries
 Merchant Banks
 Mutual Funds
 Leasing Companies
 Venture Capital Companies

87. PRIMARY MARKET
 It is the market for new issues. It is the market
for fresh capital. Funds are mobilized through
prospectus , right issue, and the private
placement.

88. IPO & FPO
1. IPO
It is a offering either of securities or an offer for
sale of existing securities or both by an unlisted
company for the first time to the public.
2. FPO
It is an offering of either a fresh issue of securities
or an offer for sale to the public by an already
listed company through an offer documents
Investors participating in these offerings take
informed decisions based on its track record and
performance.

89. RIGHT ISSUE
 It is the issue of new shares in which existing
shareholders are given preemptive rights to
subscribe to the new issue on a pro-rata basis.
 The right is given in the form of an offer to
existing shareholders to subscribe to a
proportionate number of fresh ,extra at a pre-
determined price.

90. PRIVATE PLACEMENT
 It refers to the direct sale of newly issued
securities by the issuer to a small number of
investors through merchant bankers.
i. Investors
ii. Financial Institutions
iii. Corporates
iv. Banks and High net worth individuals

91. PREFERENTIAL ISSUE
 A public / rights is cumbersome and requires
compliance with statutory provisions . Hence,
many companies opt for preferential allotment of
shares for raising funds.
 Such allotments are made to various strategic
groups including promoters ,Foreign Partners,
Technical collaborators and .Private funds.

92. QIP’S
 It has emerged as a new fund raising investment
for listed companies in India.
 Through QIP’s issue funds can be raised from
foreign as well as domestic institutional investors
without getting listed on a foreign exchange
,which is lengthy and cumbersome.

93. INTERNATIONAL CAPITAL MARKET

94. GDR
 GDRs are essentially equity instruments issued
abroad by authorized overseas corporate bodies
against shares/bonds of Indian companies held
with nominated custodian banks.
 The issue of GDR creates equity shares of the
issuing company which kept with a designated
bank .
 GDR are freely transferable outside India and
dividend in respect of the shares represented by
GDR is paid in Indian rupees.

95. ADR
 ADRs are negotiable instruments denominated I
dollars and issued by the US depository bank.
 A non-Us company that seeks to list in the US
,deposits it shares with a bank and receive a
receipt which enables the company to issue the
American depository shares.
 These ADS serve as a stock certificates and are
used interchangeably with the ADR which
represents ownership of deposited shares There
is no legal or technical difference between an
GDR and ADR.

96. ECBS
 Indian corporates are allowed to raise foreign
loans for financing infrastructure projects.
 The Indian companies are free to raise ECBs
from any internationally recognized source, such
as bank, export credit agencies, suppliers of
equipments,foreign collaborators, foreign equity
holders, and international capital markets .
 ECBs are linked to federal reserve board rate
which is 3% since April 2005.

97. FCCBS
 FCCBs are bonds issued by Indian companies
and subscribed to by anon-resident in foreign
currency.
 They carry a fixed interest or coupon rate and are
convertible into a certain number of ordinary
shares at a preferred price.
 They are convertible into ordinary shares of the
issuing company either in whole or a part on the
basis of any equity-related warrants attached to
the debt instruments .
 This bonds are listed and traded abroad.

98.  Till conversion the interest is paid in dollars
 And if conversion option is not exercised than the
redemption is also made in dollars.
 Thus Foreigners prefer FCCBs and Indian
companies prefer to issue GDRs.
 The rate of interest is less but the exchange risk
is more in FCCBs as interest is payable in
foreign currency.

99. SECONDARY MARKET
 The secondary market is a market in which
existing securities are resold or traded. This
market is also Known as the Stock market
 In India secondary market consist of
recognized Stock exchanges operating under
rules, by-laws and regulation duly approved by
the government.
 These stock exchanges Constitute an organize
Stock market where securities are issued by the
central and State govt, public bodies and joint
stock companies are traded.


100. STOCK EXCHANGE DEFN
 A Stock exchange is defined under section 2 (3) of
the securities contract (Regulation) Act, I956, as
any body of individuals whether incorporated or
not, constituted toe the purpose or assisting,
Regulating or controlling the business of buying
selling, or dealing in securities.

101. FUNCTION OF THE SECONDARY
MARKET
 To Facilitate liquidity and marketability at the
outstanding equity and debt instruments
 To contribute to economic growth through
allocation of funds to the most efficient Channel
through the process of disinvestment to
reinvestment.
 To provide instant valuation at securities caused
by Changes in the internal environment
(company-wide and industy wide factors). such
valuation facilitates the measurement of the cost
of capital and the rate of return of the economic
entities at the micro level.

102.  To ensure a measure of safety to improve and fair
dealing to protect investors interest.
 To induce companies to improve performance
Since the market price at the Stocks exchanges
reflects the performance and this market price is
readily available to investors.

103. PREFERENCE SHARES TYPES
1.CUMULATIVE preference Shares
 Share where the arrears of dividends in
times of and for lean profits can be accumulated
and paid in the year in which the company earns
good profits.
 This is the type of preference share on
which dividend accumulates if it is remains
unpaid. All arrears of preference dividend have to
be paid out before paying dividend on equity
Shares.

104. Non-Cumulative preference shares', Shares where
the carry forward of the arrears of dividends is not
possible.
Participating preference shares: shares that enjoy
the right to participate in surplus profits or
Surplus assets on the liquidation of a company or
in both, if the Articles of Association provides for it.

105.  Redeemable preference shares
Shares that are to be repaid at the end of the
term of issue, the max. period of redemption
being 20 years redeemed with effect from
1/03/1997 under the companies amendment act ,
1996. Since they are similar to debentures . Only
fully paid shares are redeemed Where
redemption is made out of profits a capital
redemption Reserve Account is opened to which
a sum equal to the nominal value off the shares
is transferred, It is treated as paid-up Share
capital of the company.

106. Fully convertible cumulative preference shares
Shares comprises of two parts
 Part A is convertible into equity shares