INDIAN FINANCIAL SYSTEM: Money AND Capital Market IN INDIA: –
A money market is non a market for money but it is a market for near ‘money ‘ ; or it is the market for loaning and adoption of short-run financess. It is the market where the short -term excess investible financess of Bankss & As ; other fiscal establishments are demanded by borrowers consisting single companies and authorities. Commercial Bankss are both providers of financess in the money market and borrowers.
The Indian money market consists of two parts: the unorganised and the organized sectors. The unorganised sector consists of autochthonal bankers who pursue the banking concern on traditional lines and non-banking fiscal establishments ( NBFCs ) .the organized sector comprises the modesty bank, the province bank of India and its associates Bankss, both Indian and foreign.
The organized money market in India has a figure of sub markets such as the exchequer measures market, the commercial measures market and the inter-bank call money market.
The Indian money market is non a individual homogeneous market but is composed of several sub-markets, each one of which trades in a peculiar type of short term recognition.
Name Money Market:
The market is besides known as money at call and short notice. The market has really two sections viz. ( a ) the call market or nightlong market, and ( B ) short notice market. The rate at which financess are borrowed and lent in this market is call money rate.
Name money rates are market determined i.e. by demand for and supply of short term financess. The populace sector Bankss for approximately 75 per centum for the demand ( that is, adoptions ) and foreign Bankss and Indian private sector Bankss histories for the balance for the balance of 20 per centum of adoptions. Non-banking fiscal
Institutions such as IDBI, LIC, GIC, etc enter the call money market as loaners and provide up to 80 per centum of the short-run financess. The balance of 20 per centum of the financess is supplied by the banking system.while some Bankss operates both as loaners and borrowers, others are either ‘s lone borrowers or lone borrowers or lone loaners in the call money market.
Bill Market in India:
The measure market or the price reduction market is the most of import portion of the money market where short-run bills-normally up to 90 days-are brought & A ; sold. The measure market is farther subdivided into commercial measure market and Treasury measure market.
The market for commercial measures has non become popular in India. Unlike in London & A ; other international money markets where commercial measures are extensively bought and sold ( i.e. discounted ) .
The 91 yearss exchequer measures are the most common manner the authorities of India raises financess for the short period. Some old ages ago, the authorities had introduced the 182 twenty-four hours exchequer measures which were subsequently converted into 364-day exchequer measures ; the authorities introduced the 14-day intermediate exchequer measures.
Features & A ; defects of Indian money market:
- Being of unorganised money market
- Absence of integrating
- Diverseness in money rates of involvement
- Seasonal tightness of money
- Absence of the measure market
- Highly volatile name money market
- Absence of a well organized banking system
- Availability of recognition instrument.
Composition of Indian capital market: Capital market is the market for long term financess, merely as the money market is the market for short term financess. It refers to all the installations and the institutional agreements for adoption and lending term financess ( medium-term and long-run financess ) .it does non cover in capital goods but is concerned with the elevation of money capital for intents of investing.
The demand for long-run memory capital comes preponderantly from private sector fabrication industries and agribusiness and from the authorities mostly for the intent of economic development. As the cardinal and province authoritiess are puting non merely on economic operating expenses like conveyance, irrigation and power development but besides on basic industries and sometimes even in consumer goods industries, they require significant amounts from the capital market.
The supply of financess for the capital market comes mostly from single rescuers, corporate nest eggs, Bankss, insurance companies specialized funding bureaus and the authorities. Among the establishments, we may mention to the followers:
- Commercial Bankss are of import investors, but are mostly interested in govt. securities and, to a little extent, unsecured bonds of companies ;
- LIC and GIC are of turning importance in the Indian capital market, though their major involvement is in authorities securities ;
- Provident financess constitute a major medium of nest eggs but their investing excessively are largely in govt. securities ; and
- Particular establishments set up since independency, viz, IFCI, ICICI, IDBI, UTI, etc. -generally called development fiscal establishments ( DFIs ) -aim at providing long term capital to the private sector.
- There are fiscal mediators in the capital market, such as merchandiser bankers, common financess renting companies etc. which help in mobilising nest eggs and providing financess to investors.
Like all markets, the capital market is besides composed of those who demand financess ( borrowers ) and those who supply financess ( loaners ) .an ideal capital efforts to supply equal capital at sensible rate of return for any concern which offers a prospective output high plenty to do adoption worthwhile.
The capital market is loosely divided into two the gilt-edged market and the industrial securities market. The gilt-edged market refers to the market for authorities and semi govt. securities, backed by the RBI. The securities traded in this market are stable in value and are much sought after by Bankss and other establishments.
The industrial securities market refers to the market for portions and unsecured bonds of old and new companies. This market is farther divided into the new issue market and old capital market intending the stock exchange.
The new issue market -often referred to as primary market- refers to raising of new capital in the signifier of portions and unsecured bonds whereas the old issue market -commonly known as stock exchange or stock market-deals with securities already issued by the companies. It is besides known as the secondary market. Both markets are every bit of import, but frequently the issue market IS Much MORE Important from the point of position of economic growing.
DFIs supply financess for investing: fiscal mediators like merchandiser bankers help the corporate sector to raise financess in the capital market.
SPECIAL FINANCIAL INSTITUTIONS & A ; THE Capital Market:
Soon after independency, the govt. of India set up a series of fiscal establishments to be of particular aid to the private sector industries. IFCI was the first of these establishments ( 1948 ) .it was followed by SFCs ( set up by province govt. with cooperation of RBI & A ; other Bankss ) to supply long term finance to little and average industries.
ICICI ( 1955 ) , IDBI ( 1964 ) & A ; UTI ( 1964 ) followed shortly after.LIC was set up in 1956 to mobilise single nest eggs and to put portion of nest eggs in the capital market.
Commercial Bankss & A ; the capital market:
The operations of commercial Bankss have so far been confined to the purchase and sell of govt. and other trust securities. Their retentions of industrial securities viz. portions and unsecured bonds are really little.
But in recent old ages, Bankss have been progressively take parting in term through subscribing to the portions & A ; unsecured bonds of particular fiscal establishments. They are besides puting up fiscal subordinates, known as merchandiser houses, common financess, venture capital companies, renting companies, etc. to mobilise financess.
Non banking fiscal companies ( NBFCs ) :
In recent old ages, NBFCs, diversely called as “ finance corporation ” “ loan company ” , ” finance company “ etc. hold mushroomed all over the state. These companies, with a really small capital of their ain have been raising sedimentations from the populace by offering attractive rate of involvement & A ; other inducements. They advance loans to sweeping and retail bargainers, little graduated table industries and self- employed individual. Bulk of their loans is given to parties which do n’t either attack commercial Bankss or which are denied recognition installations. The finance companies give loans which are by and large unbarred. Besides giving loans and progresss to little sector, they run chit financess, purchase and price reduction hundies and have besides taken up merchandiser banking, common financess, renting etc.
Basically, these finance cos. are Bankss, since they perform the basic duplicate maps of pulling sedimentations from the populace and doing loans.RBI state
“ The rapid growing of NBFC ‘s particularly in the 1890ss, has led to a gradual blurring of spliting lines between Bankss and NBFCs. ”
Since NBFC are non regarded as banking companies they did n’t come under the control of RBI. There is no minimal liquidness ratio or hard currency ratio between their ain financess and sedimentations.
The RBI has mentioned 5 sorts of NBFCs
- Renting Financing Companies
- Hire purchase finance companies
- Loan finance companies
- Investing finance companies
- Residuary non-banking companies ( RNBCs )
Future of NBCs:
The NBFCs are now emerging as a turning section of the Indian fiscal system & A ; both the authorities and RBI appreciate the demand for their orderly and healthy development with appropriate prudential precautions. It is to modulate NBFCs and to better their fiscal wellness that amendment to RBI act, 1934 was carried out.
In recent old ages, common financess are the most of import among newer capital market establishments. Several public sector Bankss and fiscal establishments have set up common financess on a tax-free footing. Their chief map is to mobilise the nest eggs of general people & A ; put them in stock market securities.
Growth of common fund:
In the 1990s.MFs found it difficult to pull investors, the competition for financess was hotting up from Bankss and the authorities was offering 14 % involvement on average term securities, banks-12 % , HDFC-14 % , IDBI-15.75 % .
Under these conditions, it was hard for common financess to equal such high outputs on debt instruments. They besides found it difficult to run into high outlooks of investors who were yet to interrupt out of the get-rich-quick syndrome. Consequently, the first moving ridge of common financess failed.
During 1998-99 and 1999-00, nevertheless the common fund sector registered important growing. Economic conditions were good ; stock exchanges were dining and the govt. had given revenue enhancement grants. All these aid in the return of religion of people in common financess.
The resurgence of common financess since 1995-96 was due to the entry of corporate majors-TATA, BIRLA, RELIANCE & A ; SBI. Many other followed with merchandises designed for investor specific demand. Investors left the banking system and flocked to common fund.
STOCK EXCHANGE IN INDIA:
In a modern capitalist economic system, about all trade goods are produced on a big graduated table ; and big graduated table production means big graduated table of capital. The public houses issues stocks and bonds and enable those with excess financess to put them profitableness in them.
The stock market is a topographic point where stocks and portions & A ; other long term committednesss or investings are bought and sold.
History of Stock Exchange in India:
The first organized stock exchange in India was started in Bombay when the Native Share Stock Brokers ‘ Association known as Bombay stock exchange ( BSE ) was formed by the agents in Bombay.BSE was Asia ‘s oldest stock exchange. In 1894 Ahmadabad stock exchange was started to cover in the portions of fabric stat mis at that place the Calcutta stock exchange was started in 1908 to cover in portions of plantation and jute stat mis besides these there were a figure of unorganised and unrecognised exchanges known as KERB markets. There were besides illegal DABBA markets in which stock and portions besides bought and sold
The operation of stock exchanges in India has shown many failings, deficiency of transparence. to counter these jobs and modulate capital market the authorities of India set up the SECURITIES AND EXCHANGE BOARD OF INDIA in 1988.SEBI was a non statutory organic structure but in January 1992 it was made a statutory organic structure. SEBI, in audience with govt. of India has taken a batch of stairss to present improved patterns and greater transparence for the involvement of the puting public and healthy development of capital markets
SEBI has advised stock exchanges to amend the listing understandings to guarantee the listed companies furnishes one-year statements to the stock exchanges
All the guidelines and regulative steps of capital issues are meant to advance healthy and efficient operation of the issue market
In January 1995 the authorities amended SEBI ACT 1992, so as to build up SEBI with extra powers for guaranting the orderly development of capital market and to heighten its ability to protect the involvement of investors.
It was thought that SEBI has all necessary powers to command the capital market on one manus and efficaciously protect involvement of the stockholders on the other. But it has failed miserably to forestall a little by cozenages like HARSHAD MEHTA cozenage.
Capital Market of USA:
USA has a really strong and developed capital market. Many other states such as Germany have a really powerful and steadfast banking sector but the capital market of Germany is non so strong. There is a really nimble fiscal market that is present in USA and is playing really of import portion in doing and implementing the policies of the authorities. If nimble market in fiscal instrument were non present, the govt. will non be able to open market operations. The capital market covers a large scope of tools for adoption and loaning. The borrowers are concerns houses, retail investors, and authorities Institutes which have demands for support. Lenders are concerns and Persons with nest eggs or extra money to put. Fiscal establishments viz. commercial Bankss, investing Firms, and insurance companies, act as both borrowers and loaners. In add-on, a broad assortment of fiscal instruments have been developed that license borrowers to sell their ain securities and their ain securities and earn involvement and net incomes. The market in which the adulthoods and trading are for a short period is called a money market ; the money market is a market for short-run recognition. The money market helps the participants to cover with everyday fiscal uncertainnesss. Borrowers trade it for mollify or Short-run hard currency. Markets that deal in instruments with adulthoods more than one twelvemonth are known as capital markets, since recognition for investings for new venture will be required for more than one twelvemonth.
There is a difference between primary and secondary market. The “ primary market ” applies to the original issue of a recognition market instrument. After a debt instrument has been issued, the buyer may be able to resell the instrument before its adulthood in a “ secondary market. These include different types of formal exchanges, and electronic trading through commands and offers.