INDIAN
FINANCIAL
SYSTEM
A. K. Bhatia
BLACK
PRINTS
N E W D E L H IContents
Preface
1. Towards Globalisation of India's Financial Sector
• Introduction
• Systemic Issues: Opportunities and Risks - Depth of the Indian Financial Sector and
Dominance of the Public Sector - Capital Account Convertibility
- The Internal and External Price of the Indian Rupee (INR)
- Ownership of Indian Financial Institutions - Complexities of the Indian Legal System - Financial Sector Regulation
- Growth with Stability versus Higher Growth with Corresponding Risks • Banking
• NBFCs
• Capital Markets
- Equity and Exchange Traded Derivatives' Markets and Mutual Funds
Debt Markets - Private Equity
Asset Backed Securities
- Interest Rate and Exchange Rate OTC and Exchange Traded Derivatives
- Commodity Derivatives Corporate Governance
(vill)
• Insurance • Pensions • Conclusions
2. Derivatives Markets in India 28
• Rise of Derivatives
• Definition and Uses of Derivatives
• Exchange-traded and Over-the-counter Derivative Instruments
• Development of Derivative Markets in India » Derivatives instruments Traded in India • Derivatives Users in India
• Conclusions
3 . Cooperative Credit 37 • Cooperative Movement and Development in India
- Cooperative Societies Act Organizational Structure
- Development in Cooperative Sector - Role of RBI
- Cooperative Banks
Role of Cooperatives in Providing Agricultural Credit
• National Bank for Agriculture and Rural Development (NABARD)
- Production Credit • Reforms in Cooperative Credit
Institutional, Legal and Regulatory Reforms - Department for Cooperative Revival and
Reforms (DCRR)
Cooperative Development Fund (CDF) - Role of National Cooperative Data Bank
4. Non-Banking Financial Companies 67
• Non-Banking Finance Companies in India - Different Types of NBFCs
Type of Services Provided by NBFCs
(ix)
Financial Sector Reforms and Liberalization Measures for NBFCs
- Recent Trends in Non-Banking Financial Companies Sector
• Regulations for NBFCs
- Requirements for Registration with RBI - NBFCs Exempted from Registration - Regulations for NBFCs
- Regulations for Residuary Non-Banking Financial Companies
- Prudential Norms for Non-Banking Financial Companies
• Sources and Deployment of Funds of NBFCs
x - Deposit and Public Deposit
- Regulations for MNBC's Accepting Public Deposits
- Regulations for RNBC's Accepting Public Deposits
The Role of Company Law Board in Protecting the Interest of Depositors
- Fund Raising/Capital Issues . - Investment Norms for NBFCs
- Maintenance of Liquid Assets by NBFCs - Maintenance of Liquid Assets by RNBCs - Deployment of Funds
5. Merchant Banking 101
• Introduction
• Banking Commission Report, 1972 • Merchant Banking in India
• Origion of Merchant Banking—Abroad • Regulations of Merchant Banking
Notifications of the Ministry of Finance and SEBI
- Rationale of Notifications
- Objectives of the Merchant Bankers Regulations • Definition of Merchant Banker
(x)
• Registration of Merchant Bankers • Networh
• Code of Conduct
• General Obligations and Responsibilities • Responsibilities of Lead Manager • Insider Trading
Acquisition of Shares Disclosures
• Procedures for Inspection - General Defaults
Minor Defaults - Major Defaults Serious Defaults - Defaults in Prospectus
General Negative Marks • Mutual Funds
• Mutual Funds in India
• Recommendations of the Study Group • SEBIs Directives for Mutual Funds • SEBI Regulation for Mutual Funds • Private Mutual Funds
• Unit Trust of India
• Evaluation of Performance of Mutual Funds • Money Market Mutual Funds (MMMF) • RBI Guidelines
• ITI Pioneer MMMF
6. Reforming India's Financial System 130
• Elusive Savings
• Efficiency: India's Advantage • Financing the Investment Gap • Reduce the Fiscal Deficit • Increase Bank Penetration
• Reduce the Cost of Bank Intermediation • Develop the Capital Markets
7. Credit Rating 138
(xi)
• Meaning of Credit Rating • The Determinants of Ratings • Rating Methodology
• Credit Rating Agencies in India . CRISIL
• ICRA • CARE
• Credit Rating Symbols • Benefits of Credit Rating • Rating and Default Risk • Ratings and Yields
• Limitations of Credit Ratings .
8. Factoring and Forfaiting 154
• Cost-Benefit Analysis of Factoring (Financial Evaluation)
Solution
• Factoring V/s Bill Discounting - Dissimilarities/Differences - Similarities » Forfaiting • Parties to Forfaiting - Mechanism - Documentation - Costs of Forfaiting - Benefits of Forfaiting • Factoring in India - Major Players - Legal Aspects Financial Aspects Advantages Disadvantages Potential 9. Transaction Cycle 166 • Introduction • Settlement Agencies
- National Securities Clearing Corporation Limited (NSCCL)
(xii)
Clearing Members - Custodians
Clearing Banks - Depositories
Professional Clearing Members (PCMs) • Settlement Process • Risks in Settlement - Counterparty Risk - • System Risk • Summary 10. Rolling Settlement 178 • Introduction
• Advantages of Rolling Settlement • Trading Activities (T Day)
- Sun Outage
- Opening of Trading Account - Placing the Order to Buy/Sell
Collecting Charges • Clearing Activities (T+l Day)
- Unilateral Netting - Multi Lateral Netting . Settlement Activities (T+2 Day)
- Pay-in and Pay-out of Funds - Pay-in and Pay-out of Securities - Direct Payout to Investors
• Post Settlement Activities (T+3 to T+9 Day) - Auction
- Close-out Procedures
11. Operations of Depository Participants 199
• Depository System: An Introduction
- Registered Owner and Beneficiary Owner • International Securities Identification Number
- Securities that can be Dematerialized • Dematerialization
- Meaning
(xiii)
- Declaration
Participant Authorisation
- Benefits of having a Demat Account • Trading and Settlement of Dematted Shares
- . Meaning of Transfer of Shares Settlement of Off-market Trades - Settlement of Market Trades - Natiohal Securities Clearing
Corporation of India Limited (NSCCL) •- Rematerialisation
12. Risk Containment Measures 213
• Introduction
• Capital Adequacy Requirement
• Base Minimum Capital (BMC) and Additional Base Capital (ABC)
- Base Minimum Capital - Additional Base Capital • Trading and Exposure Limits
. - Determination of Gross Exposure - Early Pay-in of Funds/Securities - Online Exposure Monitoring - Violation of Exposure Limits • Grouping of Securities
• Margin Requirements - Value at Risk Margin
Mark to Market Margin - Extreme Loss Margin - Margin Payment and Payout • Settlement Guarantee
• Penalty Points and Penal Interest • Indemnity Insurance
• Inspection and Investigation • Investor Protection Fund (IPF)
Investor Education and Protection Fund (IEPF)
• No-delivery Period • Summary
(xiv)
13. Impact of the International Banking Crisis 237 on the Indian Financial System
• Impact of the Global Financial Crisis on Local Money Markets, Debt Markets and Foreign Exchange Markets
• Central Bank Instruments to Deal with the Crisis • Cross-border Bank Lending to EMEs
• Domestic Bank Intermediation: Domestically Owned Versus Foreign Owned Banks
