Financial Market Regulation The nature of securities markets is such that they are inherently susceptible to failures due to the existence of information asymmetries and existence of high transaction costs. It needs to be emphasized that when securities markets come into existence, the interest of the member brokers are taken care of through margin requirements, barriers to entry of membership, listing agreements. However the investors/clients who buy and sell via their brokers are not able to form an organization to safeguard their interests due to the cost of creation of such organizations and free rider problems. The distinctive nature of the market can be observed with reference to the commodity, its quality, the system of transactions and the participants in the market, as follows: (a) the commodity(the security)has a life to perpetuity. (b) while the outcome of the contract say the redemption of debt is certain, in the case of Continue reading
Indian Financial System
Some Facts about Over The Counter Exchange of India(OTCEI)
In 1992 , to provide improved services, the country’s first ring less, scrip less and electronic stock exchange Over The Counter Exchange of India(OTCEI) was created by some of the prominent financial institutions like UTI, ICICI, IDBI , SBI Capital Markets, IFCI, GIC, Canbank Financial Services. The trading at OTCEI is done over the centers across the country. The securities traded at OTCEI are classified into listed securities, permitted securities and initiated debentures. The feature of this exchange is that instead of share certificate, a counter receipt is generated out at the counter which substitutes the share certificate and the same is used for all transactions. Recommended Reading: Over The Counter Exchange of India(OTCEI) Trading on OTCEI Trading on Over The Counter Exchange of India(OTCEI) is the first of its kind in India. It is fully computerized set-up where trading takes place through a network of computers at the member/dealer Continue reading
Indian banking system: Development banks: National Bank of Agriculture and Rural Development (NABARD)
National Bank of Agriculture and Rural Development (NABARD) was set up on July 12, 1982 under Act of parliament as a central or apex institutions for financing agricultural and rural sectors. National Bank for Agriculture and Rural Development (NABARD) is an apex development bank in India. It has been accredited with “matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas in India”. NABARD was established by an act of Parliament on 12 July 1982 to implement the National Bank for Agriculture and Rural Development Act 1981. It replaced the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of India and Agricultural Refinance and Development Corporation (ARDC). It is one of the premiere agencies to provide credit in rural areas. NABARD is set up as an apex Development Bank with a mandate for facilitating Continue reading
Recommendations of Narasimham Committee Report (1991)
The Narasimham committee (1991) assumed that the financial resources of the commercial banks from the general public and were by the banks in trust and that the bank funds were to be deployed for maximum benefit of the depositors. This assumption automatically implied that even the government had no business to endanger the solvency, health and efficiency of the nationalized banks under the pretext of using banks funds for social banking, poverty eradication, etc. Accordingly, the Narasimham committee aimed at achieving three major changes in the banking sector in India; Ensuring a degree of operational flexibility. Internal autonomy for the banks in their decision making process. Greater degree of professionalism in banking operations. Towards this end, recommendations of Narasimham committee covered such subjects as directed investments, directed credit programmes, structural of rate of interest, structural reorganization of the Indian banking system, and organization, methods and procedures of banks in India. Continue reading
Indian banking system: Development banks: Export-import bank of India (EXIM Bank)
The Export-import bank of India (EXIM Bank) was set up in January 1982 as a statutory corporation wholly owned by central government. Its paid up capital in 1988-89 was Rs 220.50 crores. Activities performed by EXIM Bank: It grants direct loans in India and outside for the purpose of imports and exports; Refinances loans to banks and other notified financial institutions for the purpose of international trade ; Rediscounts usance export bills for banks; Provide overseas investment finance for Indian companies toward their equity participation in joint venture abroad and guarantees, along with banks, obligations on behalf of project exporters; It is also a co-coordinating agency in the field of international finance and it undertakes development of merchant banking activities in relation to export oriented industries; Thus it provides fund based as well as non fund based assistance in the foreign trade sector. The main objective of Export-Import Bank (EXIM Continue reading
Role of Stock Markets in an Economy
Financial market is one of the components of financial system. Financial market facilitates the efficient allocation of financial resources of the economy so as to achieve socially desirable and economically productive purposes. Existence of an efficient financial market is a pre requisite for promoting savings, investments and consequent economic growth. Financial markets are extremely important to the general health of an economy. The main function of financial system, viz. capital formation takes place practically in financial markets. Financial institutions work as financial intermediaries and establish link between suppliers and users of funds in financial market. Financial products, including the supply of credit, mortgages, company shares and insurance, are bought and sold in primary and secondary financial markets. Financial products and securities are first issued into primary financial markets, which is where all financial products originate and where contracts are first drawn up. Secondary markets exist to enable buyers and sellers Continue reading