Presentation on

Indian Financial System

S.Y.B.COM - SEM IV

BY

JANHAVI RAO
GURUKUL COLLEGE OF COMMERCE
 Topics to be Covered
 Structure of Indian Financial Market
 Primary Market
 Procedure of IPO
 Dematerialization-Process
 Role of Depositories NSDL and CDSL
 Functions of SEBI
 Investor Protection measures of SEBI
 Functions of Stock Exchange
 Speculators
 Credit Rating agencies-Advantages
 CRISIL
 CARE
 ICRA
 Structure of Financial Market

 Money market  Capital Market

 Unorganised Market  Corporate Securities
 Organised Market Market
 Government Securities
Market
 Term Loans

Short term funds Long term funds

upto 1 year more than 1 year

RBI SEBI
 Unorganised Market

Money
Lenders

Individual Indigenous
and others Bankers

NBFC Chit Funds

 Organized Money Market

 Treasury Bills - Issued by RBI, purchased by Commercial

Banks, 91 day, 182 day and 364day

 Certificate of Deposit- Issued by Commercial banks,

Purchased by individuals, companies trust etc. 7 days to 1 year

 Commercial Paper- Issued by Companies listed on stock

exchange, purchased by banks, and other investors.

 Call Money Market- inter bank call money market one day

loans can be renewed next day.

 Commercial Bill Market-deals with bills of exchange

 Capital Market

 Corporate Securities Market

 Primary market (Rights issue, Public issue, Private Placement)
 Secondary Market
 Government Securities Market
 Called as Gilt edged securities market
 Free from risk and are highly liquid
 Issued by Central and State Governments
 Long term loans Market
 More than 1 year
 Used for fixed assets at the time of expansion and modernisation
 Term Loans Market, Mortgages Market and Financial Guarantees
Market
 Procedure for Demat

 Opening Demat Account with Depository

Participant (DP) (DP gives DRF)
 Submission of DRF and share certificates
 Forwarding of DRF and share certificates to the
Depository
 Confirmation from Depository
 Verification and updation of record by registrar of
companies
 Recording by Depository
 Updating by DP
 Confirmation to Demat account holder
 Operation of Demat account
 Procedure for IPO

1. IPO Process initialisation

Appointment of Lead Manager
Appointment of Registrar
Appointment of syndicate members (Brokers, underwriters etc.
2. Lead Manager’s Pre Issue Part I
Prepare Draft Prospectus
File with SEBI
Promote IPO if needed
3. SEBI – Prospectus Review
Reviews draft Prospectus
Informs Lead Manager for changes, if any
Approves draft prospectus and this now becomes OFFER
PROSPECTUS
 Procedure for IPO

4. Lead Manager Pre Issue Part II

Submission of Offer Prospectus to Stock Exchange
Decision on issue date and price issue
Modification of Prospectus with date and price band is now called
RED HERRING PROSPECTUS
Red Herring Prospectus and IPO application forms are printed and
posted to syndicate members and they distribute to investors.

5. Bidding for Public Issue by Investors

Public issue opens for investors
Investors fill application form
Syndicate members provide info to BSE/NSE and send application
forms to registrar of companies
Investors can revise bidding
Stock exchanges are informed of changes if any
Public issue closes for investors bidding
 Procedure for IPO

6. Price fixing by Lead Manager

Lead Managers fix prices
Send the final price to SEBI and Stock Exchange
7. Processing of IPO applications by Registrar
Receives all application forms
feeds applicant data on computer systems
Sends cheques for Clearance
Finalizes allotment pattern
Prepares allotment list
Transfers shares in demat account
8. Share Listing by Lead Manager
 Role of Depositories

 An organisation that holds securities in electronic

form and assists investors in trading of securities
 Two Depositories
 NSDL-National Securities Depository Limited
 CDSL-Central Depository Services Limited
 It is responsible to keep securities safe.
 Transfer of ownership is done by Depositories
 Importance 0f Depository system

 Benefits to investors  Benefits to Companies

 Quick transfer of shares  Accurate Data of
 Less paper work shareholders
 No risks  Reduction of investor
 Less Costs complaints
 Quick Receipt of Payment  Quick Correspondence
 Quick Receipt of dividend  Less expenses
 Bank Loan  More funds
 Complete Record  Reduction in secretarial
work
 Introduction to NSDL

 NSDL was registered by SEBI in 1996 as India’s first

depository
 to facilitate trading and settlement of securities in
demat form
 Promoted by IDBI, UTI and NSE
 Uses innovative and flexible technology systems
 Helps to ensure safety settlement solutions to
increase efficiency, minimize risk and reduce cost
 Introduction to CDSL

 Second largest Indian Central securities depository

based in Mumbai.
 Holds securities in certificate or demat form to
enable transfer of securities.
 NSDL-NSE and CDSL-BSE
 Promoted by Bombay Stock Exchange (BSE)joint;y
by SBI, Bank of India, BOB, HDFC, Standard
Chartered, Axis Bank and Union Bank of India
 Benefits of NSDL/CDSL

 Elimination of all risks related to physical certificates

 Elimination of bad deliveries
 Immediate transfer and registration of securities
 Faster Settlement cycles
 No Stamp duty
 Services of NSDL/CDSL

 Basic Services
 Account maintenance,

 Demat

 Remat

 Inter –Depository Transfer

 Value Added Services

 Public Issue

 Dividend Distribution

 Pledging

 CAS- Consolidated Account Statement

 Securities and Exchange Board of India (SEBI)

 Set up in India on 12th April 1988.

 Purpose - to develop and regulate stock market in
India
 SEBI Act was passed in 1992

Objectives
 Protect interest of investors
 To bring Professionalism in working of
intermediaries in capital markets
 To create a financial Climate to raise long term funds
through issue of shares and debentures
 Functions of SEBI

 Protection of Investors Interest

 Regulates working of Mutual Funds
 Prohibition of Insider Trading
 Regulates Merchant banking
 Regulates Stock Brokers activities
 Portfolio Management
 Regulates Take -over and Mergers
 Research and Publicity
 Monitoring of Stock Exchange
 Submission of Annual Report
 Submission of Periodical Returns
 Investors Protection Measures by SEBI

1. Investor Education and Protection Fund (IEPF)

 Set up for promotion of investors awareness and protection of
interest of investors
 A company who has completed 7 years should handover all
unclaimed fund dividends, matured deposits etc. to the
Government through IEPF.
2. Investor Awareness Programme
 Covers major areas like portfolio mgmt, mutual funds, tax
provisions.
3. Regulations of mutual funds
 Association of Mutual funds in India (1995)
 Investors Protection Measures by SEBI

4. Investor Grievance Cell

5. Representatives for allotment process
6. Due Diligence Certificate by Merchant Bankers
7. IPO Grading
8. Redressal of Investor Grievance by Merchant
Banker
 Stock Exchange

Stock Exchange is an association, organization or body

of individuals whether incorporated or not, established
for the purpose of assisting, regulating and controlling
business in buying, selling and dealing in securities.

-Securities Contract Regulation Act 1956

 Functions of Stock Exchange

Acts as a Clearing House of Securities

• Facilitates quick and easy clearance of transactions between buyer
and seller
Regulation and Control of contracts
• Every stock exchange make their own bye-laws for regulation and
control of contracts (with prior approval of SEBI)

Listing of Securities
• Companies that issue shares can be listed in one or more stock
exchanges in the country
Suspension of Securities from trading
• Suspension is done when companies do not follow the rules and
regulations
 Functions of Stock Exchange

Settlement of claims or disputes

Imposes fines or penalties

• To brokers who do not follow rules and to maintain
discipline

Registration of brokers
• Companies that issue shares can be listed in one or more
stock exchanges in the country
Maintaining records and filing returns with SEBI
 Speculators

 Speculator is a person who trades derivatives,

commodities, bonds, equities or currencies
 higher than average risk and higher than average
profit potential.
 Anticipate future movements
 Hope to make large profits.
 Kind of Speculators

 Bull
 Optimistic (positive)speculator
 Expects rise in future
 Enters into purchase transactions with a view to sell them at a
profit in the future
 Also known as Tejiwala

 Bear
 Pessimistic (negative) speculator
 Expects fall in future
 Enters into selling contracts in certain securities
 He will sell the securities if the price falls at a future date
 Also known as Mandiwala
 Kind of Speculators

 Stag
 Called as a short term speculator

 A day trader who attempts to profit from short term market

movements
 He makes a profit when the sale price is higher than the
purchase price of securities
 Also known as Tejiwala

 Lame Duck
 When a bear is unable to meet his commitment he is said to be
a struggling lame duck
 Credit Rating Agencies

 An opinion expressed by an independent rating

agency about the credit quality of the issuer of a debt
instrument.
 It reflects timely payment of interest and repayment
of principal amount.
 Advantages of Credit Rating Agencies

To the Investors To the Company

 Investment Decision  Corporate Image

 Benefits of Rating  Lower cost of
Reviews Borrowing
 Wider Audience for
 Assurance of safety
borrowing
 Clarity of investment  Benefits to not so
proposal popular firms
 Choice of instruments  Credit rating as a
 Saving time and effort Marketing tool
 CRISIL

 Credit Rating Information services of India Ltd.

 First Credit Rating agency in India
 Established in January 1987
 Commenced its operations from 1988
 Largest Rating Agency in India
 AAA rating has changed to CRISIL AAA that implies
highest degree of safety to investors
 Role of CRISIL

Specific Roles General Roles

 Ratings (60000  Collection of information

entities in India)  Supply of information
 Research  Basis for investment
 Advisory  Corporate Discipline

 Risk Management  Greater Credibility

 Protects investor interest
 Facilitates growth of
Capital Markets
 CARE

 Credit Analysis and Research Limited

 Commenced operations from April 1993
 2nd Largest Credit Rating Agency in India
 Head Office at Sion, Mumbai
 Regional offices in various cities
 CARE AAA as highest degree of safety and CARE D as
lowest Degree-Medium and Long term Debentures
 CARE A1 as very strong and CARE D as very weak-Short
term Debentures

(Role same as General Role of CRISIL)

 ICRA

 Investment Information and Credit Rating Agency

 Set up in 1991
 ICRA is a public limited company with shares listed on
BSE and NSE.
 International Moody’s Investor Service is ICRA’s largest
shareholder
 Undertakes rating of the following
 Financial sector Debt ratings
 Micro finance Institutions
 Solar Power Grading
 Construction Companies
 Real estate Companies
 SME etc.

ROLE OF ICRA= GENERAL ROLE OF CRISIL

THANK YOU