Indian Financial System: An Overview-Banking Awareness ------------------------------------------------------------------------------------ The financial system comprises a mixture of intermediaries, markets and instruments that are related to one another. It provides a system by which savings are transformed into investments. The RBI (Reserve Bank of India), being the central banking authority, exercise monetary control and supervises the banking institutions. Different institutions such as Commercial Banks, Non Banking Finance Companies, Mutual Funds Insurance Companies, Primary Dealers, brokers, depositories and Insurance Agents, also different markets such as the capital market and the money market are part of the financial system. The three regulatory authorities viz., RBI, SEBI, (Securities and Exchange Board of India, IRDA(Insurance Regulatory Development Authority), are controlling and supervising the banking, capital market and insurance sectors respectively. Equity and Debt Market: Every Organisation requires funds to run their business beyond the promoter’s contribution. Hence they may raise the funds through Banks, IPO, Marketability of corporate securities, i.e., bonds, debentures and convertible debentures, enables corporate bodies to raise funds-debt, wherein debenture holders enjoy very high liquidity. All securities quoted on stock exchanges and freely bought and sold on these exchanges can be issued only after obtaining approval of the capital market regulator viz., SEBI. Stock Exchange: A stock exchange provides a platform for sale and purchase of securities on behalf of the investors. They also provide clearing house facilities for getting of payment and delivery of securities. Clearing houses guarantee all payments and deliveries. Securities include equities, debt and derivatives. Equity and debt instruments: Companies wishing to raise equity or debt through stock exchange have to approach a capital market regulator with the prescribed applications and a proforma prospectus for permission to raise equity and debt to get them listed on a stock exchange. Depositories: Depositories – There are two CDSL- Central Depository Securities Ltd) and NSDL-National Securities depositories Ltd hold securities in demat form. Demat means conversion of physical securities into electronic form. The depositories transfer securities from sellers account to buyers account in electronic form up to instructions from the Stock Exchange Clearing House, supported by necessary documentation. Mutual Funds: A mutual fund is a form of collective investment that pools money from the investors and invests in stocks, Debt and other securities. It is a less risky investment option for an individual investor. Mutual funds require the regulators’ approval to start an Asset Management Company and each scheme has to be approved by the regulator before it is launched.
Posted on: Sun, 27 Jul 2014 07:30:24 +0000