A regulated environment is basically any controlled environment. Rules state which conditions must be met by a company to produce valid results or goods of a guaranteed level of quality.The regulations set for the working environment may come from several sources, for example the company itself, government agencies and institutions (like the American FDA) or regulatory bodies and other groups with an interest in ensuring product standardization. When a company is to produce results or goods for the public which are going to be generally credible or of guaranteed quality, it should abide by the rules set on such processes by the given country’s authorities.
Reserve Bank of India
The Reserve Bank of India was established in 1935 under the provisions of the Reserve Bank of India Act, 1934. It was located earlier in Calcutta but later moved to Bombay.
Though originally privately owned, RBI was nationalized in 1949 Organization and Management:
The Reserve Bank is headed by a Central Board of Directors.
The board is appointed by the Government of India for a period of four years, under the Reserve Bank of India Act.
The board comprises of a Governor and not more than four Deputy Governors.
The current Governor of RBI is Mr. Shaktikanta Das.
Ten directors amongst whom two are government officials and others are distinguished personalities in their respective fields are nominated by Government.
There are four more directors who are from four local boards respectively.
Roles and Functions of RBI Monetary Authority:
It formulates, implements and monitors the monetary policy.
It is entrusted with maintaining price stability, and keeping inflation in check
It ensures adequate flow of credit to productive sectors.
Regulation and monitoring of the financial system:
It sets the standards of banking operations according to which the country’s banking and financial system functions
It maintains public confidence in the financial system
It protects the interests of the depositors
It provides cost-effective banking services to the general public
Regulation and monitoring of the payment systems:
It authorizes and directs the setting up of payment systems
It lays down parameters for functioning of the payment system
It prescribes the policies for transition from paper-based payment systems to electronic modes of payments.
It establishes the regulatory framework of newer payment methods.
It works for enhancement of customer convenience in payment systems.
It stresses on improving the security and efficiency in modes of payment.
Regulation of Foreign Exchange:
RBI regulates foreign exchange under the FEMA- Foreign Exchange Management Act, 1999
It facilitates all foreign trade and payment
It advances the development of foreign exchange market.
Issuer of currency:
RBI issues and exchanges currency as well as destroys currency & coins not fit for circulation to avoid public inconvenience.
It ensures that the public has an adequate quantity of supplies of currency notes and in good quality to avoid artificial bottlenecks for the economy
RBI is entrusted with a wide range of promotional functions in furtherance of national objectives.
It has set up institutions like NABARD, IDBI, SIDBI, NHB, etc.
Banker to the Government:
It performs banking function for the central and the state
governments of the country.
Banker to banks:
RBI is entrusted with maintaining the banking accounts of all scheduled banks
It acts as the banker of last resort.
Being an expert on financial and economic matters it acts as an agent of Government of India in the IMF.
Monitoring of Monetary Policy
The RBI formulates, operationalizes and monitors the monetary policy
The Monetary Policy Committee (MPC) is responsible for fixing the benchmark policy interestrate (repo rate)
The main objectives of monitoring monetary policy are:
Maintaining price stability as well as ensuring the growth of the economy as a whole.
Inflation control (containing inflation at 4%, with a standard deviation of 2%)
Ensuring the proper flow of bank credit
Controlling the Interest rate levels in the interests of the economy
The rate at which central bank provides loan to commercial banks
This is the most significant tool with the RBI to control the money supply in long term lending.
At present it is 4.25%.
When RBI increases the bank rate the loan becomes more expensive for the commercial banks with the result that they also in turn raise their rate of lending.
The cumulative effect of the above measure is that the common borrowers find it tougher to take loans which ultimately brings about a fall in the volume of the lending activity.
The reverse happens in case of a decrease in the bank rate which in turn causes a rise in the lending activity.
So it is an effective tool to pump or such money from the economy as a whole.
Cash Reserve Ratio (CRR)
It refers to the minimum amount of funds in the form of cash deposits that a commercial bank has to maintain with the Reserve Bank of India.
An increase in this ratio will deprive commercial banks of much of their cash funds which they could have used for lending purposes.
The consequence of the above measure would be a decrease of money supply in the economy as a whole.
On the contrary, a fall in CRR will lead to an increase in the money supply as commercial banks would have surplus cash funds for lending purposes.
Currently, it is 3%.
Statuary Liquidity Ratio (SLR)
It refers to the minimum amount of assets in the form of non-cash deposits that a commercial bank has to maintain with itself.
When SLR is increased by RBI the lending power of the commercial banks goes down.
Consequently the overall money supply decreases as liquidity is sucked out of the economy as a whole.
When SLR is decreased by RBI the lending power of the commercial banks goes up.
In this case the money supply in the economy increases and the liquidity is pumped into the economy as a whole.
Currently, SLR is 18%.
Liquidity Adjustment Facility
Liquidity Adjustment Facility helps banks to adjust their daily liquidity mismatches.
Repo (Repurchase) rate is the rate at which the RBI lends short-term money against securities to various scheduled commercial banks.
When the repo rate increases short term borrowing from RBI becomes more expensive.
Repo rate is always higher than the reverse repo rate.
At present it is 4.00%
Reverse Repo Rate
It is the exact opposite of repo.
In a reverse repo transaction, banks lend money to RBI against government securities and earn interest on it.
So, Reverse repo rate is the rate at which RBI borrows money from banks.
The banks use this tool when they feel that they are stuck with excess funds and are not able to invest anywhere for reasonable returns.
The rate of interest is kept low so as to discourage banks from resorting to this measure.
At present it is 3.35%
Commercial Banks in India
Commercial Banks accept deposits from people and provide credit to individual borrowers, enterprises, entrepreneurs, etc.
The main aim of the commercial banks is to earn profit by way of commissions, interests, other bank charges, etc.
All the functions of these banks come under the purview of the Reserve Bank of India and the latter are under full control of the latter.
Classification of commercial banks
Public Sector Banks:- Those banks in which the majority shares are controlled by the Government e.g. State Bank of India, Punjab National Bank, Union Bank of India, etc.
Private Sector Banks:- Those banks in which the majority shares are controlled by private individuals e.g. ICICI Bank, IDBI Bank, HDFC Bank, AXIS Bank, etc.
Foreign Banks:- Those banks who have the Head Office outside the country of operation
e.g. Standard Chartered Bank, Citi Bank, etc.
Scheduled and Non-scheduled Banks
The banks which were listed under the second schedule of the Reserve Bank of India Act 1934 are termed as Scheduled Banks.
The Scheduled banks are given the relevant licenses only after completing the statutory conditions like having minimum paid up capital of Rs. 50 Lakhs.
These Scheduled banks ought to satisfy the CRAR norms which are
made mandatory by the Reserve Bank of India.
The non-scheduled banks are now concentrated mostly in local pockets and very few of them are existing as on date.
Unlike the Scheduled banks these banks do not have to satisfy the
CRAR norms as prescribed by the RBI.
The non-scheduled banks are very similar to the cooperative societies and are a mutual arrangement of the people involved in the set up.
Some examples of these non-scheduled banks are, Coastal Local Area Bank Ltd (Vijayawada), Capital Local Area Bank Ltd (Phagwara), Subhadra Local Area Bank Ltd (Kolhapur) and a few others. As is evidentall of them are concentrated in a very limited geography
Functions of Commercial Banks
Accepting deposits is one of the primary functions of the commercial banks which could be understood under following heads:
Fixed Term deposits
Current A/c deposits
Saving A/c deposits
Tax saving deposits
Deposits for NRIs
Overdraft facility: This entails permitting a current A/c holder to withdraw an amount more than what he or she might have actually deposited in his or her account.
Cash Credit: This is very much the same as bank overdraft but the main dissimilarity is the fact that it is a facility generally availed by the business clients and is provided only with a certain amount of collateral against the cash credit.
Discounting of bill of exchange: If a company ABC has sold some product to a company XYZ and has secured a bill of exchange for payment to be made in next 3 months then that is a bill of exchange.
If the company ABC somehow is in need of money before that period it can present the bill of exchange to its commercial bank and get it discounted. The bank will claim the money after 3 months from the company XYZ.
Secondary Functions of Commercial Banks
Payment of taxes, bills
Collection of funds through bills, Cheques etc.
Transfer of funds
Sale-purchase of shares and debentures
Collection/Payment of dividend or interest
Acts as trustee & executor of properties
Foreign exchange Transactions
General Utility Services: locker facility
It is amongst the primary activities of the commercial banks
Generally a bank provides credit keeping in mind the amount of primary deposits it might be carrying.
Based on its deposit strength it lends that money to borrowers which might include individual borrowers as also institutional or corporate borrowers.
As is very obvious these Commercial banks charge more rate of interests from borrowers as compared to what is gives to the depositors of the money.
Small Industries and Development Bank of India (SIDBI)
SIDBI deals with the financing, promotion and development of the Micro, Small and Medium Enterprises (MSMEs)
SIDBI’s main emphasis is on bolstering the MSME sector by looking into the credit and fund requirements.
The institution helps the MSMEs in getting credit for the development, commercialization and marketing of their innovative ideas and products.
SIDBI has several customized offerings which it provides by way of several loan schemes and services in order to meet the diverse requirements of the industries.
SIDBI provides financial aid to MSMEs, Small Scale Industries (SSIs), and other service sectors.
It provides various credit requirements through various banks, NBFCs, and other financial bodies.
Apart from providing general credit SIDBI is also concerned about the development of skills and their sustenance by proper funding.
SCHEMES OF SIDBI
SMILE (SIDBI Make in India Soft Loan Fund for MSME):
SMILE emphasizes on covering the financial requirements of new
ventures which are in the manufacturing/services sector.
The minimum loan amount offered under this scheme is Rs. 10 lakh for finance of plant and machinery and Rs. 25 lakh for general purposes.
The tenure for repayment is maximum of 10 years, in which moratorium
period of maximum 36 months is offered.
SMILE Equipment Finance (SEF):
SEF is popular because of very simplified application procedure with very
competitive interest rates.
MSMEs which require funding for buying plant and machinery are targeted in this loan scheme.
The minimum loan amount is Rs. 10 Lakhs and the repayment period is 72
Loans under Partnership with OEM (Original Equipment
This loan scheme is designed for the MSMEs that require purchasing machines from the OEMs.
For availing this loan a minimum of 3 years of existence is required
and 60 months are allowed for repayment.
The maximum loan amount offered under this scheme is Rs. 1 crores.
Working Capital (Cash Credit):
Under this scheme working capital requirement of the MSMEs is taken care of.
This scheme entails seamless approvals based on the exact needs
of the borrower.
SIDBI Trader Finance Scheme (STFS)
This scheme is meant for retailers and wholesalers who have been in existence for 3 years and have a creditable financial standing.
The range for the loan under this scheme is between Rs. 10 lakhs to Rs. 1 crores.
Rather than providing a repayment period beforehand it is decided keeping in mind the cash flow and capacity of the business entity.
The maximum repayment period offered under this scheme is 60 months.
Micro-Lending Development: The aim of this is to help support people who are not financially independent through small funds appropriate to kick start some micro venture which is profitable and sustainable.
Responsible Finance Initiatives: In order to promote cooperation and the right credit practices this loan scheme is a considerable support to the banks and other financial institutions in the country
Beyond Microfinance: This loan scheme helps the micro entrepreneurs to graduate from micro to higher levels of credit at competitive rates.
Microfinance Institutions in India
Reserve bank of India defines MFI as “a non- deposit taking NBFC with Minimum Net Owned Funds of Rs 5 crores and having not less than 85% of its net assets as “qualifying assets”.
The purpose of microfinance sector is to help out the lower income people to become financial independent which otherwise could not have been met by the existing financial institutions.
Muhammad Yunus started Grameen Bank in Bangladesh in 1976 which laid the foundation for the microfinance sector. He was awarded Nobel Prize for this at the start of the 21st century.
Microfinance came up to bridge the gap which was created as the lower income group was not being catered by the traditional banking and allied services.
Microfinance should not be considered as just a credit providing mechanism rather it is an economic tool to help the downtrodden being pulled out of their poverty.
Though it is known mostly as a small loan provider but it also provides various other services like savings, remittance, insurance, apart from non financial services like training and counseling support to start own business and that too in a convenient way.
Microfinance Institutions (MFIs) in India exist as NGOs (registered as societies or trusts), Section
25 companies and Non-Banking Financial Companies (NBFCs).
The MFIs usually are provided finance by the financial entities like Commercial Banks, Regional Rural Banks (RRBs), cooperative societies, etc.
The Self-Help Groups (SHGs) have been instrumental in collaborating with the MFIs in the provision of credit directly to the group borrowers
Salient Features of Microfinance
Usually the lower income group is targeted as borrowers by the MFIs.
Loans are in the very low range which averages usually in few thousands.
The loans are usually of very short duration.
No collateral is demanded against the loans.
The repayment rate has had been very high before the crisis that erupted in 2010.
Loans are given usually for generating income which could be in turn used for repayments of loan.
Gaps in Financial System and Need for Microfinance
Based on various research and surveys done by national and international institutions it has been established that India is home to almost one third of the world’s poor.
Government has been trying to eradicate poverty through various schemes for long but not much progress has been achieved as these schemes lack sustainability. This task of helping people to stand on their feet has been commendably done by the MFIs.
Various reports reveal that MFIs have been able to help
people raise their incomes and quality of life.
Most of the people till very recently had been left out of the banking services ambit but have found financial inclusion thanks to the coming of the MFIs.
MFIs have commendably supported the commercial banks in taking the banking services to the poor. In many instances they have even proved to be better options on certain parameters.
It also provides various other services like savings, remittance, insurance, apart from non financial services like training and counseling support to start own business and that too in a convenientway.
Unlike the urban commercial banks here the borrower receives all banking services at their home and that too on a preferred time slot.
However, this conveniences comes at a cost and it is usually asserted by many that the interest rates charged by these institutions are higher than commercial banks which they find unjustified.
Considering the erstwhile prevalent situation in most villages where the village money lenders were providing loan at exorbitant rates this situation is not bad at all.
In any case the MFIs who are generating funds from the urban commercial banks cannot be expected to pass on the loans at the same rates as their urban counterparts.
Channels of Micro finance
SHG – Bank Linkage Programme
The concept of SHG was pioneered by NABARD in 1992.
Under the SHG model groups of 10-15 women are formed. They are provided loans in groups and they repay the loans on weekly or monthly basis from their savings.
It is expected that these SHGs would utilize the loans provided to individually start an income generating small enterprise.
The groups usually meet periodically for repayment purposes and for new loans when the whole loan amount has been repaid.
This model has been very much successful and this is the reason why most MFIs are keeping this from past many years.
The best thing about these SHGs is that with time they become self-sustaining and very soon starts working on its own with some support from NGOs and institutions like NABARD and SIDBI.
Microfinance service is offered by varied institutions which are or various sizes and legal forms. Most of them however follow the Joint Liability Group (JLG) mechanism.
A JLG is when each member of a group is jointly liable for any default committed by any of the member in the group.
JLG is actually required to cover the risk which accrues due to absence of any collateral in MFI sector.
IRDA – Insurance Regulatory Development and Authority
IRDA – Insurance Regulatory Development and Authority is the statutory, independent and apex body that governs and supervise the Insurance Industry in India.
It was formed by Parliament of India Act called Insurance Regulatory and Development Authority of India (IRDA of India)
IRDA Act came as a result of the recommendations of Malhotra Committee report (7 Jan,1994). It was headed by Mr. R.N. Malhotra (Retired Governor, RBI)
Committee primarily recommended Entrance of Private Sector Companies and Foreign promoters & Independent regulatory authority for Insurance Sector in India
It was set up in April,2000 as statutory body headquartered at New Delhi.
Later the HO was shifted to Hyderabad in 2001.
Objectives of IRDA
To safeguard the interest and rights of policy holders.
To promote and maintain the growth of Insurance Industry.
To ensure that the genuine claims are settled promptly and frauds and unethical practices are prevented.
To ensure that the financial markets are transparent in their conduct of affairs related to insurance business.
Functions And Duties of IRDA
The regulation of insurance companies and issuance of registration certificate to them is taken care of by IRDA.
Primarily it is entrusted with protecting the interest of policy holders.
It sets the eligibility requirements of the intermediaries related to the insurance sector like the agents and brokers and issues licenses to those fulfilling eligibility criteria.
It sets the code of conduct for all the intermediaries.
It promotes and regulates the professional organizations in the insurance sector in order to ensure overall efficiency of the sector.
Securities and Exchange Board of India
The Securities and Exchange Board of India (SEBI) was established on 12th April 1988 for the purpose of regulating of financial markets in India.
To start with it was a non-statutory body but in 1992 it became a statutory body with its own set of independent powers.
SEBI is an apex body as far control of securities market is concerned in the country.
Stock markets were picking up very fast during seventh and eighth decade of twentieth century in India
It was a definite rage amongst the investors and everybody was trying to harvest the gains to maximum Due to the above mentioned pace of growth of stock market many malpractices cropped up like unofficial self-styled merchant bankers, rigging of prices, violation of the provisions of the Companies Act and regulations of stock exchanges, discrepancies in delivery of shares, etc.
Above problems created a huge dent in the confidence and faith of the investors and suddenly the rosy situation existing for more than a decade became precarious
Organizational Structure of SEBI:
The SEBI Board comprises of nine following members:
One Chairman and five other members are appointed by the Union Government of India.
Two members are from amongst the ranks of officers from Union Finance Ministry
One member belongs to the Reserve Bank of India
Role of SEBI
It ensures that the rights of the main constituents of the financial market viz. Issuers of securities, Investor, and Financial intermediaries are protected and each in turn is performing its duties:
Issuers of securities
These are the enterprises belonging to the corporate who require and raise funds from the market.
SEBI ensures that these enterprises are encouraged with conducive environment for such raising of funds for the overall growth of the economic climate in the country.
Investors are the individuals or institutions who invest in the enterprises issuing securities and keep the markets active and vibrant.
SEBI is committed to provide a clean and transparent environment which will instill confidence in the investors who are investing their money placing their faith and trust in the former.
These are the middlemen who facilitate and streamline the investment related process involving the issuers and investors.
SEBI is also fully conscious of the significance of these middlemen and works for their rights and benefits so that they keep on contributing to the betterment and growth of the overall financial sector.
Functions of SEBI
As is obvious from the name these functions in the arsenal of SEBI are amongst most important and have in mind the protection of all the parties participating in the financial process, including:
Monitoring and preventing price rigging.
Bringing to halt any cases of insider trading.
Ensure maintaining fair practices on the part of all the involved parties.
Helping in the various means for spreading awareness among investors.
Bringing a halt to various fraudulent, unethical, and shady trade practices.
These functions are intended to ensure that the businesses in the financial market are running as per the expected norms and include:
Framing of proper guideline and protocol for proper conduct on the
partof the corporate and the intermediaries.
Ensuring that taking over of companies is not done with any foul intention.
Performing proper enquiries and audit of the various exchange
houses keeping with the norms and guidelines.
Facilitating and regulating the registration of brokers, sub-brokers, merchantbankers etc.
Regulation of the various fees involved.
Regulating the proper exercise of powers by various parties involved.
Ensure that the various credit rating agencies are properly registered and are implementing their roles and responsibilities responsibly.
SEBI is also engaged in some important development functions which include:
It ensures that the intermediaries have complete knowledge about the financial markets and keeps holding training programs with this intention.
For proper conduct of the financial market proper research work also is important which is appreciably carried out by SEBI.
Credit rating is the analysis of the risks associated with granting of credit or financial instrument to an individual, company, or even a country.
Post analysis a rating is given to any party based on its trustworthiness which in turn depends on the overall credential established as a result of the verification and assessment done.
The past history of lending and borrowing which any party has indulged into forms a very important component of the credit rating exercise.
As a part of the Credit rating process, the financial statements like balance sheet, profit and loss statement, cash flow, etc form very important components which decide on the debt paying capacity.
The credit rating also affects the interest rates which are charged for any credit lending that happens between individuals, companies, or governments.
A downgrade in the credit rating will push down the value of, say a bond, and the issuer will have to shell out more interest rate in order to capture the interest of the investors in that particular bond
Credit rating agency (CRA)
A credit rating agency (CRA) analyses and proclaims an individual’s, company’s, or country’s creditworthiness.
Credit rating agencies assess a debtor’s income and financial standing to analyze the ability to repay the debt or in case there is any risk entailed in the repayment.
A CRA rates various types of debt instruments like government bonds, corporate bonds, municipal bonds, preferred stock, and collateralized securities.
Based on these ratings the buyers are in a position to decide whether those debt instruments would be able to pay back as per the commitments or not.
Securities and Exchange Board of India (SEBI) has the sole right to authorize, regulate, and monitor credit rating agencies as per the SEBI Regulations, 1999 of the SEBI Act, 1992.
There are many aspects which are looked into before coming up with a relevant rating such as financial statements, type of debt, lending and borrowing history, repayment capability, past creditrepayment behavior, etc.
Global & Indian CRA
Internationally, Standard & Poor’s (S&P), Moody’s and Fitch group are considered to be “The Big Three” credit rating agencies of the world.
In terms of acceptability and influence, these three collectively have a global market share of 95% as per the CFR report, USA (published in 2015).
The Indian credit rating Industry has also come up fast with growth of various investment related opportunities and we can find the formation of many professionally managed and reputed agencies like CRISIL, ICRA, ONICRA, CARE, CIBIL, SMERA, etc.
CRISIL (“Credit Rating Information Services of India Limited”) is the largest rating agency in India with over 65% of Indian market share.
CRISIL was formed in 1987 and it has been offering its services in manufacturing, service, financial and SME sectors.
Standard & Poor’s now holds the majority stake in CRISIL.
CARE (“Credit Analysis and Research Limited”), was formed in 1993 and it is promoted and backed by IDBI, UTI, Canara Bank, and other financial institutions and NBFCs.
CARE provides credit ratings to various financial organizations, state governments and municipal entities, public utilities, etc.
ICRA, backed by Moody’s is another noteworthy agency that specializes in rating corporate governance, mutual funds, hospitals, infrastructure development and construction and real estate companies.
SMERA, a joint venture by several leading banks of the country mainly specializes in rating the Indian MSME sector.
ONICRA is a private rating agency which was formed by Mr. Sonu Mirchandani.
It analyzes data and offers rating solutions for Individuals and Small and Medium Enterprises (SMEs).
It has a high reputation and operates across sectors like Finance, Accounting, Back-end Management, Application Processing, Analytics, etc.
The group of securities is known as Portfolio
Creation of Portfolio helps to reduce sacrificing return.
National Stock Exchange
- NSE is the leading stock exchange in India situatedin Mumbai, Maharashtra.
- Vikram Limaye is the Managing Director & Chief Executive Officer of NSE
- NSE was established in 1992 to bring transparency, fairness, and convenience in Indian share market.
- It decided that rather than providing membership to a select few group of brokers anyone with requisite qualification, experience, and financial know how could trade on the exchange.
- Information that was accessible earlier to only a handful of people could now be accessed very conveniently by a client based at a remote location.
- NSE was the first fully dematerialized electronic stock exchange in India.
- It was instrumental in creation of National Securities Depository Limited(NSDL) which allows the investors to hold and transfer their shares electronically.
- It has provided opportunity to any individual to trade in even a single stock or bond.
- Not only has it made holding shares convenient but also eliminated the need to hold paper certificates which has reduced incidents of forged or fake certificates and other fraudulent transactions bringing disrepute to the organization.
- It was the first exchange to provide modern, fully automated, screen based convenient trading facility to the traders throughout the country.
- NSE has 2500 VSATs and 3000 leased lines spread over more than 2000 cities across India
- The market capitalization of NSE is more than US $2.7 trillion making it one of the largest stock exchanges of the world.
- NIFTY 50, launched in 1996, is the flagship index of NSE which is taken as a reliable indicator for Indian capital market by Indian and international investors.
- In USA, 70% of the GDP is derived from the large corporate houses.
- In India only 12-14% of the GDP is derived from the large corporate houses.
- Out of those 12-14%, only 7800 companies are listed on stock exchanges and of those only 4000 of them actively trade there.
- Bimal Jalan committee reported that a meager 1.3% of Indian population invested in stock market as compared to 27% in USA.
- Thus the stocks traded at the stock exchanges account for only 4% of the Indian economy, which gets it’s majority of income related activities mainly from household spending and the unorganized sector.
- As of April 2018, 60 million investors had invested in the stocks either directly purchasing equities or through mutual funds.
- On the recommendations of Pherwani committee, NSE was established with a diversified shareholding comprising domestic and global investors.
- The main domestic investors include Life Insurance Corporation, State Bank of India, IFCI Limited , IDFC Limited and Stock Holding Corporation of India Limited.
- Main global investors include Gagil FDI Limited, GS Strategic Investments Limited, SAIF II SE Investments Mauritius Limited, Aranda Investments (Mauritius) Pte Limited and PI Opportunities Fund
- The security, trasparency, convenience, and efficiency provided by NSE has attracted more and more investors both in the country as well as international.
The Bombay Stock Exchange (BSE) is India’s largest and earliest securities market. It is also Asia’s first stock exchange.
It had its origins in the 1850s when a group of about 20 stockbrokers met under banyan trees in the streets of Bombay.
Their location changed frequently as the size of the group increased. The group moved to what is now called Dalal Street (meaning broker’s street) in 1874.
Finally, in 1875, eminent businessman Premchand Roychand officially founded the Native Share and Stock Brokers Association which was later renamed the Bombay Stock Exchange.
With a market capitalisation of over USD 2.3 trillion, currently, it is the world’s 10th-largest stock exchange. It is also the world’s fastest exchange with a median trade speed of six microseconds.
It became the country’s first stock exchange to be recognised by the government as per the Securities Contracts Regulation Act in August 1957.
The BSE has been enabling the Indian corporate sector’s growth in the form of a competent platform for raising capital.
It is the second exchange in the world to secure an ISO 9001:2000 certification. In the year 1986, it established the S&P BSE SENSEX index (a.k.a BSE 30), which is an index of the 30 most well-established and monetarily sound companies listed on
the BSE. It is considered the Indian domestic stock market’s pulse. In 2001, it launched the DOLLAR-30 which is a dollar-linked SENSEX version.
In 1995, the BSE switched from open outcry trading to an electronic system of trading. The screen-based automated trading platform is called BOLT (an acronym for BSE On-Line Trading). Through the BOLT, the BSE obtained the Information Security Management System Standard BS 7799-2-2002 certification, becoming only the second stock exchange in the world and the first in the country to do so.
The BSE joined the United Nations Sustainable Stock Exchange initiative in 2012.
The exchange also offers depository services through one of its arms called the Central Depository Services Ltd. In 2016, BSE launched India INX which is the first international exchange in the country.
Through the BSE’s BSEWEBx.co.in, investors can trade on the BSE platform from anywhere in the world through the internet.
In 2017, the BSE issued shares to the public and is traded on the National Stock Exchange (NSE).
The exchange also operates a capital market educational institute called the BSE Institute Ltd.
The current MD and CEO of the BSE is Ashish kumar Chauhan. Corporate Debt Market Segment
- A debt market plays a vital role in the development of any developing economy.
- Indian debt market is also considered as one of the most important aspects of the economy.
- The government always is in need of exorbitant amount of resources which could be used for the achievement of various govt. plans and schemes in course of development of the nation.
- Government securities market (G-Sec market) is oldest and largest constituent of Indian debt market if we consider the market capitalization, trading volumes, and outstanding securities.
- Though the yields on these government securities the benchmarking of the interest rates in the country is done which is considered as the risk free rate of return. Instruments of Corporate Debt Market
Non Convertible Debentures(NCD)
- They do not carry any provision of conversion into equity and are redeemed on the expiration of the maturity period.
Partly Convertible Debentures(PCD)
- They consist of both convertible and nonconvertible debentures.
- Convertible portion is converted into equity after specified period and non-convertible portion is redeemed after maturity.
- If the conversion takes place at or after 18 months the conversion is optional to the discretion of the holder.
Fully Convertible Debentures(FCD)
- These are converted into equity shares of the company with or without premium after stipulated period.
- If conversion takes place between 18-36 months, the conversion is optional at discretion of the holder(SEBI ICDR Regulations, 2009)
- The debenture is eligible for interest payment till the time of conversion. Secured Premium Notes(SPN)
- It is a type of NCD and combines both the features of equity and debt and could be issued by listed companies after approval of central govt.
- Commodity Derivatives derive their value from the underlying commodity.
- The underlying commodity could be agricultural product, a metal, energy product, etc.
- Commodity derivative are a nice mechanism for both hedging as well as speculation.
- Commodity derivatives provide opportunity to farmers and traders for hedging the risk arising from the agricultural produce which in turn is dependant on vagaries of nature and quite risky.
Types of Commodity Derivatives
OTC traded commodity derivatives
- These are customized instruments which are created with specific requirements of the contracting parties in mind.
- The majority of the parameters of this contract are decided by the contracting parties.
Exchange traded commodity derivatives
- The Exchange traded commodity derivatives are standardized contracts.
- The majority of the parameters of the contract are regulated by the exchange on which the derivative is being traded.
Commodity Derivatives in India
- The commodity derivatives trading in India started in 1875 in Bombay.
- The first futures market was set up in Bombay in 1893.
- Futures trading in oil and oil seeds started in Ahmadabad and for jute and jute products in Calcutta.
- The regulation acts enacted for the purpose of trading in commodity futures are Forward Contract Regulation Act, 1952, and Forward Market Commission set up in 1953.
- Govt. set up the Kabra committee in 1991 to suggest a structure for commodity futures in a regulated environment.
The three major commodity exchanges in India are:
- National Commodity and Derivatives Exchange of India Limited (NCDEX)
- Multi Commodity Exchange of India Limited(MCX)
- National Multi Commodity Exchange of India Limited (NMCE)
INSTITUTIONAL FRAMEWORK FOR BUSINESS
UNIT IV- Overview of functions of: Competitive Commission of India, National Company Law Tribunal towards Insolvency and Bankruptcy code, Department of Industrial Policy and Promotion for FDI in India and its guidelines
Competition Commission of India (CCI) – An Overview of Functions
Competition Commission of India (CCI) is an important statutory body. This article briefly throws light on the objectives, function, composition of the members, and challenges faced by the Competition Commission of India (CCI). Also, briefly understand the Competition Act 2002, and the need for Competition Laws.
Competition Commission of India – Objectives
The CCI acts as the competition regulator in India. The Commission was established in 2003, although it became fully functional only by 2009. It aims at establishing a competitive environment in the Indian economy through proactive engagement with all the stakeholders, the government, and international jurisdiction. The objectives of the Commission are:
To prevent practices that harm the competition. To promote and sustain competition in markets. To protect the interests of consumers.
To ensure freedom of trade.
How was the Competition Commission of India formed?
The CCI was established by the Vajpayee government, under the provisions of the Competition Act 2002.
The Competition (Amendment) Act, 2007 was enacted to amend the Competition Act, 2002.
This led to the establishment of the CCI and the Competition Appellate Tribunal.
The Competition Appellate Tribunal has been established by the Central Government to hear and dispose of appeals against any direction issued or decision made or order passed by the CCI.
The government replaced the Competition Appellate Tribunal (COMPAT) with the National Company Law Appellate Tribunal (NCLAT) in 2017.
What is the Competition Act, 2002?
The Competition Act, 2002 was enacted by the Parliament of India and governs the Indian competition law. The Act received the presidential assent in 2003.
The Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) was repealed and replaced by the Competition Act, 2002.
This was done based on the recommendations of the Raghavan Committee.
Prohibits anti-competitive agreements
Prohibits abuse of dominant position by enterprises and
Regulates combinations (acquisition, acquiring of control, and M&A), which can cause or is likely to cause an appreciable adverse effect on the competition within India.
The Act follows the philosophy of modern competition laws. Why do we need Competition Laws?
Competition laws perform three main functions in society.
To uphold free-enterprise: the competition laws have been called the Magna Carta of free enterprise.
Security against market distortions: there is a constant risk of various people resorting to market distortions and abusing their dominant positions to resort to anti-competitive activities, thus competition laws are required to ensure that the market is safe from the various distortions.
They also aid in the promotion of domestic industries: Competition laws are required to ensure that the domestic industries do not get suppressed with an increase in globalization. They play a quintessential role in determining the viability of the domestic industries. However, to keep the Indian competition laws updated with the businesses of the digital world which include not many assets, the Indian government has established a Competition Law Review Committee.
Competition Commission of India – Members Composition
The members of the CCI are appointed by the Central Government. The Competition Commission of India is currently functional with a Chairperson and two members.
The Commission used to consist of one chairperson and a minimum of two members and a maximum of six members.
This has further been reduced to three members and one chairperson by the Cabinet. This move was taken to produce a faster turnaround in hearings and speedier approval, thereby stimulating the business processes of corporates and resulting in greater employment opportunities in the country.
The chairperson and the members are usually full-time members.
The eligibility for the Commission: The Chairperson and every other Member shall be a person of ability, integrity, and who, has been, or is qualified to be a judge of a High Court, or, has special knowledge of, and professional experience of not less than fifteen years in international trade, economics, business, commerce, law, finance, accountancy, management, industry, public affairs, administration or in any other matter which, in the opinion of the Central Government, may be useful to the Commission.
Competition Commission of India – Functions
The preamble of the Competition Act focuses on the development of the economy and the country by avoiding unfair competition practices and promoting constructive competition. The functions of the CCI are:
Ensuring that the benefit and welfare of the customers are maintained in the Indian Market.
An accelerated and inclusive economic growth through ensuring fair and healthy competition in the economic activities of the nation.
Ensuring the efficient utilization of the nation’s resources through the execution of competition policies.
The Commission also undertakes competition advocacy.
It is also the antitrust ombudsman for small organizations.
The CCI will also scrutinize any foreign company that enters the Indian market through a merger or acquisition to ensure that it abides by India’s competition laws – the Competition Act, 2002.
CCI also ensures interaction and cooperation with the other regulating authorities in the economy. This will ensure that the sectoral regulatory laws are agreeable with the competition laws.
It also acts as a business facilitator, by ensuring that a few firms do not establish dominance in the market and that there is a peaceful co-existence between the small and the large enterprises.
Competition Commission of India – Challenges
The CCI faces multiple challenges while implementing the Competition Laws. The challenges can be both internal and external.
The constant and continuous change in the way businesses are undertaken and the evolving antitrust issue is proving to be a significant challenge for the CCI.
The emerging business models are based on a digital economy and e-commerce. This proves to be a problem for the CCI as the current competition laws talk only of assets and turnovers.
The number of benches of the CCI has to be increased to pronounce judgments more speedily on the competition cases.
The inclusion of parameters in the competition and antitrust laws such as data accessibility, network effects, etc. is important to ensure that the Competition laws are relevant in a digital economy.
Competition Commission of India – Recent News
On November 5 & 6, 2020, the Competition Commission of India organised a virtual Workshop of BRICS Competition Agencies on Competition Issues in the Automotive Sector. Earlier, BRICS Competition Agencies had signed a Memorandum of Understanding (MoU) on co-operation in the field of competition law and policy in May 2016 (In 2020 extended for an open-end period) to enhance co-operation and interaction.
A group of 15 startup founders held a virtual meeting with the Competition Commission of India (CCI) recently to appraise the regulator about Google’s anti-competitive policies in India. The discussion involved Google’s recent
imposition of its Play Store billing system on Indian developers, as well as the 30%
commission the company charges for selling digital goods and services through the system.
Considering restrictions placed on physical movement, CCI immediately allowed flexibility within its procedures—including electronic filing of antitrust cases as well as combination notices including Green Channel notifications and deferment of non-urgent cases. CCI also made the Pre-Filing Consultation (PFC) facility for combinations available through video conference. A dedicated helpline was set up to attend to the queries of stakeholders during the pandemic. Relevant public notices were regularly put on the website of CCI for information of the relevant stakeholders. CCI has also put in place a mechanism to conduct proceedings through video conferencing to avoid physical contact and presence.
National Company Law Tribunal (NCLT) – Powers, Functions and Mandate
The National Company Law Tribunal or NCLT is a quasi-judicial body in India adjudicating issues concerning companies in the country. It was formed on June 1, 2016, as per the provisions of the Companies Act 2013 (Section 408) by the Indian government.
What is National Company Law Tribunal?
NCLT was formed based on the recommendations of the Justice Eradi Committee that was related to insolvency and winding up of companies in India.
●All proceedings under the Companies Act such as arbitration, arrangements, compromise, reconstruction, and winding up of the company will be disposed of by the Tribunal.
●The NCLT is also the Adjudicating Authority for insolvency proceedings under the Insolvency and Bankruptcy Code, 2016.
●In the above-mentioned subjects, no civil court will have jurisdiction.
●The NCLT has the authority to dispose of cases pending before the Board for Industrial and Financial Reconstruction (BIFR), as well as, those pending under the Sick Industrial
Companies (Special Provisions) Act, 1985.
●Also to take up those cases pending before the Appellate Authority for Industrial and Financial Reconstruction.
●It can also take up cases relating to the oppression and mismanagement of a company.
Department of Industrial Policy and Promotion for FDI in India and its guidelines
Department for Promotion of Industry and Internal Trade (DPIIT)
After Internal Trade was added to the mandate of DIPP, the department was renamed as the Department for Promotion of Industry and Internal Trade (DPIIT). Administered by the Ministry of Commerce and Industry, it is a nodal Government agency with a responsibility to formulate and implement growth strategies for the Industrial Sector along with other Socio-Economic objectives and national priorities.
Why the New Mandate?
For a long time, the Confederation of All India Traders Association (CAIT) was demanding a separate Ministry of Internal Trade. The creation of a separate department by merging internal and external trade is a step forward in the creation of a separate Ministry.
Role and Functions of DPIIT
Established in 1995, DIPP was mandated with the overall industrial policy formulation and execution, whereas the individual ministries take care of the specific industries’ production, distribution, development, and planning aspects.
From the regulation and administration of the industrial sector, the role of the Department has been transformed into facilitating investment and technology flows and monitoring industrial development in the liberalized environment.
● Industrial Policies
●Formulating and implementing Industrial Policy in India introduced by the Government. Formulating and implementing strategies necessary for developing industries in compliance with development and National objectives.
●Monitoring the industrial growth, in general, and performance of industries specifically assigned to it, in particular, including advice on all industrial and technical matters.
●Foreign Direct Investment (FDI)
●Formulating, promoting, and facilitating policies of Foreign Direct Investment (FDI).
●Encouraging collaborators at an enterprise level and formulating policy parameters for Foreign Technology.
●Intellectual Property Rights
●Formulating policies related to I ntellectual Property Rights.
●These policies are related to the following fields:
●Patents and Trademarks
●Geographical Indications of Goods
●Administrating the rules and regulations made under the Administration of Industries Act of 1951.
●Promoting industrial development of industrially backward areas and the North Eastern Region including International Co-operation for industrial partnerships and
●Promotion of productivity, quality, and technical cooperation.
Make in India and Startup India
Make in India
Make in India is a government scheme launched in 2014 with an intention to boost the domestic manufacturing sector and also augment investment into the country.
●The government wants to revive the lagging manufacturing sector and spur the growth of the economy. The GOI also intends to encourage businesses from abroad into investing in the country and also manufacture here, by improving the country’s ‘Ease of Doing Business’ Index.
●The long-term vision is to gradually develop India into a global manufacturing hub, and also boost employment opportunities in the country.
The major objective of Startup India is to discard some of the restrictive Government policies which include:
3.Foreign Investment Proposals
The Startup India scheme is based majorly on three pillars which are mentioned below:
●Providing funding support and incentives to the various start-ups of the country.
●To provide Industry-Academia Partnership and Incubation.
●Simplification and Handholding.
Programmes and Schemes of DPIIT
The below points mentions the programmes and schemes run under DPIIT:
1.Transport Subsidy Scheme (1971) – It was initiated to develop industrialization in the remote, hilly, and inaccessible areas. It has been discontinued since 2016.
2.North East Industrial and Investment Promotion Policy (NEIIPP), 2007
3.North East Industrial Development Scheme – Initiated on 1st April 2017 and will run till 30th March 2022.
4.Industrial Development Scheme 2017 – A recent amendment was made considering the
Union Territory of Jammu & Kashmir and Ladakh; the scheme will run till 31st March 2021. The amendment also defined the ‘New Industrial Unit.’
5.For infrastructure development, the Delhi Mumbai Industrial Corridor (DMIC) project was approved in 2007. Similarly, other industrial corridors are taken up.
6.The DPIIT takes up GI promotion activities. The department has notified 370 GI applications as of August 2020.