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Financial Regulatory Bodies

Financial sector in India has experienced a better environment to grow with the presence of higher competition. The financial system in India is regulated by independent regulators in the field of banking, insurance, mortgage and capital market. Government of India plays a significant role in controlling the financial market in India.

Ministry of Finance, Government of India controls the financial sector in India. Every year the finance ministry presents the annual budget on 28th February. The Reserve Bank of India is an apex institution in controlling banking system in the country. It's monetary policy acts as a major weapon in India's financial market.

Securities and Exchange Board of India (SEBI) is one of the regulatory authorities for India's capital market.

  • Securities and Exchange Board of India (SEBI)
  • National Stock Exchange
  • Bombay Stock Exchange (BSE)
  • Reserve Bank of India
  • Major Financial Institutions in India
  • Foreign Investment Promotion Board

Securities and Exchange Board of India(SEBI)

Securities and Exchange Board of India (SEBI) was first established in the year 1988 as a non-statutory body for regulating the securities market. It became an autonomous body in 1992 and more powers were given through an ordinance. Since then it regulates the market through its independent powers.

Objectives of SEBI

As an important entity in the market it works with following objectives:

  • It tries to develop the securities market.
  • Promotes Investors Interest.
  • Makes rules and regulations for the securities market.

Functions Of SEBI

  • Regulates Capital Market
  • Checks Trading of securities.
  • Checks the malpractices in securities market.
  • It enhances investor's knowledge on market by providing education.
  • It regulates the stockbrokers and sub-brokers.
  • To promote Research and Investigation

SEBI In India's Capital Market

SEBI from time to time have adopted many rules and regulations for enhancing the Indian capital market. The recent initiatives undertaken are as follows:

  • Sole Control on Brokers:Under this rule every brokers and sub brokers have to get registration with SEBI and any stock exchange in India.
  • For Underwriters:For working as an underwriter an asset limit of 20 lakhs has been fixed.
  • For Share Prices:According to this law all Indian companies are free to determine their respective share prices and premiums on the share prices.
  • For Mutual Funds:SEBI's introduction of SEBI (Mutual Funds) Regulation in 1993 is to have direct control on all mutual funds of both public and private sector.

National Stock Exchange

In the year 1991 Pherwani Committee recommended to establish National Stock Exchange (NSE) in India. In 1992 the Government of India authorized IDBI for establishing this exchange.

In National Stock Exchange there is trading of equity shares, bonds and government securities. India's Stock Exchanges particularly National Stock Exchange has achieved world standards in the recent years. The NSE India ranked its 3rd position since last four years in terms of total number of trading per calendar year.

Presently there are 24 stock exchanges in India, out of which 20 have exchanges National Stock Exchange (NSE), over the Counter Exchange of India Ltd, (OTCEI) and Inter-connected Stock Exchange of India limited (ISE) have nationwide trading facilities.

New NSE Reference Rates

Both MIBOR (Mumbai Inter Bank Offer Rate) and MIBID (Mumbai Inter Bank Bid Rate) are the two new references rates of the National Stock Exchanges. These two new reference rates were launched on June 15, 1998 for the loans of inter bank call money market.

Both MIBOR and MIBID work simultaneously. The MIBOR indicates lending rate for loans while MIBID is the rate for receipts.

Bombay Stock Exchange (BSE)

Bombay Stock Exchange is one of the oldest stock exchanges in Asia was established in the year 1875 in the name of "The Native Share & Stock Brokers Association".

Bombay Stock Exchange is located at Dalal Street, Mumbai, India. It got recognition in 1956 from the Government of India under Securities Contracts (Regulation) Act, 1956. Presently BSE SENSEX is recognized over the world. Trading volumes growth in the year 2004-05 have drawn the attention over the globe.

As to the statistics, the total turnover from BSE transcation as in June 2006 is calculated at 72013.36 crores.

  • BSE Indices:The well-known BSE SENSEX is a value weighted of 30 scrips.Other stock indices of BSE are BSE 500, BSEPSU, BSEMIDCAP, BSESMLCAP, and BSEBANKEX.
  • BSE 100 Index:The equity share of 100 companies from the list of 5 major stock exchanges such as Mumbai, Calcutta, Delhi, Ahmedabad and Madras are selected for the purpose of compiling the BSE National Index. The year 1983-84 is taken as the base year for this index. The method of compilation here is same as that of the BSE SENSEX.    
  • BSE 200 Index:The BSE 200 Index was lunched on 27th May 1994. The companies under BSE 200 have been selected on the basis of their market capitalisation, volumes of turnover and other findamental factors. The financial year 1989-90 has been selected as the base year.
  • BSE 500 Index:BSE 500 Index consisting of 500 scrips is functioning since 1999. Presently BSE 500 Index represents more than 90% of the total market capitalisation on Bombay Stock Exchange Limited.
  • BSE PSU Index:BSE PSU Index has been working since 4th June 2001. This index includes major Public Sector Undertakings listed in the Exchange. The BSE PSU Index tracks the performance of listed PSU stocks in the exchange.

Companies In BSE:

Companies listed on the Bombay Stock is rising very fast. As to statistics, companies listed to the end of March 1994 reached at 3,200 compared to 992 in 1980.

Reserve Bank of India

Reserve Bank of India is the apex monetary Institution of India. It is also called as the central bank of the country. The bank was established on April1, 1935 according to the Reserve Bank of India act 1934. It acts as the apex monetary authority of the country.The Central Office of the Reserve Bank has been in Mumbai since inception. The Central Office is where the Governor sits and is where policies are formulated. Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

The preamble of the reserve bank of India is as follows:

 "...to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage."      
  
Central Board

The Reserve Bank's affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.

Appointed/nominated for a period of four years.

  • Constitution
  • Official Directors
  • Full-time: Governor and not more than four Deputy Governors
  • Non-Official Directors
  • Nominated by Government: ten Directors from various fields and one government Official
  • Others: four Directors - one each from four local boards
  • Functions: General superintendence and direction of the Bank's affairs

Local Boards

  • One each for the four regions of the country in Mumbai, Calcutta, Chennai and New Delhi
  • Membership
  • Consist of five members each
  • Appointed by the Central Government
  • For a term of four years

Functions

To advise the Central Board on local matters and to represent territorial and economic interests of local cooperative and indigenous banks, to perform such other functions as delegated by Central Board from time to time.

Foreign Investment Promotion Board

The Foreign Investment Promotion Board is a special agency in India dealing with the matters relating to Foreign Direct Investment. This special board was set up with a view to raise the volume of investment to the country. The sole aim of the board is to create a base in the country by which a larger volume of investment can be drawn to the country.

On 18 February 2003, the board was transferred to the Department of Economic Affairs (DEA) Ministry of Finance.
Important functions of the Board are as follows:

  •  Formulating proposals for the promotion of investment.
  •  Steps to implement the proposals.
  •  Setting friendly guidelines for facilitating more investors.
  •  Inviting more companies to make investment.
  •  To recommend the Government to have necessary actions for attracting more investment.

With regards to the structure of the Foreign Investment Promotion Board, the board comprises the following group of secretaries to the Government:

  • Secretary to Government Department of Economic Affairs, Ministry of Finance- Chairman.
  • Secretary to Government Department of Industrial Policy and Promotion, Ministry of commerce and Industry.
  • Secretary to Government, Department of Commerce, Ministry of Commerce and Industry.
  • Secretary to Government, Economic Relations, Ministry of External Affairs.
  • Secretary to Government, Ministry of Overseas Indian Affairs.

In the recent years, particularly after the implementation of the new economic policy, the Government has undertaken many steps to attract more investors for investing in the country. The new proposals for the foreign investment are allowed under the automatic route keeping in view the sectoral practices

Major Financial Institutions in India

This is a list on the major financial institutions in India and their respective date of starting operations.

Financial Institution   
Date of Starting
Imperial Bank of India 
1921
Reserve Bank of India April 1, 1935
Industrial Finance corporation of India 1948
State Bank of India  
July 1, 1955
Unit Trust of India  
Feb. 1,1964
IDBI 
July 1964
NABARD July 12,1982
SIDBI 1990
EXIM Bank 
January 1, 1982
National Housing Bank July 1988
Life Insurance Corporation (LIC) 
September 1956
General Insurance Corporation (GIC) November 1972
Regional Rural Banks Oct. 2, 1975
Risk Capital and Technology Finance Corporation Ltd.
March 1975
Technology Development & Information Co. of India Ltd. 1989
Infrastructure Leasing & Financial Services Ltd. 
1988
Housing Development Finance Corporation Ltd. (HDFC)
1977