Christian Debt Recovery

Debt Capital Markets

July 20th, 2011 |

Author: Gavin

debt capital markets

Regulatory frame work of indian capital markets: an overview

Background:

The market for trading long-term debt instruments (those that mature in more than one year) is known as Capital Market. Also used in a more general context to refer to the market for stocks, bonds, derivatives and other investments.The Indian capital market is more than a century old. Its history goes back to 1875, when 22 brokers formed the Bombay Stock Exchange (BSE). Over the period, the Indian securities market has evolved continuously to become one of the most dynamic, modern, and efficient securities markets in Asia.

Today, Indian market confirms to best international practices and standards both in terms of structure and in terms of operating efficiency .Indian securities markets are mainly governed by: The Company’s Act1956,The Securities Contracts (Regulation) Act 1956 (SCRA Act), and The Securities and Exchange Board of India (SEBI) Act, 1992.

Even though, Today’s Indian capital market confirms to best international practices and standards both in terms of structure and in terms of operating efficiency, it suffers from number of weaknesses such as poor communication system, lack of professionalism and poor liquidity, weak regulation etc.

The study is focused on the inefficiencies of Indian Capital Markets, Indian Capital Market Reforms, Regulatory Framework of Indian Capital Markets and Policy Measures and Initiatives that have been undertaken in the primary and secondary markets.

Inefficiencies/Weaknesses of Indian Capital Markets:

The Capital market in India suffers from number of weaknesses. The principal ones are mentioned below:

Poor communication system
Lack of professionalism
Dominance of financial institutions
Poor liquidity
Weak regulation
Price distortion
Kerb trading

Regulatory Framework of Indian Capital Markets:

In India, the capital market is regulated by the Capital Markets Division of the Department of Economic Affairs, Ministry of Finance.

Policy Measures and Initiatives

To measure all these crisis Finance minister of India has done some measures which are following :

Finance minister says state-run banks ready to provide credit to small, medium business sectors.
RBI to keep a close watch on liquidity
Exports growth slumps to 10.4% in September 2008
Exports up by 30.9% in April-September 2008
Govt working closely with other countries for coordinated policy action
RBI slashes CRR and SLR by 100 bps each and Repo rate by 50 bps
CRR revised to 5.5%, Repo rates to 7.5% while SLR stands reduced to 24%

RBI:

RBI prefers to buy time and leaves all rates unchanged . But cuts GDP growth projections to 7.5 to 8.0% for FY 2008-09

Highlights:

The Bank Rate has been kept unchanged at 6.0 per cent.
The repo rate under the LAF has been kept unchanged at 8.0 per cent.
The reverse repo rate under the LAF has been kept unchanged at 6.0 per cent.
The cash reserve ratio (CRR) of scheduled banks is currently at 6.5 per cent of net demand and time liabilities (NDTL). On a review of the current liquidity situation, it has been decided to keep the CRR unchanged at 6.5 per cent of NDTL.
No change in the policy rates or CRR in the Mid Term Review
RBI’s Mid Term Review of Annual Policy keeps all rates unchanged
RBI cuts India’s GDP growth projection to 7.5 to 8.0% for FY 2008-09
GDP growth projection cut from 8.0% made in July 2008

Conclusion:

Thus, various reforms and policy measures have been undertaken by SEBI, RBI and the Government for the regulation of Indian Capital Markets. SEBI also introduces revised norms to regulate Indian capital markets. To measure all crises FM (Finance minister) of India has done some measures.

REFERENCE:

Diana Farrell, Christian S. Fölster, and Susan Lund FEBRUARY 2008.
Vipin Agnihotri , ‘Principal weaknesses of stock market of India’.

Barua S K & Raghunathan V (1986), “Inefficiency of the Indian Capital Market”, Vikalpa, Vol. 11, No. 3,(Jul-Sept), p. 225-230.
Francis C K (1991b), “SEBI – The Need of the Hour”, SEDME, Vol. 18(3), p. 37-41.

About the Author

T. Venkateswara Rao

Assistant Professor

THE HINDU COLLEGE – MBA

MACHILIPATNAM – 521 001 (A.P.)

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