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• The RBI employs four measures of money stock, namely M1, M2, M3,
M4.
• Bank rate is the minimum rate at which the central bank of a country
provides loan to the commercial bank of the country.
• Bank rate is also called discount rate because bank provide finance to the
commercial bank by rediscounting the bills of exchange.
• When general bank raises the bank rate, the commercial bank raises their
lending rates, it results in less borrowings and reduces money supply in
the economy & vice-versa.
ANANT SAXENA ( LECTURER - 7
ITM UNIVERSE)
• OPEN MARKET OPERATIONS
• It means the purchase and sale of various type of assets (such as Foreign
exchange, Gold, Securities & Company shares ) by central bank of the
country.
• For e.g. If RBI buys Gold of 100 crores it will pay the Rs 100 crores to
Commercial banks thus currency with the public increase to 100 crores
and there is a increase in money supply in the market.
• CRR - CRR means Cash Reserve Ratio. Banks in India are required to
hold a certain proportion of their deposits in the form of cash. This
minimum ratio (that is the part of the total deposits to be held as cash)
is stipulated by the RBI and is known as the CRR or Cash Reserve Ratio
• 6.00% (w.e.f. 24/04/2010)
1. Taxation Policy
• Internal borrowings
1. Borrowings from the public by means of treasury bills and govt. bonds
2. Borrowings from the central bank (monetized deficit financing)
• External borrowings
1. Foreign investments
2. International organizations like World Bank & IMF
3. Market borrowings
• The venture capital sector in India is one of the most active in the
financial sector in spite of the hindrances by the external set up
• Presently in India there are around 34 national and 2 international SEBI
registered venture capital funds
• The banking system in India is the most extensive. The total asset value
of the entire banking sector in India is nearly US$ 270 billion. The total
deposits is nearly US$ 220 billion. Banking sector in India has been
transformed completely. Presently the latest inclusions such as Internet
banking and Core banking have made banking operations more user
friendly and easy.
• With the opening of the market, foreign and private Indian players are
keen to convert untapped market potential into opportunities by
providing tailor-made products:
• The insurance market is filled up with new players which has led to the
introduction of several innovative insurance based products, value add-
ons, and services. Many foreign companies have also entered the arena
such as Tokio Marine, Aviva, Allianz, Lombard General, AMP, New York
Life, Standard Life, AIG, and Sun Life
• The competition among the companies has led to aggressive marketing,
and distribution techniques
• The active part of the Insurance Regulatory and Development Authority
(IRDA) as a regulatory body has provided to the development of the
sector
• 1. PRIMARY MARKET –
• The primary market is that part of the capital markets that deals with the
issue of new securities.
• Companies, governments or public sector institutions can obtain funding
through the sale of a new stock or bond issue. In the case of a new stock
issue, this sale is an initial public offering (IPO).
• This is the market for new long term equity capital. The primary market is
the market where the securities are sold for the first time. Therefore it is
also called the new issue market (NIM).
• In a primary issue, the securities are issued by the company directly to
investors. The company receives the money and issues new security
certificates to the investors.
• Primary issues are used by companies for the purpose of setting up new
business or for expanding or modernizing the existing business.
• The primary market performs the crucial function of facilitating capital
formation in the economy.
• The new issue market does not include certain other sources of new long
term external finance, such as loans from financial institutions.
• The financial assets sold can only be redeemed by the original holder.
• The need for financial reforms had arisen because the financial
institution and markets were in a bad shape. The banking sector suffered
from lack of competition, low capital base, low productivity, and high
intermediation costs.
• The role of technology was minimal, and the quality of service did not
receive adequate attention. Proper risk management system was not
followed, and prudential norms were weak. All these resulted in poor
assets quality. These leads to the process of reform
ANANT SAXENA ( LECTURER - 25
ITM UNIVERSE)
• Main and sub-objectives of financial reforms introduced in 1991:
• To promote free entry and exit for institutions and market players.