Regulators in India and Government Security Markets

By:- Akanksha Nischal Harsimran Singh Gitanjali Singh Saksham Sharma Sakshi Arora

Table of Contents• Introduction to Indian Financial System• Regulators :

Reserve Bank of India SEBI Ministry of Finance Ministry of Corporate Affairs PFRADA IRDA

IntroductionIntroduction• It intermediates between the flow of funds

belonging to those who save a part of their income and those who invest in productive assets.

• A financial system is a complex , well integrated set of sub systems of financial institutions, markets, instruments & services which facilitates the transfer and allocation of funds efficiently & effectively.

Reserve Bank of India (RBI)

• Commenced operations on April 1, 1935.The share capital was divided into shares of 100 each fully paid, which were initially owned entirely by private shareholders

• Headquarters – Shahid Bhagat Singh Marg Mumbai, Maharashtra

• Established-April 1, 1935 (79 years ago)

• Governer - Raghuram Rajan • Reserves-US$295.45 billion

Main Functions

• Monetary Authority:

Formulates, implements and monitors the monetary policy.

Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors.

• Manager of Foreign Exchange:

Manages the Foreign Exchange Management Act, 1999.

Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

• Issuer of currency:

Issues and exchanges or destroys currency and coins not fit for circulation.

Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.

• Related Functions:

Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.

Banker to banks: maintains banking accounts of all scheduled banks.

• Regulator and supervisor of the financial system:

Prescribes broad parameters of banking operations

Objective: maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public.

• Developmental role Performs a wide range of promotional

functions to support national objectives.

• Financial Supervision

The Reserve Bank of India performs this function under the guidance of the Board for Financial Supervision (BFS).

The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India.

Objective :Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies.

SEBI & STOCK EXCHANGES

• 1988= SEBI was established through an executive resolution.

• 1992= Subsequently upgraded as a fully autonomous body (a statutory body) with the passing of SEBI act on 30th January 1992.

• SEBI head quartered= Mumbai

Amendments

• Issue commission= for the examinations of witness of documents.

• Power to regulate or prohibit= issue of Prospectus.

• Power to prohibit= manipulative and deceptive devices.

• Penalties levied= under the act have been enhanced.

Objectives of SEBI

The PRIMARY OBJECTIVE is to promote healthy and orderly growth of the securities market and secure investor protection.

The objective of SEBI are as follows:-• To Protect The Interest of investors, so that ,

there is a steady flow of savings into to the capital market.

• To Regulate the securities market and ensure fair practices.

• To Promote Efficient Services by brokers , merchant bankers and financial intermediaries, so that, they become competitive and professional.

Functions of SEBI

The SEBI act 1992 has entrusted with two functions they are:

1. Regulatory functions.2. Developmental functions.

Regulatory functions

• Regulation of Stock Exchanges And Self Regulatory Organizations.

• Registration and regulation of stock brokers , sub-brokers , registrars of all issues, merchant bankers, underwriters, portfolio managers etc

• Registration and regulation of the working of collective investment schemes including mutual funds.

• Prohibition of Fraudulent And Unfair Trade Practices relating to securities market.

• Prohibiting of Insider Trading.

• Regulating substantial Acquisition Of Shares And Takeovers of the company.

Developmental functions.

• Promote investors education.

• Training of intermediaries.

• Conduct research & provide information to market participants.

• Promoting self regulatory organizations.

Powers of SEBI• Power to compel Listing Of Securities by public

companies.

• Power to Direct Enquiries to be made in relation to affairs of stock exchanges or their members.

• Power to Levy Fees Or Other Changes For Carrying Out the purposes of regulation.

• Power to Grant Registration to market intermediaries.

• Power to Control And Regulate stock exchanges.

RIGHTS OF INVESTOR AS PER SEBI• To participate and to vote in annual general

meetings and right to receive a notice for them or their proxy to attend the meeting

• To receive dividend, right shares , bonus offers ,from the company ,after there approval of the board.

• To receive and inspect minutes of the meeting.

• To receive balance sheet , P&L account , auditors report , and directors report.

Cont…

• To receive allotment letters and share certificates.

• To requisition an extra ordinary general meeting.

• To apply for winding up of the company.

• To proceed in civil or criminal proceedings against the company.

STRUCTURE OF SEBI

1. Chairman

2. Two members, one from amongst the officials of the central government dealing with finance and another from the administration of companies act of 1956.

3. One members from amongst the officials of the Reserve Bank Of India.

4. Five other members of whom atleast three shall be the whole-time members to be appointed by the central government.

Ministry Of Finance

The Ministry of Finance is an important ministry within the Government of India.

It concerns itself with :-

- Taxation

- Financial legislation  

- Financial institutions

- Capital markets

- Centre and state finances

-  The Union Budget.

• P. Chidambaram is the current finance minister

• R.K. Shanmukham Chetty was the first Finance Minister of independent India. He presented the first budget of independent India on November 26, 1947

Ministry of finance comprises of fivedepartments in its organizational :-

• - Department of Economic Affairs

• - Department of Expenditure

• - Department of Revenue

• - Department of Financial services

• - Department of Disinvestment

• The Department of Economic Affairs (DEA) is the nodal agency of the Union Government to formulate and monitor country's economic policies and programs

• Its principle responsibilities are:-

Formulation and monitoring of macroeconomic policies.

Inflation,

Public debt management

The functioning of Capital Market including Stock Exchanges.

Production of bank notes and coins of various denominations.

Department of Economic Affairs

Department of Expenditure• The Department of Expenditure is the nodal

Department for overseeing the public financial management system in the Central Government.

• The principal activities of the Department include:-

- Pre-sanction appraisal of major schemes/projects (both Plan and non-Plan expenditure)

- Overseeing the expenditure management in the Central Ministries/Departments.

- Preparation of Central Government Accounts.

Department of Revenue

• The Department of Revenue functions under the overall direction and control of the Revenue.

• It exercises control in relation to all the Direct and Indirect Union Taxes

• It does it through two statutory Boards namely,

- Central Board of Direct taxes (CBDT) and

- the Central Board of Excise & Customs (CBEC).

- Each Board is headed by a Chairman.

Department of Financial Services

The Department of Financial Services covers

• Banks

• Insurance and

• Financial Services (provided by various government agencies and private corporations)

It also covers :-

• Pension reforms and

• Industrial Finance for Micro, Small and Medium Enterprise.

Department of Disinvestments

Initially set up as an independent ministry (The Ministry of Disinvestment) in Dec 1999.

- The department took up all the functions responsible for :-

- Systematic policy approach to disinvestment and

- Privatization of Public Sector Units (PSUs).

Ministry of Corporate Affairs

• Indian Government Ministry

• Earlier known as Department of Corporate Affairs

• Current minister of corporate affairs is Mr.Sachin Pilot.

• Key initiator of the Companies Act, 2013.

Mission

“To facilitate corporate growth with

enlightened regulation”

Vision

“To be responsive and sensitive to changes in the business environment and suitably formulate and modify corporate laws and regulations from time-to-time”

Goals

• Establishing a legal framework that would foster a positive environment for investment and growth

• Ensuring that the Indian Corporate sector is able to operate in an environment of globally competitive international practices.

• Partner with all stakeholders for this purpose increase its capability for catering to the

emerging needs of the corporates for their regulation, growth and development.

Functions

1. Primarily concerned with administration of :-

• The Companies Act, 1956 and 2013• The Monopolies and Restrictive Trade

Practices Act, 1969• The Indian Partnership Act, 1932• The Companies Amendment Act, 2006• The Limited Liability Partnership Act,

2008

2. Also responsible for administering the Competition Act, 2002

3. Exercises supervision over the three professional bodies, namely, ICAI,ICSI and ICWAI

4. Also has the responsibility of carrying out the functions of the Central Government relating to administration of Partnership Act, 1932, the Companies (Donations to National Funds) Act, 1951 and Societies Registration Act, 1980

Cont…

5. Convergence of Indian Accounting Standards with IFRS.

6. e-Governance in MCA. 7. Build systems for early detection of irregularities in

corporate functioning.

8. Undertaking investor education and awareness programmes.

9. To undertake investigation of serious frauds through the Serious Fraud Investigation Office.

10. Cadre administration of the Indian Corporate Law Service.

Companies Act, 2013• Replace India’s 57-year-old corporate legislation

• Bill will appeal to foreign investors, and kick-start India’s economic growth

• Depends on new committees and rules that have yet to be drafted

• A step in the right direction.

• Tough sanctions for embezzlement, including mandatory jail time and hefty fines for offenders

• introduces protections for whistle-blowers, class-action suits, and provisions to prevent conflicts of interest and insider trading.

• new measure allows for greater flexibility in cross-border mergers and acquisitions, but it also requires companies to employ at least one resident director, creating a problem for many foreign-owned companies.

• Stock buybacks, a favored strategy to bolster share prices that is currently permitted every six months, will be restricted to once a year.

• Larger enterprises - like those with net profits of at least 50 million rupees, to donate 2 percent of their net profits to corporate social responsibility programs.

• A new committee, the National Financial Reporting Authority, will be created to prescribe and monitor accounting and auditing standards for the first time.

• The Serious Fraud Investigation Office, will be

empowered to start investigations and frame charges.

• A new judiciary, the National Company Law Tribunal, will be created to allow swifter justice, removing corporate cases from high courts

PFRADA (PENSION FUND REGULATORY AND

DEVELOPMENT AUTHORITY)

Established By:- Government of IndiaOn:- 23rd august 2003

ChairmanYogesh Aggarwal .

PURPOSE

• To promote old age income security by establishing, developing and regulating pension funds.

• To protect the interests of subscribers to schemes of pension funds and for matters connected therewith or incidental thereto.

Insurance regulatory and development authority

(IRDA)

• IRDA was setup in 1996.• It was formally constituted as a regulator of

insurance industry in April 2000.• The regulatory was initially known as the

Insurance Regulatory Authority.• Renamed as IRDA as it was provided that it

had a broader role to perform in the Indian insurance market.

• Head-quarter: Hyderabad, Andhra Pradesh.

MISSION

COMPOSITION OF AUTHORITY

As per the section 4 of IRDA ACT’ 1999, Insurance Regulatory & Development Authority which was constituted by an act of parliament

specify the composition of authority

The Authority is a ten member team consisting of :-

A)ChairmanB)Five whole time membersC)Four part time members

(all are appointed by the Indian government)

OBJECTIVES

• To protect the interest Of and secure fair treatment to policy holders.

• To bring about speedy and orderly growth of the insurance industry for the benefit of the common man, and to provide long-term funds for accelerating growth of the economy.

• To set promote, monitor and enforce high standards of integrity, financial soundness, fair dealing, and competence of those it regulates.

• To ensure that insurance customer receive precise, clear, and correct information about products and services and make them aware of their responsibilities and duties in this regard.

• To ensure speedy settlement of genuine claims to prevent insurance frauds, and other malpractices.

• To promote fairness, transparency and orderly conduct in financial markets dealing with insurance and build a reliable management information system to enforce high standards of financial soundness amongst market players.

• To take action where such standards are inadequate or in effectively enforced.

Duties Powers and Functions of the IRDA

• Issuing to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration.

• Specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents.

• Specifying the code of conduct for surveyors and loss assessors.

• Promoting efficiency in the conduct of insurance business.

• Promoting and regulating professional organizations connected with the insurance and reinsurance business.

• Regulating investment of funds by insurance companies.

• Specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector, and exercising such order power as may be prescribed.

• Specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries

• Adjudication of disputes between insurers and intermediaries or insurance intermediaries. Supervising the functioning of the tariff advisory committee.

• Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organization referred in clause (f)