PROJECT REPORT

ON

Capital Market Reforms

SUBMITTED IN PARTIAL FULFILLMENT OF Degree of

Master of Business Administration

Submitted by:

Under Supervision of:

Nitish Dipankar

Department of Management Studies

JAMIA HAMDARD

NEW DELHI

Capital Market Reforms

TABLE OF CONTENTS

1) Acknowledgement

2) Executive Summary

3) Declaration

4) Bank Introduction

a) History

b) Business and Strategy

5) Product Details- Saving Accounts

6) Insurance Details- Mutual Funds

7) Research Methodology

8) Project Title- Capital Market Reforms

a) Introduction

b) Market Structure and Dimensions

c) Reforms in Government Securities market

d) Recent Initiatives

9) Data Analysis

10) Findings and recommendations

11) Annexure 1

12) Bibliography

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Capital Market Reforms

ACKNOWLEDGEMENT

I express my heartiest gratitude to my supervisor Nitish Dipankar for giving me an

opportunity to prepare a report on the project assigned to me. Under his guidance I

undertook this project, for extending the advice and direction that is required to carry on

a study of this nature, and for helping me with the intricate details of the project at every

step. Without his support and able guidance, it would have been very difficult to finish

this work in the way I have done it.

However, I accept the sole responsibility of any possible errors of omission.

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Capital Market Reforms

DECLARATION

I , student of Jamia Hamdard University, hereby declare that the project work entitled

“Capita Market Reforms” has been carried out under the guidance of my supervisor

Nitish Dipankar at Standard Chartered Bank, New Delhi.

It is an original bonafide work undertaken by me as a part of the course curriculum of

M.B.A, FMIT (Jamia Hamdard University)

The information provided in the study is authentic to the best of knowledge and the result

embodied in this study has not been submitted to any other University or Institute for the

ward of degree.

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Capital Market Reforms EXECUTIVE SUMMARY

This project at Standard Chartered Bank was undertaken during the period of 6 Weeks

(May 22nd '09 to July 15th ’09) as part of my summer training.

My Summer Training included the following-

Learning the basic Banking and Financial terms.

Process of various products of the bank

Ascertaining the matters related to the topic i.e. Capital Market Reforms in India

Interacting with the respondents about the questionnaire

Acquiring the Insurance related details of the Standard Chartered Bank

Introduction

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Capital Market Reforms The significant transformation of the Capital Market in India is clearly evident from the

changes that have occurred in the Stock market. The developments have facilitated

greater choice for investors, who have become more discerning and demanding.

Currently, the most important factor shaping the world is globalization. The

benefits of globalization have been well documented and are being increasingly

recognized. Integration of domestic markets with international financial markets has been

facilitated by tremendous advancement in information and communications technology.

But, such an environment has also meant that a problem in one country can sometimes

adversely impact one or more countries instantaneously, even if they are fundamentally

strong.

There is a growing realization that the ability of countries to conduct business

across national borders and the ability to cope with the possible downside risks would

depend on the soundness of the Capital market. This has consequently meant the

adoption of a strong and transparent, prudential, regulatory, supervisory, technological

and institutional framework in the sector on par with international best practices is

necessary. All this necessitates a transformation: a transformation in the mindset, a

transformation in the business processes and finally, a transformation in knowledge

management. This process is not a one shot affair; it needs to be appropriately phased in

the least disruptive manner.

Research Methodology

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Capital Market Reforms Research is a process through which we attempt to achieve systematically and with the

support of data the answer to a question, the resolution of a problem, or a greater

understanding of a phenomenon. This process, which is frequently called research

methodology, has eight distinct characteristics:

1. Research originates with a question or problem.

2. Research requires a clear articulation of a goal.

3. Research follows a specific plan of procedure.

4. Research usually divides the principal problem into more manageable sub

problems.

5. Research is guided by the specific research problem, question, or hypothesis.

6. Research accepts certain critical assumptions.

7. Research requires the collection and interpretation of data in attempting to resolve

the problem that initiated the research.

8. Research is, by its nature, cyclical; or more exactly, helical.

Objectives:

Objectives of a project tell us why project has been taken under study. It helps us to know

more about the topic that is being undertaken and helps us to explore future prospects of

that topic. Basically it tells what all have been studied while making the project.

To learn about the Reforms in the Indian Capital Market.

To analyze the respondents’ view about the Capital Market and related concepts.

To analyze the recent initiatives in Capital Market

To analyze the history of Standard chartered bank and its business & strategy.

Duration of Study:

22nd May 2009 – 15th July 2009

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Place of Study:

Standard Chartered Bank

New Friends Colony

New Delhi

Research Design:

Descriptive research is used in this project report in order to know about the responses to

various views related to Indian Capital Market. This is the most popular type of research

technique, generally used in survey research design and most useful in describing the

characteristics of respondents.

The methods used were following:

Questionnaire method

Direct Interaction with the respondents.

Mode Of Data Collection:

Primary Data: - The sources of Primary data were questionnaires and personal

interviews.

Secondary data: - the sources of secondary data were internet, books and

newspaper articles.

Sample size: 50

Introduction of the bank

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Capital Market Reforms Standard Chartered Bank has deep roots and a long heritage in international banking. It

has an extensive history in some of the world's most dynamic and fast-growing markets,

such as Asia and the Middle East. No one has a better understanding of the wealth

management needs of clients across these markets. Standard Chartered – a financial

services giant – has top credit ratings and a 150-year history in banking, with a long-term

commitment and financial investment in the Private Bank. The Standard Chartered

Private Bank offers a full range of customized wealth management products and services.

It uses a broad architecture approach to investment management to bring to customers

some of the world’s leading money managers and financial products.

It is a London based bank, currently operational within over 70 nations with more than

1,700 branches and 73,000 strong workforce as of April 2009. Although the bank is

located in Britain, still a huge chunk of its revenues originate from the continents of Asia,

Africa and Middle East.

Standard Chartered Bank was formed as the merger of two banks viz. The Chartered

Bank of India, Australia & China and The Standard Bank of British South Africa. The

merger took place in the year 1969.

Despite its British base, it has few customers in the United Kingdom and 90% of its

profits come from Asia, Africa, and the Middle East. Because the bank's history is

entwined with the development of the British Empire its operations lie predominantly in

former British colonies, though over the past two decades it has expanded into countries

that have historically had little British influence. It aims to provide a safe regulatory

bridge between these developing economies.

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Capital Market Reforms It now focuses on consumer, corporate, and institutional banking, and on the provision of

treasury services—areas in which the Group had particular strength and expertise.

Standard Chartered is listed on the London Stock Exchange and the Hong Kong Stock

Exchange and is a constituent of the FTSE 100 Index. Its largest shareholder is Temasek

Hodings.

History of the bank:

The name Standard Chartered comes from the two original banks from which it was

founded and which merged in 1969 — The Chartered Bank of India, Australia and China,

and The Standard Bank of British South America

The Chartered Bank was founded by Scotsman James Wilson following the grant of a

Royal Charter by Queen Victoria in 1853, while The Standard Bank was founded in the

Cape Province of South Africa in 1862 by another Scotsman John Paterson. Both

companies were keen to capitalize on the huge expansion of trade and to earn the

handsome profits to be made from financing the movement of goods from Europe to the

East and to Africa.

In those early years, both banks prospered. Chartered opened its first branches in

Bombay, Calcutta and Shanghai in 1858, followed by Hong Kong and Singapore in 1859.

With the opening of the Suez Canal in 1869 and the extension of the telegraph to China

in 1871, Chartered was well placed to expand and develop its business.

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In South Africa, Standard, having established a considerable number of branches, was

prominent in financing the development of the diamond fields of Kimberley from 1867

and later extended its network further north to the new town of Johannesburg when gold

was discovered there in 1885. Half the output of the second largest gold field in the world

passed through The Standard Bank on its way to London.

Both banks – at that time still quite separate companies – survived the First World War

and the Depression, but were directly affected by the wider conflict of the Second World

War in terms of loss of business and closure of branches. There were also longer term

effects for both banks as countries in Asia and Africa gained their independence in the

‘50s and ‘60s.

Each had acquired other small banks along the way and spread their networks further. In

1969, the banks decided to merge, and to counterbalance their existing network by

expanding in Europe and the United States, while continuing their expansion in their

traditional markets in Asia and Africa. All appeared to be going well, when in 1986

Lloyds Bank of the United Kingdom made a hostile takeover bid for the Group.

After having defeated the bid, Standard Chartered entered a period of change. It made

provisions against Third World debt exposure and loans to corporations and

entrepreneurs who could not meet their commitments. It also began a series of

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Capital Market Reforms divestments notably in the United States and South Africa, and entered into a number of

asset sales.

Business & Strategy

Listed on both the London Stock Exchange and the Hong Kong Stock

Exchange,Standard Chartered PLC is consistently ranked in the top 25 FTSE 100

companies by market capitalization. By combining its global capabilities with deep local

knowledge, the bank develops innovative products and services to meet the diverse and

ever-changing needs of individual, corporate and institutional customers in some of the

world's most exciting and dynamic markets.

Personal Banking

With global network of over 1,750 branches and outlets, it offers personal financial

solutions to meet the needs of more than 14 million customers across Asia, Africa and the

Middle East.

SME Banking

SME Banking division offers a wide range of products and services to help small and

medium-sized enterprises manage the demands of a growing business.

Wholesale Banking

Headquartered in Singapore and London, with on-the-ground expertise that spans the

global network, bank’s Wholesale Banking division provides corporate and institutional

clients with innovative solutions in trade finance, cash management, securities services,

foreign exchange and risk management, capital raising, and corporate finance.

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Islamic Banking

Standard Chartered Saadiq's dedicated Islamic Banking team provides comprehensive

international banking services and a wide range of Shariah compliant financial products

that are based on Islamic values.

Private Banking

Standard Chartered bank’s Private Bank advisors and investment specialists provide

customised solutions to meet the unique needs and aspirations of high net worth clients.

Principles & Values:

At Standard Chartered success is built on teamwork, partnership and the diversity of its

people.At the heart of their values lie diversity and inclusion. They are a fundamental

part of bank’s culture, and constitute a long-term priority in its aim to become the world's

best international bank.

Today it gives employments to 75,000 people, representing 115 nationalities, and one

can find 60 nationalities among its 500 most senior leaders. Bank believes that this

diversity helps to fuel creativity and innovation, supporting the development of exciting

new products and services for our customers worldwide.

Standard chartered Bank stands for:

Strategic intent

The world's best international bank

Leading the way in Asia, Africa and the Middle East

Brand promise

Leading by Example to be The Right Partner

Values

Responsive

Trustworthy

International

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Courageous

Approach

Participation

Focusing on attractive, growing markets where bank can leverage its relationships

and expertise

Competitive positioning

Combining global capability, deep local knowledge and creativity to outperform

its competitors

Management Discipline

Continuously improving the way it works, balancing the pursuit of growth with

firm control of costs and risks Commitment to stakeholders

Customers

Passionate about its customers' success, delighting them with the quality of our

service

People

Helping its people to grow, enabling individuals to make a difference and teams

to win

Communities

Trusted and caring, dedicated to making a difference

Investors

A distinctive investment delivering outstanding performance and superior returns

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Regulators

Exemplary governance and ethics wherever bank is standing.

Personal Banking

Arrange of features are included for the customers ranging from accounts to insurances

and investments needs. Following are the personal services provided by the Standard

Chartered Bank:

Accounts

o Term Deposits

o Savings Accounts

o AxcessPlus Account

o Super Value Account

o Parivaar Account

o No Frills Account

o Aasaan Account

o 2-in-1 Account

o Depository Services

o Corporate Salary Account

o Current Accounts

o Business Plus Account

o Enhanced Business Plus Account

Credit Cards

o Choose your Credit Card

o Emirates Platinum Card

o Platinum Card

o Emirates Titanium Card

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Capital Market Reforms o Super Value Titanium Card

o Gold Card

o EMI Card

o Executive Card

o Classic Card

o Your Rewards Plus Program

o Special offers

o Fraud Protection

Debit & Prepaid Cards

o Debit Cards

o Shop Smart Card

o Gold Debit Card

o Prepaid Cards

o Smart Travel

Loans & Mortgages

o Personal Loans

o Home Loans

o Loan Against Securities

o Home Saver

o Loan Against Term Deposits

o Home Saver Plus

o Smart Credit Overdraft

o Loan Against Property

o Calculators

NRI Banking

o Which account is right for me?

o NRE Account

o NRO Savings Account

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Capital Market Reforms o FCNR Account

o Accounts for Returning Indians

o NRI Service Centers

Exclusive Banking

o Excel Banking

o Priority Banking

o Private Banking

Insurance & Investments

o General Insurance

o Life Insurance

o Investment Services

Private Banking

Standard Chartered Bank has been building partnerships with generations of clients since

it opened its first branches in Shanghai and Calcutta in 1853. It is one of the few financial

leaders that combine an extensive global reach with the in-depth, specialized knowledge

that comes from a history of being in local markets close to its clients. Today, as one of

the world’s leading international banks, it is dedicated to providing unsurpassed client

service and is uniquely situated to provide customized solutions to meet all wealth

management needs.

Standard Chartered Bank has deep roots and a long heritage in international banking. It

has an extensive history in some of the world's most dynamic and fast-growing markets,

such as Asia and the Middle East. No one has a better understanding of the wealth

management needs of clients across these markets.

Standard Chartered—a financial services giant—has top credit ratings and a 150-year

history in banking, with a long-term commitment and financial investment in the Private

Bank. The Standard Chartered Private Bank offers a full range of customized wealth

management products and services, including those offered by its award-winning

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Capital Market Reforms commercial bank. It uses a broad architecture approach to investment management to

bring some of the world’s leading money managers and financial products.

Some key facts about Standard Chartered Bank:

Over 150 years in banking

Total assets of US$329 billion (as of March 2008)

Ranked 56th in size among top 1000 world banks (The Banker, July 2007)

70,000+ employees

A+/A3/A+ credit rating (S&P/Moody’s/Fitch respectively, as of March 2008)

Listed on both London & Hong Kong exchanges

Ranks among the top 25 companies in the FTSE-100

Regulated by the UK FSA

SME Banking

With years of banking experience, Standard Chartered Bank is undoubtedly in a strong

position to help growing businesses sail through the complexities they may face. As an

international bank with offices in more than 50 countries, It provides the global reach and

international recognition that the company deserves.

SME Banking offers one of the widest range of banking products and services in the

market today. Managing a growing business demands most of existing time and energy.

Its relationship managers understand customers’ business requirement and help them

manage their business better.

Business Current Accounts

o International Trade Account

o International Trade Account - TEC

Loans

o Business Installment Loan

o Loan/Overdraft Against Property

o Term Loan

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o Trade & Working Capital

o Express Trade

Forex Services

o Forex Services

Others

o Online tax payment

o Service charges & fees

o Schedule an appointment

o Raise a complaint

Commercial Banking

Standard Chartered has maintained a long local presence, since 1858, with particular

emphasis on relationship banking. Significant networks have been established with

vendors and financial-related organizations to enable it to offer its customers a

comprehensive range of flexible financial services, with special focus on transactional

banking products. Supported by state-of-the-art operations, Standard Chartered is pro-

active in improving every part of our services. Electronic Delivery system has been put in

place to ensure that transactions are handled speedily. It has its Cash Product Specialists

and dedicated Customer Service Centre’s to provide its customers with effective

solutions. Standard Chartered fully understands the importance of time, convenience and

efficiency to the success of your business. With over 140 years of experience in

trade finance and an extensive international branch network, Standard Chartered is

committed to help customers succeed in every competitive environment.

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Wholesale banking in detail

Whole sale banking includes:

Transaction banking

Principle finance

Financial markets

Corporate finance

Transaction banking offers a full scope of innovative, customized solutions in cash

management, trade finance and securities services.

With an extensive branch network and award-winning suite of electronic client access

channels it offers a full range of transaction banking solutions to help manage the

working capital more efficiently.

It provides a wide range of cash management services to corporate and institutional

clients worldwide. It helps customers with payments and collections, information

management, account services and liquidity management solutions. Standard Chartered

has been meeting securities industry participants' needs in the Greater Asia region for

over 150 years, serving a discerning client base that comprises leading North American,

European and Asian institutions. We count among our clients the world's largest global

custodians, broker-dealers, fund managers and institutional investors.

Standard Charterer’s Principal Finance business has a strong track record of creating

value through its investments. The group provides direct investment for growing

companies, invests in distressed and high yield assets and also provides advisory services

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to companies in financial distress. The bank has dedicated a team focusing on making

investments in real estate across Asia.

Leading the way in Financial markets, Standard Chartered delivers award-winning and

innovative solutions to meet clients’ risk management, financing and investment needs

Bank’s presence in Asia, Africa and the Middle East and active support for the

development of it’s equity infrastructures makes it well placed to help you tap into the

significant growth opportunities offered by these emerging markets.It provides a

comprehensive range of online solutions tailored to meet the electronic trading needs of

its clients.

Standard Charterer’s Corporate Finance group provides innovative and pioneering

solutions for clients, capitalizing on the Bank’s comprehensive on-the-ground knowledge

and strong international perspective to provide customized solutions to meet its clients’

corporate finance needs, especially in cross-border trade and investment flows.

With teams specializing in Mergers & Acquisitions and Leveraged Finance, Standard

Chartered’s Corporate Advisory group has the expertise, experience and local knowledge

to deliver high quality advice and execution on strategic cross-border advisory and

leveraged financing transactions.

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Islamic banking is a rapidly growing phenomenon in the global financial markets.

Muslims have always shielded away from conventional banking, as it does not conform

to their religious tenets.

There has always been a demand among Muslims for financial products and services that

conform to the Shariah (Islamic law). Based on this demand, a number of banks all over

the world have started offering products and services that are in compliance with Shariah.

With an estimated size of over USD 250 billion and a growth rate of 15%, Islamic

banking has now established itself as a serious business segment in the eyes of financial

institutions, businesses, consumers and regulators.

Standard Chartered, with an aim to meet the unique needs of its customer, has setup an

Islamic Banking Division. The bank is now offering tailor-made Shariah compliant

products to its customers.

Standard Chartered employs 38,000 people in 950 locations in more than 50 countries in

the Asia Pacific Region, South Asia, the Middle East, Africa, the United Kingdom and

the Americas. Standard Chartered is one of the world’s most international banks, its

employees representing 80 nationalities. Standard Chartered is the largest international

bank operating in Pakistan. With a presence of over 150 years in this industry, the bank is

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able to fully leverage its capabilities and product expertise to provide tailor-made

solutions for its customers.

Standard Chartered realizes that a segment of their customers wanted products that were

shariah compliant, and by introducing these Islamic financing options, they are fulfilling

their promise of being responsive to their customer needs. These products have been

developed under the guidance of an independent Shariah Supervisory Committee.

Product Details Of The Bank: Saving Accounts

A savings bank account is the most common operating account for individuals and others

for non-commercial transactions. A savings account helps people to put through day-to-

day banking transactions besides earning some return on the savings made. Banks usually

have ceilings on the total number of transactions permitted in a specific time period.

Banks also stipulate certain minimum balance to be maintained in savings accounts. The

Savings account is a transaction account.

Interest on the account is determined in accordance with directives of the Reserve Bank

of India. The current rate is 3.5% per annum. Interest is calculated on the Minimum

Credit Balance between the close of the business on the 10th and the last day of each

calendar month. Interest may be credited to the account on a quarterly or half yearly

basis.

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Savings account can be opened by the following persons or bodies:

A person in his / her name

Two or more persons in their joint names payable to :

o both or all of them or the survivor or survivors of them; or

o either or any more of them or the survivor or the survivors of them; or

o former / latter or survivor of a particular person during his lifetime or

survivors jointly or survivor

Certain non-profit welfare organizations are also permitted to open Savings bank

accounts with banks

Savings / Current accounts can become inactive if you do not make any debit

transactions for a continuous period. The duration of this period varies from bank to

bank.

What a bank asks for while opening an account

Banks are required to know the true identity of the person wanting to open an

Account.

Banks require photograph of the person to be kept on record for future

identification purpose

Banks have to obtain PAN numbers (issued by Income Tax Dept.) of the account

holder at the time of opening of the account

In the absence of PAN number, the customer should give a declaration in the

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prescribed format (Form no.60 or 61) as the case may be.

Standared Chartered Bank has a range of accounts with unique features to offer you

quick

and convenient banking facility. The range of accounts include- aXcess Plus account ,

Parivaar account, Super value account, 2-in-1 account, Corporate Salary account, No

Frills account and Aasaan account.

Under aXcess Plus account, bank offers variety of channels to access your money such as

Free Unlimited Visa ATM transactions, International Debit Card, etc. Under Parivaar

account you can tap your family’s financial strength while maintaining your individual

identity.

The unique feature of this account is that you can maintain individual savings accounts

with the benefit of clubbing balances in grouped accounts. Super value account gives to a

host of free value added services such as Free Bill Pay, Free Inter Bank Funds Transfer,

etc. You can link your fixed deposits with a savings or current account under 2-in-1

account. Corporate Salary account is an account for corporates to help them streamline

salary payments. No Frills account is an account to offer basic banking facilities. Aasaan

account is a no-maintenance, hassle free savings account with basic requirements.

Features of some of the bank’s Saving Accouunts:

Axcess plus:

FREE Unlimited Visa ATM transactions (Cash withdrawal and balance enquiry)

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Capital Market Reforms FREE Standard Chartered Bank branch access across the country

FREE Doorstep Banking

FREE Demand Drafts/Pay Orders (drawn at SCB locations)

FREE Payable at Par Chequebook

International Debit Card

Extended Banking Hours

Super Value:

Free globally valid Debit-cum-ATM card.

Free Access to 6500 ATMs in India.

Free Doorstep Banking.

Free Payable at Par cheque book/ account statements / DDs Free Bill Pay.

Free Inter Bank Funds Transfer.

Free Foreign Inward Remittance Certificates.

Other benefits of the SuperValue account:

o Globally valid debit card: Make purchases at over 12 million merchant outlets and

withdraw cash at over 810,000 ATMs worldwide using funds from your account

o Multicity Banking: Access your account even when you are out of town

o Enjoy extended Banking hours at all our branches, and Speed Cheque Clearing

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and Metro Clearing facilities.

o 24-hour branches, 365 day branches available at select locations

o Phone banking: Available to you 365 days a year on a 24-hour basis in the metros

and everyday of the week at other centers

o Internet banking: Access and transact on your accounts through the Internet from

any part of the world

o Free Investment Advisory Services to assist you in investing in a range of mutual

funds

o Full suite of complimentary banking services including credit cards, loan products

and capital market services.

Parivaar:

Family can maintain individual savings accounts with the benefit of clubbing

balances in grouped accounts.

Anytime, anywhere access to accounts through ATMs, Phone Banking and

Internet banking. Option of Systematic Investment Plan (SIP): A well known long

term wealth building tool that allows customers to invest a fixed amount of

money every month in specific mutual funds. This comes with a direct debit

facility and avoids the need to remember dates and write cheques every month.

Globally valid ATM-cum-debit card can be used at 55,000 merchant outlets in

India and 12 million outlets worldwide.

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Aasaan:

No Minimum Balance requirement.

Free unlimited access to any SCB branch across the country for Customer-in-

person.

Unlimited Free access to Standard Chartered Bank ATM's.

Up to 4 free cash withdrawal transactions per month at other domestic VISA

ATMs.

Nominal quarterly fee of Rs. 100 (reversed if the Average Balance in the quarter

is Rs 10,000 or more).

Recent Alliances and Developments

In 2000, Standard Chartered acquired Grindlays Bank from ANZ Bank, increasing its

presence in private banking and further expanding its operations in India and Pakistan.

Standard Chartered retained Grindlays' private banking operations in London and

Luxembourg and the subsidiary in Jersey, all of which it integrated into its own private

bank. This now serves high net worth customers in Hong Kong, Dubai, and Johannesburg

under the name Standard Chartered Grindlays Offshore Financial Services. In India,

Standard Chartered integrated most of Grindlays' operations, making Standard Chartered

the largest foreign bank in the country, despite Standard Chartered having cut some

branches and having reduced the staff from 5500 to 3500 people.

On 15 April 2005, the bank acquired Korea First Bank, beating HSBC in the bid. Since

then the bank has rebranded the branches as SC First Bank.

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Standard Chartered completed the integration of its Bangkok branch and Standard

Chartered Nakornthon Bank in October, renaming the new entity Standard Chartered

Bank(Thaiand). Standard Chartered also formed strategic alliances with Fleming Family

& Partners to expand private wealth management in Asia and the Middle East, and

acquired stakes in ACB Vietnam, Travelex, American Express Bank in Bangladesh and

Bohai Bank in China.

On 9 August 2006 Standard Chartered announced that it had acquired an 81% and

shareholding in the Union Bank of Pakistan in a deal ultimately worth $511 million.

This deal represented the first acquisition by a foreign firm of a Pakistani bank and

the merged bank, Standard Chartered Bank (Pakistan), is now Pakistan's sixth largest

bank.

On 22 October, 2006 Standard Chartered announced that it has received tenders for more

than 51 per cent of the issued share capital of Hsinchu International Bank (“Hsinchu”),

established in 1948 in Hsinchu province in Taiwan. Standard Chartered, which had first

entered Taiwan in 1985, acquired majority ownership of the bank, Taiwan’s seventh

largest private sector bank by loans and deposits as at 30 June, 2006. Standard Chartered

merged its existing three branches with Hsinchu's 83, and then delisted Hsinchu

International Bank, changing the bank's name to Standard Chartered Bank (Taiwan)

Limited). Prior to the merger, Hsinchu had suffered extensive losses on defaulted credit

card debt.

In 2007, Standard Chartered opened its Private Banking global headquarters in

Singapore.

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On 23 August, 2007 Standard Chartered entered into an agreement to buy a 49 percent of

an Indian brokerage firm (UTI Securities) for $36 million in cash from Securities Trading

Corporation of India Ltd., with the option to raise its stake to 75 percent in 2008 and, if

both partners agree, to 100 percent by 2010. UTI Securities offers broking, wealth

management and investment banking services across 60 Indian cities.

On 29 February 2008, Standard Chartered PLC announced it has received all the required

approvals leading to the completion of its acquisition of American Express Bank Ltd

(AEB) from the American Express Company (AXP). The total cash consideration for the

acquisition is US$ 823 million.

Insurance details of the bank: Mutual Funds

Standard Chartered mutual fund is promoted by banking giant Standard Chartered and

exclusively focuses on debt schemes. The fund started as ANZ Grindlays Mutual Fund

and was later renamed as Standard Chartered Mutual Fund after the takeover of

Grindlays Bank by Standard Chartered.

Standard Chartered Bank is a truly global bank with employees representing 80

nationalities. The bank has a strong brand presence in India and is well entrenched in

developing markets of Asia Pacific region.

The sponsor of the fund is Standard Chartered Bank. The AMC of the fund is Standard

Chartered Asset Management Company Private Limited. The sponsor holds a 75 per cent

stake in the company and the balance is held by Atul Choksey of Apcotex. As of Aug

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2006, the fund has assets of over Rs.15,551 crore under management.

Mutual Funds basics:

A Mutual Fund is a pool of money that gives small investors access to a well-diversified

portfolio of equities, bonds, and other securities. Each shareholder participates in the gain

or loss of the fund. Shares are issued and can be redeemed as needed (in the case of an

open-ended fund). The fund's net asset value (NAV) is determined each day. Each mutual

fund portfolio is invested to match the objective stated in its investment agenda.

An equity fund is one that is invested mainly in company equity through the stock

exchange and is exposed to the risk of volatility associated with the equity market.

Although this fund is the riskiest within the genre of mutual funds, it is also known to

yield the maximum yields and dividends.

A Fixed Income Fund is one that invests in avenues which offer fixed returns over a set

tenor. These funds are inherently linked to the general interest rate and are, therefore,

unlike the stock market, safe from drastic fluctuation. The capital value is more easily

sustainable while the returns are generally modest. However, active fund management

can yield returns which are higher than most fixed income avenues in the market and

therefore, it is an attractive investment avenue for investors with moderate risk appetites.

A Money Market Fund is one that invests in liquid, short-term avenues which offer

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Capital Market Reforms

fixed returns over short periods. These funds are inherently linked to the general interest

rate and are, therefore, unlike the stock market, safe from drastic fluctuation. Underlying

investment may include securities issued by corporate bodies, spread transactions,

reverse-repo transactions, selective exposure in the CFS market, Term Finance

Certificates (TFCs) and commercial paper.

Balance funds maintain a mix within equity and fixed income markets. The inclination

of this mix will be dictated by the fund’s strategic intent and mission statement. This fund

offers more maneuvering room to its fund managers as they have the option to switch

between market types i.e. fixed income avenues and capital markets. Effectively, the risk

associated to this category lies somewhere between that of equity funds and fixed income

funds and the returns also vacillate correspondingly between the ranges of the

two.

Mutual Funds Offered:

JS Investments Limited:

JS ABAMCO was incorporated on February 22, 1995 and registered as an investment

adviser and an asset management company with the SECP (formerly the Corporate Law

Authority) on February 27, 1995 and August 29, 1995 respectively. Last year its legal

title changed to JS Investments Limited.

SCB offers the following mutual funds from this fund house:

Unit Trust of Pakistan (UTP) is the first open-end mutual fund in Pakistan's

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Capital Market Reforms

private sector. UTP follows a balanced investment strategy which means that it

switches its investments from fixed-income to equity & vice versa depending

upon the investment outlook. When the stock market appears volatile, the funds

normally switch portfolios to fixed-income & debt based instruments and reverts

back to equity when the situation becomes stable.

Investment Strategy: UTP focuses on preserving the initial capital while providing

maximum diversification, along with liquidity, growth & consistent returns. In order to

achieve these, the fund invests in three types of high quality assets. These include:

Shares of companies which are either consistently dividend paying having growth

prospects actively traded

Debt instruments with good credit rating

Short-term money market instruments

JS - Income Fund (JS - IF) is the second open-end mutual fund launched by

JS Investments Limited. JS-IF is a diversified investment program in fixed

income securities through a single investment. The fund aims at achieving a high

rate of current income consistent with reasonable concern for safety of capital and

provides the investors with the convenience to join or leave the fund at their

discretion.

Investment Strategy: JS-IF will generally invest in assets that pay a fixed rupee amount,

e.g. investment grade debt securities, treasury bills, term finance certificates, bank

deposits and Government bonds. They are generally not affected by the volatility at the

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Capital Market Reforms

Stock Exchanges. The element of risk is low and so is the return.

UTP- Islamic Fund (UTP- ISF) is an open-end Shariah compliant mutual

fund managed by JS Investments Limited. The fund was launched in December

2002 with the Central Depository Company as the Trustee and has been given a

5-

star rating by PACRA. The fund is intended for long term investors who seek

high returns with the peace of mind that their money is being managed according

to Islamic rules of investing.

Investment Strategy: UTP-ISF aims to grow investor’s capital in the long term in

adherence with principles of Shariah compliance as advised by the Shariah Advisory

Board (SAB) of this fund while ensuring liquidity. The fund investments are limited to

asset classes approved by the Shariah Advisory Board and all companies under

investment consideration are regularly screened for Shariah compliance.

UTP- Capital Protected Fund (UTP-CPF) was the first open-end capital

protected fund in Pakistan, established under a Trust Deed dated November 27,

2006 between JS Investments Limited as the Management Company and Standard

Chartered Bank (Pakistan) Limited as the exclusive distributor. Following the

tremendous success of this unique fund, 3 more Capital Protected Funds were

launched jointly by JS Investments and SCBPL.

Investment Strategy: A Capital Protected Fund aims at protecting investor capital

through the investment structure by placing a significant percentage of the Fund as bank

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Capital Market Reforms

deposit(s) or in other return-based fixed income instruments, and uses the remaining

funds to gain exposure into equity markets or any other investment instruments

permissible by SECP that the Management Company feels would be appropriate to

maximize return. The fund has a fixed tenor (e.g. 1 year or 3 years) which is the

minimum period of holding for capital protection to be in force.

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Capital Market Reforms

Project Title-Capital Market Reforms

Introduction:

Capital market reform enables the capital markets to embrace new ideas and techniques

affecting the capital market. Capital market liberalization is one such capital market

reform that is adopted by various countries to strengthen their economy.

A capital market is a place that handles the buying and selling of the securities. This is

the ideal place where both the governments and companies can raise their funds. The

capital markets of all the countries have undergone a number of reforms in the history.

Economic theories are made and implemented to reform the functionalities of the capital

market. The prime objective behind all the policies and reforms was obviously to

strengthen the capital market of a particular country as much as possible.

It has been always a big question to the economists whether to allow or not to allow the

foreign investments in the country. Packaged with both advantages and disadvantages,

the liberalization of the capital markets has always been controversial. In the 1980s and

1990s when the US Treasury and International Monetary Fund (IMF) tried to push

world-

wide capital-market liberalization, there had been enormous opposition. Economists were

not in the support of free and unfettered markets.

Now, when the capitalist countries, developing capitalist countries, underdeveloped

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Capital Market Reforms countries and a large number of socialist countries have nodded their support to the

capital market reform and capital market globalization, the global capital market has

evolved in a new identity. The concept of capital market is not restricted to the share and

bond trading in the developed capitalist countries only but is equally influenced by the

capital markets of developing and underdeveloped countries as well.

Now the economic or financial change in one country can affect the capital market of

other country in real time. Almost all the countries are now exposed to the inter-country

trades and inter-country investments. The use of internet and electronic media has added

some more feasibility to the practice. Exchange of information is fast and accurate with

internet. Another advantage of this system is that it brings the entire world in a single

place. The capital market is one of the industries that enjoy the maximum facility of the

internet service.

MARKET STRUCTURE AND DIMENSIONS

The public-sector debt instruments mainly comprise central and state government

securities, which account for about 65 percent of the country’s debt market, and public-

sector bonds issued by companies in the public sector. Other debt instruments in the

market are certificates of deposit and commercial paper in the short-dated sector, and

corporate bonds in the medium- to long-dated sector.The debt market is an important

source of funding for the corporate sector as well as the government. The borrowing rate

of the government determines the risk-free rate in the market and is the benchmark

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Capital Market Reforms against which all other paper is priced. The size of the Indian debt market is estimated at

about Rs 4,172 billion, as of 31 March 1998 The development of the debt markets in

India has been constrained by the limited number and variety of instruments, lack of

liquidity, and dearth of investors. New debt instruments would add depth and volume to a

market that today comprises mostly government securities.The main instruments in the

Indian debt market are discussed briefly below.

Government of India Securities

Government of India securities (GOI securities), also called dated securities,are medium-

to long-term obligations of the government that are issued on its behalf by the central

bank, the Reserve Bank of India (RBI),and are registered in the holder’s name at the

Public Debt Office of the RBI. The RBI also acts as the depository and maintains

subsidiary general ledger accounts for banks and other select investors such as primary

dealers, financial institutions, mutual funds, insurance companies, and provident funds.

FIIs have recently been permitted to invest in GOI securities and to repatriate the profits

from the investments. Banks, nonbank finance companies (NBFCs),1 and housing

finance institutions (HFIs) are required to invest in government securities to satisfy their

statutory liquidity reserve (SLR) requirements.

Dated securities usually have a maturity period of two to ten years,and the issue size

varies from Rs 20 billion to Rs 50 billion. The outstanding GOI securities as of 31 March

1998, excluding securities issued by public-sector units which carried a central or state

Jamia Hamdard Page 38

Capital Market Reforms government guarantee, amounted to about Rs 2,254 billion. In 1997–1998, primary

auctions of GOI securities had yields ranging from 11.15 percent to 13.05 percent for

securities with a maturity of three to ten years. To boost the retail sector and give greater

liquidity to retail investors, the RBI in October 1997 allowed banks to buy GOI securities

and thensell them at prevailing market prices immediately after. Previously, there had to

be an interval of at least 30 days between the purchase and resale of the securities.

Treasury Bills

Treasury bills (T-bills) are short-term rupee-denominated obligations issued by the RBI

on behalf of the GOI. They are issued for maturityperiods of 14 days, 91 days, and 364

days. In addition, the RBI plans to introduce a 28-day T-bill. The typical auction size is

Rs 5 billion for the 91-day T-bill, and Rs 200 million to Rs 20 billion for the 364-day T-

bill. Outstanding T-bills amounted to about Rs 181 billion as of March 1998,compared

with Rs 165 billion in March 1997.Investors in T-bills include banks, primary dealers,

financial institutions, mutual funds, corporations, NBFCs, HFIs, state governments, and

insurance companies. The new monetary and credit policy for the first half of 1998–1999

allows FIIs to invest in T-bills. Nonresident Indians (NRIs) and overseas corporate

bodies

(OCBs) may similarly invest in Tbills,but cannot repatriate the profits. In the second half

of 1997–1998, the RBI announced plans to introduce a uniform price auction for 91-day

T-bills, to deal with the problem of “winner’s curse”3 and to broaden market

participation.

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Capital Market Reforms

Sovereign Bonds

India has not yet issued sovereign bonds in the international market. The country’s

sovereign rating is based on the ratings assigned to bond and debenture issues of public-

sector Indian companies in the international market. Despite the country’s “low

investment” or “high non–investment grade” ratings, Indian corporations have generally

been able to obtain funds abroad on better terms than what the sovereign ratings might

signify.

Some of the advantages of issuing sovereign bonds are:

• The government would have less need to borrow in the domestic market.

• Corporations could use the bonds as a benchmark against which they could price their

issues.

• The bonds would broaden the investor base in the international market sand help

mobilize long-term finance for infrastructure projects.

• The cost of borrowings would be reduced relative to the domestic market.

The drawbacks could, however, outweigh the advantages. For the sovereign bonds to

gain credibility in the international market, the government will need to have a sizeable

presence in the market and not merely undertake a token borrowing. Its external debt

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Capital Market Reforms would therefore increase.

Moreover, sovereign bonds are classified as external commercial borrowings (ECBs), on

which India has set a ceiling. A foreign-currency bond may carry a lower nominal

interest rate than a rupee-denominated government security with the same maturity, but

the foreign-currency bond also entails an exchange-rate risk. Depending on the exchange

rate, the sovereign bond could turn out to be much more expensive for the government

than local borrowings.

Public-Sector Undertaking Bonds (PSU Bonds)

These are medium- to long-term obligations issued by public-sector corporations. The

total value of outstanding PSU bonds as of March 1998 was Rs 654 billion, including Rs

203 billion in government-guaranteed bonds. Public-sector corporations issue three types

of bonds: taxable bonds, tax-free bonds, and government-guaranteed bonds. To allow

public-sector units in priority sectors to raise money in the markets at low rates, the

government has either guaranteed their bond offerings or made the interest on the bonds

tax-free to investors. The PSU can thus raise money from the capital markets at

concessional rates. PSU bonds have a maturity period of three to seven years and an issue

size of Rs 100 million to Rs 15 billion. The main investors in PSU bonds are banks, cash-

rich corporations, financial institutions, insurance companies, trusts, FIIs, provident

funds, mutual funds, NBFCs, HFIs, and a few individuals. Most PSU bonds are issued

through private placement, although public issues are gradually gaining in popularity.

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Capital Market Reforms Seven public-sector units raised Rs 29 billion through privately placed bonds in 1997–

1998; the year before, ten public-sector units raised Rs 33 billion through private

placement. In the second half of 1997–1998, the RBI announced that it would allow

repurchase agreement (repo) transactions in PSU bonds, held in dematerialized form in a

depository, to take place on the recognized exchanges.

Certificates of Deposit

Certificates of deposit (CDs) are short-term, rupee-denominated instruments issued by

banks and development finance institutions (DFIs). DFIs issue CDs with a maturity of

one to three years. In March 1998, outstanding CDs amounted to Rs 143 billion. To

attract more investors in the money market, the RBI, in October 1997, halved the

minimum amount that a single investor can invest in CDs, from Rs 1 million to Rs

500,000. The main investors in CDs are DFIs, cash-rich corporations, insurance

companies, mutual funds, NBFCs, HFIs, provident funds, and some individuals.FIIs are

not permitted to invest in CDs. NRIs may invest in CDs, but the investments are

nontransferable and nonrepatriable. Earlier, CDs had a mandatory initial holding period

of 30 days during which the instrument was rendered illiquid. This lock-in period was

shortened to 15 days in April 1998.

Commercial Paper

Indian corporations finance part of their working capital requirements by issuing these

short-term negotiable promissory notes, which are denominated in rupees and are

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Capital Market Reforms unsecured. Issuers must satisfy RBI guidelines relating to creditworthiness to issue

commercial paper (CP), and must have the CP rated by at least one rating agency. The

maturity period of CP varies from 91 days to a year. The required minimum issue size is

Rs 2.5 million, but the actual size can vary substantially and averages between Rs 20

million and Rs 100 million. The outstanding amount of CP reached a historic high of Rs

52 billion in January 1998, but then dropped sharply to Rs 15 billion in March

1998. FIIs are not permitted to invest in CP.

Corporate Bonds and Debentures

These are medium- to long-term obligations issued by private-sector companies, either

through a public issue or more often through private placement, for their medium-term

working capital requirements or for project financing. The debentures are usually secured

with a first charge on assets of the issuing corporation. On the average, the maturity

period of debentures ranges from three to seven years. Bonds and debentures with a

maturity beyond 18 months must be rated. Outstanding bonds and debentures in March

1998 totaled an estimated Rs 432 billion. Banks, DFIs, insurance companies, FIIs, mutual

funds,NBFCs, and individuals are the main investors. FIIs can purchase only debentures

that are listed or that the issuer plans to list. A listing in the stock market can sometimes

provide liquidity to bonds and debentures, although these tend to be illiquid in actual

practice and even those that are listed are hardly traded in the secondary market. Bonds

and debentures that are issued through private placement are often unlisted. Besides the

traditional nonconvertible debentures, corporations also issue equity-linked debentures,

which are very popular with all classes of investors, especially individuals. A partly

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Capital Market Reforms convertible equity-linked debenture, as the name implies, is convertible only in part into

equity shares, while a fully convertible equity-linked debenture is convertible in its

entirety into equity shares. The conversion price and period are usually specified in the

indenture. Conversion into equity is usually automatic, and call and put options are

normally not provided. The coupon rate paid on the debentures depends on their

convertibility. Fully convertible debentures carry the lowest coupon rate and

nonconvertible debentures the highest coupon rate.

Recently, a variety of instruments such as step-up and step-down bonds, deep-discount

bonds, floating-rate bonds, staggered redemption bonds, bullet redemption bonds, and

other innovative instruments have been introduced to suit various investor profiles. Deep-

discount bonds, which are long-dated (20- to 25-year) bonds issued by DFIs and some

large corporations, have proved to be very popular among individual investors who can

expect to earn a considerable amount of money from an affordable investment of only

about Rs 5,000. The bonds usually come with call and put options exercisable every five

years. Interest is compounded and paid with the principal at maturity.

All corporations that issue bonds or debentures through public issue must set up a

debenture redemption reserve (DRR), according to Securities and Exchange Board of

India (SEBI) guidelines, and transfer a certain amount to the reserve each year out of

retained earnings. The reserve must be funded in equal amounts over the life of the

debenture so that when it matures at least 50 percent of its redemption value should be

covered by the balance in the DRR. The transfer to the DRR is only a book entry.

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Capital Market Reforms Although dividend-paying capacity is reduced (the reason for the unpopularity of the

measure), the corporation is not restricted in how it chooses to invest the DRR. The

transfers therefore continue to be invested in thebusiness of the corporation.

ISSUANCE OF DEBT SECURITIES

GOI securities have generally been issued through auction in recent years, but have also

been issued at preset interest rates from time to time. Government securities do not

follow a fixed schedule of issuance; the government’s large borrowing program,

however, compels it to enter the market frequently. Auction details are announced a few

days before the issue date. Investors in the securities must quote the yield per year, and

bids up to the RBI cut-off yield are accepted. Every Friday, 91-day T-bills are auctioned

for an amount announced in advance by the RBI. Primary dealers and the RBI underwrite

the issue and take up whatever is left unsubscribed at the cut-off price decided at the

auction. The RBI has announced its intention to move over to uniform price auctions for

91-day T-bills. An auction in 364-day T-bills is held every other Wednesday. Unlike 91-

day T-bills and government securities, the amounts, until recently, were not announced in

advance for 364-day as well as 14-day T-bills.

In April 1998, however, the RBI decided to announce the amounts for competitive bids in

all Treasury bill auctions and to keep noncompetitive bids outside the purview of those

amounts. T-bill auctions are done in competitive French-style: those who bid at less than

or equal to the cut-off yield get allotments at their bid; higher bidders get pro rata

allocations. Successful bidders receive their allotments at their bid price and not at the

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Capital Market Reforms cut-off price. Corporate debentures are issued mostly through private placement and

therefore do not have to be rated. The mandates are given to merchant bankers, who are

in touch with potential investors. The terms and price of the bonds are fixed by

agreement

among the issuer, the merchant banker, and the potential investors. The rating the issuer

receives for its debt issuance affects the pricing of the issue.

Private Placement

Large quantities of PSU and corporate bonds have been issued through private

placement, which is an invitation to qualified investors to invest. The maximum number

of investors in a private placement used to be unlimited but has recently been set at one

hundred. Private placements have emerged in recent years as an important means by

which public- and private-sector companies can raise funds. In 1997–1998, when the

market in new issues was generally subdued, banks, financial institutions, and public-

and

private-sector companies raised Rs 270 billion, or 85.3 percent of total funds raised,

through private placement. The comparative figure for the previous year was Rs 150

billion, or 49.3 percent of the total funds raised. Privately placed bonds have emerged as

the corporate sector’s fundraising instrument of choice. The popularity of private

placements can be attributed largely to the lower issuance costs as well as the shorter

time required to make an issue, compared with a public issue. Also, private placements

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Capital Market Reforms can be tailored to the specific needs of large investors. From the issuer’s point of view,

the most important advantage of private placements is that, unlike public issues, they are

not strictly regulated. For example, an issuer of a privately placed bond does not have to

set up a DRR.

On the other hand, movements in the volatile short-term money market can affect

investor sentiment and pricing in the bond market, particularly private placements, which

take at least 15 to 20 days to complete. The book-building or price discovery mechanism

has begun to be adopted to get around this problem. The increasing popularity of private

placements has made it necessary to deal with the matter of investor protection.

Particularly for retail private placement issues, it would be advisable to augment the

disclosure requirements in the memorandum of information and ensure greater

transparency in the issue documents. In developed markets, the regulatory authorities set

the parameters for private placements, including the maximum number of investors who

can participate and the criteria for identifying the investors who are qualified to receive

the private placement offer. With proper regulations and greater transparency, the private

placement market can become an integral and important part of the primary market.

RATING OF DEBT INSTRUMENTS

The Securities and Exchange Board of India (SEBI), the watchdog of the Indian capital

markets, has recently announced that credit rating will eventually be mandatory for all

debt instruments. As of now, only publicly issued debt instruments with a maturity period

of at least 18 months must be rated.

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Capital Market Reforms The three main rating agencies in India are the Credit Rating Information Services of

India Limited (CRISIL), Investment Information and Credit Rating (ICRA), and

Credit Analysis and Research Limited (CARE). These rating agencies are backed by the

three DFIs in India:

CRISIL by the Industrial Credit and Information Services of India Limited (ICICI),

ICRA by the Industrial Finance Corporation of India (IFCI), and CARE by the

Industrial Development Bank of India (IDBI). Therefore, DFI issues must be rated by

two agencies, under SEBI regulations, for the sake of impartiality. The SEBI, however,

has not yet decided how conflicts in agency ratings should be resolved.

SEBI guidelines issued in March 1998 allow corporations with a net capitalization of

over Rs 1 billion for the last five years to set up a credit rating agency. International

credit-rating agencies that propose to rate Indian debt instruments, including those that

have entered into joint ventures with Indian credit-rating companies or hold an equity

stake in such companies, must register with the SEBI.Credit-rating agencies are regulated

more strictly to ensure that they function effectively, especially in view of the failure of

some of them to warn investors of the impending financial crisis.

INVESTORS IN DEBT INSTRUMENTS

Besides the lack of variety in debt instruments, the dearth of investors has also deterred

the growth of the debt market. The main investors are commercial banks, insurance

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Capital Market Reforms companies, provident funds, specialized debt funds, NBFCs, HFIs, and some cash-rich

corporations. Commercial banks,NBFCs, and HFIs invest in government securities and

other debt instruments to comply with their SLR requirements. The lack of liquidity in

the market prevents individuals from participating actively.

SLR Requirements

Banks, NBFCs, and HFIs are required to invest in government securities and other

approved debt instruments and securities to comply with the SLR requirements of the

RBI. The SLR, which is the minimum level of investment in approved securities,

computed daily, is a percentage of the outstanding net demand and time liabilities

(NDTL) of banks. For NBFCs and HFIs, SLR is a percentage of their outstanding public

deposits.SLR ratios are announced by the RBI together with the monetary and credit

policy. Typically, this is done twice a year, in April and October, although recently the

guidelines have been revised more frequently.

The SLR for commercial banks peaked at 38.5 percent of their outstanding NDTL in

1992–1993 but was gradually reduced until October 1997, when the RBI fixed it at 25

percent. Still, most commercial banks hold SLR securities far in excess of their

requirement—about 12 percent more than the current SLR of 25 percent—to comply

with

the required capital adequacy and prudential ratios.

Investments in government securities have no risk weight unlike some other fixed-

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Capital Market Reforms income securities which carry a risk weight of 100 percent. Commercial banks in India

are required to maintain an 8 percent capital adequacy ratio.

In the case of NBFCs and HFIs, the SLR applies only to public deposits and not to other

term liabilities (as is the case with commercial banks). The SLR for NBFCs was set at

12.5 percent on 1 April 1998, and will be raised to 15 percent on 1 April 1999. HFIs, on

the other hand, must maintain their SLR at 10 percent, divided equally between

government securities and bank deposits, versus the previous allocation of 25 percent for

government securities and 75 percent for bank deposits.

MARKING TO THE MARKET

Mark-to-the-market requirements are laid down by the RBI for commercial banks and

NBFCs, and by the National Housing Bank (NHB) for HFIs. In 1997–1998, commercial

banks were permitted to invest up to 40 percent of their investible funds in a permanent

portfolio of government securities, for which no provision for depreciation was required.

The remaining 60 percent of their investments were classified as current portfolio which

the banks had to value at market prices (mark to the market).

The RBI has, however, increased its mark-to-the-market requirements over the years. In

1998–1999, commercial banks have to mark to the market at least 70 percent of their

investment in government securities as against the previous 60 percent. For

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Capital Market Reforms nongovernment paper, there are no explicit mark-to-the-market requirements. NBFCs

and

HFIs must take a different mark-to-the-market approach than the commercial banks.

They must classify their investments, both equity and debt, into a permanent portfolio

and a current portfolio, but the specific percentages are not prescribed. The classification

is made at the time of investment and approved by the board of directors of the company

or its authorized representative, taking into account the investment horizon planned by

the NBFC or HFI. If the institution intends to sell within the year, it should classify the

investment as current portfolio, but if it intends to hold on to the investment for a longer

period, it can classify the investment as permanent portfolio. All current investments

must be marked to the market; investments in the permanent portfolio, on the other hand,

can be carried on the balance sheet at their original cost.

A substantial portion of the government securities portfolio of many commercial banks is

made up of low–coupon rate securities acquired before yields on government securities

were freed to market determination. Securities reclassified from permanent to current

portfolio must have provision for depreciation, since the acquisition cost of older

securities significantly exceeds current market prices. Most of the older commercial

banks have adopted the RBI’s mark-to the- market requirements, retaining a permanent

portfolio of government securities to reduce their provision for depreciation and show

higher profits. But some newer private-sector banks have adopted the more transparent

practice of marking to the market their entire portfolio of government securities.

TAX PROVISIONS

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Capital Market Reforms Except for tax-free bonds, which some public-sector units have been permitted to issue,

and unlike the dividend paid on equity and preference shares, which is tax-exempt to

investors,9 interest on debt instruments is taxable.

The Income Tax Act requires the corporation that pays interest on bonds or debentures to

deduct the tax at source. The rate of the tax varies from 10 percent to 20 percent

depending on whether the interest is being paid to an individual or to a corporation.

TRADING SYSTEM

Because of the limited number of players, deals in the institutional debt market are

normally made directly between the parties concerned or through a broker. Banks rely on

the telecommunications network to broker deals and keep track of the market. With the

setting up of the whole-sale debt market under the National Stock Exchange (NSE) and

the requirement to report trades, the system of trading has become more transparent and

efficient.

Government securities and T-bills are dematerialized insofar as deals are made and

settled on a delivery-versus-payment basis through the subsidiary general ledger (SGL)

account at the RBI.

REPO MARKETS

A repo (short for repurchase agreement) is a contract to sell a security and to buy it back

at a fixed price on an agreed future date. Market participants use repos to meet their

short-term liquidity needs or reserve requirements. More importantly, the repo market

enables the RBI to conduct open-market operations for monetary control. A repo

transaction is for a minimum of three days and a maximum of 14days.Currently, only

central government securities and all T-bills are eligible for repo, and only banks,

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Capital Market Reforms primary dealers (PDs), and satellite dealers (SDs) may enter into repo transactions. In

December 1997, 19 nonbank entities were allowed to

enter into reverse repo transactions.

Repos in GOI securities were banned in mid-1992, following the discovery of a huge

fraud in the securities market. Repos resumed on a limited scale between the RBI and

banks in December 1992, and interbank repos in some new issues of GOI securities were

later permitted to attract investors. Currently, repos are permitted in all GOI securities. In

the second half of 1997–1998, the RBI announced that it would allow repos in PSU

bonds as soon as the regulations relating to forward contracts are amended.

CLEARING AND DEPOSITORY SYSTEM

The passage of the Depositories Act by Parliament in August 1996 paved the way for the

establishment of several depositories, which are expected to improve the efficiency of the

capital market. The National Securities Depository Limited (NSDL), the first electronic

depository for equity and debt securities in India, began operations in October 1996. It is

sponsored jointly by IDBI, the Unit Trust of India (UTI), and the NSE. Dematerialization

of equity shares is fairly Straight forward since the central government, which imposes

stamp duty on the transfer of shares, charges a uniform rate of 0.50 percent of the market

value of the shares. Stamp duty on the transfer of bonds and debentures, on the other

hand, is a state government issue and is therefore subject to a variety of regimes. For this

reason the NSDL has found it difficult to dematerialize these instruments. The RBI has

already introduced the delivery-versus-payment system for government securities

through the SGL account. There have also been suggestions to dematerialize money-

market instruments such as commercial paper and certificates of deposit, as well as all T-

bills and GOI securities, to improve clearing and settlement.

Jamia Hamdard Page 53

Capital Market Reforms

UNDERWRITING OF DEBT INSTRUMENTS

The RBI used to pay a commission to primary dealers (PDs) based on their purchases

(including development) of government securities in the primary market. Since June

1997, the RBI has been paying them instead an underwriting fee based on the

underwriting amount offered by the PDs on a voluntary basis through competitive

bidding. Under this scheme, PDs offer to underwrite at least 50 percent of the issue

amount. Satellite dealers (SDs) form the second tier in the trading and distribution of

government securities. They have recently been allowed to underwrite government

securities issues, up to a maximum exposure of twice their net worth in each issue.

SDs and PDs are moreover allowed to sub underwrite their commitments.

YIELD CURVE DISTORTIONS

The yield curve is distorted at various points. The rates are very low at the short end (91-

day T-bills), then rise sharply for securities of two-year maturity, and generally flatten

after the five-year maturity. Plotting a benchmark yield curve is therefore difficult.

Several factors are responsible for the distortions.

Although 91-day T-bills are auctioned in a predetermined amount, the RBI participates in

the auctions and can control interest rates. Large noncompetitive bidders, such as state

Jamia Hamdard Page 54

Capital Market Reforms governments and provident funds, also contribute to the distortion in the yield curve

when they make large bids without naming their price. To deal with this problem, the

RBI in April 1998 said that it would announce the amounts for competitive bids in all T-

bill auctions and keep noncompetitive bids beyond the purview of such amounts.

Also until April 1998, the borrowings of the central government under its Ways and

Means Advances (WMA) were linked to the 91-day T-bill rate. In 1997–1998 these

borrowings were 3 percentage points below the 91-day T-bill cut-off price, exerting

tremendous downward pressure on the 91-day T-bill rate. In April, the RBI announced

that henceforth the WMA would be linked instead to the bank rate.

The RBI participates as well in primary auctions of GOI securities and can determine the

cut-off yield. There is an implicit reluctance to allow the rate for the maximum maturity

(ten years) to exceed a stipulated interest rate. Rates for short-term maturities therefore

tend to be significantly higher than market. The small number of players in the market

results in lack of liquidity and pricing inefficiencies. Investors do not communicate yield

expectations among themselves.

Reforms in Government securities market

Institutional Measures

❖ Administered interest rates on government securities were replaced by an auction

system for price discovery.

❖ Automatic monetization of fiscal deficit through the issue of ad hoc Treasury Bills was

phased out.

❖ Primary Dealers (PD) were introduced as market makers in the government securities

market.

❖ For ensuring transparency in the trading of government securities, Delivery versus

Pay (DvP) settlement system was introduced.

Jamia Hamdard Page 55

Capital Market Reforms ❖ Repurchase agreements (repo) were introduced as a tool of short term liquidity

adjustment. Subsequently, the Liquidity Adjustment Facility (LAF) was introduced. LAF

operates through repo and reverse auctions to set up a corridor for short-term interest

rate. LAF has emerged as the tool for both liquidity management and also signaling

device for interest rates in the overnight market.

❖Market Stabilizations Scheme (MSS) has been introduced, which has expanded the

instruments available to the Reserve Bank for managing the surplus liquidity in the

system.

Increase in Instruments in Government Securities Market

❖ 91-day Treasury bill was introduced for managing liquidity and benchmarking. Zero

Coupon Bonds, Floating Rate Bonds, Capital Indexed Bonds were issued and exchange

traded interest rate futures were introduced. OTC interest rate derivatives like IRS/FRAs

were introduced.

Enabling Measures

❖ Foreign Institutional Investors (FIIs) were allowed to invest in government securities

subject to certain limits.

❖ Introduction of automated screen-based trading in government securities through

Negotiated Dealing System (NDS). Setting up of risk-free payments and settlement

system in Government securities through Clearing Corporation of India Limited

(CCIL).Phased introduction of Real Time Gross Settlement System (RTGS).

❖ Introduction of trading of government securities on stock exchanges for promoting

retailing in such securities, permitting non-banks to participate in repo market.

Jamia Hamdard Page 56

Capital Market Reforms

RECENT REFORMS

The Indian regulatory and supervisory framework of securities market in India has been

adequately strengthened through the legislative and administrative measures in the recent

past. The regulatory framework for securities market is consistent with the best

international benchmarks, such as, standards prescribed by International Organization of

Securities Commissions (IOSCO). Recent capital market reforms and an agenda for

reforms are given below.

Extensive Capital Market Reforms were undertaken during the 1990s

encompassing legislative regulatory and institutional reforms. Statutory market

regulator, which was created in 1992, was suitably empowered to regulate the

collective investment schemes and plantation schemes through an amendment in

1999. Further, the organization strengthening of SEBI and suitable empowerment

through compliance and enforcement powers including search and seizure

powers were given through an amendment in SEBI Act in 2002. Although

dematerialization started in 1997 after the legal foundations for electronic book

keeping were provided and depositories created the regulator mandated gradually

that trading in most of the stocks take place only in dematerialized form.

Jamia Hamdard Page 57

Capital Market Reforms Till 2001 India was the only sophisticated market having account period

settlement alongside the derivatives products. From middle of 2001 uniform

rolling settlement and same settlement cycles were prescribed creating a true spot

market.

After the legal framework for derivatives trading was provided by the amendment

of SCRA in 1999 derivatives trading started in a gradual manner with stock index

futures in June 2000. Later on options and single stock futures were introduced

in 2000-2001 and now India’s derivatives market turnover is more than the cash

market and India is one of the largest single stock futures markets in the world.

India’s risk management systems have always been very modern and effective.

The VaR based margining system was introduced in mid 2001 and the risk

management systems have withstood huge volatility experienced in May 2003

and May 2004. This included real time exposure monitoring, disablement of

broker terminals, VaR based margining etc.

India is one of the few countries to have started the screen based trading of

government securities in January 2003.

In June 2003 the interest rate futures contracts on the screen based trading

platform were introduced.

India is one of the few countries to have started the Straight through Processing

(STP), which will completely automate the process of order flow and clearing and

settlement on the stock exchanges.

RBI has introduced the Real Time Gross Settlement system (RTGS) in 2004 on

experimental basis. RTGS will allow real delivery v/s. payment which is the

international norm recognized by BIS and IOSCO.

Jamia Hamdard Page 58

Capital Market Reforms To improve the governance mechanism of stock exchanges by mandating

demutualization and corporatization of stock exchanges and to protect the interest

of investors in securities market the Securities Laws (Amendment) Ordinance was

promulgated on 12th October 2004. The Ordinance has since been replaced by a

Bill.  

Recent initiatives

Corporation and Demutualization of Stock Exchanges

Out of the 23 erstwhile stock exchanges, 18 have since been corporatized and

demutualised in 2007-08. One stock exchange, i.e. Hyderabad Stock Exchange, failed to

demutualise by the due date and has therefore been de-recognized. Saurashtra Kutch

Stock exchange, Mangalore Stock exchange and Magadh Stock exchange have been de-

recognized for various irregularities/non compliances. As regards Coimbatore Stock

Exchange which had sought voluntary withdrawal of recognition, the matter is sub-

judice.

Corporate Bond Markets

The Government had set up a High-Level Expert Committee on Corporate Bonds

and Securitisation (Patil Committee) to look in to legal, regulatory, tax and

market design issues in the development of the corporate bond market. The

Committee submitted its report to the Government in December, 2005. The

Jamia Hamdard Page 59

Capital Market Reforms Budget of 2006-07 announced that the Government has accepted the

recommendations of the Report and that steps would be taken to create a single,

unified exchange-traded market for corporate bonds. The measures already taken

in respect of implementation of the recommendations of the Patil Committee

include:

-  The Securities Contracts (Regulation) Act, 1956 has been amended to include

securitized instruments within the ambit of "securities".

-   The RBI Act has been amended to empower RBI to develop and regulate

market for Repos in corporate bonds.

-   The limit of FII Investment in corporate debt has been increased from US$

0.5 billion to US$ 1.5 billion.

-  The trade reporting platform for corporate bonds has been operationalised

since 1st January, 2007.

-   The trading platforms for corporate bonds at the major exchanges has been

operationalized from July 1, 2007.

 

Securities Contracts (Regulation) Amendment Act, 2007   

The Securities Contracts Regulation Act, 1956 has been amended to include

securitization instruments under the definition of "securities"and provide for disclosure

based regulation for issue of the securitized instruments and the procedure thereof. This

has been done keepingin view that there is considerable potential in the securities market

for the certificates or instruments under securitization transactions. The development of

Jamia Hamdard Page 60

Capital Market Reforms the securitized debt market is critical for meeting the humungous requirements of the

infrastructure sector, particularlyhousing sector, in the country. Replication of the

securities markets framework for these instruments would facilitate trading on stock

exchanges and in turn help development of the market in terms of depth and liquidity. 

PAN as the sole identification number 

PAN has been made the sole identification number for all transactions in securities

market. This is an investor friendly measure as he does not have to maintain different

identification numbers for different kinds of transactions/different segments in financial

markets. Further, identification through PAN would help the authorities in enforcement

action.

Equity Finance for the Small and Medium Enterprises (SMEs)

SMEs in India have traditionally relied on debt financing from banks and non-bank

financial institutions. In order to develop the equity market for SMEs, SEBI has decided

to create a separate exchange for the SMEs. It has decided that, to begin with there

should be a single exchange for the SME sector for around 2-3 years to enable successful

development of the market for SMEs.

IPO grading

SEBI has made it compulsory for companies coming out with IPOs of equity

shares to get their IPOs graded by at least one credit rating agency registered with

SEBI from May 1, 2007. This measure is intended to provide the investor with an

informed and objective opinion expressed by a professional rating agency after

analyzing factors like business and financial prospects, management quality and

Jamia Hamdard Page 61

Capital Market Reforms corporate governance practices etc. Till January 2008 45 IPOs have been graded

by credit rating agencies.  

Permitting Indian mutual funds to invest in overseas securities

SEBI has fixed the aggregate ceiling for overseas investments at US $ 5 billion.

Within the overall limit of US $ 5 billion, mutual funds can make overseas

investments subject to a maximum of US $300 million per mutual fund. Further

different regulations that allow individuals and Indian mutual funds to invest in

overseas securities by permitting individuals to invest through Indian mutual funds

has been converged.  

New derivative products

Mini derivative contract on Index (Sensex and Nifty) having a minimum contract

size of Rs. 1 lakh have been introduced. It has been found that globally overall

market liquidity and participation generally increases with introduction of mini

contracts. Since January 11, 2008 SEBI has also allowed trading on options

contracts on indices and stocks with a longer life/tenure of upto five years. These

contracts are expected to provide liquidity at the longer end of the market. Since

January 15, 2008 SEBI has permitted introduction of volatility index on futures and

options contracts. An openly available and quoted measure of market volatility in

the form of an index will help market participants.  

Short selling

Jamia Hamdard Page 62

Capital Market Reforms In pursuance to budget announcement, SEBI has issued a circular on 20 th

December, 2007 to permit short selling by institutional investors and securities

lending and borrowing to support settlement of short sales.

1. Investment options for Navaratna and Miniratna Public Sector Enterprises

The Navaratna and Miniratna Public Sector Enterprises have been allowed to invest in

public sector mutual funds subject to the condition that they would not invest more than

30% of the available surplus funds in equity mutual funds and the Boards of PSEs would

decide the guidelines, procedures and management control systems for such investment

in consultation with their administrative Ministries. 

Investor Protection and Education Fund (IPEF)    

SEBI has set up the Investor Protection and Education Fund (IPEF) with the purpose of

investor education and related activities. SEBI hascontributed a sum of Rs.10 crore

toward the initial corpus of the IPEF from the SEBI General Fund. In addition following

amounts will also be credited to the IPEF namely:

(i) Grants and donations given to IPEF by the Central Government, State

Governments or any institution approved by SEBI for the purpose of the

IPEF;

(ii) Interest or other income received out of the investments made from the IPEF;

and

(iii) Such other amount that SEBI may specify in the interests of the investors.

Jamia Hamdard Page 63

Capital Market Reforms

Result And Analysis of The Survey:

Based on the questionnaire here is a systematic analysis of the opinions of the

respondents.

1) Do you have any knowledge about capital market?

Bar chart showing the number of respondents who are aware of the Capital market-

According to Age:

Jamia Hamdard Page 64

Capital Market Reforms

0

2

4

6

8

10

12

14

16

18

20

19

6

8

Awareness about Capital Market

Yes

20 -30 30-40 40-50

Age(years)

yes

The line graph shows that young people are more aware of the capital market. The age

group of 20-30years has 20 positive answer, whereas it decrease to 06 in the age group of

30-40years,next it increases to 08 in age group of 40-50years.

Bar chart showing the number of respondents who are aware of the Capital market-

According To Salary:

Jamia Hamdard Page 65

Capital Market Reforms

0

2

4

6

8

10

12

14

16

18

4

18

9

2

Awareness about Capital Market:

Yes

Below20,000 20,000-30,0000 30,000-40,000 40,000-50,000Salary(Rs)

Yes

Salary group of Rs. 20,000-30,000 are more aware of the capital market, then comes the

Rs. 30,000-40,000 earners who show there interest in capital market. Rs. 40,000-50,000

have less interest here might be they take help of brokers if needed. Below Rs. 20,000

people are still having average knowledge of the same.

Pie Chart showing the percentage of people aware, not aware, and partly aware of the

Capital market:

Jamia Hamdard Page 66

Capital Market Reforms

66%

16%

18%

Awareness about Capital Market:

% of people aware % of people not awarePartly Aware

66% of the respondents are aware of the Capital Market,18% of them are partly aware

and only 185 of the respondents are not aware of it. Thus it can be said that a prominent

number of population knows about Capital market.

2) Capital Market Reforms should be related to….

(Disclosure, pricing or both)

Jamia Hamdard Page 67

Capital Market Reforms

Analysis for estimating the number of people responding in favor of both Disclosure

and pricing-According to Salary:

0

2

4

6

8

10

12

14

16

3

16

5

1

Capital Market Reforms:

Both

Below20,000 20,000-30,000 30,000-40,000 40,000-50,000Salary(Rs)

The Salary group of 20,000-30,000 says the maximum number of both option that means

according to them reforms took place in both Disclosure and pricing. 40,000-50,000

salary group is not seemingly in favor of the opinion. Rests two are partially in favor of

the same

Graph showing number of respondents who replied reforms held in Disclosure –

According to Salary:

Jamia Hamdard Page 68

Capital Market Reforms

0

1

2

3

4

5

6

6 6

1 1

Capital Market Reforms:

Disclosure

Below 20,000 20,000-30,000 30,000-40,000 40,000-50,000Salary(Rs)

The comparatively below salary group of people have more interest and information

about capital market as they are supposed to be the major part of the population. In terms

of reforms they are in favor of disclosure also.

Jamia Hamdard Page 69

Capital Market Reforms Graph showing number of respondents who replied reforms held in Disclosure –

According to Salary:

00.5

11.5

22.5

33.5

44.5

5

3

5

4

0

Capital Market Reforms:

Pricing

Below 20,000 20,000-30,000 30,000-40,000 40,000-50,000Salary(Rs)

Pricing is also favored by 20,000-30,000 salaried people, they are the main target of the

survey because large number of population is comprised of this group.

Pie Chart showing the percentage of responses of each of the three options:

Jamia Hamdard Page 70

Capital Market Reforms

26%

24%

50%

Capital Market Reforms: Disclosure % Pricing % Both %

The survey says it should be in both the disclosure of terms and conditions and pricing

of debt and equities. The respondents’ answer in favor of both that is 50% is maximum.

Jamia Hamdard Page 71

Capital Market Reforms 3) Market Infrastructure is one of the prerequisite for the flow of

Information and Trade…

Number of people having a strong view on availability of Market Infrastructure –

According to age:

0

2

4

6

8

10

12

14

14

3

7

Market Infrastructure needed:

Strongly Agree

20 -30 30 -40 40 -50Age(Years)

Age group of 20-30 is rational and is strongly in favor of about sound market

Infrastructure for the flow of information and trade. Next in line is age group 40 -50 and

the last is 30 – 40 age group that gives minimum favors in regards to the same.

Jamia Hamdard Page 72

Capital Market Reforms

Number of people having just agreeing view on availability of Market Infrastructure –

According to age:

0

2

4

6

8

10

12

11

32

Market Infrastructure needed:

Agree

20 - 30 30 - 40 40 - 50Age(Years)

Again 20-30 age group people agree to the fact that market infrastructure is

needed,30-40 & 40-50 age groups are comparatively less in favor.

Jamia Hamdard Page 73

Capital Market Reforms

Number of people disagreeing on the view that a sound Market

Infrastructure is necessary for flow of information and trade–

According to age:

012345678

8

0

2

Market Infrastructure needed:

Disagree

20 - 30 30 - 40 40 - 50Age(Years)

Age group of 20 – 30 Years is more aware of the fact that Market Infrastructure is

prerequisite for flow of information and trade or say younger generation is quite rational

about the view.

Jamia Hamdard Page 74

Capital Market Reforms

Pie chart showing the three different opinions of the respondents regarding the

availability of sound Market Infrastructure for flow of information and trade:

54%35%

11%

Market Infrastructure: Strongly Agree % Agree % Disagree %

The survey shows that market infrastructure is one of the prerequisite of flow of

information and trade, as maximum number of respondent strongly agree to the fact.

Jamia Hamdard Page 75

Capital Market Reforms

4) Does India has a Nation Wide Integrated market?

Number of respondents strongly agreeing on the view of a nationwide market

existence in India – According to occupation:

0

0.5

1

1.5

2

2.5

3

3

0

3

Nation Wide Market Exists:

Strongly Agree

Govt.Empl Business man Pvt.EmplOccupati on

Only 3 of the Government employees and 3 of the private employees strongly agree to

the opinion on Nation Wide Market existing in India.

Jamia Hamdard Page 76

Capital Market Reforms

Number of respondents agreeing on the view of a nationwide market existence

in India – According to occupation:

0

5

10

15

20

25

30

2 2

29

Nation Wide Market Exists:

Agree

Govt.Empl Business man Pvt.Empl Occupati on

Only private employees are in favor of the thing that India has Nation Wide Capital

Market.

Jamia Hamdard Page 77

Capital Market Reforms

Pie Chart showing percentage of different opinions regarding the availability of

nationwide integrated Capital market in India:

66%

22%

12%

Nation Wide Integrated Market Exists:

Agree % Disagree % Strongly Agree %

Respondent have not strongly agreed to the fact, they just agree in large number that

means still there is greater need of Market integration in India or say a wide spread

market is to be there.

Jamia Hamdard Page 78

Capital Market Reforms

6) Where do you prefer to invest in Stock market or in Banks?

Opinions about investing excusively in stock market – According to salary:

Jamia Hamdard Page 79

Capital Market Reforms

0

1

2

3

4

5

6

7

2

6

7

1

Investment in stock market:

Stock mkt

Beow 20,000 20,000-30,000 30,000-40,000 40,000-50,000Salary(Rs)

Higher income group people are more inclined to invest in stock market, as the graph

shows Income group of Rs.30,000-40,000 invest more in stock market however opinion

changes with further rise in income.

Jamia Hamdard Page 80

Capital Market Reforms

Opinions about investing excusively in stock market – According to salary:

0123456789

89

0 0

Investment in stock market:

Bank

Beow 20,000 20,000-30,000 30,000-40,000 40,000-50,000Salary(Rs)

Less income groups plan to invest in banks exclusively as compared to higher income

group

Jamia Hamdard Page 81

Capital Market Reforms

Pie Chart showing percentage of different opinions regarding the preference of

investment either in stock market or in bank or in both of them:

34%

34%

32%

Preference in Investment: Bank % Both % Stock Market %

Equal number of people invest in Bank and both (Stock Market & Bank),i.e.34%, some

figure less that is 32% invest in Stock Market.

Jamia Hamdard Page 82

Capital Market Reforms

7) Free Pricing of Equities should be there or not?

Number of respondents agreeing on the view of Free Equity Pricing – According to

occupation:

0

5

10

15

20

25

31

22

Free Equity pricing:

Yes

Govt.Empl Business man Pvt.Empl Occupati on

Private employees are largely in favor of free equity pricing, as compared to the

government employees. Businessmen do not prefer this option.

Jamia Hamdard Page 83

Capital Market Reforms

Number of respondents agreeing on the view of Free Equity Pricing –

According to Salary:

0

2

4

6

8

10

12

14

16

0

16

10

Free Equity Pricing:

Yes

Below 20,000 20,000-30,000 30,000-40,000 40,000-50,000Salary

Income group of Rs. 20,000-30,000 are preferring the idea of free equity Pricing, rest of

the groups are not in favor.

Jamia Hamdard Page 84

Capital Market Reforms

Pie Chart showing percentage of different opinions regarding the free pricing of

equities:

52%

26%

22%

Free Equity Pricing:

Yes % No % Can't say %

52% of the respondents voted for Free Equity pricing,22% are unknown or can’t give

any opinion. And 26% are not in favor of the same.

Jamia Hamdard Page 85

Capital Market Reforms

8) Should there be any kind of regulations on brokers?

Number of respondents agreeing on the view of putting regulations on brokers –

According to occupation:

02468

1012141618

4

0

18

Regulation on brokers:

Agree

Govt.Empl Business man Pvt.EmplOccupati on

Most of the respondents are in favor of some kind of regulations on brokers.

Jamia Hamdard Page 86

Capital Market Reforms Private employees are more agreeing on the point as compared to the rest.

Number of respondents agreeing on the view of putting regulations on brokers –

According to salary:

0

2

4

6

8

10

12

14

3

13

5

1

Regulations on brokers:

Agree

Below 20,000 20,000-30,000 30,000-40,000 40,000-50,000Salary

Salary group of below Rs.20, 000 are showing positive response i.e. they believe in

regulation on brokers, same with the next two groups, Rs.40,000-50,000 group is less

interested in the same.

Jamia Hamdard Page 87

Capital Market Reforms

Pie Chart showing percentage of different opinions regarding the regulations on

brokers:

34%

44%

22%

Regulation on Brokers:Strongly agree % Agree % Disagree %

Large number of population favors regulations on brokers.

Jamia Hamdard Page 88

Capital Market Reforms

9) There should be detailed disclosure of terms and conditions on mutual

funds or not?

Number of respondents strongly agreeing on the view of disclosing all the terms and

conditions on Mutual funds before hand –According to occupation:

0

2

4

6

8

10

12

14

4

2

13

Govt.empl Business man Pvt.empl

Disclosure :

Strongly AgreeOccupati on

Jamia Hamdard Page 89

Capital Market Reforms

All the respondents strongly agree to the point that there should be disclosure of terms

and conditions of mutual funds. Since private employees are more in the population there

opinion is greater.

Number of respondents strongly agreeing on the view of disclosing all the terms and

conditions on Mutual funds before hand–According to salary:

0

2

4

6

8

10

12

14

3

13

3

0

Below20,000 20,000-30,000 30,000-40,000 40,000-50,000

Disclosure :

AgreeSalary

All the income group favor the fact, Rs.20,000-30,000 supports more also this group

exists more so as their opinion, other groups like below 20,000 & Rs.30,000-40,000 also

vote for the disclosure.

Jamia Hamdard Page 90

Capital Market Reforms

Pie Chart showing percentage of different opinions regarding the disclosure of all the

terms and conditions of Mutual funds before hand:

62%

38%

Disclosure:Strongly Agree % Agree % Disagree %

The result shows that major number of respondents prefers the point of disclosure.

Jamia Hamdard Page 91

Capital Market Reforms

10) What can be the households’ share in Mutual funds

Bar chart showing the opinions regarding household’s share in mutual funds-

According to occupation:

Govt.employee Business man Private employee

0

2

4

6

8

10

12

14

16

18

20

21

19

Share of hosehold in mutual funds:

Declining-8%

Small number of government employees i.e.2 say the share is declining at 8%.Private

Jamia Hamdard Page 92

Capital Market Reforms employees have the same opinion but with greater percentage.

Bar chart showing the opinions regarding household’s share in mutual funds-

According to salary:

Below 20,000 20,000-30,000 30,000-40,000 40,000-50,0000

2

4

6

8

10

12

7

11

3

1

Share of hosehold in mutual funds:

Declining-8%

Salary

Income group of 20,000-30,000 again have larger share of response i.e. declining at

8%.Below 20,000 comes next in line. The rest have their opinions.

Jamia Hamdard Page 93

Capital Market Reforms

Pie Chart showing percentage of different opinions regarding house hold’s share in

Mutual funds:

54%

44%

2%

House hold share in Mutual Funds:Can't say % declining-8% % Increasing-8% %

The survey shows that 54% of the respondents were unaware of the point, however it can

be judged as declining at 8% as large number of them i.e.44% have said so and only 2%

have different opinion.

Jamia Hamdard Page 94

Capital Market Reforms

10) Global effect is one of the leading factor that has greater impact on Stock

market?

Bar chart showing the number of respondents strongly agreeing to the fact that global

scenario affects the stock market - According to occupation:

Govt.employee Business man Private employee0

2

4

6

8

10

12

14

16

18

32

17

Global scenario eff ects stock market:

Strongly Agree

Jamia Hamdard Page 95

Capital Market Reforms Private employees vent their positive response to a greater degree thus according to them

they strongly agree to the fact that global scenarios affect the functioning of the Stock

Market. Others have also the response but at less frequency.

Bar chart showing the number of respondents only agreeing to the fact that global

scenario affects the stock market - According to occupation:

Jamia Hamdard Page 96

Capital Market Reforms

Govt.employee Business man Private employee0

5

10

15

20

25

6

0

22

Global scenario eff ects stock market:

Agree

Government employees and private employees favor the point, business men are neutral

of the view.

Jamia Hamdard Page 97

Capital Market Reforms

Pie Chart showing percentage of different opinions regarding the fact that globa

scenario affects stock market :

44%

56%

Global Scenario Effects Stock Market:Strongly agree % Agree % Disagree %

56% of the respondents are in strongly supporting the view and 44% of them are just

agreeing with the concept, it means global scenario do effects.

Jamia Hamdard Page 98

Capital Market Reforms

Findings and recommendations:

Following are some of the point that has been found out by the analysis.

It can be said that a prominent number of population knows about Capital

market.

The survey says reforms should be in both the disclosure of terms and

conditions and pricing of debt and equities.

Market infrastructure is one of the prerequisite of flow of information and

trade

Still there is greater need of Market integration in India.

Equal number of people invest in Bank and both (Stock Market & Bank),

i.e.34%, some figure less that is 32% invest in Stock Market.

52% of the respondents voted for Free Equity pricing.

Large number of population favors regulations on brokers.

Major number of respondents prefers the point of disclosure.

56% of the respondents are in strongly supporting the view and 44% of them

are just agreeing with the concept, it means global scenario do effects.

Share of house hold in Mutual fund is declining at rate of 8%

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Capital Market Reforms Annexure 1

QUESTIONNAIRE

Name:

Designation - Govt. Employee Businessman Private Employee

Salary- 20,000 & below 20,000 to 30,000 30, 000 to 40,000

40,000 to 50,000

Age- 20 to 30 30 to 40 40 to 50

1) Do you have any knowledge about the current capital market?

a) Yes b) No c) Partly

2) Initially capital market reforms were related to…

a) Disclosure b) pricing c) Can’t say

3) Market infrastructure is one of the prerequisite for flow of information and

trading…

a) Strongly disagree b) Strongly agree c) Agree d) Disagree

4) Does India has a nationwide integrated market?

a) Strongly disagree b) Strongly agree c) Agree d) Disagree

5) Where do you prefer to invest in stock market or in banks?

a) Banks b) Stock market c) Both of them

6) Free pricing of equities should be there or not?

a) Yes b) No c) Can’t say

7) Should there be any kind of regulations on brokers?

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Capital Market Reforms a) Strongly disagree b) Strongly agree c) Agree d) Disagree

8) There should be detailed disclosure of terms and conditions on mutual funds or

not?

a) Strongly disagree b) Strongly agree c) Agree d) Disagree

9) What is the households’ share in mutual funds?

a) Increasing-8% b) Constant-10% c) Declining-8 d) Can’t say

10) Global effect is one of the leading factor that has greater impact on stock

Market……

a) Strongly disagree b) Strongly agree c) Agree d) Disagree

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Capital Market Reforms BIBLIOGRAPHY

Internet

Consultation with the supervisor

Interaction with respondents

News Paper

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