The capital market is the market for medium and long term funds. The demand for long term funds comes from industry, agriculture and government. The supply of funds comes largely from individual savers, corporate savings, banks, insurance companies, financial institutions and government.
#Structure of Capital Market [will be updated soon]
Government Securities Market
- These securities are issued by government, thus it consists no risk. Therefore it is also known as Gilt Edge Market.
- There are two types of government securities :
- Issued by centre government and state government.
- Issued by legal authority.
- RBI sells these securities on behalf of government and this activity is known as “open market operation” of monetary policy.
- The investors in the gilt edge market are pre-dominant institutions. They are required to invest a certain portion of their funds in these securities. These institutions are commercial banks, LIC, GIC and provident funds.
Industrial Securities Market
- Primary Market or New issue market
- The new market issue is concerned with raising of new capital in form of shares, bonds and debentures.
- Public limited companies uses many method to raise funds through the primary market like :
- Through prospectus (an invitation to general public for subscription)
- By offering for sale
- By private placing
- Secondary Market or Old Issue Market or Stock Exchange
- Stock Exchange Market is a market of sale and purchase of quoted or listed securities.
- There are 24 stock exchanges in India.
- Bombay Stock Exchange is one of the oldest stock exchanges in the world since 1875 and the oldest in Asia.
- Business concerns capital raise through three major types of securities :
- Ordinary shares
- The working of stock exchange market in India was earlier controlled by “Controller of Capital Issues”, it is now regulated by SEBI.
Development Financial Institutions
- IFCI (Industrial Financial Corporation In India)
- It was the first long term financing institution.
- Set up in July, 1948 with the objective of providing medium and long term loans to large industrial concern in private sector.
- At present it provides assistance to public sector industries also.
- After 1999, its name has changed to IFCI limited and now it performs like a company.
- ICICI (Industrial Credit and Investment corporation of India)
- It was setup on January 1955 as a public limited company
- It was setup under the sponsorship of world bank and representative of Indian Industry.
- The original ICICI is now ceased to exit and now it is called as ICICI Bank.
- IDBI (Industrial Development bank of India)
- It was setup as a wholly owned subsidiary of RBI on July 1, 1964 under an act of parliament
- In 1976, it was delinked from RBI
- It is now central and an apex institution in the field of industrial finance.
- Its main objective to provide funds, credits and various financial services to new projects as well as to existing industries for expansion and modernisation of industrial sector.
- SFC (State Financial Corporation)
- There are 18 SFC’s at present.
- Tamilnadu industrial investment corporation Ltd. set up in 1949, it was the first SFC.
- Rest 17 were set up under State Financial Corporation Act, 1951.
- Till 1990 IDBI and RBI were supervising these SFC’s but after 1990, SDBI and RBI have been performing the overseeing function.
- The SFC’s operate as “ Regional Development Banks” in their respective states.
- Andhra Pradesh, Assam, Bihar, Delhi, Hariyana, Gujarat, Himachal Pradesh, Jammu and Kashmir, Kerala Madhya Pradesh, Maharashtra, Orissa, Punjab, Rajasthan, Tamilnadu, Uttar Pradesh and West Bangal.
- IRBI (Industrial Reconstruction Bank of India)
- In April 1971, IRCI i.e., Industrial Reconstruction Corporation of India was setup.
- It was reconstituted and renamed as IRBI in 1985.
- The Union Budget 1996-97 proposed to transform the IRBI into full fledged all purpose development finance institution. Accordingly, on March 23rd, 1997. IRBI was transformed into Industrial Investment bank of India.
- UTI (Unit Trust of India)
- Established in 1964 and had a monopoly of mutual finds business till 1986. Initially it was the associate institute of RBI.
- Headquarters in in Mumbai.
- Area Served: India, Japan, Singapore, London etc.
- There are various associates / group institutions of UTI like – UTI securities exchange Ltd., UTI Bank, UTI Investors Services Ltd.,
- In 1987, UTI along with other institutions promoted CRICIL (Credit Rating Information Service of India Limited), which is the first credit rating agency of India.
- In 2003 UTI divided into two entities UTI 1 and UTI 2, UTI 1 framed by Government of India and does not come under purview of mutual fund regulations and UTI 2 sponsored by SBI, PNB, BOB and LIC and it is registered under SEBI.
- Merchant Bank
- It is also known as “Accepting and Issuing House” or Investment Banks.
- They deal with selective large industrial clients and not with the general public.
- There are many organisations which offer Merchant Banking Services
- Commercial Banks : SBI was the first bank to offer this service in 1972. Many subsidiaries of Banks are fully engaged in these services. Some of them are- SBI Capital Market Ltd (SBICAP), Canbank Financial Services Ltd.(Canfina), Bank of Baroda Fiscal Services Ltd.(BOB Fiscal).
- Development Banks – ICICI was the first development bank to set up a merchant banking diversion 1974.
- There are many private consultancy firms also who provide merchant banking facilities.
Venture Capital Companies
- Emerging first in US in 1970’s and in 1987 in India.
- Venture capital means taking risk in supplying capital.
- It is related to high risk, high profitability, New technology, young generation and small entrepreneurs.
- These credit are provided for period of 3 to 10 years.
- These funds are provided by – Commercial Banks – SBI and Canara Bank, IDBI and UTI.
Leasing and Factory
- Popularised in India in 1980s.
- Through lease, firm can acquire the economic use of asset for a started period of time without owning it.
- Every lease involve two parties – the user of the asset known as lessee and owner of asset known as lesser.
- Lease financing organisation in India include many private sector non-bank financial companies, some private sector manufacturing companies, Infrastructure Leasing and Financial Service Ltd, ICICI, IRBI, LIC, GIC etc.
- There are three main party in factoring arrangement
- The factor
- The client (seller)
- The customer (buyer)
- The arrangement is governed by a contact between factor and client
- SBI commercial and factoring service Ltd. set up on Feb 1991 was the country’s first factoring company.
- Mutual fund is a pure intermediary which performs a basic function of buying and selling securities on behalf of its unit-holders.
- The investors in the mutual funds which is proportional to their investment.
- Many investors cannot directly invest in instruments such as CD’s, CP’s and Treasury bills because the minimum required investment is quite large. Thus they prefer to invest in mutual funds.
- At present there are many public and private sector mutual funds companies. Some of the public sector mutual fund companies are- UTI (1964), SBI Mutual Funds (1987), CanBank Mutual Funds(1987), IND Bank Mutual Funds (1990), PNB Mutual Funds (1990) etc.