1. The financial system works through financial market . Afinancialmarket is one which deals in money i.e., borrowingmoney from those who have surplus and lending it tothose who need it. Like demand and supply of goodsad services in the product market there is also ademand for and supply of money in the financialmarket. On the basis of functions the financial market can bedivided as Money market Capital market

2. Money MarketOrganiseUnorganised d Commercial Regional Cooperative IndigenousNon banking BanksRuralbanks Bankers financeBankscompaniesPublicPrivat Foreign Bankssectorebanks Sectorbanks 3. Commercial banks Public sector banks Private sector banks Foreign banks 4. Established on Oct 2, 1975. Provides specialized knowledge on rural practices and requirements. Initially 5 RRBs were set up , sponsored by syndicate bank ,UTI,SBI, PNB and UCB. Right now , number of RRBS is pegged at 67 5. Co operative Banks in India are registered under the Co-operativeSocieties Act. The cooperative bank is also regulated by the RBI.They are governed by the Banking Regulations Act 1949 andBanking Laws (Co-operative Societies) Act, 1965. Cooperative banks Cooperative banksin India finance rural in India financeareas under: urban areas under : Farming Self-employment Cattle Industries Milk Small scale units Hatchery Home finance Personal finance Consumer finance Personal finance 6. INDIGENOUS BANKING According to the Indian Central Banking EnquiryCommittee, "an indigenous banker is anyindividual or private firm receiving deposits anddealing in Hundies or lending money". Their area of operation is limited, they know theircustomers intimately. They can watch whether theloan granted is used for the purpose or not.Therefore these types of bankers are existingeven now. The Shroffs, the Marwaris, theMultans, the Jains, the Sowcars, the Mahajans,Kharties, Seths and Banias are some of leadingindigenous bankers. 7. DIFFERENCE BETWEEN INDIGENOUSBANKING & MONEY LENDER Acceptance of DepositsThe Indigenous banker used to accept Moneylendersdo not accept deposits on current accounts as well asdeposits but they simply fixed deposits (notpermissible now). lend money (own funds) Dealing in HundiesThey do not deal in Hundies. Purpose of lending They generally provide finance to agriculture and donot finance for consumption. Rate of Interest The rates of interest charged by indigenous bankersare moderate and consistent with the marketconditions. The rates of interest charged by the moneylendersare very high.. 8. NON BANKING FINANCIALCOMPANY Non-banking financial companies:are financial institutions that provide banking services without bank licences . NBFCs can be classified in following categories:I. Developing financial institutionII.Leasing companiesIII. investment companiesIV.venture capital companies 9. CapitalmarketGovt. Securities Industrial DevelopmentNon bankingmarket securities Financialfinance market Institutions companiesNew issue Old issuesmarketmarket IFCI , IDBI , SFCs , UTI etc.Merchant banks,mutualfunds, leasing cos. 10. Low profits High CRR and SLR Huge NON PERFOMING ASSETS Concessional rates Restriction on new entry Low capital adequacy ratio 11. Resulted in Distorted interest rate mechanism Gross inefficiencies at the micro level Low capital levels of banks Adverse affect on the viability and profitabilityof banks Transparency, accounting and prudential normscould not be strictly followed in bankingoperations Lack of incentive to seek efficiency 12. CATEGORISED IN THE TWO ASPECT REFORMS IN BANKING SECTOR REFORMS IN CAPITAL MARKET 13. REDUCTION IN STATUTORYLIQUIDITY RATIO (38.5% to 25% ) REDUCTION IN CASH RESERVERATIO (15% to 3% ) DEREGULATION OF INTERESTRATES CAPITAL ADEQUACYREQUIREMENT PRUDENTIAL REFORMS 14. TRANSPARENCY OFOPERATIONS RECOVERY OF NON PERFORMING ASSETS IMPROVEMENT OF RISKMANAGEMENT INTRODUCING COMPETITION INTHE BANKING SECTOR 15. period GDP growth(%) WPI(average) inflation(%)1951-60 3.6 1.21960-70 4.0 6.411970-80 2.9 9.01981-91 5.6 8.211991-92 (Crisis 1.4 13.7Year)1992-2000 6.3 7.22003-08 8.8 5.52008-10 (global 7.0 5.6financial crisis) 16. Increase in the net profit Increase in the capital adequacyratio Decrease in the non performingassets 17. Branch expansion of commercialBank GroupbanksNumber of branches as on June Rural 30Branches% ofruralas on branche30.6.2011 s to total19691991 2001 branche2011sA. SBI and2,462 12,168 1330 17976 623034.7associates 6B Nationalized4553295173250 44862 14325 31.9Banks4C RRBs- 145221445 15777 11876 75.3 9Total PSBs7015562076026 78615 32431 41.3 9D Other sch.900 3801 4995 11842 134111.3banksE Foreign Banks 130 140186318 7 2.2F All scheduled 8045601486545 90775 33779 37.2bank 0G Non scheduled 217 42 -551629.1 18. Establishment of SEBIEstablishment of Credit Rating AgenciesGrowing merchant banking activitiesGrowing electronic transactionsGrowing stock exchangesGrowth of derivatives transactionCommodity trading 19. 1998 The cabinet decides to allow40% foreign equity in privateinsurance companies 26% to foreigncompanies and 14% to non-resident&investors (FIIs)1999 The Standing Committeeheaded by Murali Deora decidesthat foreign equity in privateinsurance should be limited to 26%The IRA Act was renamed as theInsurance Regulatory andDevelopment Authority (IRDA) Act 2012 central government approves49% FDI in insurance sector 20. NBFCs do offer all sorts of banking services, such asloans and credit facilities, retirement planning, moneymarkets, underwriting, and merger activities. Compulsory registration Maintainence of required assets Efficient operation Maintainence of reserve 21. Phase 1. Establishment and Growth of Unit Trust ofIndia 1964-1987Phase II. Entry of Public Sector Funds - 1987-1993:-Phase III. Emergence of Private Sector Funds - 1993-96:-Phase IV. Growth and SEBI Regulation - 1996-2012. 22. Entry of FDI in private as well as in public banks In private banks1. FDI cap has been raised to 49% through automatic route .2. Though through government approval route FDI cap can be raised to 74% In public banks1. FDI cap has been raised to 49% through automatic route 23. OBJECTIVE-to institutionalize and strengthen themechanism for maintaining financialsector stability, financial sectordevelopment and inter-regulatory co-ordination. 24. Composition: The Council shall have the following composition:A The Union Finance Minister as the Chairperson.b. its members includes:I . Governor Reserve Bank of India (RBl),ii. Finance Secretary and/ or Secretary, Department of EconomicAffairs (DEA),iii. Secretary, Department of Financial Services (DFS),iv. Chief Economic Advisor, Ministry of Finance,v. Chairman, Securities and Exchange Board of India (SEBI),vi. Chairman, insurance Regulatory and Development Authorityvii. Chairman Pension Fund Regulatory and Development Authority (PFRDA),c. Joint Secretary (Capital Markets), DEA, will be the Secretary ofthe Council,d. The Chairperson may invite any person whose presence is deemednecessary for any of its meeting (s). 25. Responsibility of the Council:The Council deals with issues relating to:a. Financial stabilityb. Financial sector developmentc. Inter -regulatory coordinationd. Financial literacye. Financial inclusionf. Macro prudential supervision of the economy including thefunctioning of large financial conglomerates. 26. Meaning-any change in the terms and conditionsof the loan or credit, especially in respect of itsservicing, is called restructuring of loan/ debt.Why is restructuring required?To assist the borrowers who are temporarily indistress, in particular, where the distress iscaused by circumstances beyond the control ofthe borrower 27. Trends in restructuring-RegulatoryconcernsNot permitted in a transparent and objective manner bybanks nor is it being resorted to in a non-discriminatorymannerpublic sector banks share a disproportionate burden ofsuch accountsthe small and marginal borrowers are discriminatedagainst by the banks for restructuring of their accounts,even if found viable.CDR Mechanism has prompted banks to avoid usingother means of credit management judiciously, i.e.,proper due-diligence before sanctioning a credit facility,regular and proper monitoring of accounts after 28. Investor Awareness CampaignFor making Indian capital market moresecure for Indian and foreigninvestors, SEBI has started investorsawareness campaign. For this, SEBIhas made his official sites subdomain at http://investor.sebi.gov.in/Under this campaign, Workshops/Seminars Conducted by InvestorAssociations recognised by SEBI. 29. A banking license is a pre requisite for a financial institution that wants to provide banking servicesRBI is considering new bank licenses to promotersin the private sector and also to NBFCs 30. Banking licenses to privateplayers/corporatechallenge oropportunity ? 31. As challengeFear of self dealingConcentration of economic powerAs opportunityFinancial inclusionLarge capitalInnovative technologyIncrease competitionEven in mutual fund and insurance industryprivate players manages thousand of croresof investors money 32. RBI must ensure new banking licenses are notgiven to corporate houses whose track recordsare not good.More emphasis on safe guards limits on group exposureCorporate governanceTransparencyLong term commitmentStrict controlling and reporting guidelinesRegular review after 2- 5 years 33. Deteriorating quality of assetsBasel III norms requirementFinancial inclusionIssues in convergence with InternationalFinancial Reporting Standards(IFRS)Competition in retail banking 34. Capital adequacy ratioCapital Adequacy Ratio (CAR), also called Capital to Risk(Weighted) Assets Ratio (CRAR)Its a ratio of a banks capital to its risk. National regulators track a banks CAR to ensure that it can absorb reasonableamount of loss and complies with statutory capitalrequirements.Capital adequacy ratio is the ratio which determines thebanks capacity to meet the time liabilities and other riskssuch as credit risk, operational risk etc. A banks capital isthe "cushion" for potential losses, and protects the banksdepositors and other lenders. Banking regulators in mostcountries define and monitor CAR to protect depositors, 35. Capital adequacy ratio Capital Adequacy Ratio (CAR) is calculated by using following formulae: CAR= tier 1 capital +tier 2 capital/ risk weighted assets where tier 1 capital means (paid up capital + statutory reserves + disclosed free reserves) - (equity investments in subsidiary + intangible assets + current & b/f losses)& tier 2 capital represents A)Undisclosed Reserves, B)General Loss reserveswhere Risk can either be weighted assets or the respective national regulators minimum total capital requirement. 36. Basel III Basel III (or the Third Basel Accord) is a globalregulatory standard on bank capital adequacy andstress testing agreed upon by the members ofthe Basel Committee on Banking Supervision in201011, and scheduled to be introduced from 2013until 2018.The third instalment of the BaselAccords was developed in response to thedeficiencies in financial regulation revealed bythe late-2000s financial crisis. Basel III strengthensbank capital requirements and introduces newregulatory requirements on bank liquidity and bankleverage. Critics suggest that greater regulation isresponsible for the slow recovery from the late-2000sfinancial crisis, and that the tighter Basel IIIrequirements may further negatively affect the stabilityof the financial system . 37. India has seen mixed outcome in the first phase of reforms.While the Indian financial sector boosted, at the same timecapital market thrived with the opening up of sectors andimplementation of NEP 1991, but flip side of it also showsthat the NEP 1991 wasnt successful in giving the sameaffects in the rural sector .The major focus of earlier reforms remained ,to pitch in thecapital ,which was priority of the country at that time andimprove the efficiency of public sector banks .observing current market environment we can easily realizethat we have entered into an era of second generation ofreforms . This time too if these reforms are not implementedin the judicious manner they will pose a great threat to RRBsand domestic banking services. As it is important to keep inmind that excessive competition may create an unstable 38. BIBLIOGRAPHYRakeshmohans reportwww.assocham.comwww.rbi.comwww.finmin.comRBI BULLETIN 2008-12The Hindu articlesThe Economic Times ArticlesBusiness todayBusiness lines