Tag: Advanced Accounting B.com Notes

Deepening and broadening of financial access should be an important public policy objective. Better financial access translates into robust economic growth, as more firms are able to make profitable investments. It also enhances financial stability, for example, by allowing firms to hedge their risks, or more easily obtain refinancing if in financial distress. Lastly, broader access to finance also reflects the values of social justice by contributing to equal economic opportunities.

To achieve a fundamental increase in financial access, public policy should target its main Determinants institutional and financial system development.

The principal institutional dimensions are:

• Well defined commercial property rights, including:
  • Effective contract enforcement;
  • Collateral pledging and claiming mechanisms;
  • Bankruptcy procedures; and
  • Investor protection and corporate governance systems.
• An environment that fosters transparency, including adequate accounting principles and other mechanisms enabling credible disclosure.

The principal financial system dimensions are:

• Efficient financial regulation and supervision;
• An ownership structure of financial institutions, reflecting:
• A clear and focused role for state financial institutions, if they exist;
• The degree of foreign ownership reflecting the country-specific benefits and costs; and
• Controls on the negative effects of bank-industry cross-ownership.
• An entry and competition policy that balances entry opportunities with preserving the charter value of financial institutions;
• Crisis resolution tools, such as deposit insurance, liquidity support mechanisms, effective financial institutions bankruptcy procedures; and
• Financial infrastructure, such as the payments system and credit databases.

The institutional and financial system development policies are necessary to achieve a fundamental increase in financial access, and should, therefore, be regarded as a priority. However, there can be a number of problems in their implementation. Firstly, even the best fundamental development policies, especially those targeting institutional improvements, may have very long gestation periods. The government may have the need to provide more immediate transitory solutions. Secondly, there can be genuine market failures restricting access to finance, which cannot be resolved by improving the overall economic environment, but may require more targeted and direct government interventions.

When fundamental financial access policies do not work due to long gestation, genuine market failures, or political opposition governments may choose to correct for the lack of market-based finance by the public provision of missing financial services. Undoubtedly, well-designed interventions by a “noble” and efficient government can indeed provide transitory solutions to complement long-term development policies and correct financial market failures. But, in practice, governments are commonly not fully “noble,” but influenced by special interests. The efficiency of governments is also commonly limited by bureaucratic incentive structures.

As a result, even when market failures create a theoretical field for social welfare improving interventions, practical government failures may in fact be more distortionary than the market shortcomings they were intended to address, and render public involvement undesirable. Put differently, market failures by themselves do not warrant public intervention. Recognizing its limitations, government should act only if it can address the economic imperfection better than the market. In practice, however, governments around the world are often excessively interventionist, in which case their policies may compromise rather than improve social welfare.

Regulatory Perspective

Despite the recognized risks and costs, public financial institutions are an important part of the financial landscape around the world. Public financial institutions are commonly associated with developing countries, which turn to them when their growing real sector potential seems to outrun financial system capacities. In practice, however, public financial institutions exist and are often prominent even in the most financially developed countries.

The establishment of government financial services is typically a political decision on which financial regulators may have only limited influence. Therefore, they view the decision on the creation, preservation, or liquidation of public financial institutions as given. The relevant question is how the regulators should respond to such decisions. The response should seek to maximize possible benefits of enhanced financial access, while seriously acknowledging potential costs and risk, and seeking to contain them. While possibly not having direct authority, regulators may contribute to the public discussion on the rationale and optimal design of public financial institutions.

Conflicts of interest pose significant reputation and legal risks to corporate finance professionals. In investment banking, and M&A in particular, there is a higher risk of bad press and civil litigation than is the case with other areas of corporate finance.

Because of the higher risk of conflict problems arising, investment bankers must be particularly careful in identifying, assessing, and managing conflicts of interest in connection with such transactions.

In many cases, investment banks can easily identify conflicts.  In other cases, important conflicts may not be as readily identifiable. It is not possible to provide a comprehensive definition of what constitutes a “conflict of interest” but the phrase generally refers to circumstances in which:

• A firm has more than one interest in a transaction
• The existence of those multiple interests may compromise, or have the appearance of compromising, the bank’s ability to provide independent financial advice to its clients or impair the bank’s ability to satisfy the legitimate expectations of those clients.

Conflicts of interest in investment banking:

• The bank or an affiliate has more than one client who is interested in the outcome of a transaction or potential transaction
• The bank or an affiliate is a lender to, or investor in, one of the parties to a transaction or potential transaction
• The bank knows material non-public information about a party or potential party to a transaction that it is unable to share with its client.

How to Avoid Conflicts of Interest

• To mitigate reputation and legal risks associated with transactional conflicts of interest, it is a good idea to avoid:
• Providing financial advisory services for any transaction to two competing interests
• Making equity investments in any transaction with two competing interests
• Providing or arranging financing in connection with a take-over of a client
• Advising a client in connection with an unsolicited bid from another client

Industrial Credit and Investment Corporation of India (ICICI) was established in 1955 as public limited company under Indian Company Act, for developing medium and small industries of private sector.

Role of ICICI:

The important objectives of the ICICI are as follows:

(i) To provide loans to industrial projects in private sector.

(ii) To stimulate the promotion of new industries.

(iii) To assist the expansion and modernization of existing industries.

(iv) To provide Technical and managerial aid to increase production.

Functions of the ICICI

In order to accomplish the above objectives, the Corporation performs the following functions:

1. Providing finance in the form of long-term or medium-term loans or equity participation.
2. Sponsoring and underwriting new issues of shares and other securities,
3. Guaranteeing loans from other private investment sources.
4. Making funds available for reinvestment by revolving investment as rapidly as possible.
5. Providing project advisory services i.e. offering advice:

• To private sector companies in the pre-investment stages on government policies and procedures, feasibility studies and joint venture search, and
• to central and state governments on specific policy related issues.

IIFCL is a wholly-owned Government of India company set up in 2006 to provide long term finance to viable infrastructure projects through the Scheme for Financing Viable Infrastructure Projects through a Special Purpose Vehicle called India Infrastructure Finance Company Ltd (IIFCL), broadly referred to as SIFTI.

The sectors eligible for financial assistance from IIFCL are as per the Harmonized list of Infrastructure Sub-Sectors as approved by the Government and RBI and as amended from time to time. These broadly include transportation, energy, water, sanitation, communication, social and commercial infrastructure.

IIFCL has been registered as a NBFC-ND-IFC with RBI since September 2013.

The authorized and paid up capital of the company as on 30th September 2015 stand at Rs 5,000 Crore and Rs 3,900 Crore, respectively.

On a standalone basis, IIFCL has made cumulative gross sanctions of over Rs 63,800 Crore under direct lending to more than 360 projects and has made cumulative disbursements of over Rs 45,000 Crore, including disbursements under Refinance and Takeout Finance, till 30th September 2015.

• It was set up in 2006 to provide long term debt for infrastructure projects.
• It provides financial assistance to commercially viable projects, which includes projects implemented by public sector company, private sector company; or private sector company selected under Public Private Partnership (PPP) initiative.
• IIFCL raises funds from domestic as well as external markets on strength of government guarantees.

Credit Enhancement Scheme

Under the Credit Enhancement Scheme, IIFCL provides its partial credit guarantee to enhance the credit rating of bonds issued by infrastructure companies to AA or higher for refinancing of existing loans. IIFCL can undertake credit enhancement to the extent of 20% of Total Project Cost (40% of Total Project Cost with backstop guarantor) subject to a maximum of 50% of the total amount of Project Bonds.

Credit enhancement enables channelization of long term funds from investors like insurance and pension funds in such bonds. Asian Development Bank (ADB) is providing backstop guarantee facility to IIFCL for up to 50% of IIFCL’s underlying risk.

In September 2015, first bond issue of Rs 451 Crore, with credit rating enhanced by partial credit guarantee provided by IIFCL under the scheme, was successfully placed. IIFCL is working on many more such transactions.

For institutions

Refinance Scheme

IIFCL provides refinance to banks and other eligible financial institutions (FI’s) for their loans to infrastructure projects.

Under the refinance scheme, till 30th September 2015, IIFCL has made cumulative disbursements of over Rs 6,200 Crore.

Subsidiaries

IIFC (UK): IIFC (UK), a wholly-owned subsidiary of IIFCL, was set up in April 2008 to provide financial assistance in foreign currency, for the import of capital equipment, to Indian companies implementing infrastructure projects in the country. Till 30th September 2015, IIFC (UK) has made cumulative disbursements of over USD 1.6 billion.

IIFCL Projects Ltd (IPL):IPL, a 100% subsidiary of IIFCL, was set up in 2012 to provide advisory services including project appraisal and syndication services, as well as project development services involving conducting feasibility studies, project structuring, financial structuring and development of detailed business cases.

IIFCL Asset Management Company Ltd. (IAMCL): IIFCL formed a 100% subsidiary asset management company viz. IAMCL to manage the IIFCL Mutual Fund (IDF). In Feb 2014, IIFCL Mutual Fund launched its maiden IDF scheme through private placement. On full subscription, the scheme achieved the distinction of being the first IDF Mutual Fund in the country to be listed on the Bombay Stock Exchange (BSE).

IIFCL MF (IDF) is currently in the process of launching two new schemes, both rated “AAA MF-IDF” by two domestic credit rating agencies, with one focused on infrastructure sectors with a fund size of up to Rs 1,500 crore and the other focused on Green initiative (Solar and wind energy, waste-to-energy, water and sanitation etc.) with a fund size of upto Rs 1,000 crore.

Projects get financed from IIFL:

Following sectors projects are eligible for financing from IIFCL:

• Power;
• Warehouses;
• Gas pipelines;
• Cold storage chains;
• Fertilizer Manufacturing Industry
• Infrastructure projects in Special Economic Zones;
• International convention centres and other tourism infrastructure projects;
• Road and bridges, seaports, railways, airports, inland waterways and other transportation projects.
• Urban transport, water supply, sewage, solid waste management and other physical infrastructure in urban areas.

The Ministry of Corporate Affairs is an Indian government ministry. It is primarily concerned with administration of the Companies Act 2013, the Companies Act 1956, the Limited Liability Partnership Act, 2008, Insolvency and Bankruptcy Code, 2016 & other allied Acts and rules & regulations framed there-under mainly for regulating the functioning of the corporate sector in accordance with law. It is responsible mainly for regulation of Indian enterprises in Industrial and Services sector. Ministry is mostly served by the Indian Corporate Law Service officers’ cadre (ICLS). These officers are being selected through Civil Services Examination Conducted by UPSC. Brilliant talent pool of the country serves MCA in different capacities. The highest post of DGCoA is being fixed at Apex Scale for the ICLS.

Primary Role:

• Administering the Competition Act of 2002 to prevent practices that adversely affect competition, promote and sustain competition in markets, and to safeguard consumer interests through the Commission established under the Act.
• Supervising the three professional bodies, namely the Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India (ICSI), and the Institute of Cost Accountants of India (ICAI), established under the different Acts of Parliament.
• Executing the functions of the Central Government with respect to the administration of Partnership Act, 1932, the Companies (Donations to National Funds) Act, 1951 and the Societies Registration Act, 1980.

Autonomous Bodies

• Indian Institute of Corporate Affairs (IICA)
• National Foundation of Corporate Governance (NFCG)
• National Foundation of Corporate Social Responsibility (under IICA)

Professional Bodies

• Institute of Company Secretaries of India (ICSI)
• The Institute of Chartered Accountant of India (ICAI)
• Institute of Cost Accountants of India (ICoAI)

Statutory Bodies

• Insolvency and Bankruptcy Board of India (IBBI)
• National Company Law Tribunal (NCLT)
• National Company Law Appellate Tribunal (NCLAT)
• Investor Education and Protection Fund Authority (IEPFA)
• National Financial Reporting Authority NFRA)
• Competition Commission of India (CCI)

Attached Offices

• Serious Fraud Investigation Office(SFIO)

Stakeholders:

• The corporate sector, which includes all companies and LLPs
• Professionals, the likes of whom include Cas, CSs, ICWAs, Advocates, etc
• Investors
• Banks
• Other Government Ministries/Departments
• State Governments
• Citizens of India

Functions

• Incorporation of a company.
• Checking the availability of a name proposed by a new company and approving the name-change of the existing company (also read – Fast Company Name Approval, Removal of Company Name from MCA Database
• Registration of companies that are unregistered.
• Registration of a place of business in India by a company incorporated in India.
• Registration for changing the objects of a company.
• Conversion of Private Company to Public Company and vice versa.
• Conversion of unlimited company into a limited company, i.e. limited by shares/guarantee.
• Registration of a Prospectus.
• Registration of charge creation/modification and the satisfaction of charge.
• Condonation of delayed filing of charge creation/modification and satisfaction of charge.
• Extension of time for holding Annual General Meeting (AGM).
• Registration of Court, NCLT or RD order.
• Issuing of certified copies of company documents.
• Issuance of Director Identification Number (DIN).
• Change in particulars of Director Identification Number (DIN).
• Conversion of a company into Limited Liability Partnership.
• Shifting of a registered office of the company from one state to another.
• Shifting of a company’s registered office from one RoC to another within the state.
• Granting licenses to Section 8 Companies.
• Making decisions connected with the appointment/reappointment, as well as remuneration/waiver for excess remuneration paid to managing/whole-time director(s) or manager.
• Investor Grievance Redressal/CPGRAMS (Centralized Public Grievance Redressal and Monitoring System).
• Other grievances or complaints related to MCA-21.
• Seeking status of Company as dormant.
• Seeking status of the company as active.
• Registration of intimation concerning the appointment of a manager.
• Condonation of delay under section 460 of the Companies Act, 2013.
• Acquiring/Associating/Updating DSC (Digital Signature Certificate).
• Enquiring DIN (Director Identification Number) and verifying the DIN PAN details of the Director.
• Services related to master data.
• LLP services.
• Services related to e-filing.
• Handling of complaints.
• Documentation services.
• Fee and Payment Services.
• Investor Services.

The Ministry of Finance is a ministry within the Government of India concerned with the economy of India, serving as the Indian Treasury Department. In particular, it concerns itself with taxation, financial legislation, financial institutions, capital markets, centre and state finances, and the Union Budget.

Department of Economic Affairs

The Department of Economic Affairs is the nodal agency of the Union Government to formulate and monitor country’s economic policies and programmes having a bearing on domestic and international aspects of economic management. A principal responsibility of this Department is the preparation and presentation of the Union Budget to the parliament and budget for the state Governments under President’s Rule and union territory administrations. Other main functions include:

• Formulation and monitoring of macroeconomic policies, including issues relating to fiscal policy and public finance, inflation, public debt management and the functioning of Capital Market including Stock Exchanges. In this context, it looks at ways and means to raise internal resources through taxation, market borrowings and mobilisation of small savings;
• Monitoring and raising of external resources through multilateral and bilateral Official Development Assistance, sovereign borrowings abroad, foreign investments and monitoring foreign exchange resources including balance of payments;
• Production of bank notes and coins of various denominations, postal stationery, postal stamps; and Cadre management, career planning and training of the Indian Economic Service (IES).

The Foreign Investment Promotion Board (FIPB), housed in the Department of Economic Affairs, Ministry of Finance, was an inter-ministerial body, responsible for processing of FDI proposals and making recommendations for Government approval. FIPB is now abolished as announced by Finance Minister Arun Jaitley during 2017-2018 budget speech in Lok Sabha.

Department of Expenditure

The Department of Expenditure is the nodal Department for overseeing the public financial management system (PFMS) in the Central Government and matters connected with the finances. The principal activities of the Department include a pre-sanction appraisal of major schemes/projects (both Plan and non-Plan expenditure), handling the bulk of the Central budgetary resources transferred to States, implementation of the recommendations of the Finance and Central Pay Commissions, overseeing the expenditure management in the Central Ministries/Departments through the interface with the Financial Advisors and the administration of the Financial Rules / Regulations /Orders through monitoring of Audit comments/observations, preparation of Central Government Accounts, managing the financial aspects of personnel management in the Central Government, assisting Central Ministries/Departments in controlling the costs and prices of public services, assisting organizational re-engineering thorough review of staffing patterns and O&M studies and reviewing systems and procedures to optimize outputs and outcomes of public expenditure. The Department is also coordinating matters concerning the Ministry of Finance including Parliament-related work of the Ministry. The Department has under its administrative control the National Institute of Financial Management (NIFM), Faridabad.

The business allocated to the Department of Expenditure is carried out through its Establishment Division, Plan Finance I and II Divisions, Finance Commission Division, Staff Inspection Unit, Cost Accounts Branch, Controller General of Accounts, and the Central Pension Accounting.

Department of Revenue

The Department of Revenue functions under the overall direction and control of the Secretary (Revenue). It exercises control in respect of matters relating to all the Direct and Indirect Union Taxes through two statutory Boards namely, the Central Board of Direct Taxes (CBDT) and the Central Board of Indirect Taxes and Customs (CBIC). Each Board is headed by a Chairman who is also ex officio Special Secretary to the Government of India (Secretary level). Matters relating to the levy and collection of all Direct taxes are looked after by the CBDT whereas those relating to levy and collection of Customs and Central Excise duties and other Indirect taxes fall within the purview of the CBIC. The two Boards were constituted under the Central Board of Revenue Act, 1963. At present, the CBDT has six Members and the CBIC has five Members. The Members are also ex officio Secretaries to the Government of India. Members of CBDT are as follows:

• Member (Income Tax)
• Member (Legislation and Computerisation)
• Member (Revenue)
• Member (Personnel & Vigilance)
• Member (Investigation)
• Member (Audit & Judicial)

Department of Financial Services

The Department of Financial Services covers Banks, Insurance, and Financial Services provided by various government agencies and private corporations. It also covers pension reforms and Industrial Finance and Micro, Small and Medium Enterprise. It started the Pradhan Mantri Jan Dhan Yojana.

PFRDA, Pension Fund Regulatory and Development Authority (PFRDA) is a statutory body which also works under this department.

Department of Investment and Public Asset Management

The Department of Disinvestment has been renamed as Department of Investment and Public Asset Management or ‘DIPAM’, a decision aimed at the proper management of Centre’s investments in equity including its disinvestment in central public sector undertakings. Finance Minister Arun Jaitley had announced the renaming of the Department of Disinvestment in his budget speech for 2016-17. Initially set up as an independent ministry (The Ministry of Disinvestment) in December 1999, the Department of Disinvestments came into existence in May 2004 when the ministry was turned into a department of the Ministry of Finance. The department took up all the functions of the erstwhile ministry which broadly was responsible for a systematic policy approach to disinvestment and privatisation of Public Sector Units (PSUs).

National Housing Bank (NHB), a Government of India owned entity, was set up on 9 July 1988 under the National Housing Bank Act, 1987. NHB is the apex financial institution for housing. NHB has been established with an objective to operate as a principal agency to promote housing finance institutions both at local and regional levels and to provide financial and other support incidental to such institutions and for matters connected therewith. The Finance Act, 2019 has amended the National Housing Bank Act, 1987. The amendment confers the powers of regulation of Housing Finance Companies (HFCs) to the Reserve Bank of India.

NHB registers and supervises Housing Finance Companies (HFCs), keeps surveillance through On-site & Off-site Mechanisms and co-ordinates with other Regulators.

Objectives

NHB has been established to achieve, inter-Alia, the following objectives:

• To promote a sound, healthy, viable and cost-effective housing finance system to cater to all segments of the population and to integrate the housing finance system with the overall financial system.
• To promote a network of dedicated housing finance institutions to adequately serve various regions and different income groups.
• To augment resources for the sector and channelise them for housing.
• To make housing credit more affordable.
• To regulate the activities of housing finance companies based on regulatory and supervisory authority derived under the Act.
• To encourage augmentation of supply of buildable land and also building materials for housing and to upgrade the housing stock in the country.
• To encourage public agencies to emerge as facilitators and suppliers of serviced land, for housing.

Functions:

• Regulation and Supervision of Housing Companies operating in India is one of the most important and foremost functions of this apex Institute, powers of which are derived from the National Housing Bank Act.
• Raising of Funds on large scale and onward refinancing to Housing Finance companies, Cooperative Banks and other housing agencies for onward lending to Individual and Infrastructure companies in Housing Segment.
• Ensure Housing Finance Companies meet regulatory Capital requirements as required by BASEL norms, have proper risk management framework in place, good governance practices, etc.

Role of National Housing Bank

National Housing Bank has a specific role that is inherited with the purpose behind its formation in the year 1988. Its major role and objectives are enumerated below:

• The first and foremost objective is to ensure the availability of adequate financing for Housing Infrastructure development as well as a seamless flow of liquidity to various Housing finance Institutes to ensure timely financing to various Income segments (Lower, Middle and Higher-Income group).
• Another important objective behind creation of this apex Institute is to ensure proper regulation and supervision of Housing Finance Companies operating in the Country, timely audit of them, ensuring their compliance with the relevant guidelines as well as ensuring the credit is made available by such organization at affordable rates to meet the objective of housing for all.
• Another important role National Housing Bank plays is in increasing the number of housing units in the country. To achieve this objective NHB plays a pivotal role in making available land for building Housing by acting as facilitator, ways, and means to enable companies in the Housing segment to raise funds as well as smoothening the entire function to bring in more efficiency and enhanced productivity.

SMERA, widely known as ‘The SME Rating Agency’, was conceptualised by Ministry of Finance, Govt. of India and the Reserve Bank of India to help Indian MSMEs grow and get access to credit through independent and unbiased credit opinion that banks can rely on. SMERA offers SME Ratings, New Enterprise Credibility Scores, SME Credit Due Diligence and SME Trust Seal to Indian MSMEs to help lenders take informed decisions.

SMERA a joint initiative by SIDBI, Dun & Bradstreet Information Services India Private Limited (D&B) and several leading banks in the country. SMERA is the country’s first Rating agency that focuses primarily on the Indian MSME segment. SMERA has completed 7000 ratings.

SMERA is now a wholly owned subsidiary of Acuité Ratings & Research Limited. Acuité, a joint initiative of Small Industries Development Bank of India (SIDBI), Dun & Bradstreet Information Services India Private Limited (D&B) and leading public and private sector banks in India, is registered with SEBI as a credit rating agency.

Microfinance Analytics is an initiative of SMERA Gradings & Ratings to facilitate financial inclusion through grading, research and advisory services exclusive to the Microfinance Institutions (MFI) sector. It aims to provide valuable and timely insights to the MFI lenders and investors for meeting their social, financial and business objectives.

SMERA offers following

• MSME Rating
• Greenfield and Brownfield Grading
• Microfinance Institutions (MFI) Rating
• Green Rating
• Risk Management Solutions

The Financial Sector Legislative Reforms Committee (FSLRC) set up two years ago to rewrite and review financial sector laws that have become outdated submitted its final report to the finance ministry in March 2013. The Committee has recommended various proposals to protect consumers against mis-selling and fraud. It also suggested proposals for development of the financial sector in India.

The Financial Sector Legislative Reforms Commission (FSLRC) is a body set up by the Government of India, Ministry of Finance, on 24 March 2011, to review and rewrite the legal-institutional architecture of the Indian financial sector. This Commission is chaired by a former Judge of the Supreme Court of India, Justice B. N. Srikrishna and has an eclectic mix of expert members drawn from the fields of finance, economics, public administration, law etc.

Based on substantive research, extensive deliberations in the Commission and in its Working Groups, interaction with policy makers, regulators, experts and stakeholders; the Commission has evolved a tentative framework on the legal–institutional structure required for the Indian financial sector in the medium to the long run. The broad contour of that framework is outlined in the released by the Commission on 4 October 2012.

Based on further feedback on the proposals from stakeholders and deliberations thereon, the FSLRC proposes to complete its Report by March 2013.

Purpose of formation

FSLRC was formed as most legal and institutional structures of the financial sector in India had been created over a century. Many financial sector laws date back several decades, when the financial landscape was very different from that seen today.

There are over 61 Acts and multiple rules and regulations that govern the financial sector. For example, the SEBI (Securities and Exchange Board of India) Act does not give the regulator powers to arrest anyone but tasks it with penalising all market related crimes stiffly. The Reserve Bank of India (RBI) Act and the Insurance Act are of 1934 and 1938 period, respectively.

 The Commission was formed to review and recast these old laws in tune with the modern requirements of the financial sector. FSLRC plans to eliminate 25 of the current 61 laws that currently govern the financial sector and amend many others.

Objectives

The Terms of Reference of the Commission include the following:

• Examining the architecture of the legislative and regulatory system governing the Financial sector in India
• Examine if legislation should mandate statement of principles of legislative intent behind every piece of subordinate legislation in order to make the purposive intent of the legislation clear and transparent to users of the law and to the Courts.
• Examine if public feedback for draft subordinate legislation should be made mandatory, with exception for emergency measures.
• Examine prescription of parameters for invocation of emergency powers where regulatory action may be taken on ex parte basis.
• Examine the interplay of exchange controls under FEMA and FDI Policy with other regulatory regimes within the financial sector.
• Examine the most appropriate means of oversight over regulators and their autonomy from government.
• Examine the need for re-statement of the law and immediate repeal of any out-dated legislation on the basis of judicial decisions and policy shifts in the last two decades of the financial sector post-liberalisation.
• Examination of issues of data privacy and protection of consumer of financial services in the Indian market.
• Examination of legislation relating to the role of information technology in the delivery of financial services in India, and their effectiveness.
• Examination of all recommendations already made by various expert committees set up by the government and by regulators and to implement measures that can be easily accepted.
• Examine the role of state governments and legislatures in ensuring a smooth interstate financial services infrastructure in India.
• Examination of any other related issues.

Consumer protection

According to FSLRC, all financial laws and regulators are intended to protect the interest of consumers. Hence, a dedicated forum for relief to consumers and detailed provisions for protection of unwary customers against mis-selling and defrauding by smaller print etc has been recommended.

The FSLRC report proposes certain basic rights for all financial consumers. For lay investors, the report proposes additional set of protections. The Commission has recommended some amendments to existing laws and new legislations. These changes will have to be carefully brought about accordingly.

Some basic protections consumers would expect include that financial service providers must act with due diligence. It is essential to protect investors against unfair contract terms, unjust conduct and protection of personal information. The FSLRC report also recommends fair disclosure and redressal of investor complaints by financial service providers.

Financial Regulatory Architecture Act

The proposed regulatory structure will be governed by the Financial Regulatory Architecture Act that will ensure a uniform legal process for the financial regulators. The finance ministry will unify the regulatory structure before tweaking the legislative structure. It may take two years for the report to be implemented in a phased manner.

Banking

The Reserve Bank of India is the nerve centre of the monetary system of the country. It is the Central Bank of the country and it started operating since April 1, 1935 subsequent to the RBI Act in 1934 under private shareholders’ institutions.

The Central Government is now empowered to appoint Directors, Deputy Governors and Governors of the bank. The position of the bank is that it is a State-owned institution. This transfer to public ownership from private shareholders’ institution came with the RBI Act in 1948.

The Reserve Bank of India is empowered to control, regulate, guide and supervise the financial system of the country through its monetary and credit policies. This authority was derived from the various acts. These are RBI in 1934, Banking Regulations Act 1949, Companies Act 1956, Banking Laws Act 1965 (applicable to co-operative societies), and Banking Laws Act 1963.

The Reserve Bank of India has several functions to perform. Traditionally, it is the bankers’ bank, and banker to State and Central Governments. It is also a banker to the commercial banks, State co-operative banks and financial institutions of the country. It is the only bank engaged in the issue of legal tender currency.

It provides long-term credit:

(a) By subscribing to debentures of Land Development Banks,

(b) By operating the National Agricultural Credit Fund,

(c) National Agricultural Credit (Stabilisation) Funds (long-term operation fund),

(d) It has also established the Agricultural Refinance Corporation through which it gives long-term and medium-term funds.

Non-banking

The non-banking financial institutions are the organizations that facilitate bank-related financial services but does not have banking licenses.

Types

Mutual Funds

• Mediators between people and stock exchange
• Money collected from people by selling their units is called the corpus
• Oldest Mutual Fund company in India is UTI (Unit Trust of India)
• Mutual Funds nearly provides all the considerations

Insurance Companies

• Collect money from the public through the sale of insurance policies
• There are two types of Insurance; Life Insurance and General Insurance
• General Insurance includes Loss of property, car, house etc.
• It also includes Health Insurance

Hedge Funds

• These are mutual funds for rich investors
• Funds are raised through the sale of their unit to High net worth Individuals and Institutional Investors
• Units of these are usually sold in chunks/groups
• There is a lock-in period for Hedge funds before which funds cannot be withdrawn
• Corpus is an investment in risky instruments with a long term perspective

Venture Capital Firms/ Companies

• They provide finance and technical assistance to firms which undertake a business project based on innovative ventures
• They provide finance for the commercial application of new technology

Merchant banks ( Investment Banks)

• Merchant banks provide financial consultancy services
• They advise firms on fundraising, manage IPO of firms, underwrite new issues and facilitate demat trading.

Finance Companies (Loan Companies)

• Financial Institutions raise funds from the public for lending purpose

e.g. – Muthoot Finance, Cholamandalam

Micro Finance Institutions (MFI)

• Raise funds from the public for lending to weaker sections
• In India, they mainly raise funds from banks

e.g. – Basix, Bandhan, SKS Micro Finance.

Vulture Funds

• These funds buy stocks of companies which are nearing bankruptcy at a very low price.
• After purchasing such stocks they initiate the recovery process to increase the price of shares and sell it at a later point of time

Islamic Banks

• These banks provide loans on the basis of Islamic laws called Sharia.
• In the law of Sharia Interest cannot be charged on the loans

Leasing Companies

• They purchase equipment and machinery and provide the same to companies on a lease.
• These companies charge rent on these machineries which is similar to EMI