NMIMS Global Access
School for Continuing Education (NGA-SCE)
Course: Financial Institutions and Markets
Internal Assignment Applicable for September, 2018 Examination
Indemnity started as a cooperative venture when a cluster of people came together to help those from the group who suffered financial sufferers due to the similar risks the entire group was exposed to. Such a need arose among traders who wanted protection against financial losses that may take place while shipping their consignments to other countries. Insurance is the instrument of moving risk whereby the business enterprise or the individuals can shift some of the worries of life onto the shoulder of the insurer. Under normal circumstances, the insurance industry provides finances to trade and industry that finally contribute towards economic growth and human progress. Hence insurance directly or indirectly contributes towards the social, economic and technological progress of the mankind. The Indian cover market comes at the nineteenth place globally and is ranked fifth in Asia, after Japan, South Korea, China and Taiwan.
With the appetiser of globalization and denationalization, insurance industry in India has been growing at more than 15 per cent per annum. It ranks nearly after the IT industry. The insurance industry is developing in number, quality and class function. The population and per capita income have been the instruments for the growth of the industry. Insurance sector has introduced several quality products to meet the prerequisite the different categories of people and productions. The insurance intermediation has now developed a full-time, qualified profession. Now, people are imminent insurance agents for their financial advises rather than business. Individuals are now seeking ways of educating their lives, health, property, business and economic activities. The Insurance Regulatory and Development Authority (IRDA) have put up a regulatory mechanism so that the agents can serve people better. The policyholders are deriving more approval today than earlier. The commerce of cover is expected to grow more than 18 per cent per annum in the near future.
Insurance Regulatory and Development Authority (IRDA) is an independent apex statutory body that controls and develops the insurance industry in India. It was constituted by a Parliament of India act called Insurance Regulatory and Development Authority Act, 1999 and duly passed by the Administration of India. The members of the IRDA are appointed by the Central Administration from amongst persons of ability, integrity and standing who have knowledge or experience in life insurance, general insurance, actuarial science, finance, economics, law, accountancy, administration etc. The Authority consists of a Chairperson, not more than five whole time members and not more than four part-time associates.
Mission Statement of IRDA
Below are some mission of IRDA:-
? To protect the interest of and secure fair treatment to policyholders.
? To bring about speedy and orderly growth of the insurance business (including annuity and superannuation payments), for the benefit of the mutual man, and to provide long term funds for accelerating growth of the economy.
? To set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence of those it regulates.
? To ensure speedy settlement of genuine claims, to prevent insurance frauds and other malpractices and put in place effective grievance re-dressed machinery.
? To promote fairness, transparency and orderly conduct in financial markets dealing with insurance and build a reliable management information system to enforce high standards of financial soundness amongst market players.
? To take action where such values are inadequate or ineffectively enforced.
? To bring about optimum amount of self-regulation in day-to-day working of the industry consistent with the requirements of wise regulation.
These are the duties, powers and purposes of IRDA are laid down in section 14 of IRDA Act, 1999 as follows:-
? Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly development of the insurance business and re-insurance business.
? Without prejudice to the generality of the provisions contained in subsection (1), the powers and functions of the Specialist shall include,
o Issue to the applicant a certificate of registration, renew, modify, remove, suspend or cancel such registration.
o Protection of the interests of the policy holders in stuffs concerning assigning of policy, suggestion by policy holders, insurable interest, defrayal of insurance claim, surrender value of policy and other terms and conditions of bonds of insurance,
? Stipulating requisite qualifications, code of conduct and real-world training for intermediary or insurance mediators and agents
? Stipulating the code of conduct for surveyors and loss assessors.
? Indorsing efficiency in the conduct of cover business.
? Endorsing and modifiable qualified administrations connected with the insurance and re-insurance business.
? Incriminating fees and other charges for loud out the purposes of this Act.
? Vocation for information from, undertaking inspection of, leading enquiries and investigations including audit of the insurers, intermediaries, insurance mediators and other organizations connected with the insurance business
? Control and regulation of the rates, advantages, terms and circumstances that may be offered by insurers in respect of general insurance commercial not so controlled and regulated by the Charge Advisory Group under section 64U of the Insurance Act, 1938 (4 of 1938).
? Stipulating the form and manner in which records of account shall be kept and statement of accounts shall be rendered by insurers and other insurance mediators.
? Regulating venture of funds by insurance companies,
? Regulating care of border of solvency.
? Adjudication of disputes between insurers and intermediaries or insurance intermediaries.
? Supervising the working of the Tariff Advisory Group.
? Requiring the proportion of premium income of the insurer to finance measures for promoting and regulating professional governments referred to in clause (2.6).
? Agreeing the percentage of life insurance business and general cover business to be accepted by the insurer in the rural or social sector.
? Workout such other powers as may be prescribed
So in this report Geeta can provide all the necessary information to the Manger through this project/report.
Capital markets work for the creation and trading of financial assets like stocks, bonds, hybrid instruments, supplies and derivatives. A number of contributors like brokers, traders, investment bankers and financial mediators operate in capital markets. Capital market is of 2 types: stock markets, which trade equity tools and the bond markets, which trade debt devices. Examples of Capital Market in India are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). While service market comprising commodity exchanges is not usually observed a part of capital market, it is in a sense a market that operates on similar lines and we will briefly cover this topic in the end. The regulation of capital market is important for its perfect effective. In India Securities and Exchange Board of India (SEBI) is the manager.
Role of Capital market in India
? It is only with the help of capital market, long-term funds are raised by the corporate community.
? It provides occasion for the public to invest their savings in attractive securities which provide a higher return.
? A well-developed capital market is capable of appealing funds even from foreign country. Thus, foreign capital flows into the country through foreign investments.
? Capital market provides an opportunity for the investing public to know the trend of different securities and the conditions main in the economy.
? It enables the country to achieve economic growth as capital formation is promoted through the capital market.
? Existing companies, because of their performance will be able to expand their industries and also go in for diversification of business due to the capital market.
? Capital market is the barometer of the economy by which you are able to study the economic conditions of the country and it enables the government to take suitable action.
? Through the Press and different media, the public are well-versed about the prices of different securities. This enables the public to take essential investment decisions.
? Capital market provides opportunities for different organisations such as commercial banks, mutual funds, investment trust; etc., to earn a good return on the investing funds. They employ financial rofessionals who are able to predict the changes in the market and accordingly undertake suitable portfolio investments.
The capital market is also separated in primary capital market and secondary capital market.
Primary market or new issue market is a type of parity market which is involved in issuing new securities which are traded over a longer period of time. Many small and medium scale companies enter primary market to expand their business by floating money from public. Rights issue, Initial Public Offer (IPO) and Preferential issue are the three approaches through which securities can be issued on a primary market. A secure sells their securities to public through an initial public offering. This occurrence is known as public issue.
A firm sells it shares to collect money, in order to finance its operations or expand the business. Before selling a security in primary market, a firm must achieve all the supplies of stock exchange which contains index listing. Stock exchanges have diverse listing requirements. There are two types of lists that are maintained by any stock exchange market. They are cash list and forward list. The protections listed on the cash list include the non-cleared safeties and those which are listed on the onward list are the cleared securities.
Landscapes of primary market
A primary market quickens the capital erection of an economy. The features of primary market are as follows:
? It is the market where retreats are sold for the first time.
? The securities are issued directly to the savers by a company.
? Primary issues are used by the companies to set up a new commercial or to expand their existing businesses.
Landscapes of Secondary market
Secondary market or after-market is the market where a depositor buys a safety directly from another saver in its place of the issuer. The securities are issued originally in primary market and then they arrive into minor marketplace. Lesser market helps in dropping the investment risks and maintaining liquidity in financial system. It assists in reducing the market’s impact on administration debt operations and coordinating the experts’ monetary policy and debt running.
Below are the tools or instruments of secondary market:-
? Rights subject/Rights shares – Rights issue or capitalisation issue are the issues of new shares offered by a company to its existing shareholders in the books of the company on the record date on favourable terms.
? Bonus shares – These are the shares issued by a company to its present shareholders in the books of the corporation on the record date by taking the advantage of collected reserves from the profits earned in the preceding years.
? Equity shares – An equity share signifies the form of partial ownership in which a shareholder accepts the maximum entrepreneurial risk associated with a business venture. The shareholders have adequate voting rights.
? Debentures – These are the bonds issued by a company with a promise to pay a fixed rate of notice usually payable half-yearly on specific dates and the principal amount is repayable on a particular date on debenture recovery. Debentures are normally charged against the asset of the company in favour of the debenture holder.
? Commercial paper – It is a short term assurance to repay a fixed amount that is placed on the market either directly or through a specialised intermediary.
? Treasury bills – It is a short-term bearer discount security issued by the administration as a means of financing its cash requirements.
? Bonds – These are issued by companies and government agencies. A bond investor provides money to the issuer and in exchange the issuer promises to repay the loan amount on a stated maturity date. The issuer pays the bond pouch a periodic interest payment over the loan period.
These are the points where Ajit can show his ability while preparing such report on role of the Capital market.
Solution 3 (a)
An Indian public offering is a public issue made by a company for the first time to seek listing on a stock exchange. The two methods of issue of shares publicly are:
? Through a public issue of fresh shares issued by the company
? By an offer for sale of the existing shares made by the current stockholders to the public
Under the public issue method of IPO, the equity base of the company rises with the increase in newly issued shares’ amount. Under the offer for sale method, the equity base of the company does not increase, as no fresh shares are being issued. Only the existing shares are being sold by one shareholder to another. Going public raises a great deal of money for the company in order for it to grow and expand. Private firms have many options to raise capital – such as plagiarising, finding additional private investors, or by being acquired by another company. But, by far, the IPO choice raises the largest sums of money for the company and its early investors.
Minimum Listing Necessities for New Companies
The following eligibility criteria have been prescribed for a listing of companies on BSE, through Initial Public Offerings (IPOs) ; Follow-on Public Offerings (FPOs):
Minimum paid capital should be Rs. 10 Cr for IPO and Rs. 3 Cr aimed at FPO.
Issue size cannot be less than Rs. 10 Cr.
The lowest capitalization post issue must be not less than Rs. 25 Cr.
Take agreement to use the name of BSE in a Company’s Prospectus
Companies which desire to list their shares/ securities offered through a public issue are compulsorily required to obtain prior consent of BSE to use their name in their list and other documents before filing the same with the Registrar of Companies (ROC).
Then, BSE may grant consent to companies to use the name of BSE in their prospectus/offer documents
Then comes Letter of Application
A Letter of Application of company which is seeking to list of its securities on Bombay Stock Exchange(BSE) is required to submit a to all the designated stock exchanges where it wants to have its securities listed before filing the same with the Registrar of Companies(ROC).
Allotment of Securities
Within 30 days of the date of closure of the subscription list, a company is required to complete allotment of shares and then approach the Designated Stock Exchange for approval of the basis of allotment.
A company should take trading permission as per SEBI Guidelines, and an issuer company should complete all the formalities for trading which are required for all the designated stock exchanges where the securities are to be listed that too within 7 working days of finalization of the basis of allotment.
Payment of Listing Fees
By 30th April of every financial year, all listed Companies are required to pay BSE listing fees as per the Schedule of Listing Fees prescribed from time to time.
New Listing is a process through which a company which is already listed on other stock exchange/s approaches the Exchange for listing of its equity shares. The companies rewarding the aptness criteria prescribed by the Exchange; from time to time; are listed on the Exchange.
Educations for listing Initial Public Offerings (IPO) are as below:
Paid up Capital
The paid up equity capital of the applicant shall not be less than 10 crores and the capitalisation of the candidate’s equity shall not be less than 25 crores
Conditions Example to Listing:
The Issuer shall have adhered to conditions precedent to listing as emergent from inter-alia from Securities Contracts (Regulations) Act 1956, Companies Act 1956, Securities and Exchange Board of India Act 1992, any rules and/or regulations framed under foregoing statutes, as also any round, explanations, plans issued by the appropriate authority under foregoing statutes.
Atleast three years track record of either:
the applicant seeking listing; or
the organizers/promoting company, incorporated in or outside India or
Partnership firm and after converted into a Company (not in existence as a Company for three years) and approaches the Exchange for listing.
Distribution of shareholding
The applicant’s/indorsing company(ies) shareholding pattern on March 31 of last three calendar years disjointedly showing organizers and other clusters’ shareholding design should be as per the regulatory requirements.
The Issuer shall file the draft prospectus and along with the documents mentioned in the checklist for IPO Vetting. The draft directory should have been prepared in agreement with the SEBI (ICDR) Protocols, other statutes, bills, circulars, etc. foremost training and issue of prospectus central at the relevant time. The Issuers may particularly bear in mind the provisions of Corporations Act, Refuges Contracts (Regulation) Act, the SEBI Act and the related lesser regulations thereto. NSE will peruse the flow prospectus only after the point of view of inspection whether the draft prospectus is in accordance with the listing necessities, and therefore any approval given by NSE in respect of the draft prospectus should not be construed as approval under any laws, rules, notifications, circulars, guidelines etc. The Issuer should also submit the SEBI letter indicating explanations on draft list or letter of offer by SEBI.
Issuers listing pursuant to IPO
Issuers desiring to list on the NSE pursuant to IPO shall make application for admission of their securities to dealings on the NSE in the forms agreed in this respect as per details given hereunder or in such other form or forms as the Relevant Authority may from time to time prescribe in addition thereto or in adjustment or replacement thereof.