1. Institutional Finance
By Radhika

2. Financial System
• Plays a Vital role in economy
• Bridges the gap between…
• Channelize/ mobilize the vital resources

3. FUNDS
Financial Intermediaries
Commercial Banks
Insurance Company
DEPOSITES
Mutual Funds
/SHARE
Non-banking financial co.
Supplier of Funds
Individuals
Business
Government
FUNDS
Financial
System
Financial Market
FUNDS
LOANS
Demander of Funds
Individuals
Business
Government
FUNDS
Money Market
Capital Market
SECURITIES
SECURITIES

4. Financial intermediaries
• Commercial Banks
– Public Sector Banks
– Foreign Banks
– Private Sector Banks
• Financial Institutions
– IFCI
– SIDBI
– ICICI
– NABARD

5. Cont.
• Insurance Companies
 LIC
 GIC
 Private sectors

6. Cont.
• Mutual Funds
– It is financial intermediary that collect savings from
investors
– Different types of investment
– Pool of funds from investors
– Advantages of mutual funds are reduction in
risk, expert professional mgt., liquidity of investment
& tax benefits
– SEBI (Mutual Funds) Regulation, 1993

7. Cont.
• Non-banking Financial Intuitions [NBCI/NBFC]
• According to RBI,
– NBFC means;
i. a financial institution which is a co.;
ii. a non-banking inst. whiz a co. & has, as its principal
business, the receiving of deposits under the scheme
or mgt. or any other manner or lending in any manner;
iii. such other non-banking institution or class of such inst.
as the bank may with the previous approval of the
Central Govt. specify

8. Cont.
• NBFC are Categorized into:
– An equipment leasing co. [EL]
– A hire-purchase co. [HP]
– A housing finance co. [HFC]
– An investment co. [IC]
– A loan co. [LC]
– A mutual benefit co. [MBFC] i.e Nidhi Companies
– A miscellaneous non-banking co. i.e Chit fund co.

9. Money Market
•
•
•
•
•
•
•
Introduction
It is a whole sale market
No need of place
Transactions generally settled in daily basis
Important Segment
Market for monetary assets of a shot-term nature
Money market instruments have the characteristic of
liquidity

10. Money Market instruments
1. Treasury Bills
– One of the safest instruments
– Short term borrowing instruments of Central Govt.
issued by…
– Zero Risk instruments hence…
– Short term securities that will mature...
– Issued at discounted rate and with promise to pay
full face vale on maturity
– Generally available in minimum of 25K & in
multiples thereof

11. Cont.
• Currently, T-bills are generally available in
– 91-Day T-bills
- auctioned every Friday
– 182- Day T-bills
- auctioned every alternate Wed.
– 364-Day
• Types of T-bills
– On Tap Bills
– Ad-hoc Bills
– Auctioned Bills

12. Cont.
2. Commercial Paper [CP]
– It is an unsecured short term promissory note issued
by creditworthy corporate, primary dealers & all
financial inst.
– basically negotiable & transferrable by…
– Fixed maturity period
– Issued to meet w.c requirements of the firms
– Also known as Finance Paper, Industrial Paper or
Corporate Paper

13. Cont.
– RBI introduced commercial papers in 1990
– CP can be issued to banks, individuals, companies &
other registered bodies
– It can also be issued to NRI but…
– FII are also permitted to subscribe but to a certain
limit fixed by SEBI

14. Cont.
3. Commercial Bills
– CB are negotiable instruments drawn by the seller on
the buyer which, are in turn, accepted & discounted
by Commercial Banks
– These are basically called trade bills & when these
bills are accepted by commercial banks, they called..
– Bank accepts the bill from the seller & pays the
amount of the bill after charging some discount.
– after expiry of the bill collected from the buyer...

15. Cont.
– Meanwhile, if the bank requires fund then it can also
re-discount the same with RBI,UTI,LIC,ICICI etc.
– Maturity period varies from 30 to 180 days.
– Example:
•
•
•
•
•
Bill Amt. – rs. 10000
Discount - 2%
Payment made by Bank to seller – 9800
Payment received by bank from buyer – rs.10000
Commission earned by bank – rs. 200

16. Cont.
•Seller
•Buyer
Trade Bill
Collected By
Bank
Commercial
Bill
•Bank

17. Cont.
• Major Types of Commercial Bills
I. Demand Bill v/s Usance Bill
II. Inland Bill v/s Foreign Bill
III. Export Bill v/s Import Bill

18. Cont.
4. Call/ Notice Money:
• Call Money Market
– It is a short term funds market with maturity period 1
day to 2 weeks
– Call money
– Notice money
– Main aim of growth of this instrument is due to
commercial banks requirements

19. Cont.
– To fulfill mandatory requirements of RBI
commercial banks borrow money from the other
banks & institutions
– The interest rate paid on the call/notice money loan
is called “CALL RATE”

20. Cont.
5. Certificate of Deposit
– It was introduced in 1989
– CDs are unsecured, negotiable, short term
instruments in bearer form issued by commercial
banks & financial institutions
– Generally CD are time deposits (FD)
– CD are transferable & tradable while FD are not.
– It can be issued to all even to NRI.

21. Capital Market
• To achieve growth in various sectors
• To meet the requirements of various investors, borrower
& entrepreneurs
• A platform for investors to get greater returns
• Provide funds to the Organization to get developed
• Buying and selling of long-term debt or equitybacked securities
• Provides effective & efficient way to support exchange
of various financial instruments for mutual benefit.

23. Primary Market

24. Cont.
IPO
Issue of
Tender
Right
Issue
Primary
market
Offer for
Sale
Private
Placements

25. Secondary market

26. Cont.
• Secondary market popularly known as stock market
• Where outstanding or existing securities are purchased
& sold on a continuous basis
• Unlike primary markets it facilitates changing of hands
(ownership)
• Securities issued in primary market are traded
• Like ordinary market where there is buyer & seller
• Likewise the prices will be determined by the demand
& supply forces

27. Cont.
• Distinguishing feature
• In India Secondary market functions as a recognized
stock exchanges operating under certain rules &
regulations duly approved by the government.
• Thus, these stock exchanges constitute an organized
mechanism under which various public & private
securities are traded.

28. Functions of Secondary market
1.
2.
3.
4.
5.
Marketability
Safety
Performance check
Valuation
Promotion & development

29. Nature & Role Of Financial System
• Mobilizing funds to productivity
• Provides excellent mechanism for exchange of goods
&services
• Establishment of different institutions
• Crucial role in reducing risk