1. ROLE OF BANKS IN
FINANCIAL MARKET
By:
AKHIL PRABHAKAR
Int M Tech. 4th Year
GPT
09411004

2. Financial market
 Financial market is a highly organized
place which provide mechanism to
bring together the people who demand
for and supply of financial instruments
(financial assets, securities, etc)

3. Banks
In India, the definition of the business of banking has been
given in the Banking Regulation Act, (BR Act), 1949.
According to Section 5(c) of the BR Act, 'a banking company
is a company which transacts the business of banking in
India.' Further, Section 5(b) of the BR Act defines banking as,
'accepting, for the purpose of lending or investment, of
deposits of money from the public, repayable on demand or
otherwise, and withdraw able, by cheque, draft, order or
otherwise.' This definition points to the three primary activities
of a commercial bank which distinguish it from the other
financial institutions.
These are:
(i) maintaining deposit accounts including current accounts,
(ii) issue and pay cheques,
(iii) collect cheques for the bank's customers.

5. BANKS
 Loan and Mostly perform • Investment
advances
s

7.  What are SLR investments?
As part of prudential guidelines, central banks require lenders to maintain a portion of their
deposits in liquid assets. These liquid assets can be cash, gold or government securities. The
ratio of prescribed liquid investments to deposits is termed as statutory liquidity ratio. In India,
banks invest in bonds issued by the government and notified by the Reserve Bank of India as
qualifying for SLR to meet the prescribed ratio.
 What are non-SLR investments?
Besides giving loans to businesses and individuals, RBI has also allowed banks to invest in
various capital market instruments such as stocks and bonds issued by public and private
sector companies and commercial papers. In addition, banks are also allowed to invest in
various mutual fund schemes. Unlike SLR investments, there is no compulsion on banks to
invest in these instruments. Investments are entirely guided by commercial considerations and
many such investments are in accordance with the prescribed guidelines.
 How are non-SLR investments and loans linked?
RBI treats both loans extended by commercial banks and the non-SLR investments as a
resource flow to the commercial sector. Hence, it includes both while making credit projections
it is comfortable with to achieve the targeted economic growth at the time of the monetary
policy formulation during the beginning of the fiscal year.
 Is there any differential treatment for the two types of investments?
Since SLR investments in bonds are issued by the government or its bodies, these enjoy a
sovereign protection, and hence, are perceived to be risk-free. However, in case of non-SLR
investments, the central bank attaches risk weights, depending on the industry and the state of
the perceived risk on that sector as a prudential measure.

8. Financial
Markets
Money Market- for short-term funds (less
than a year)
Organized (Banks)
Unorganized (money lenders, chit funds, etc.)
Capital Market- for long-term funds
Primary Issues Market
Stock Market
Bond Market

9. Organized Money
Market
Call money market
Bill Market
◦ Treasury bills
◦ Commercial bills
Bank loans (short-term)
Organized money market comprises
RBI, banks (commercial and co-
operative)

10. Call Money
 short term finance repayable on demand
 maturity period of one day to fifteen days
 inter-bank transactions.
 Commercial banks have to maintain a minimum
cash balance known as cash reserve ratio. Call
money is a method by which banks borrow from
each other to be able to maintain the cash reserve
ratio.
 A rise in call money rates makes other sources of
finance such as commercial paper and certificates
of deposit cheaper in comparison for banks raise
funds from these sources.

11. Certificates of Deposit
 unsecured, negotiable, short-term
instruments in bearer form, issued by
commercial banks and development
financial institutions.
 They can be issued to individuals,
corporations and companies during
periods of tight liquidity
 They help to mobilise a large amount
of money for short periods

12. Bill Market
These bills are short-
term liabilities (91-day,
182-day, 364-day) of
the Government of
India
T-BILLS
It is an IOU of the
The rate of discount government, a
and the promise to pay the
corresponding issue stated amount after
price are expiry of the stated
determined at each period from the date
auction of issue
Commercial Bill market- is one which arises out of a genuine trade transaction, i.e.
credit transaction.

13. RBI in financial market
CRR- is the amount of funds that the banks have to keep with the RBI. If
the central bank decides to increase the CRR, the available amount with
the banks comes down.
Reverse Repo
The rate at which
rate is the rate at
the RBI lends
which
money to
the RBI borrows
commercial banks
money from
is called repo rate.
commercial banks.
It is an instrument
Banks are always RBI
of monetary
happy to lend
policy. Whenever
money to the RBI
banks have any
since their money
shortage of funds
are in safe hands
they can borrow
with a good
from the RBI.
interest.
Statutory Liquidity Ratio refers to the amount that the
commercial banks require to maintain in the form gold or
govt. approved securities before providing credit to the
customers.

14. Short term loan Market
PURPOSE:
To meet temporary shortfall / mismatch in liquidity, for meeting
genuine business requirements only.
ENTERPRISES GROUP:
Micro, Small & Medium Enterprises as per Regulatory definition and
all other entities with annual sales turnover of Rs. 1/- crore to Rs.
150/- crores.
PERIOD:
Not exceeding 180 days – minimum 90 days
SECURITY
First charge / Equitable mortgage of fixed assets of the company /
firm or extension of existing first charge / equitable mortgage of
fixed assets, ensuring that there is a minimum asset cover of 1.25.
Extension of Charge on current assets for the additional facility
ensuring that adequate drawing power is available.
Extension of all existing guarantees of Directors / Third party
guarantees to cover the additional facility.

15. Capital market
 Various institutions like commercial banks and
development banks are important player of capital
market
 Development institutions/banks –
IDBI (Industrial Development Bank of India)
IFCI (Industrial Finance Corporation of India)
ICICI (Industrial Credit and Investment
Corporation of India)
IIBI (Industrial Investment Bank of India)
SIDBI (Small Industries Development Bank of
India)

16.  Development banks provide direct and
indirect assistance to large and
medium scale enterprises. Assistance
through capital market-
underwriting
direct subscription to shares and
debentures
guarantee for deferred payments
equipment finance schemes.

17. Role of Banks - Conclusion
 Maturity Transformation
 Size Transformation
 Risk Reduction
 Search and Transaction Cost
reduction
 Monitoring
 Providing a Payments Mechanism
 Developing a “framework” for
Profitable Financial Inclusion

18. THANK YOU