Academic Project On Comparison of Indian financial system with Malaysian finance system

Submitted to: Dr. Sanjay Rastogi

Submitted By: Laxmikant sharma JKBS/PGDM/AICTE Sudesh sharma JKBS/PGDM/AICTE

DECLARATION

We (Laxmi Kant Sharma & Sudesh sharma) declare that the Project Work entitled Comparison of Indian financial system with Malaysian finance system is our own work and conducted under the supervision of Dr. sanjay rastogi. We further declare that to the best of our knowledge, the Project does not contain any part of any work which has been submitted for the award of any degree either in this College/ University/ Deemed University without proper citation.

Laxmi Kant Sharma Sudesh Sharma JKBS/PGDM/AICTE

ACKNOWLEDGEMENT
Some works are so typical that are impossible for a person to complete it alone. Summer Internship Project is one of them. I would not be able to complete my work without the help of my respected Company Guide, Faculty Guide, my college and workplace colleagues and my family members. So it is my obligation to thank all of them. We have had the honor of having been associated & working under the able & stimulating guidance of Mr. Sanjay Rastogi Faculty of Finance. The Project work was undertaken under their keen supervision and the Project has been prepared by me. We express sincere feeling of gratitude and respect for their inspiring help throughout the work. Without his esteemed and valuable help and guidance it would not have been possible for me to accomplish my job. We are gratefully indebted to them. And finally I would like to offer my heartiest prayer to the God and my friends who have given me mental and spiritual strength to complete this research work.

Laxmi Kant Sharma Sudesh sharma

INDIAN FINANCIAL SYSTEM

IFS and its Functions: System that allows the transfer of money between savers and borrowers It channels household savings to the corporate sector Allows asset - liability transformation

It helps in risk transformation by diversification Indian Financial System consists of: 1. 2. 3. Banking sector. Capital market. Money market.

Structure of Banking in India

Scheduled bank

Commercial bank

Co-operative bank

Public sector (27)

Private sector (30)

Foreign banks (40)

Regional Rural banks (196)

Nationalized banks (19)

State bank of India & its associates (8)

Commercial banks Public sector banks are those where government holdings are more than 50% while nationalized banks are those banks which were nationalized on July 19, 1969. Thus all nationalized banks are public sector banks. So one can say public sector bank=Nationalized bank+ SBI + SBI associates + IDBI Thus in total 27 PSBs are there. As on December 31st, Public sector banks recorded a rise of 24.1% when compare to 16.9% in the last year. Private sector Banks Private sector banks are those banks in which majority of stake is held by private individuals and not by government The first private bank in India was Indus land Bank IDBI ranks the 10th largest development bank in the world as private banks in India As on December 31st, Private sector banks recorded a rise of 28% when compare to 8.4% in the last year. Foreign Bank Banks from other countries which have branches in a country. Citi Bank opened its branch in India in 1902 The foreign banks have brought forth some innovations and changes in the banking industry of the country. The banking industry is now more competitive and customer friendly than before. As on December 31st, foreign banks recorded a rise of 19.8% when compared to a decline of 8% in the last year.

Regional rural bank The banks provide credit to the weaker sections of the rural areas, particularly the small and marginal farmers and small entrepreneurs

 RRBs was set up by the government of India on October 2, 1975 The total authorized capital was earlier fixed at Rs. 1 crore which is now raised to Rs. 5 crore The RRBs are under control of NABARD which is in charge of laying down policies for the RRBs.

Capital Market in India

Capital Market in India Industrial security market New issues market and Old issue market IFCI ICICI SFCs IDBI IIBI Merchant banks Mutual funds Leasing companies Venture capitalist Financial Intermedia ries

Government security (Gilledged market)

Development financial Institution

UTI

Gilt Edged Market and Types This market refers to the market for government securities which are of the best quality. Credible instrument used by government for meeting its financial requirement. Types:1. 2. 3. 4. Dated Securities with a fix maturity date Zero coupon bonds Partly paid stock Treasury Bills

Industrial security market An initial public offering (IPO), referred to simply as an "offering" or "flotation", is when a company (called the issuer) issues common stock or shares to the public for the first time. Indias largest IPO is from Coal India Ltd which raised upto Rs.15000 crore. A stock exchange is an entity that provides "trading" facilities for stock brokers and traders to trade stocks, bonds, and other securities.

Recent changes by SEBI Investment limit in IPO is increased from 1 lakh to 2 lakh. SEBI decides IPOs should be listed with in 12 days. SEBI introduced spot delivery system for derivatives from April 1st 2011.

Pre open market introduced by SEBI.

Merchant banks Merchant bankers assist corporate in raising capital. They assist in issue of Shares, syndicating loans, public issue of debentures. They do not provide funds.

 They only assist. They also actively arrange working capital, appraisal Projects scrutinize & persuade merger proposals. Mutual Funds A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests typically in investment securities. Types of mutual Funds 1. Open - ended schemes 2. Close ended schemes Lease financing and hire purchase Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments. A hire-purchase contract allows the buyer to hire the goods for a monthly rent. A hire purchase is termed an installment plan.

Venture capital Financing Venture capital is risk financing available in the form of equity

A venture capitalist also provides management support and acts as a partner and advisor to the entrepreneur Methods of venture financing 1. Equity Contribute 49% of the total equity capital 2. Conditional loan Amount repayable in form of royalty, No interest charged 3. Income notes Charges both interest and royalty on sales

The Financial System Structure in Malaysia

Financial System

Financial Institutions

Financial Market

Banking System
1. Bank Negara Malaysia 2. Bank Institutions Commercial Banks Finance Companies Merchant Banks Islamic Banks 3. Others Discount Houses Representative offices of foreign Banks

Non-Bank Financial Intermediaries

1. Provider & Pension Funds 2. Insurance Companies (including Takaful) 3. Development finance Institutions 4. Saving Institutions. National Saving Banks Co-operative societies 5. Others Unit Trusts Pilgrims Fund Board Housing Credit Institutions Cagamas Berhad Credit Guarantee Corporation Leasing Companies Factoring Companies Venture Capital Companies

Money & Foreign Exchange Market

1. Money market 2. Foreign exchange Market

Capital Market
1. Equity Market 2. Bond Market Public Debt Securities Private debt Securities

Derivatives Market
1. Commodity Futures 2, KLSE CI Futures 3. KLIBOR Futures

Offshore Market
1. Labuan International Offshore Financial Center (IOFC)

Banking System Consists of Bank Negara Malaysia (Central Bank of Malaysia BNM) , banking institutions ( commercial banks, finance companies, merchant bank and Islamic banks) and a miscellaneous group ( discount house and representative office of foreign banks). Largest of financial system, accounting for >70% of the total assets of the financial system. Rapid expansion of largest group of institutions in banking system grew an average rate 19.7% (1988-97) but decline by 5.6% (during Asian Financial crisis). recover after 2000. Bank Negara Malaysia Established on 26 January1959 under the Central Bank of Malaya Ordinance 1958. Objectives of BNM are as follows: To issue currency and keep reserves to safeguard the value of the currency; To act as a banker and financial adviser to the Government; To promote monetary stability and a sound financial structure; and To influences the credit situation to the advantage of Malaysia. The objectives of BNM, in essence, encapsulate the importance of promoting economic growth with price stability and maintaining and financial stability. The introduction of the Banking and Financial Institutions Act 1989 (BAFIA) on 1 October 1989 extended BNMs powers for the supervision and regulation of financial institutions and depositing taking institutions who also engaged in the provisions of finance and credit.

Commercial Banks The commercial banks are largest and most significant providers of funds in the banking system. Since they are involved in deposit-taking activities, they are required to operate within the ambit of the provisions of the Banking and Financial Institutions Act 1989 (BAFIA) under direct supervision of Bank Negara Malaysia. Current 22 commercial banks (exclude Islamic banks) of which 13 are locally incorporated foreign banks.

Commercial Banks The main functions of commercial banks are to provide: 1. The mobilization of saving , deposits, surplus and idle funds through savings accounts, currents accounts, fixed deposit accounts, negotiable instruments of deposits and through other banking, financial and investment instruments. 2. The provision of services and facilities for their customers and others members of the public to collect/receive and transfer/pay money in Malaysian ringgits or in other foreign currencies, both locally and internationally. Commercial banks are also authorized to deal in foreign exchange and are the only financial institutions allowed to provide current account facilities. 3. The lending of money under various from of overdrafts, loan and advances, and the financing instruments to private individuals and different forms of business enterprises and other organizations for personal consumption, investments, working capital requirements and for other productive and economically viable purpose and activities. 4. The provision of banking services and facilities to stimulate, assist and encourage productive and profitable utilization of available funds for investments and promotion of exports. 5. The financing of government project and activities through subscriptions to Treasury Bills, Cagamas Bonds, Government securities, and so on.

Commercial Banks

No Name 1 Affin Bank Berhad 2 Alliance Bank Berhad 3 AmBank (M) Berhad) 4 Bangkok Bank Berhad 5 Bank of America Malaysia Berhad 6 Bank of China (Malaysia) Berhad

Ownership Local Local Local Foreign Foreign Foreign

7 Bank of Tokyo-Mitsubishi UFJ (Malaysia) Berhad Foreign 8 CIMB Bank Berhad 9 Citibank Berhad 10 Deutsche Bank (Malaysia) Berhad 11 EON Bank Berhad 12 Hong Leong Bank Berhad 13 HSBC Bank Malaysia Berhad 14 J.P. Morgan Chase Bank Berhad 15 Malayan Banking Berhad 16 OCBC Bank (Malaysia) Berhad 17 Public Bank Berhad 18 RHB Bank Berhad 19 Standard Chartered Bank Malaysia Berhad 20 The Bank of Nova Scotia Berhad 21 The Royal Bank of Scotland Berhad Local Foreign Foreign Local Local Foreign Foreign Local Foreign Local Local Foreign Foreign Foreign

22 United Overseas Bank (Malaysia) Bhd

Foreign

Merchant Banks Merchant banks emerged in the Malaysian banking scene in the 1970s, marking an important milestone in the development of the financial system alongside the corporate development of the country. They play a role in the short-term money market and capital raising activities including financing specializing in syndication, corporate finance and management advisory services, arranging for the issue and listing of shares, as well as investment portfolio management. There are currently 9 merchant banks in Malaysia.

No 1 2 3 4 5 6 7 8 9

List of Merchant Banks in Malaysia Affin Merchant Bank Bhd. Alliance Merchant Bank Bhd. Arab-Malaysian Merchant Bank Bhd. Aseambankers (M) Bhd. Commerce International Merchant Bank Bhd. Southern Investment Bank Bhd. Public Merchant Bankers Bhd. RHB Sakura Merchant Bankers Bhd. Utama Merchant Bank Bhd.

Islamic Banks In Malaysia, separate banking legislation and banking regulation exists side by side with those for the conventional banking system. The legal basis for the establishment of Islamic banks was the Islamic Banking Act (IBA), which came into effect on 07 April 1983. The IBA provides BNM with powers to supervise and regulate Islamic banks, similar to the case of other licensed banks. The banking activities of Islamic banks are based on Syariah principles (the Islamic principles). The first Islamic bank was Bank Islam Malaysia Bank (paid-up capital RM80million) which commenced operations on 1 July 1983. On 1 October 1999, a second Islamic bank, namely Bank Mualamat Malaysia Berhad was established. Apart from Islamic banks, other financial institutions also offer Islamic banking services through the Islamic Banking Scheme In term of products, all Islamic banking entities are offers banking products based on the Islamic principles.

No. Name 1 2 3 4 5 6 Affin Islamic Bank Berhad

Ownership L

Al Rajhi Banking & Investment Corporation (Malaysia) Berhad F Alliance Islamic Bank Berhad AmIslamic Bank Berhad Asian Finance Bank Berhad Bank Islam Malaysia Berhad L L F L

7 8 9

Bank Muamalat Malaysia Berhad CIMB Islamic Bank Berhad EONCAP Islamic Bank Berhad

L L L L F F L F L L F

10 Hong Leong Islamic Bank Berhad 11 HSBC Amanah Malaysia Berhad 12 Kuwait Finance House (Malaysia) Berhad 13 Maybank Islamic Berhad 14 OCBC Al-Amin Bank Berhad 15 Public Islamic Bank Berhad 16 RHB Islamic Bank Berhad 17 Standard Chartered Saadiq Berhad

Discount House Discount House began operations in Malaysia since 1963. Generally, the discount house specialize in short-term money market operations and mobile deposits from the financial institutions and corporations in the form of money at call, overnight money and short term deposits. The funds mobilized are invested in Malaysian Treasury Bills, Malaysian Government Securities (MGS), banker acceptance (Bas), negotiable certificates of deposits (NCDs), Cagamas bonds and Floating Rate Negotiable Certificate of Deposits (FRNCDs), as well as to provide an active secondary market for these activities.

Conclusion

Almost both nations financial system are same. Regulation is done by central bank in both nations. Discounts houses is the new terminology in Malaysia finance system. Bursa Malaysia Berhad is the stock market of Malaysia. Private equity and venture capital play a vital role in Indian finance system. In India public banks has around 70 % contribution in banking system but In Malaysia other banks has major share holding in banking system. Mutual Funds also major contributors in Indian share market as well as economy but in Malaysia there are no such funds.

Bibliography
Rbi.gov.in www.bnm.gov