Answer Insurance started as a cooperative venture when a group of people came together to help those from the group who suffered financial losses 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 mechanism of transferring risk whereby the business enterprise or the individuals can shift some of the uncertainties 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 insurance market comes at the nineteenth position globally and is ranked fifth in Asia, after Japan, South Korea, China and Taiwan. With the introduction of globalization and privatization, insurance industry in India has been growing at more than 15 per cent per annum. It ranks immediately 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 requirement the different categories of people and businesses. The insurance intermediation has now become a full-time, qualified profession. Now, people are approaching insurance agents for their financial advises rather than business.
Individuals are now seeking ways of improving 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 satisfaction today than earlier. The business of insurance 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 Government of India.
The members of the IRDA are appointed by the Central Government 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 members. Mission Statement of IRDA To protect the interest of and secure fair treatment to policyholders To bring about speedy and orderly growth of the insurance industry (including annuity and superannuation payments), for the benefit of the common 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 redressal 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 standards 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 prudential regulation The duties, powers and functions of IRDA are laid down in section 14 of IRDA Act, 1999 as 1. 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 growth of the insurance business and re-insurance business. 2. Without prejudice to the generality of the provisions contained in subsection (1), the powers and functions of the Authority shall include, 1.
issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration 2. protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance 3. specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents 4. specifying the code of conduct for surveyors and loss assessors 5. promoting efficiency in the conduct of insurance business 6. promoting and regulating professional organizations connected with the insurance and re-insurance business 7. levying fees and other charges for carrying out the purposes of this Act 8.
calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organizations connected with the insurance business 9. control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938) 10. specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries 11. regulating investment of funds by insurance companies 12. regulating maintenance of margin of solvency 13. adjudication of disputes between insurers and intermediaries or insurance intermediaries 14. supervising the functioning of the Tariff Advisory Committee 15. specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations referred to in clause (2.
6) 16. specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector and 17. exercising such other powers as may be prescribed 2. Ajit has recently joined an investment management company and his profile consisted of capital market instruments. His manager in order to estimate his understanding of the market, asked him to prepare a report on the role of the capital market. Suggest relevant points to be included in his report. Answer Capital markets work for the creation and trading of financial assets like stocks, bonds, hybrid instruments, commodities and derivatives. A number of participants like brokers, dealers, investment bankers and financial mediators operate in capital markets.
Capital market is of two types stock markets, which trade equity instruments and the bond markets, which trade debt instruments. Examples of Capital Market in India are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). While commodity market comprising commodity exchanges is not usually regarded 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 essential for its perfect functioning.
In India Securities and Exchange Board of India (SEBI) is the regulator. Role of Capital market in India 1. It is only with the help of capital market, long-term funds are raised by the business community. 2. It provides opportunity for the public to invest their savings in attractive securities which provide a higher return. 3. A well developed capital market is capable of attracting funds even from foreign country.
Thus, foreign capital flows into the country through foreign investments. 4. Capital market provides an opportunity for the investing public to know the trend of different securities and the conditions prevailing in the economy. 5.
It enables the country to achieve economic growth as capital formation is promoted through the capital market. 6. 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. 7. 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.
8. Through the Press and different media, the public are informed about the prices of different securities. This enables the public to take necessary investment decisions. 9. Capital market provides opportunities for different institutions such as commercial banks, mutual funds, investment trust etc., to earn a good return on the investing funds. They employ financial experts who are able to predict the changes in the market and accordingly undertake suitable portfolio investments.
The capital market is also divided in primary capital market and secondary capital market. Primary market Primary market or new issue market is a type of equity 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 raising 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 firm sells their securities to public through an initial public offering. This phenomenon 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 fulfill all the requirements of stock exchange which includes index listing.
Stock exchanges have different listing requirements. There are two types of lists that are maintained by any stock exchange market. They are cash list and forward list. The securities listed on the cash list include the non-cleared securities and those which are listed on the forward list are the cleared securities. Features of primary market A primary market accelerates the capital structure of an economy. The features of primary market are as follows It is the market where securities are sold for the first time. The securities are issued directly to the investors by a company.
Primary issues are used by the companies to set up a new business or to expand their existing businesses. Secondary market Secondary market or after-market is the market where an investor buys a security directly from another investor instead of the issuer. The securities are issued initially in primary market and then they enter into secondary market. Secondary market helps in reducing the investment risks and maintaining liquidity in financial system.
It assists in minimising the markets impact on government debt operations and coordinating the authorities monetary policy and debt management. Instruments of secondary market Rights issue/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 existing shareholders in the books of the company 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 interest 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 government 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 specified maturity date. The issuer pays the bond holder a periodic interest payment over the loan period. 3. Neeta had recently joined a company after completing her graduation and the company was almost six years old. The company had been doing good in the recent past and had plans for expansion for which it wanted to raise money through IPO. Neetas manager gave her the task of getting information on the major stock exchanges of India where the equity can be listed.
a. Collect relevant information about BSE b. Collect relevant information about NSE Answer a) An IPO 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 o Through a public issue of fresh shares issued by the company o By an offer for sale of the existing shares made by the existing shareholders to the public Under the public issue method of IPO, the equity base of the company increases 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 companies have many options to raise capital such as borrowing, finding additional private investors, or by being acquired by another company. But, by far, the IPO option raises the largest sums of money for the company and its early investors.
Minimum Listing Requirements 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 for FPO. Issue size cannot be less than Rs. 10 Cr. The minimum capitalization post issue should be not less than Rs. 25 Cr. Take permission to use the name of BSE in a Companys Prospectus Companies which desire to list their shares/ securities offered through a public issue are compulsorily required to obtain prior permission of BSE to use their name in their prospectus and other documents before filing the same with the Registrar of Companies (ROc).
Then, BSE may grant permission 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. Trading Permission 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. b) New Listing 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 fulfilling the eligibility criteria prescribed by the Exchange from time to time are listed on the Exchange. Qualifications 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 applicants equity shall not be less than 25 crores Conditions Precedent to Listing The Issuer shall have adhered to conditions precedent to listing as emerging 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 circular, clarifications, guidelines issued by the appropriate authority under foregoing statutes.
Atleast three years track record of either the applicant seeking listing or the promoters/promoting company, incorporated in or outside India or Partnership firm and subsequently converted into a Company (not in existence as a Company for three years) and approaches the Exchange for listing. Distribution of shareholding The applicants/promoting company(ies) shareholding pattern on March 31 of last three calendar years separately showing promoters and other groups shareholding pattern 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 prospectus should have been prepared in accordance with the SEBI (ICDR) Regulations, other statutes, notifications, circulars, etc. governing preparation and issue of prospectus prevailing at the relevant time. The Issuers may particularly bear in mind the provisions of Companies Act, Securities Contracts (Regulation) Act, the SEBI Act and the relevant subordinate legislations thereto. NSE will peruse the draft prospectus only from the point of view of checking whether the draft prospectus is in accordance with the listing requirements, 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 observations on draft prospectus 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 prescribed in this regard 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 modification or substitution thereof. Y, dXiJ(x(I_TS1EZBmU/xYy5g/GMGeD3Vqq8K)fw9xrxwrTZaGy8IjbRcXIu3KGnD1NIBsRuKV.ELM2fiVvlu8zH(W )6-rCSj id DAIqbJx6kASht(QpmcaSlXP1Mh9MVdDAaVBfJP8AVf 6Q