Accounting Introduction 1

Functions, Qualitative Characteristics, Users, Events, Basis, Systems

LUCA PACIOLI
• Father of Modern Accounting- Luca Pacioli (1447-1517) - Italian
• He published a book "Summa de Arithematica, Geometrica and Preportini and
Preportionalita" in 1494. This book is the basis for “Double Entry System of Accounting”.
• He introduced the term Debit and Credit
• Debit comes from Italian Word ‘Debito’ which comes from Latin Word ‘debeo’ means
“owed to the Propreitor”
• Credit comes from Italian word ‘Credito’ which comes from Latin word ‘Credo’ means
“trust or Belief or Owed by the Proprietor”

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BOOK KEEPING
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• According to J.R. Batliboi. "Book keeping is the art of recording business transactions in a set
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of books"
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• In other words, systematic recording of business transactions in books of accounts is called

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book-keeping.
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• It is concerned with identifying, measuring, recording and classifying economic transactions

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and events.
• Identifying : means determining what transactions to record or what events are to be
recorded. It involves observing activities and selecting those events which are of financial
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character and related to the organisation.

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• Measurement : it means quantification of business transactions in to financial terms by using

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monetary units
• Recording : Recording of financial transactions in the books of accounts in monetary terms
in chronological order
• Classifying : means identifying and separating accounts into different assets, liabilities,
incomes and expenses.
Identify, Measure, Record and Classify these transactions
• Bought furniture for business for Rs 10000
• Paid salary to employees Rs 25000
• Paid Son’s fee Rs 2500 from his personal account
• Attend a marriage and gave donation Rs 1000
• Paid Son’s Fee Rs 2500 from business

MEANING OF ACCOUNTING
• Accounting is the language of the Business
• Accounting is the process of identifying, recording, classifying, summarising, interpreting and
communicating financial information relating to an organisation to the interested users for
judgement and decision making.

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DEFINITION OF ACCOUNTING
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• In 1941, The American Institute of Certified Public Accountant (AICPA) has defined Financial
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Accounting as:
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• “Accounting is the art of recording, classifying and summarizing in a significant manner and in
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terms of money, transactions and events which are, in part at least of a financial character
and interpreting the results thereof.”
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•
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AICPA-American Institute of Certified Public Accountants -founded in 1887-

• Headquarters-United states
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According to American Accounting Association (AAA) :

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• “Accounting is the process of identifying, measuring and communicating economic

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information to permit informed judgement and decisions by users of the information”

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ACCOUNTANCY
• Accountancy refers to the entire body of the theoretical knowledge of accounting. It is the
theory part of accounting. Accounting relates to applying the knowledge of accountancy.
 Difference between Book Keeping, Accounting & Accountancy
Book Keeping Accounting Accountancy
• Mere recording of business • It involves not only mere • Accountancy' refers to the

transactions in a set of books record of business entire body of the theoretical

transactions but also analyze, knowledge of accounting. It

interpret the financial is the theory part of

statements accounting,

• Book Keeping is a part of • Accounting is a wider • Accountancy implies a

Accounting concept and actually, it systematic body of

begins where Book Keeping knowledge that prescribes

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ends. It includes accounting principles,
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summarizing, interpreting and conventions, techniques etc.

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communicating the financial

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data to the users of financial

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statements.
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• It is the process of • Accounting relates to • Accountancy is the

identifying, measuring, applying the knowledge of profession opted by the

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recording and classifying the accountancy accountant

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financial transactions.
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FUNCTIONS OF ACCOUNTING

Recording
(Journal)
Book Keeping

Classifying
(Ledger)

Summarizing Accounting
(Trial Balance)

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Preparation of Financial
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Statements
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Interpreting &
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Communicating
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FUNCTIONS OF ACCOUNTING

1. Recording:
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• It is the process of entering business transactions of financial character in the books of

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original entry (JOURNAL) in terms of money.

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• Recording of business transaction is the basic function of accounting.

2. Classifying:

• Classification is concerned with the systematic analysis of recorded data with a view to bring

transactions or entries of similar nature to one place.

• The work of classification is done in the book known as “Ledger”.

• In ledger financial transaction of similar nature are brought under one page called “Account”

3. Summarising:

• It is the presentation of the classified data in a manner understandable and useful to the

internal users like different levels of management and external users like bankers, creditors,

investors...etc

It involves:

• Income statement - profit and loss Account

• Position statement - Balance sheet

4. Analysis and Interpretation: us

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The financial data recorded is analysed and interpreted in such a manner that the end-users
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can make a meaningful judgment about the financial condition of the business.
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5. Communication:
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• After having analysed and interpreted the accounting information has to be communicated in
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a proper form to the proper person.

• This is done through preparation and distribution of accounting reports such as accounting

ratios, graphs, diagrams...etc.

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Recording:

• It is the process of entering business transactions

Classifying:

• to bring transactions or entries of similar nature to one place called ledger

 Summarising:

• Presentation of transactions understandable and useful to the internal users and external

users etc

Analysis and Interpretation:

• end-users can make a meaningful judgment about the financial condition of the business.

Communication:

• analysis and interpretation of accounting information has to be communicated in a proper

form to the proper person

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Objectives of Accounting Pl
• Keeping records of business Transactions
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• Ascertainment of Profit or Loss

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• Ascertainment of Financial Position

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•
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Providing meaningful information to different groups of people having interest in the business
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• Accounting begins where Book keeping ends….

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• Auditing begins where Accounting ends….

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Role of Accounting
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• Language of a Business
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• Historical record

• Current Economic Reality

• Information System

• Service to Users
 Generally Accepted Accounting Principles

Generally Accepted Accounting Principles (GAAP) or Accounting Principles

• GAAP is a collection of commonly followed Accounting Rules and Guidelines for financial
reporting having universal applicability.

'Accounting Principles'
• Accounting principles are the rules and guidelines that Companies must follow when
reporting financial data. The common set of U.S. Accounting Principles is the Generally
Accepted Accounting Principles (GAAP).

Accounting Conventions us
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• This is the method or custom or traditions in which the accountants following for the
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preparation of accounting statements. These procedures are emerging out of usage or

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custom.
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Accounting Standards
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• Accounting standard is a “common set of accounting policies and guidelines based on the
principles and methods of accounting to be followed to have uniformity in terminology,
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approach and presentation of results”

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• Accounting standards improve the transparency of financial reporting in all countries

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Accounting Policies
• The method adopted by each enterprise for applying the accounting principles in to
practice.
 Accounting Principle

Accounting Concepts Accounting Conventions

1. Business entity 1. Consistency

2. Going Concern 2. Full Disclosure
3. Money measurement 3. Conservatism
4. Dual Aspect 4. Materiality
5. Historical Cost
6. Accounting Period
7. Matching Concept
8. Revenue Realization
9. Verifiable Objectivity us
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Accounting Concepts:-
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Separate Entity Concept:

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• In accounting, business is considered to be a separate entity from the proprietor. When the
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Proprietor brings money in to the business, it is only considered as a liability to the Firm
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(Capital). Death or insolvency of the Proprietor does not affect the business

Going Concern Concept:

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• According to this concept, it is assumed that the business will continue for a long time and
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it will never end.

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• Depreciation Charged on Fixed Assets,

• Separate Expenditures as Capital and Revenue,
• Supply's goods on credit, Prepaid Expenses, Outstanding Incomes etc. are done under this
concept.
Money Measurement Concept:
• Transactions involving money or money’s worth will be recorded in the books of the
business.
• Quality, Experience of the employees, Quantity of Raw material, Barter Transactions cannot
be recorded in the books of accounts.
• Accounting records only those transactions that can be expressed in terms of money.

Dual Aspect
• According to this concept, every transaction has two aspect, a receiving aspect and a giving
aspect.

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• The receiving aspect is called debit and giving aspect is called credit.
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Asset = Liabilities + Capital

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Historical Cost
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• This principle require that all transactions should be recorded at their acquisition cost.
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• As per this principle, the cost of acquisition includes cost of purchase + Expenses incurred
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on bringing them in to business location and make them ready to use.

• Transportation Charge, Loading Charge, Installation Charge etc. are added to Machinery's
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original Cost according to this concept.

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Accounting Period:
• The business has an indefinite life, the business man must stop and see the financial
position and profit or loss at regular intervals in order to take right decisions.
• The period for which the accounts are prepared and analysed is known as Accounting
Period or financial year, normally one year.
 Matching Principle:
• Under this principle, the cost or expenses of a business of an accounting period should be
compared with revenue of that period in order to ascertain the profit or loss.
• Accounting adjustments like Outstanding Expenses, Prepaid Expenses, Accrued Income,
Unearned Income are made because of this principle.

Revenue Realisation
• Revenue should be realized at the point of sales of goods and services provided by the
business.
• Under this concept revenue is earned or recognised as earned at the point of sales at which
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the title or ownership of goods passes from the seller to the buyer.
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• Exceptions:- Hire Purchase System, Contract A/C
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Verifiable Objective or Objective Evidence Concept:-

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• It means that all the entries in the accounting records are verifiable with supporting
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documentary evidences like Receipts, Vouchers, Bills, Bank Statement etc.

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Consistency
• The accounting practices should remain the same from one year to another. This is
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necessary for making comparison.

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• If the closing stock is valued at cost price or market price whichever is less, depreciation is
charged on fixed instalment system, the same will be followed year after year.
Full Disclosure:-
• It demands that accounting Statement should disclose all the material facts about the
business for the benefit of the users. It means that the Profit and Loss A/C and Balance
sheet of the business should disclose the true state of affairs of the business.
• The practice of giving explanatory statement along with accounting statement such as
• Method of Valuation of stock,
• Calculation of Depreciation,
• Contingent assets, Contingent liabilities, Debts due by Directors etc. are done for
convention of Full Disclosure.
“Prudence” or Principle of Conservatism
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• The principle states that while recording the business transaction, all anticipated profits are
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not to be considered but considered all the possible losses. The policy is “playing safe”
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Eg: Closing stock is valued at cost price or market price whichever is less,
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• Depreciation charged,
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• Provisions and reserves created,

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• Profit on sale of fixed asset is transferred to capital Reserve etc.

Materiality:-
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• Under this principle important material facts should be attached to the financial statements
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and insignificant or unimportant matters should be avoided.

• Figures may be rounded up to nearest ten or hundred, paisa figures avoided are done under
this principle.
• Small Items purchased for long term use like Stapler, Punch etc. is considered as revenue
expenditure asper this concept
 Timeliness
• The accounting information should be provided to the users in time and frequently.
• Late or obsolete information is presented, timely and right decisions cannot be taken.
Substance over Legal form
• The transactions are recorded according to their substance not legality.

Accounting Principle

Accounting Concepts Accounting Conventions

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1. Business entity 1.
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2. Going Concern 2. Full Disclosure
3. Money measurement
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3. Conservatism
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4. Duel Aspect 4. Materiality

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5. Historical Cost
5. Timeliness
6. Accounting Period
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7. Matching Concept
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8. Revenue Realization
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9. Verifiable Objectivity
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The Important Accounting Concepts are as follows

GAAP
Accounting
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Accounting Principles or Modifying Accounting

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Assumptions or
Conventions Principles Standards
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Concepts
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Accounting Entity 32 Accounting

Dual Aspect Principle Materiality
Concept standards
Going Concern
Historical cost principle Consistency
Concept
Money
Revenue Realization Conservatism
Measurement
Principle (Prudence)
Concept
Accounting
Matching Principle Timeliness
Period Concept
Verifiable Objectives Accrual Concept
Full Disclosure Principle Modifying
Principles

Accounting Principles Rules and Guidelines

Assumptions, or
Accounting Concepts
conditions

Accounting Conventions Method or custom or

traditions
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Common policies or
Accounting Standards
Guidelines of accounting
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to have uniformity
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Accounting Policies Applying the accounting

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principles into practice

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Indian Accounting Standards:

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• In India "The Institute of Chartered Accounts of India"(ICAI) has constituted accounting

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Standard Board (ASB) in 21-4-1977.

• Indian accounting standards are the Accounting standard adopted by companies in India
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and issued under the supervision and control of Accounting Standards Board (ASB), which
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was constituted in the year 1977.

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• The purpose of ASB is to formulate and publish accounting Standards.

• "Accounting standards are codified statements of accounting rules and regulations for
preparing financial statements in a consistent manner.
• In India, Accounting Standards are issued by the Institute of Chartered Accountants of India.
• The Institute of Chartered Accounts of India (ICAI) has so far issued 32 Accounting
standards. But now only 27 accounting standards
• Institute of Chartered Accounts of India (ICAI) formed in 1st July 1949 with Headquarters
at New Delhi
• Ind-AS are a set of accounting standards notified under Section 133 of the Indian
Companies Act 2013.
• The Government of India has issued notification regarding 41 Ind-AS so far and has also
clarified that unlisted companies with net worth of under Rs. 500 crore and Urban Co-
operative banks with net worth of under Rs. 200 crore won’t be required to adopt Ind-AS.

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IFRS (International Financial Reporting Standards)
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Fixed by International Accounting Standard Board (April 21,1977)

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AS 1 Disclosure of accounting policies

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AS 2 Valuation of Inventories
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AS 3 Cash flow System

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AS 4 Events occurring after Balance sheet Date

AS 5 Net Profit and Net Loss for the period, Changes in Accounting Policies
AS 6 Depreciation Accounting
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AS 7 Construction Contracts
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AS 8 Withdrawn added to AS 26
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AS 9 Revenue Recognition
AS 10 Accounting for Fixed Assets
AS 11 Events of Changes in Foreign Exchange rates
AS 12 Accounting for Govt. Grants
 AS 13 Accounting for Investments
AS 14 Accounting for Amalgamations
AS 15 Employee Benefits
AS 16 Borrowing Cost
AS 19 Leases
AS 20 Earning Per Share
AS 21 Consolidated Financial Statements
AS 22 Accounting Income Tax
AS 26 Intangible Assets
AS 29 Provisions, Contingent Assets , Contingent Liabilities

• In 2001 IAS was replaced by IFRS

• IFRS (International Financial Reporting Standards):-
• There are 17 IFRS us
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• IFRS 1 First-time Adoption of International Financial Reporting Standards
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• IFRS 2 Share-based Payment

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• IFRS 3 Business Combinations

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• IFRS 4 Insurance Contracts

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• IFRS 5 Non-cash Assets Held for Sale and Discontinued Operations

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• IFRS 6 Exploration for and Evaluation of Mineral Resources

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• IFRS 7 Financial Instruments: Disclosures

• IFRS 8 Operating Segments
• IFRS 9 Financial Instruments
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IFRS 10 Consolidated Financial Statements

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IFRS 11 Joint Arrangements

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IFRS 12 Disclosure of Interests in Other Entities

• IFRS 13 Fair Value Measurement
• IFRS 14 Regulatory Deferral Accounts
• IFRS 15 Revenue from Contracts with Customers
• IFRS 16 Leases
• IFRS 17 Insurance Contracts
 Accounting Introduction 2

Accounting Process, Users of Accounting, Events in Business, Branches of Accounting

ACCOUNTING PROCESS

Accounting Process

Economic Events Communication of

Information

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Decision Makers Internal
and External Users
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ACCOUNTING CYCLE
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Source Document
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Financial Statements Journal

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Trail Balance Ledger

Users of Accounting

• Users of Accounting information may be categorised into :

▪ Internal Users of Accounting Information

▪ External Users of Accounting Information

Users of Accounting

Internal Users of Accounting Information External Users of Accounting Information

Management, Employees and Workers, Investors, Suppliers and Creditors, Bank, Stock

Exchange, Govt., Customers, Researchers, SEC

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(Securities and Exchange Commission)
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Shareholders
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They are collectively called Stakeholders

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ECONOMIC AND NON-ECONOMIC EVENTS

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Economic Events
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• An economic event is a happening of consequences to a business organisation which consists of

transaction and are measurable in monitory terms.

Eg: salary paid, commission received, goods sold, discount received... etc
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• Non-Economic Events
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• It is an activity performed with the purpose of rendering services to others without any consideration to

financial gain.

• Non Economic events are not recorded in the books of accounts

• Eg: family commitment activities, doing social work, going to temple...etc.

 Economic Events:

• Business transactions (Economic events) are classified into :

(a) External event

(b) Internal event

• (a) External event

• Event which involve transactions between an outsider and organisation are external events.

• Payment of rent to landlord, purchase of goods from supplier, sale of goods to a customer

• (b) Internal event

• Event which occur entirely within the enterprise are called internal event.

• An internal event is an economic event us

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Payment of wages or salary to employees, Transfer of materials from one department to another
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department, supply of raw materials from stores to production department, Return of materials from
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production department to stores

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Qualitative characteristics of accounting information

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• Organisation Means a business enterprise whether for profit or not profit motive.

It may be;
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• Sole Proprietorship Business

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Partnership
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• Co-operative Society

• Company etc.
 Qualitative characteristics of accounting information

1. Reliability
2. Relevance
3. Understand ability
4. Comparability

Qualitative characteristics of accounting information

1. Reliability

• Accounting information is considered to be reliable if it is free from error and bias.

• Accounting ensure the verifiability, neutrality, faithfulness

2. Relevance us
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Accounting information must be available in time, must help in prediction and feedback
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• 3. Understand ability
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• The information provided in financial statement must be understandable by the users.

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• 4. Comparability

• It means that the users should be able to compare the accounting information.
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• Inter firm comparison - compared with that of other enterprise .

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• Intra firm comparison – compared with that of other period .

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BRANCHES OF ACCOUNTING

[Link] Accounting (Oldest Branch of Accounting)

[Link] Accounting (Provide Information for Managerial Decision)

3. Cost Accounting (Determination of overall cost of product or service)

 [Link] Accounting (Oldest Branch of Accounting)

• Financial accounting is the oldest branch of accounting which is related to make Profit and Loss

account and Balance sheet after making daily record of business transactions.

• Profit and Loss account shows net profit or net loss for a specific period and Balance sheet shows the

financial position on the specific date

2. Management Accounting (Provide Information for Managerial Decision)

• Management Accounting is that branch of accounting which is related to the use of accounting

information for determination of policies and other business decision

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3. Cost Accounting (Determination of overall cost of product or service)

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• Cost Accounting is that branch of accounting which is related to calculate of total cost or per unit cost
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of goods or services.
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• It aims to reduce cost of production and increase business man's profitability by controlling cost.
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4. Social Responsibility Accounting

• It is the process of identifying , measuring and communicating the social effects of business.
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5. Tax Accounting
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• This branch of Accounting is used for tax purpose. Income tax and GST are computed on the basis of

this accounting.
 SETTING ACCOUNTING PRACTICES
INTRODUCTION
• ICAI, the most important accounting body in India, has constituted
the Accounting Standards Board (ASB) in 1977. Accounting Standard
Setting and Issuing procedure is initiated by the ICAI and it is fully:
• Consultative (Advising) and
• Transparent
• In the Standard Setting process ASB will consider the following
International Standards while drafting the Standard.
1. International Accounting Standards (IAS)
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2. International Financial Reporting Standards (IFRS)
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• And finally ICAI will incorporate them in our

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▪ Applicable Laws,
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▪ Customs,
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▪ Usages & Business Environment.

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• Council of ICAI doesn’t have any power to amend the Draft of the
Accounting Standard formulated by the ASB without its consent. Hence,
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ASB has independent power to formulate the Accounting Standard.

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STANDARDS SET BY ASB:

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• Recognizing the need to harmonies the diverse accounting policies and

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practice in India and keeping in view the international development in

the field of accounting, the Institute of Chartered Accountants of India
constituted the Accounting Standards Board (ASB) in April 1977.
• In India, the Accounting Standards Board (ASB) of the Institute of
Chartered Accountants of India (ICAI) is responsible for setting
Accounting Standard (AS).
 • The ASB comprises members of the Central Council of ICAI as well as
certain members from the professional, industry and various other
segments and government agencies.
EXISTING PROCEDURE FOR SETTING STANDARDS:
• The existing procedure for formulating and issuing accounting standard
followed by the Accounting Standards Board of the ICAI is as follows:
STEP 1:
• ASB determines the broad areas in which Accounting Standards need to
be formulated and the priority with regard to issuance thereof. In other
words, ASB Identify the area where the Accounting Standard to be
formulated or amended as of today accounting needs of the Industry
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STEP 2:
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• In the preparation of Accounting Standard, ASB is assisted by Study

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Groups constituted to consider specific subjects. In the formation of

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Study Groups, provision is made for wide participation by the members

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of the Institute and others. ASB will constitute Study Groups, which will
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prepare the Preliminary Draft that includes

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• Objective & Scope of Proposed Accounting Standard.

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• Definition of the Terms used in the Standard.

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• Recognition & Measurement of Accounting Principles, and where such

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principles are applicable.

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• Presentation and disclosure requirements of the Accounting Standard.

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• The Preliminary Draft prepared by the Study Group will be deliberated

(carefully consider) by the ASB.
STEP 3:
 • The Board considers the draft as submitted by the study group and
finalizes the same for issue to all members of the Council of the ICAI as
well as to the bodies listed below for their comments.
• Bodies are:Associated Chambers of Commerce and Industry, Federation
of Indian Chambers of Commerce and Industry, Institute of Cost and
Works Accountants of India, Standing Conference of Public Enterprises,
Institute of Company Secretaries of India, Central Board of Direct Taxes,
Department of Company Affairs, Comptroller and Auditor General of
India, Reserve Bank of India, Indian Banks’ Association, Securities and
Exchange Board of India, Confederation of Indian industries.
STEP 4:

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• ASB holds a meeting with the representatives of specified outside bodies
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listed above to ascertain their views.
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STEP 5:
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• On the basis of the comments received from the Council members as

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well as the outside bodies, the Board finalizes the Exposure Draft and
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exposes it for public comments.

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• To all members of the profession through the medium of their Journal.

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• To principal Chambers of Commerce and Industry through direct

communications.
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• To all recognized Stock Exchanges through direct communication.

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• To the Institute of Cost and Works Accountants of India through direct

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communication.
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• To the Institute of Company Secretaries of India through direct

communication.
• To the Ministry of Corporate Affairs, Central Board of Direct Taxes and
the Comptroller and Auditor General by direct communication.
 • To principal financial institutions, Reserve Bank of India, Life Insurance
Corporation, General Insurance Corporation, Unit Trust of India and
Indian Banks’ Association by direct communication.
• To all Regional Councils and Branches of the ICAI by direct
Communication.
• To all Council Members.
• To Securities and Exchange Board of India by direct communication.
STEP 6:
• After taking into account the comments received from various quarters,
the draft of the proposed standard is finalized by the Board and

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submitted to the Council for its consideration. Means, Exposure Draft
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will be issued in public and the comments of the public will be
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considered.
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STEP 7:
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• After consideration of the public comments Exposure Draft will be

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forwarded to the Council of ICAI for approval.

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STEP 8:
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• Council of ICAI will verify the Final Draft if any alteration is to be done
then the draft will be modified with the consent of ASB.
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STEP 9:
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• Finally, the Accounting Standard will be on issued on the specified area

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where it need was found by the ICAI. The Council of the Institute
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considers the final draft of the proposed Standard, and if necessary,

modifies the same in consultation with ASB.
• The Accounting Standard on the relevant subject is then issued under
the authority of the Council.
CONCLUSION
• The Institute of Chartered Accountants of India (ICAI), has decided to
conform to the International Financial Reporting Standards (IFRS) issued
by the International Accounting Standards Board (IASB), London, for all
accounting periods commencing on or after April 1, 2011.
• As in countries like Australia, New Zealand and members of the
European Union (EU), the IFRSs will also be adopted in India for
listed/public interest entities such as banks, insurance companies and
others.
• With this decision India joins the 102 countries that presently employ
IFRSs in their preparation of financial statements. By 2011, this number
is expected to reach 150. Of the 32 accounting standards issued by ICAI,

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25 are already based on International standards. Hence, the transition to
IFRSs should not pose a problem for Indian accountants.
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• ICAI will further consult with the National Advisory Committee on

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Accounting Standards established by the Ministry of Corporate Affairs,

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Government of India, and various regulators such as the Reserve Bank of

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India, the Insurance Regulatory and Development Authority and the

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Securities and Exchange Board of India, to facilitate the transition.

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 MEANING AND DEFINITION OF MANAGEMENT
1. MEANING OF MANAGEMENT
• Management refers to the process of planning, organizing, leading, and
controlling resources efficiently and effectively to achieve organizational
goals.
It involves:
• Setting objectives
• Coordinating human and material resources
• Making decisions
• Motivating employees
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• Ensuring productivity and growth
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Management applies to all types of organizations - business, government,

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educational, and non-profit.

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DEFINITIONS OF MANAGEMENT
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1. F.W. Taylor
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• “Management is the art of knowing what you want to do and then

seeing that it is done in the best and cheapest way.”
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• Focus on efficiency and cost-effectiveness.

a
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2. Mary Parker Follett

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• “Management is the art of getting things done through people.”

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• Highlights people-centric and teamwork aspects.

3. Henry Fayol
• “To manage is to forecast and plan, to organize, to command, to
coordinate, and to control.”
 • Defines management as a functional process.
4. Peter F. Drucker
• “Management is a multi-purpose organ that manages a business,
manages managers, and manages workers and work.”
• Focuses on multi-dimensional roles of management.
IMPORTANCE OF MANAGEMENT
• Management plays a crucial role in the success and smooth functioning
of any organization. Its importance can be highlighted as follows:
1. Achieving Organizational Goals

us
• Aligns individual efforts with organizational objectives.
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• Ensures optimum utilization of resources to meet targets efficiently.
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2. Efficient Resource Utilization

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• Prevents wastage of time, money, materials, and manpower.

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• Allocates resources effectively for maximum output.

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28 ah

3. Enhances Productivity
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• Encourages innovation and motivates employees.

• Improves work efficiency through better planning and coordination.
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a

4. Facilitates Decision-Making
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• Helps in identifying problems and finding optimal solutions.

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• Provides a systematic approach for informed decision-making.

5. Maintains Organizational Balance
• Ensures coordination among various departments.
• Maintains balance between different levels of hierarchy and
departments.
6. Encourages Teamwork and Motivation
• Promotes a healthy work environment.
• Builds morale and motivates employees through leadership and
communication.
7. Adapting to Changes
• Helps organizations respond to environmental and technological
changes.
• Facilitates innovation and adaptability.
8. Improves Quality of Work Life

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• Ensures employee satisfaction through proper job design, fair policies,
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and communication.
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• Enhances overall well-being of employees.

5) ac
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9. Contributes to Economic Development

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• Promotes industrial and business growth.

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• Leads to employment generation and better standard of living.

28 ah
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NATURE OR CHARACTERISTICS OF MANAGEMENT

The following are the key characteristics of management:
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1. GOAL-ORIENTED PROCESS
a
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• Management aims at achieving predefined objectives of an organization.

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• All managerial activities are directed toward organizational goals, such

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as profit maximization, customer satisfaction, and employee

development.
• Example: A business manager plans sales strategies to achieve a 10%
revenue growth.
2. UNIVERSAL IN NATURE
 • Management is applicable to all types of organizations—business, non-
business, government, or non-profit.
• It is also relevant at all levels—top, middle, and lower.
• Example: A hospital administrator managing staff or a school principal
managing faculty.
3. CONTINUOUS PROCESS
• Management is an ongoing and never-ending process.
• It involves a cycle of planning, organizing, staffing, directing, and
controlling.
• Example: Annual planning, quarterly reviews, and daily supervision are
part of continuous management. us
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4. MULTIDIMENSIONAL
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5) ac

• Management involves managing people (human resources), work (tasks

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or operations), and operations (technology and physical resources).

39 ar

• It includes both administrative and operational aspects.

13 ak
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• Example: A manager oversees production (work), motivates employees

S

(people), and maintains machines (operations).

5. INTEGRATIVE FORCE
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• Management integrates human efforts, material resources, and financial

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assets for efficient operation.

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• It coordinates all functions and departments to achieve unity and

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synergy.
• Example: Coordination between sales and production departments to
meet customer demand.
6. GROUP ACTIVITY
 • Management is not done in isolation; it is a collective effort.
• It involves managing a team of people working toward common goals.
• Example: A marketing manager leading a team of executives to launch a
new product.
7. DYNAMIC FUNCTION
• Management is adaptive and responds to changes in the environment,
such as market trends, government policies, and technology.
• It must be flexible and innovative to sustain growth.
• Example: Adopting digital tools for remote work during a pandemic.

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8. INTANGIBLE FORCE Pl
• Management cannot be seen physically, but its presence is felt through
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results such as productivity, discipline, and morale.

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• It is more of a conceptual and psychological process.

39 ar

• Example: Good management is visible in the form of smooth operations

13 ak

and high employee satisfaction.

28 ah

9. DECISION-MAKING PROCESS
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• Management involves making decisions to solve problems and utilize

resources effectively.
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• It includes analyzing situations, evaluating options, and choosing the

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best course of action.

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• Example: Deciding whether to outsource a service or keep it in-house.

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10. BOTH SCIENCE AND ART/ PROFESSION

1. MANAGEMENT AS A SCIENCE
• Definition of Science:
 • Science is a systematized body of knowledge based on principles,
theories, and experiments. It has universally accepted laws and
establishes cause-effect relationships.
Features of Science in Management:
• Systematic Body of Knowledge: Management has principles like division
of work, unity of command, etc., developed through observation and
research.
• Universal Validity: Some principles of management are applicable across
organizations and situations, though with flexibility.
• Cause and Effect Relationship: For example, better motivation leads to
higher productivity.
us
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• Observation and Experimentation: Management principles are
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developed through studies like Hawthorne experiments and time-

5) ac

motion studies.
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Limitations as Science:
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13 ak

• Human behavior is unpredictable and cannot always be measured or

28 ah

predicted with accuracy.

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• Management is a social science, not a pure science like physics or

chemistry.
(8

Conclusion:
a
en

• Management qualifies as a soft science due to its principles, though it

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lacks the precision and universality of natural sciences.

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2. MANAGEMENT AS AN ART
• Definition of Art:
• Art is the application of skill and creativity to achieve desired results. It
involves personalized approaches and innovation.
Features of Art in Management:
• Practical Knowledge: Managers use techniques and experiences to
handle real-world problems.
• Personalized Approach: Two managers may handle the same problem
differently and achieve success.
• Creativity and Innovation: Managers innovate to solve complex
problems.
• Practice and Experience: Skills in management are improved through
continuous practice.
• Goal-Oriented: Like all forms of art, management aims to achieve pre-
determined objectives.
us
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Conclusion:
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5) ac

• Management is an art because it involves the application of knowledge

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and skills creatively and effectively.

39 ar

• Specialized Knowledge: Management draws on principles from

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economics, sociology, psychology, etc.

28 ah

• Formal Education and Training: MBA and other management programs

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impart structured learning.

• Code of Conduct: Professional bodies like AIMA (All India Management
(8

Association) provide ethical codes, though not legally binding.

a
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• Service Motive: Managers serve both organizations and society by

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ensuring effective resource utilization.

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• Professional Association: Unlike medicine or law, management is not

strictly regulated; membership in professional bodies is not mandatory.
Limitations as a Profession:
• No legal restrictions on who can be called a "manager."
 • No compulsory licensing or registration.
Conclusion:
• Management is a developing profession. It possesses several features of
a profession but still lacks standardization and regulation compared to
established professions.

us
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e
5) ac
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13 ak
28 ah
(8 S
a
en
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 MANAGEMENT MEANING
Management is the effective utilisation of human and material
resources to achieve the objectives of the enterprise.
It is concerned with the planning, organising, directing and controlling
the affairs of an organisation. The term 'management" has been used
as a "noun', as a 'process' and as a 'discipline'.

DEFINITION
According to Mary Parker Follet, "management is the art of getting
things done through people."
According to Peter F. Drucker-"management is a multi-purpose organ
that manages a business and manages managers and manages worker
and work." us
Pl
According George R. Terry defines management as "a distinct process
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consisting of planning, organizing, actuating and controlling

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performed to determine and accomplish the objectives by the use of

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people and resources

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13 ak

FEATURES OF MANAGEMENT
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[Link] IS AN INTEGRATED PROCESS:

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Management involves harmonising of human and physical

resources towards the attainment of common objectives. The
(8

essence of management lies in the co-ordination of individual

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efforts.
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[Link] IS GOAL-ORIENTED:
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All activities of management are goal oriented. Management exists

for the achievement of specific objectives.
[Link] IS A SOCIAL PROCESS:
Management consists of getting things done by others. This involves
dealing with individuals at different levels of sensitivity and
 understanding. It is the pervasiveness of the human element which
gives management its special character as a social process.
[Link] IS SITUATIONAL:
Management is the application of knowledge to realities in order to
attain desired results.
[Link] IS A DISTINCT ACTIVITY:
Management involves activities like planning, organising, directing,
controlling, etc. People who perform such activities are termed as
managers or members of management team. In addition,
management is a distinct activity that can be studied. experimented
and practised.
us
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[Link] IS A CONTINUOUS PROCESS.
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It is a dynamic and growth-oriented function. Principles, techniques,

5) ac

methods and skills of management are changing over a period of

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time. The success or failure of management depends on how

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management is equipped with latest techniques and principles.

13 ak
28 ah

[Link] IS MULTI-DISCIPLINARY:
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Management depends upon wide knowledge derived from several

disciplines like engineering, sociology, psychology, economics,
(8

mathematics, etc. This vast body of knowledge is applicable for other

a

fields of study also.

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[Link] IS A SCIENCE AND AN ART:

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N

Management contains a systematic body of theoretical knowledge as

well as the practical application of such knowledge. So it is treated as
a science and also an art.
[Link] IS INTANGIBLE:
Management is abstract and cannot be seen with the eyes. It cannot
be seen but its presence can be felt everywhere in the form of results.
But the managers who perform the functions of management are
very much tangible and visible.
NATURE OF MANAGEMENT
Management is an activity concerned with guiding human and
physical resources in such a manner that organisational goals are
achieved effectively.
 Management as an art
 Management as a science
 Management is an inexact science
 Management -Both Science and Art
 Management as a profession
 Management as a discipline us
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 Management as a social process
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IMPORTNACE OF MANAGEMENT
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 Management focuses on efficiency and effectiveness

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 Brings order in organisation.

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 Optimum utilisation of resources

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 Meet the challenges of change

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 Determination of objectives
 Economic growth
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 achieving group goal

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 stability
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 Human development
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N
 MANAGEMENT PROCESS /FUNCTIONS
WHAT IS THE MANAGEMENT PROCESS?
• The management process is a series of steps that managers follow to
achieve the goals of an organization efficiently and effectively. It
involves planning, organizing, staffing, directing, and controlling
activities to ensure that desired outcomes are met.
STEPS/FUNCTIONS OF THE MANAGEMENT PROCESS
1. PLANNING
MEANING:
• Planning means deciding in advance what needs to be done, how, when,
and by whom. us
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• It sets the direction for all other activities.
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5) ac

DEFINITION
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• “Planning is deciding in advance what is to be done.” – (Koontz and

39 ar
13 ak

O'Donnell)Importance:
28 ah

• Provides clarity of purpose.

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• Helps anticipate future problems.

• Saves time and resources.
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a

KEY ACTIVITIES:
en

• Setting objectives.
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• Developing strategies.
• Deciding actions to achieve goals.
2. ORGANIZING
MEANING:
 • Organizing is about arranging resources (like people, money, and
materials) and activities to accomplish the plan.
SHORT DEFINITIONS
• “Organizing is the process of defining and grouping activities and
establishing authority relationships among them.” – (Louis A. Allen)
• “Organizing is determining what activities are necessary, grouping the
activities, assigning them to individuals, and creating authority
relationships.” – (Koontz and O’Donnell)
IMPORTANCE:
• Creates a structure for the organization.
• Defines roles, responsibilities, and authority. us
Pl
• Facilitates coordination and communication.
e
5) ac

KEY ACTIVITIES:
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• Identifying activities.
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13 ak

• Grouping tasks into departments.

28 ah

• Assigning jobs and delegating authority.

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3. STAFFING
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Meaning:
a
en

• Staffing involves recruiting, selecting, training, and developing the

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people who are required to fill the organizational roles.

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Short Definition
• “Staffing is putting people to jobs." – (Koontz and O'Donnell)
Importance:
• Ensures that the right people are hired.
 • Helps in employee development and motivation.
• Improves efficiency and productivity.
Key Activities:
• Manpower planning.
• Recruitment and selection.
• Training and development.
• Performance appraisal.
4. DIRECTING
Meaning:
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• Directing means leading, guiding, motivating, and supervising the
Pl
employees so that they work towards achieving organizational goals.
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Short Definitions
81 i R

• “Directing is the process of instructing, guiding, inspiring, and

39 ar

supervising people to achieve goals.” – (Koontz and O'Donnell)

13 ak
28 ah

Importance:
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• Initiates action.
• Improves employee morale.
(8
a

• Encourages teamwork.
en

Key Activities:
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• Supervision.
• Motivation (through rewards, recognition).
• Leadership.
• Communication.
5. CONTROLLING
Meaning:
• Controlling ensures that the organization's activities are being
completed as planned.
• It involves monitoring performance, comparing results with standards,
and taking corrective action if necessary.
Definitions
• “Controlling is the process of ensuring that performance does not
deviate from the set plans.” – (Koontz and O'Donnell)
• “Controlling is the function of management that ensures actual activities
us
conform to planned activities.” – (Henry Fayol)
Pl
Importance:
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5) ac

• Helps identify deviations from plans.

81 i R

• Ensures that goals are achieved.

39 ar
13 ak

• Improves overall efficiency.

28 ah

Key Activities:
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• Setting performance standards.

(8

• Measuring actual performance.

a
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• Comparing actual performance with standards.

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• Taking corrective action.

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DEFINITION OF PRINCIPLES OF MANAGEMENT

• Principles of Management are broad and general guidelines for
managerial decision-making and behavior. They help in achieving
organizational goals efficiently and effectively.
FAYOL’S 14 PRINCIPLES OF MANAGEMENT – SIMPLE AND DETAILED NOTES
 • Henri Fayol, a French industrialist and management theorist, introduced
14 management principles to guide managers in organizing and
managing organizations effectively.
1. Division of Work
• Simple: Specialization improves efficiency.
• Detailed: Breaking tasks into smaller jobs and assigning them to different
people improves speed and accuracy. Example: A production line in a
factory.
2. Authority and Responsibility
• Simple: Managers must have power to give orders and take
responsibility.
us
Pl
• Detailed: A balance is needed—authority (the right to give orders) must
e

be matched with responsibility (being accountable for the outcomes).

5) ac
81 i R

3. Discipline
39 ar

• Simple: Employees must follow rules and agreements.

13 ak

• Detailed: Discipline requires good leadership, clear rules, and fair

28 ah

enforcement. Undisciplined behavior can disrupt organization.

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4. Unity of Command
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• Simple: One boss per employee.

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• Detailed: Each employee should receive instructions from only one

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manager to avoid confusion and conflict in commands.

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5. Unity of Direction
• Simple: One plan, one head for every activity.
• Detailed: Activities with the same objective should be directed by one
manager with one plan. Helps in coordination and efficiency.
6. Subordination of Individual Interest to General Interest
• Simple: Company interest over personal interest.
• Detailed: Organizational goals take priority over personal desires.
Employees should work in the interest of the organization.
7. Remuneration
• Simple: Fair pay for work.
• Detailed: Employees should be paid fairly based on their work,
responsibilities, and performance. Motivation increases with proper
compensation.
8. Centralization and Decentralization
• Simple: Balance decision-making. us
Pl
e

• Detailed: Centralization means top management takes decisions;

5) ac

decentralization means lower levels have authority too. A good balance

81 i R

improves efficiency.
39 ar
13 ak

9. Scalar Chain
28 ah

• Simple: Chain of authority from top to bottom.

S

• Detailed: There should be a clear line of communication in the

organization. Example: CEO → Manager → Supervisor → Worker.
(8

10. Order
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• Simple: Right person in the right job; everything in place.

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• Detailed: Proper arrangement of people (social order) and things

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(material order) to maintain cleanliness, organization, and efficiency.

11. Equity
• Simple: Be fair and kind to workers.
 • Detailed: Managers should treat employees with justice and respect to
create loyalty and dedication.
12. Stability of Tenure of Personnel
• Simple: Keep good employees for long.
• Detailed: High employee turnover harms efficiency. Job security
encourages better performance.
13. Initiative
• Simple: Let employees think and act.
• Detailed: Encourage workers to suggest ideas and take initiative. Builds
involvement and creativity
us
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14. Esprit de Corps
e

• Simple: Team spirit leads to success.

5) ac
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• Detailed: Promote harmony and unity among employees. A motivated

team achieves more than individuals working alone.
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13 ak

TAYLOR’S SCIENTIFIC PRINCIPLES OF MANAGEMENT

28 ah

Introduction
S

• Frederick Winslow Taylor is known as the “Father of Scientific

Management.”
(8
a

• His goal: Improve worker efficiency and increase productivity using

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scientific methods rather than traditional “rule-of-thumb” methods.

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• Core Principles of Scientific Management

N

Introduction
• Frederick Winslow Taylor is known as the “Father of Scientific
Management.”
 • His goal: Improve worker efficiency and increase productivity using
scientific methods rather than traditional “rule-of-thumb” methods.
• Core Principles of Scientific Management
1. Science, Not Rule of Thumb
• Simple: Use tested methods, not guesswork.
• Detailed: Replace old trial-and-error practices with scientifically studied
and standardized methods.
• Example: Instead of relying on tradition to cut metal, analyze and set the
best way.
2. Harmony, Not Discord
us
• Simple: Build a friendly relationship between managers and workers.
Pl
e

• Detailed: Promote mutual understanding and reduce conflicts. Achieve

5) ac

industrial peace for better cooperation and results.

81 i R

• Example: Regular feedback sessions and respect for both sides' views.
39 ar
13 ak

3. Cooperation, Not Individualism

28 ah

• Simple: Work as a team, not alone.

S

• Detailed: Managers and workers must collaborate and support each

other. Encourage workers to follow scientifically developed methods.
(8
a

• Example: Managers help workers meet targets and workers follow

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management directions.
ile

4. Development of Each and Every Person to Their Greatest Efficiency and

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Prosperity
• Simple: Help workers grow and perform their best.
• Detailed: Train employees, provide proper tools and work environment.
Productivity leads to prosperity for both company and employee.
 • Example: Provide training programs and career development.
5. Maximum Output, Not Restricted Output
• Simple: Encourage producing more.
• Detailed: Oppose limiting output to save jobs. Higher production
benefits all — more wages for workers and more profit for employers.
• Example: Introduce incentives for higher productivity.
6. Equal Division of Work and Responsibility
• Simple: Managers plan; workers perform.
• Detailed: Management should handle planning and supervision, while

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workers execute. Both share responsibility.
Pl
• Example: Manager sets task methods; worker focuses on completing
e

them.
5) ac
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KEY DIFFERENCES FROM FAYOL

39 ar

TAYLOR FAYOL
13 ak
28 ah
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Focused on shop floor Focused on top-level management

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a
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Based on scientific experiments Based on personal experience

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Emphasized administrative
Emphasized efficiency in tasks
structure
 MANAGEMENT LEVELS
• Management in an organization is generally divided into three main
levels. These levels represent the hierarchy of authority, responsibility,
and decision-making.
• Each level has distinct roles and responsibilities, and they work together
to ensure that the organization runs efficiently and achieves its
objectives.
1. TOP MANAGEMENT
• Definition: Top management is the highest level of management in an
organization. It consists of executives and senior managers responsible
for making strategic decisions that affect the entire organization.
Key Roles and Responsibilities:
• Strategic Planning: Top management is responsible for formulating long-

us
term plans, setting goals, and determining the direction of the
Pl
organization.
• Decision-Making: They make major decisions regarding the company's
e
5) ac

operations, including mergers, acquisitions, and entering new markets.

• Policy Formulation: They set the policies that guide the organization's
81 i R

day-to-day operations and ensure alignment with the overall strategy.

39 ar

• Resource Allocation: Top management oversees the allocation of

13 ak

resources (financial, human, technological) to various departments and

28 ah

projects.
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• Leadership: They provide overall leadership, vision, and direction to the

organization.
Examples of Positions:
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• CEO (Chief Executive Officer)

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• COO (Chief Operating Officer)

• CFO (Chief Financial Officer)
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• President, Vice President

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• Board of Directors
2. MIDDLE MANAGEMENT
• Definition: Middle management acts as a bridge between top
management and lower-level management. They are responsible for
implementing the policies and strategies set by top management.
Key Roles and Responsibilities:
 • Implementation of Strategy: Middle managers ensure that the strategies
developed by top management are translated into action at the
departmental level.
• Supervising and Coordinating: They supervise the work of lower
management, coordinate the activities of different departments, and
make sure that operations run smoothly.
• Reporting and Communication: Middle managers are responsible for
communicating important information between top management and
lower management. They provide feedback to top management
regarding the organization's performance.
• Problem-Solving: They address operational issues and challenges,
ensuring that the organization’s objectives are met on a day-to-day
basis.

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• Motivating Employees: They work on motivating and training employees
Pl
to increase productivity and performance.
Examples of Positions:
e
5) ac

• Department Heads
• Branch Managers
81 i R

• Division Managers
39 ar

• Regional Managers
13 ak

• Area Supervisors
28 ah

3. LOWER MANAGEMENT (SUPERVISORY OR OPERATIONAL LEVEL)

S

• Definition: Lower management, also known as first-line management or

supervisory management, is responsible for overseeing the day-to-day
operations and managing the workforce that performs the routine tasks.
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Key Roles and Responsibilities:

a
en

• Supervision: Lower managers directly supervise the work of employees,

ensuring that they carry out tasks efficiently and effectively.
ile

• Training and Development: They are responsible for training new

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employees and ensuring that their team members are skilled and
knowledgeable.
• Monitoring Performance: They monitor the performance of employees,
provide feedback, and take corrective action when necessary.
• Implementation of Policies: Lower management enforces the policies set
by middle and top management at the ground level.
 • Problem-Solving at the Operational Level: They solve day-to-day
problems and manage routine tasks, ensuring smooth operations.
Examples of Positions:
• Team Leaders
• Supervisors
• Foremen
• Line Managers
• Shift Managers
IMPORTANCE OF DIFFERENT MANAGEMENT LEVELS
• Top Management sets the vision and strategic direction of the
organization.
• Middle Management ensures that the vision is implemented efficiently
and communicates between upper and lower levels.

us
• Lower Management directly manages and ensures that everyday tasks
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are completed and operational goals are met.
Evolution and Development of Management Thoughts
e
5) ac

• The evolution of management thought refers to how management

81 i R

theories, practices, and ideas have evolved over time, influenced by both
social changes and business needs.
39 ar

• The history of management thought can be divided into several phases:

13 ak

1. PRE-CLASSICAL MANAGEMENT THOUGHT

28 ah

• Before formal management theories were developed, early

S

management practices were primarily based on craftsmanship and

production. The development of these practices occurred mainly
through trial and error.
(8

• Ancient Civilizations: The early management principles were seen in

a
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ancient Egypt, Greece, and Rome, where large projects (such as the
pyramids or Roman roads) were managed by creating hierarchies of
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authority, division of labor, and planning.

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• Craftsmanship and Guilds: In the medieval period, guilds controlled the

production processes. Guild masters were responsible for training
apprentices and ensuring quality control, showcasing early ideas of
leadership and organization.
2. CLASSICAL MANAGEMENT THEORIES (LATE 19TH CENTURY – EARLY 20TH
CENTURY)
 • The classical management period laid the foundation for modern
management practices, focusing on increasing efficiency and
productivity in organizations.
a) Scientific Management (Frederick W. Taylor)
• Focus: Maximizing productivity through scientific methods and
efficiency.
Key Concepts:
• Standardization of tools and tasks.
• Time and motion studies to improve labor efficiency.
• The principle of selecting and training workers scientifically.
• The importance of management-labor cooperation.
Contributions:
• Introduced the idea of separating management from the workforce and

us
applying scientific principles to improve productivity.
Pl
b) Administrative Management (Henri Fayol)
• Focus: Principles of management from the perspective of overall
e
5) ac

organizational structure and functioning.

81 i R

Key Concepts:
• Fayol developed 14 principles of management (e.g., division of work,
39 ar

authority and responsibility, unity of command, discipline, and

13 ak

centralization).
28 ah

• He also identified 5 functions of management: planning, organizing,

S

commanding, coordinating, and controlling.

Contributions:
• Emphasized the importance of a formal organizational structure and
(8

clear management practices.

a
en

c) Bureaucratic Management (Max Weber)

• Focus: The need for a structured and rational approach to management.
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Key Concepts:
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• Bureaucracy, characterized by a clear hierarchy, division of labor, and a

set of formal rules and procedures.
• Roles and responsibilities are defined by expertise, and authority is
based on rationality.
Contributions:
 • Advocated for an ideal organizational structure based on logic and
efficiency, helping reduce favoritism and personal bias in organizations.
3. HUMAN RELATIONS MOVEMENT (1920S-1930S)
• The Human Relations Movement emerged as a response to the rigid and
impersonal approach of classical management. It emphasized the
importance of human behavior, motivation, and the social needs of
workers.
a) Hawthorne Studies (Elton Mayo)
• Focus: The impact of social relations, communication, and employee
satisfaction on productivity.
Key Concepts:
• The Hawthorne effect: workers' productivity improves when they are
being observed or treated as special.

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• Social and psychological factors are crucial in determining worker
Pl
performance.
Contributions:
e
5) ac

• Highlighted the importance of worker morale and the social

81 i R

environment in improving productivity.

4. Behavioral Management Theory (1940s-1960s)
39 ar

• Building on the insights of the Human Relations Movement, behavioral

13 ak

management theory explores the human aspect of management,

28 ah

focusing on motivation, leadership, and group dynamics.

S

a) Maslow's Hierarchy of Needs (Abraham Maslow)

• Focus: Understanding employee motivation by recognizing that
individuals have different levels of needs.
(8

Key Concepts:
a
en

• Needs are arranged in a hierarchy (physiological needs, safety needs,

love and belonging, esteem, and self-actualization).
ile

• Employees are motivated to satisfy lower-order needs first before

N

moving to higher-order needs.

Contributions:
• Provided a psychological basis for employee motivation and job
satisfaction.
b) Theory X and Theory Y (Douglas McGregor)
• Focus: Understanding different managerial approaches to motivation.
Key Concepts:
• Theory X: Assumes that employees dislike work and must be controlled
and directed.
• Theory Y: Assumes that employees are self-motivated and seek
responsibility.
Contributions:
• Changed the way managers viewed their employees, moving from
authoritarian control to a more participative style.
5. Quantitative Management (1940s-1950s)
• With the advent of computers and advanced mathematical techniques,
the quantitative approach to management became popular. It used
mathematical models and statistical methods to optimize decision-
making.

us
a) Operations Research
• Focus: Applying mathematical models and statistical analysis to decision-
Pl
making processes.
e
5) ac

Key Concepts:
• Models, simulations, and optimization techniques are used to solve
81 i R

complex management problems, such as resource allocation and

39 ar

scheduling.
13 ak

Contributions:
28 ah

• Helped improve decision-making processes, especially in manufacturing,

S

logistics, and production management.

b) Management Science
• Focus: Applying mathematical and statistical techniques to management
(8

problems.
a
en

Key Concepts:
• Emphasized the use of data, forecasts, and models to support decision-
ile

making in areas like inventory control, production planning, and project

N

management.
Contributions:
• Led to the development of more effective and efficient operational
strategies.
6. Modern Management Theories (1960s-Present)
 • Theories developed during this period integrate various aspects of
management, focusing on flexibility, systems thinking, and contingency
approaches.
a) Systems Theory
• Focus: Viewing organizations as systems of interrelated parts.
Key Concepts:
• Organizations are open systems that interact with their environment.
• Management must consider the whole system and its environment
when making decisions.
Contributions:
• Led to an integrated approach to management, emphasizing the need
for coordination among various functions within the organization.
b) Contingency Theory

us
• Focus: Recognizing that there is no one-size-fits-all approach to
Pl
management.
Key Concepts:
e
5) ac

• Management practices must be contingent on various situational

81 i R

factors, such as the external environment, the nature of the

organization, and the culture.
39 ar

Contributions:
13 ak

• Emphasized the need for flexibility in management and a more tailored

28 ah

approach based on context.

S

c) Total Quality Management (TQM)

• Focus: Ensuring quality at every stage of production and management.
Key Concepts:
(8

• Continuous improvement, customer satisfaction, and employee

a
en

involvement in quality processes.

• Involves all levels of the organization in the pursuit of quality and
ile

process improvement.
N

Contributions:
• Shifted focus from reactive quality control to proactive quality
management.
7. RECENT TRENDS IN MANAGEMENT THOUGHT
 • Innovation and Change Management: Emphasis on managing innovation
and the constant need for organizations to adapt to changing
environments and technologies.
• Globalization and Cross-Cultural Management: Understanding
management in the context of global business operations and diverse
cultural environments.
• Sustainability and Corporate Social Responsibility (CSR): Modern
management is increasingly focused on sustainable practices, ethical
responsibility, and the broader social impact of business operations.
KEY MANAGEMENT THINKERS
1. Frederick W. Taylor (1856–1915)
• Known as the Father of Scientific Management.
• Focused on improving efficiency and productivity by using scientific

us
methods.
• Suggested selecting the "best" way to do a job through time and motion
Pl
studies.
e
5) ac

• Key Idea: "Work smarter, not harder."

81 i R

2. Henri Fayol (1841–1925)

• Developed the Administrative Theory.
39 ar

• Introduced 14 principles of management (e.g., division of work,

13 ak

authority, unity of command).

28 ah

• Identified five functions of management: Planning, Organizing,

S

Commanding, Coordinating, Controlling.

• Key Idea: "Good management can be taught."
3. Max Weber (1864–1920)
(8

• Introduced the concept of Bureaucracy in management.

a
en

• Focused on rules, hierarchy, and clear authority.

• Believed organizations should operate logically with defined roles and
ile

responsibilities.
N

• Key Idea: "Structure and rules bring efficiency."

4. Elton Mayo (1880–1949)
• Leader of the Human Relations Movement.
• Conducted the Hawthorne Studies, showing that employee morale
affects productivity.
 • Stressed the importance of social factors at work like teamwork and
communication.
• Key Idea: "Happy workers are productive workers."
5. Abraham Maslow (1908–1970)
• Developed the Hierarchy of Needs theory.
• Said people are motivated by five levels of needs: basic needs, safety,
love, esteem, and self-actualization.
• Managers should recognize what motivates employees at different
levels.
• Key Idea: "Satisfy basic needs first to motivate higher goals."
6. Douglas McGregor (1906–1964)
• Proposed Theory X and Theory Y about management styles.
• Theory X: Assumes workers are lazy and need strict supervision.

us
• Theory Y: Assumes workers are self-motivated and enjoy their work.
• Key Idea: "Managers' beliefs shape how they treat employees."
Pl
7. Peter F. Drucker (1909–2005)
e
5) ac

• Known as the Father of Modern Management.

• Introduced Management by Objectives (MBO): setting clear goals for
81 i R

employees.
39 ar

• Highlighted the rise of the knowledge worker (people who work with
13 ak

information).
28 ah

• Key Idea: "Effective management is about achieving results."

S

8. W. Edwards Deming (1900–1993)

• Pioneer of Total Quality Management (TQM).
• Believed in continuous improvement and involving all employees in
(8

quality control.
a
en

• Helped rebuild Japanese industries after World War II.

• Key Idea: "Quality is everyone’s responsibility."
ile

9. Herbert A. Simon (1916–2001)

N

• Developed the concept of Bounded Rationality.

• Argued that managers make decisions with limited information, not
perfectly rational decisions.
• Key Idea: "Decision-making is about doing the best with the information
available."
 INDIAN FINANCIAL SYSTEM
Part 1
• The Indian Financial System (IFS) refers to the framework of financial
institutions, markets, instruments, and services that facilitate the flow of
funds within the economy.
• It plays a crucial role in mobilizing savings and directing them toward
productive investments, supporting economic growth and development.
• Components of the Indian Financial System
• The Indian Financial System comprises four key components:
• 1. Financial Institutions
us
• Financial institutions act as intermediaries that facilitate financial
Pl
transactions and credit allocation. These institutions are classified into:
e
5) ac

a) Banking Institutions (Regulated by RBI)

81 i R

• Commercial Banks – Provide various banking services, including

39 ar
13 ak

deposits, loans, and remittances (e.g., SBI, HDFC, ICICI).

28 ah

• Cooperative Banks – Operate at the rural and urban levels (e.g., State
S

Cooperative Banks, Urban Cooperative Banks).

• Regional Rural Banks (RRBs) – Provide credit in rural areas for
(8

agriculture and small businesses.

a
en

• Development Banks – Support infrastructure and industrial growth (e.g.,

ile

SIDBI, NABARD, EXIM Bank).

N

(b) Non-Banking Financial Companies (NBFCs) (Regulated by RBI & SEBI)

• Provide financial services but do not hold banking licenses (e.g., Bajaj
Finance, LIC Housing Finance).
• Include investment companies, leasing firms, microfinance institutions,
etc.
(c) Insurance Institutions (Regulated by IRDAI)
• Life Insurance – LIC, HDFC Life, SBI Life.
• General Insurance – New India Assurance, ICICI Lombard.
(d) Pension Funds (Regulated by PFRDA)
• Manage retirement savings (e.g., NPS - National Pension System).
2. Financial Markets
• Financial markets facilitate the buying and selling of financial
instruments.
• They are classified into:

us
a) Money Market – Short-term borrowing/lending (≤1 year).
Pl
• Instruments: Treasury Bills (T-Bills), Commercial Papers, Certificates of
e
5) ac

Deposit.
81 i R

• Regulated by: RBI.

39 ar

b) Capital Market – Long-term investments (>1 year).

13 ak
28 ah

• Primary Market: New securities issued via IPOs.

S

• Secondary Market: Existing securities traded on stock exchanges (NSE,

BSE).
(8

• Regulated by: SEBI.

a
en

c) Foreign Exchange (Forex) Market – Trading of currencies (USD, INR, etc.).

ile

• Regulated by: RBI.

N

d) Commodity Market – Trading of raw materials (gold, crude oil, agricultural

products).
• Regulated by: SEBI.
3. Financial Instruments
 • Financial instruments represent financial claims or obligations. These
include:
• Equity Shares – Ownership in a company.
• Debentures & Bonds – Fixed-income securities issued by companies or
the government.
• Mutual Funds – Pooled investment in diversified assets.
• Derivatives – Futures, Options, and Swaps used for hedging and
speculation.
• Government Securities (G-Secs) – Issued by the government for fiscal
needs.
4. Financial Services us
Pl
• Financial services support investment and risk management.
e
5) ac

• They include:
81 i R

• Banking Services – Deposits, loans, remittances.

39 ar
13 ak

• Investment Services – Stockbroking, mutual fund advisory.

28 ah

• Insurance Services – Risk protection via life and non-life insurance.

S

• Pension & Retirement Planning – NPS, EPF.

(8

• Wealth Management & Portfolio Advisory – High-net-worth investment

a

planning.
en
ile

REGULATORY FRAMEWORK OF THE INDIAN FINANCIAL SYSTEM

N

• The financial system is regulated by multiple authorities to ensure

stability and transparency:
 Regulatory Body Regulates

Banks, money market, monetary

RBI (Reserve Bank of India)
policy

SEBI (Securities and Exchange Board

Capital market, stock exchanges
of India)

IRDAI (Insurance Regulatory and

Insurance sector
Development Authority of India)

PFRDA (Pension Fund Regulatory

Pension funds
and Development Authority)

Overall financial policies, fiscal

us
Ministry of Finance
policies
Pl
e

NABARD (National Bank for

5) ac

Rural finance & development banks

Agriculture and Rural Development)
81 i R

ROLE OF THE INDIAN FINANCIAL SYSTEM IN ECONOMIC DEVELOPMENT

39 ar
13 ak

• Mobilization of Savings – Converts idle savings into productive

28 ah

investments.
S

• Capital Formation – Supports business expansion and industrial growth.

• Monetary Stability – RBI controls inflation and liquidity.
(8

• Employment Generation – Financial institutions create jobs.

a
en

• Infrastructure Development – DFIs fund long-term projects.

ile
N

• Global Integration – Forex market enables international trade.

RECENT DEVELOPMENTS IN THE INDIAN FINANCIAL SYSTEM
• Digital Banking & UPI (Unified Payments Interface) – Growth of digital
payments.
 • Introduction of Central Bank Digital Currency (CBDC) – RBI’s Digital
Rupee initiative.
• Increasing Financial Inclusion – Jan Dhan Yojana, microfinance growth.
• Rise of Fintech & NBFCs – Digital lending, mobile banking, AI in finance.
• ESG (Environmental, Social, and Governance) Investing – Growth in
sustainable finance.
CHALLENGES IN THE INDIAN FINANCIAL SYSTEM
• Non-Performing Assets (NPAs) – Rising bad loans in banks.
• Regulatory Compliance Issues – Ensuring fair market practices.

us
• Financial Inclusion Gaps – Rural areas still lack banking access.
Pl
• Cybersecurity Risks – Rising digital frauds.
e
5) ac

• Economic Slowdowns & Inflation – Impact on liquidity and investments.

81 i R
39 ar

INDIAN FINANCIAL SYSTEM

13 ak
28 ah

PART 2
S

Financial Market
• A financial market is a platform where financial instruments such as
(8

stocks, bonds, currencies, and derivatives are bought and sold.

a
en

• It acts as an intermediary between investors and borrowers, facilitating

ile

the smooth flow of funds in an economy.

N

FEATURES OF FINANCIAL MARKET

• The financial market plays a crucial role in an economy by facilitating the
exchange of financial instruments and directing funds from savers to
borrowers.
• Here are eight key features of the financial market:
1. Intermediary Function
• Financial markets act as a link between investors (savers) and borrowers
(businesses, governments), ensuring an efficient allocation of capital.
2. Liquidity
• Markets provide liquidity, allowing investors to buy and sell financial
assets quickly without significant price fluctuations.
3. Price Determination
• The prices of financial instruments are determined through demand and
supply dynamics, helping in fair valuation.
4. Risk Diversification
us
• Investors can reduce risks by diversifying their portfolios across various
Pl
asset classes like equities, bonds, and commodities.
e
5) ac

5. Regulatory Oversight
81 i R

• Institutions like RBI, SEBI, IRDAI, and PFRDA regulate financial markets to
39 ar
13 ak

ensure transparency and protect investors.

28 ah

6. Wide Range of Instruments

S

• Financial markets offer diverse instruments, including stocks, bonds,

derivatives, mutual funds, and currencies, catering to different investor
(8

needs.
a
en

7. Market Volatility
ile

• Financial markets are influenced by economic, political, and global

N

factors, causing price fluctuations and investment risks.

8. Global Integration
• Financial markets are interconnected across the world, meaning events
in one country can impact markets in others, influencing investment
trends.
STRUCTURE OF FINANCIAL MARKETS
• The financial market is structured into different segments based on the
nature of financial instruments, maturity period, and purpose of
transactions.
• It plays a vital role in mobilizing savings and directing them toward
productive investments.
• The financial market in India is broadly categorized into money market
and capital market, with further subdivisions.
1. Broad Classification of Financial Markets
A. Money Market (Short-Term Market)

us
• The money market deals with short-term financial instruments (maturity
Pl
≤1 year) and provides liquidity for businesses and governments.
e
5) ac

• Regulator: Reserve Bank of India (RBI)

81 i R

B. Capital Market (Long-Term Market)

39 ar

• The capital market deals with long-term financial securities like stocks
13 ak
28 ah

and bonds, facilitating wealth creation and investment.

S

1. Primary Market (New Issue Market)

• Companies issue new securities (e.g., Initial Public Offering (IPO)).
(8

• Funds are raised directly from investors.

a
en

2. Secondary Market (Stock Market)

ile

• Previously issued securities are traded among investors.

N

• Major stock exchanges: NSE, BSE.

• Regulator: Securities and Exchange Board of India (SEBI)
2. Other Key Segments of the Financial Market
C. Foreign Exchange (Forex) Market
 • Facilitates currency exchange between different countries.
• Determines exchange rates (fixed, floating).
• Participants: RBI, Banks, Corporates, Forex Traders.
D. Commodity Market
• Trades in physical and derivative contracts of commodities (gold, crude
oil, agricultural products).
• Major exchange: Multi Commodity Exchange (MCX).
E. Derivatives Market
• Deals with financial contracts like futures, options, and swaps, derived

us
from underlying assets. Pl
• Helps in risk management and hedging against price fluctuations.
e
5) ac

F. Government Securities (G-Secs) Market

81 i R

• The government issues bonds to finance fiscal needs.

39 ar

• Instruments: Treasury Bonds, State Development Loans (SDLs).

13 ak
28 ah

3. Regulatory Bodies of Financial Markets

S

Regulator Market Regulated

(8

RBI (Reserve Bank of India) Money Market, Forex Market

a

SEBI (Securities and Exchange Capital Market, Stock Market,

en

Board of India) Derivatives Market

ile
N

IRDAI (Insurance Regulatory and

Insurance Market
Development Authority of India)

PFRDA (Pension Fund Regulatory

Pension Market
and Development Authority)
NABARD (National Bank for
Rural Banking & Agriculture
Agriculture and Rural
Finance
Development)

4. Conclusion
• The financial market structure ensures smooth capital flow, investment
opportunities, and economic stability.
• The money market addresses short-term financial needs, while the
capital market provides long-term investment opportunities.
• Other specialized markets like Forex, commodities, and derivatives
us
enhance financial diversity and risk management.
Pl
• Strong regulatory oversight by RBI, SEBI, and other authorities ensures
e
5) ac

transparency and investor protection, making financial markets an

81 i R

essential pillar of economic growth.

39 ar
13 ak
28 ah
(8 S
a
en
ile
N
 CAPITAL MARKET

MEANING

• Capital market is the market for long term funds. It is a collective name given to long term financing
agencies, it covers both primary and secondary market

DEFINITION

• In the words of Haizel. J. Johnson ‘capital markets are market in which financial instruments with
maturities greater than one year are bought and sold’.

CAPITAL MARKET

us
Pl
e

PRIMARY MARKET SECONDARY MARKET

5) ac
81 i R
39 ar

PRIMARY MARKET
13 ak

• A market in which the securities are sold for the first time is known as a Primary Market.
28 ah

• It means that under the primary market, new securities are issued from the company.
(8 S

• Another name for the primary market is New Issue Market.

DEFINITION

• Primary Market is defined as “ the part of capital market that deals with issuing of new securities”.
a
en

FEATURES OF PRIMARY MARKET

ile
N

• Fresh Issue
• Coverage
• No Physical Existence
• Connecting Link
• Mutual Dependence
• Legal Formalities
• Supplies Long term Fund
• Creates New Opportunities
 FRESH
ISSUE

• Primary market deals only with fresh issue of financial instruments such as shares, debentures, bonds
etc..

COVERAGE

• The primary market covers all the new issues made by the public, private and government sectors.

NO PHYSICAL EXISTENCE

• The primary market has no physical existence. The services of primary market are provided by
bankers, brokers, registrars and other financial service agencies.

CONNECTING LINK

• Primary market is the direct connecting link between the issuing company and investing public.
• MUTUAL DEPENDENCE

us
• Primary market is reciprocally related with secondary market. Activities in two markets mutually
influence and are dependent.
Pl
• LEGAL FORMALITIES
e

• There are several legal formalities involved in the issue of securities.

5) ac

• SUPPLIES LONG TERM FUNDS

•
81 i R

Primary market supplies fresh long-term funds to industry

• CREATE NEW OPPORTUNITIES
39 ar

• Primary market creates new investment and employment opportunities.

13 ak

• FUNCTIONS OF PRIMARY MARKET

• 1. ORIGINATION
28 ah

• 2. PROPAGATION
(8 S

• 3. UNDERWRITING
• 4. DISTRIBUTION
• ORIGINATION
• It refers to the work of investigation, analysis and processing of new proposals.
• It is a ‘spade work’ conducted initially to find out the investment climate.
a

•
en

It begins with the primary investigation and collection of factors which are pre-requisites of the
mobilization of capital from the public
ile

• Origination is done by merchant bankers, who may be commercial banks or All Indian Financial
N

Institutions or private firms.

• PROPAGATION
• The work of origination is carried out behind the curtain.
• Propagation is the process of informing or educating the prospective investors about the prospects of an
investment opportunity, by highlighting the features of the issue.
• Investor’s club. Press release, Advertisement, Electronic media etc. can be used to propagate mega
issue.
• The issue of prospectus, its filing etc. come subsequent to the work of propagation.
• UNDERWRITING
 • It is a kind of
guarantee undertaken by an institution or firm of brokers ensuring the marketability of an issue.
• It is a contract of guarantee, whereby the guarantor agrees to the issuing company that he would
purchase a certain specified number of shares in the event of them not being invested by the public.
• They get underwriting commission for their service.
• LIC, UTI,IDBI,IFCI,ICICI,GIC and other brokers underwrite issues in India.
• DISTRIBUTION
• The sale of securities to the ultimate investors is known as distribution.
• It is a specialist job which is performed by brokers and dealers in securities.
• They maintain direct and regular contact with the direct investors.
• SECONDARY MARKET
• The secondary market is the financial market where existing securities are bought and sold among
investors after they have been issued in the primary market

Features of the Secondary Market

■ Purpose: Provides liquidity to investors by allowing them to trade previously issued securities like
shares, bonds, and other instruments.
■ Examples:

us
✓ Stock Exchanges (e.g., NSE, BSE)
✓ Over-the-Counter (OTC) markets
Pl
■
e

Features of the Secondary Market Participants:

5) ac

✓ Individual investors
✓ Institutional investors
81 i R

✓ Traders and brokers

39 ar

■ Price Determination:
13 ak

Prices are determined by demand and supply in the market

28 ah
(8 S

Features of the Secondary Market

■ Regulation:

In India, regulated by the Securities and Exchange Board of India (SEBI).

a
en

■ Types of Transactions:
ile

✓ Equity trading (stocks/shares)

N

✓ Debt instruments trading (bonds, debentures)

✓ Derivatives trading

Comparison between Primary &Secondary Market

N
ile
en
a
(8 S
28 ah
13 ak
39 ar
81 i R
5) ac
e
Pl
us
 METHODS OF FLOATATION OF CAPITAL

FLOATATION OF CAPITAL

Floatation of capital refers to the process by which a company raises funds from the public
or investors for business expansion, new projects, or working capital needs. It involves
issuing securities like shares and debentures in the primary market.

METHODS OF FLOATATION OF CAPITAL

• There are various methods of floating new issues in the primary market.
These May be issues made by new companies for the first time or further issues or
subsequent issues made by the existing companies

The different methods are

us
I. Public Issue,
II. Public Issue,
Pl
III. Private Placement,
e

IV. Rights Issue

5) ac

V. Bonus Share
81 i R

VI. Electronic Initial Public Issue

I. PUBLIC ISSUE
39 ar
13 ak

• Public Issue refers to issue made by a company to raise funds by issuing shares or
debentures or bonds to the public through the issue of offer document known as
28 ah

prospectus.
S

• Public issue can be classified into Initial Public Offer (IPO) and Further Public Offer
(FPO).
• When an unlisted company makes a public issue for the first time and gets its share
(8

listed on stock exchange, the public issue is called as Initial Public Offer.
• When a listed company makes another public issue to raise further capital, it is called
a
en

Follow on Public Offer.

ile

DIFFERENCES BETWEEN IPO AND FPO

N

POINTS OF DIFFERENCE IPO FPO

 The first public offering of Securities by FPO refers to the additio
Meaning a company Followed by listing on a of securities by a listed c
stock Exchange is known as IPO raising additional funds

Types of issue First public issue Subsequent public Issue

Issuer Unlisted Company Listed Company

Objective Raising initial capital fund Raising additional Capit

us
Pl
Risk Risk involved is high Risk is Comparatively lo
e
5) ac
81 i R

II. OFFER FOR SALE

39 ar

• Under this method, firstly the new security are offered to an intermediary viz., firms
13 ak

of stock brokers, at a fixed price.

•
28 ah

They further resell the same to the general public at a higher price.
• It is a mechanism to transfer and distribute ownership of a company from the
S

promoters/ institutions to other investors in the stock market.

• An OFS is usually carried out by an investment bank which is appointed as a selling
agent for the existing shareholders.
(8
a

III. PRIVATE PLACEMENT (SEC. 42 OF COMPANIES ACT, 2013)

en

• Shares issued by a company to a selected group of investors, instead of inviting public

ile

at large to subscribe its shares is known as private placement.

N

• It is a faster way of raising capital, as a company has to comply with only fewer legal
formalities.
• As per the Companies Act, 2013, private placement by private limited companies also
requires issue of Offer Letter.
• So the procedure required in public companies to issue shares through private
placement is also applicable for private companies.
 • Sec.42 of Companies Act, 2013 defines Private Placement as, "any offer of securities
or invitation by a company to subscribe securities to a selected group of persons
through issue of a private placement offer letter"
• Private companies wholly and public companies partially issue their securities
through private placement.
• A company whether private or public may make private placement of securities
through issue of a 'Private Placement Offer Letter (PPOL)'

IV. Rights Issue (Sec. 62 of Companies Act, 2013)

• Section 62 of the Companies Act, 2013 provides for issue of shares on rights basis.
• Where a Public Company decides to increase it's subscribed capital by issue of
additional shares, such shares shall first be offered to the existing equity share holders
of the company in proportion to the share capital held by each shareholder.
• The shares so offered are known as 'Right Shares’.
Thus, the issue of shares by an existing company to the existing shareholders on right basis in
proportion to their present holdings is known as Right Issue/ Right Shares

V. Bonus Share us
Pl
e

✓ Shares issued free of cost to existing shareholders out of accumulated profits or

5) ac

reserves.
81 i R

✓ No new capital is raised; it is a capitalization of reserves.

✓ Used to reward shareholders and increase liquidity of shares.
39 ar
13 ak

VI. E-IPO (Initial Public Offers through the stock exchange on-line system/ Electronic
Initial Public Issue)
28 ah
S

• In E-IPO, the company has to appoint registered brokers for the purpose of accepting
applications and placing orders.
• The managers to issue coordinate the activities through various intermediaries
(8

connected with the issue

a
en
ile
N
 STOCK EXCHANGES
MEANING
• Stock exchanges are the most important segment of secondary market. A stock
exchange is an organised market for buying and selling second hand listed securities.
• They have a physical location where brokers and dealers meet to execute the order of
their clients.
• Only members are allowed to trade the securities in a stock exchange.
• The floor of the exchange is divided into different segments for Government
securities, debentures, specified and unspecified shares etc.
Definition
• Securities Contract (Regulation)Act 1956 defines a stock exchange as “anybody of
individuals, whether incorporated or not, constituted for the purpose of assisting,
regulating or controlling the business of buying, selling or dealing in securities”.
Features of Stock Exchange
• A centralised market place
• Deals in second hand listed securities
• Fair open market price

us
• An Auction Market
• Market rules and regulations
Pl
• Price fluctuations
e

• Opened to all types of investors

5) ac

• Element of risk
81 i R

• Wide choice of securities

• Financial barometers
39 ar

• Recognition from Central Goverment

13 ak

A centralised market place

• A stock exchange is a centralised market place for trading securities.
28 ah

• But the general public is not allowed to enter in to the trading floor of the exchange.
S

• They can transact through member-brokers only.

Deals in second hand listed securities
• Stock exchange deals with shares, debentures, bond and such securities issued by the
(8

companies.
• As it deals with existing or second hand listed securities.
a
en

Fair open market price

• The buyers and sellers assemble to deal in securities in the most convenient and
ile

specialised way.
N

• Securities are transacted at the fairest open market price.

An Auction Market
• In a stock exchange the buyers compete with each other to purchase the securities at
the lowest possible price.
• But the sellers compete to get the highest possible price.
Market rules and regulations
• The stock exchange has its own rules and regulations for assisting and regulating the
business of buying, selling or dealing in securities.
Price fluctuations
• In a stock exchange, the prices of securities move up and down according to their
demand and supply.
Opened to all types of investors
• A stock exchange is open to small and big investors.
• One can start trading with as little as few thousand rupees.
Element of risk
• The prices of securities in a stock exchange are influenced by a number of
factors such as performance of the company, over all economic conditions, political
conditions, preference of investors etc..
Wide choice of securities
• Stock exchange offers a wide variety of securities to the investors.
Financial barometers
• Stock exchanges are the financial barometers and development indicators of national
economy of the country.
• Industrial growth and stability are reflected in the index of the stock exchange.
Recognition from Central Government

us
• Stock exchange is an organised market. It requires recognition from the central
government
Pl
Functions/Services / Role of Stock Exchanges
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• A well organised stock exchanges are indispensable for the proper functioning of the
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corporate enterprises.
81 i R

• The major functions of stock exchanges are

1. Provides ready and continuous market for securities:
39 ar

• Stock exchanges provide continuous, ready, open and broad based market for
13 ak

securities.
• This ensures liquidity, marketability and price uniformity for securities.
28 ah

2. Ensures safety of funds:

S

• Stock exchanges ensure safety of funds invested as they are operated under strict rules
and regulations.
• By clear cut rules, the members are prevented from exploiting investors. This would
(8

strengthen the investors' confidence and promote larger investment. Thus it enhances
a

safety of capital and fair dealings.

en

3. Supplies long term funds:

• The securities traded in the stock exchange are negotiable and transferable with
ile

minimum formalities.
N

• The company is assured of long term availability of funds, due to this transferability.
4. Channelises savings:
• Stock exchange mobilises savings into most productive and profitable channels. The
investors can invest their savings in the securities of companies with high returns.
• Companies can also raise additional funds by new issues very easily. Inefficient
companies cannot secure further funds by fresh issues
[Link] capital formation:
• The stock exchange plays an active role in the capital formation of a country.
• It creates the habit of savings and investment among the public.
• Industrial investments are stimulated by ensuring positive returns.
• This also helps in the industrial development and growth of the nation
6. Facilitate evaluation of securities:
• Stock exchange integrates the demand and supply of securities in an effective manner.
Stock exchange is useful for the evaluation of industrial security.
• The evaluation is a continuous process by which the true price of securities is
reflected in the market. This enables the investors to know the true worth of their
holdings at any time
7. Serves as economic barometer:
• Stock exchanges act as a barometer of business and progress of the business in the
country.
• One can easily find out whether there is a boom or depression in the economy and it is
also possible to easily analyse the causes of these conditions too.
8. Facilitates healthy speculation:
• Healthy speculation is essential to equalize demand and supply of securities at
different places.

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• It also regulates the prices of securities considerably
9. Regulates Company Management
Pl
• To get the securities listed in a stock exchang the companies have to follow certain
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rules and fulfil certain conditions.

5) ac

• Such companies should also furnish all reasonable information concerning the
81 i R

financial affairs to the stock exchange every year.

• So, stock exchange exercises control over the management of companies
39 ar

10. Facilitates public borrowing:

13 ak

• Stock exchange serves as a platform for marketing government securities.

• It enables government to raise public debt easily and quickly
28 ah

11. Provides clearing house facility:

S

• Stock exchange provides a clearing house facility to members. It settles the

transactions among the members quickly and with ease.
• The members have to pay or receive only the net dues because of the clearing house
(8

facility
a

12. Facilitates bank lending

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• Banks can easily know the prices of quoted securities. They offer loans to customers
against corporate securities.
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• This gives convenience to the owners of securities.

N
 STOCK EXCHANGES IN INDIA
• Stock exchanges provide an organised market for transaction in shares and other
securities. As on 2017, there are 23 official stock exchanges in India.
• Among them 20 are regional stock exchanges with allocated areas of operation and 3
national exchanges.
• The national stock exchanges are National Stock exchange (NSE), Over The Counter
Exchange of India limited (OTCEI ) and Interconnected Stock Exchange of India
Limited(ISE). All these national stock exchanges have their head offices at Mumbai.

TABLE SHOWS THE NUMBER OF REGIONAL STOCK EXCHANGE WITH THEIR

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RESPECTIVE ZONES. Pl
e
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North zone South zone East zone West zone

81 i R

Jaipur Bangalore Bhuvaneswar Ahmedabad

39 ar

Kanpur Chennai Guwahati Indore

13 ak

Ludhiana Coimbatore Kolkata Mumbai

28 ah
(8 S

Meerut Hyderabad Pune

New Delhi Kochi Rajkot
Mangalore Vadodara
a
en
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BOMBAY STOCK EXCHANGE (BSE)

N

• Bombay Stock Exchange is the oldest stock exchange in India, located at Mumbai. It
was established in 1875 and is Asia’s first stock exchange.
• Asper reports, during the year 2017, it is the fastest and 12th largest stock exchange of
the world.
• The trading system gradually shifted from traditional system to computerised online
 system.
In 14th March1995, BSE launched its fully automated trading platform called BSE On-
Line Trading System (BOLT).
• In 2005, BSE became a corporate entity and the management of the stock exchange is
vested on a Governing board comprising of:
1. Nine elected directors
2. One executive
3. Three government nominees
4. One RBI nominee
5. Five public nominees
The executive director acts as the Chief Executive Officer and is responsible for the day to day

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workings. Pl
• BSE has 2 segments such as capital market segment and derivative market segment.
e

•
5) ac

In capital market segment shares are traded, but in derivative market segment, futures
81 i R

and options are traded.

39 ar

• BSE has introduced in 1986 the first index number of share prices in India called
13 ak

SENSEX.
28 ah

• BSE was the leading Stock exchange in India till 1993 and had maximum daily
(8 S

turnover. After the recognition of NSE in 1993, the BSE has been placed only in the
second position in daily turnover.
a
en
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OBJECTIVES OF BSE
N

• To safeguard the interest of the investing public.

• To establish and promote honest and just practices in security transactions.
• To promote, develop and maintain a well regulated market for dealing in securities.
• To promote industrial development in the country through efficient resource
mobilisation by way of investment in corporate securities.
CAPITAL REQUIREMENTS
The capital requirements for companies which are already listed on other stock exchanges and
listing on BSE are:
1. the minimum issued equity capital of 3 crores.
2. profitability record of at least 3 years.
3. the minimum market capitalisation of 20 crores (based on average size) for the last six
months.
4. trading for a minimum of 50% of the total trading days during the same 6 months on any
exchange and
5. the minimum average volume traded per day during the last three completed months

us
should be 500 shares and at least five trades per day.
Pl
For new companies seeking listing on the BSE and for relisting of already listed companies,
e
5) ac

the minimum equity capital requirement is 10 crores.

81 i R

• At the Bombay Stock Exchange, trading takes place in groups. The scrips traded the
39 ar

exchange have been classified into different groups.

13 ak

• The categories of securities traded under the groups are:

28 ah

i. Group A - The group includes specified shares which are actively traded. The shares of
(8 S

only few companies get listed in this group.

ii. Group B - Non specified shares. (further classified into B1 and B2 groups)
a

iii. Group C -Odd lots and permitted shares. Odd lots trading is allowed to enable trading
en
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in small quantities (less than market lots) to provide liquidity to such trading. Permitted
N

shares are those that are not listed on the exchange, but are permitted to be traded since
they are listed on other stock exchanges in India.
iv. Group F - Debt market (fixed income securities).
iii. Group G - Government Securities.
iv. Group Z - List of companies which have failed to comply with listing requirements
 and/or failed to
resolve investor complaints.
v. Group T - It is a Trade to Trade category. It was created as a preventive surveillance
measure to ensure market safety and integrity.
The BSE established the first International Exchange of India (INX) on 13th December,2016

THE INDIA INTERNATIONAL EXCHANGE(INX)

• It is India’s first international stock exchange , opened in 2017. It is located at the
International Financial Service Centre, in Gujarat.
• It is a wholly owned subsidiary of the BSE. It is the world’s most advanced
technological platform with a turn around time of 4 micro seconds which operates 22

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hours a day and 6 days a week. Pl
• These timing facilitates international investors and non resident Indians to trade from
e
5) ac

anywhere across the globe at their preferred timings.

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39 ar

NATIONAL STOCK EXCHANGE OF INDIA (NSEI)

13 ak

• NSEI was set up in November 1992 and became recognised with effect from
28 ah

April 26, 1993. It commenced its operations in the capital market on 3rd November
(8 S

1994 in Mumbai.
• As on March 2017, it is the World’s 10th largest stock exchange.
a

• It was incorporated with an equity capital of Rs 25 Crores and promoted by IDBI,

en
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ICICI, LIC, GIC and its subsidiaries, SBI & SBI capital markets Limited. The NSEI
N

started derivative trade operations in June 2000.

• The trading system of NSEI is known as National Exchange for Automated
Trading (NEAT). It is a fully automated screen based trading system that enables
members from across the country to trade simultaneously.
OBJECTIVES OF NSEI
• To establish nationwide trading facility for equities and debts.
• To meet international securities market standards.
• To enable shorter settlement cycles.
• To facilitate equal access to investors across the country.
• To provide fairness and efficiency to the securities trading.

SEGMENTS
NSEI HAS 3 SEGMENTS:
• Capital market segment
It covers equities, convertible debentures and debt instruments. These will also
us
Pl
include securities which are being traded in other stock exchanges.
e

• Wholesale debt market segment

5) ac

It deals with high value transactions in government securities, public sector bonds,
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commercial papers and other debt instruments.

39 ar
13 ak

• Retail trade segments

28 ah

It deals in debt instruments like non-convertible debentures.

(8 S

FEATURES OF NSEI
• Neat Trading System: The trading system of NSEI is known as National
a
en

Exchange for Automated Trading (NEAT). It is a fully automated screen based

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trading system that enables members from across the country to trade
N

simultaneously.
• No trading floor: There is no trading floor as is prevalent in the traditional stock
exchanges. But automated screen based trading system exists.
• Various committees: The exchange operates various committees to advice it on
 areas
such as good market practices, settlement procedures, risk containment system etc.
These committees include trading members, exchange staff and industry
professionals.
• Order driven system: The NSE has opted for an order driven system. The system
provides enormous flexibility to trading members.
• Confirmation slip: When trade takes place, a trade confirmation slip is printed at
the trading member's work station. It gives details like price, quantity, code number
of the party and so on.
• Identity of trading member is not revealed: When an order is placed or when his
pending orders are delayed, the identity of trading members are not revealed.

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• Statements of position: On the eighth day of trading, each member gets a
Pl
statement showing his net position, amount of cash he has to transfer to the clearing
e
5) ac

house etc.
81 i R

• Pay out day: Members are required to deliver securities and cash by the thirteenth
39 ar

and fourteenth days respectively. The fifteenth day is the payout day.
13 ak

• High volume: The trading member can transact a high volume of business
28 ah

efficiently by automated trading system.

(8 S

MEMBERSHIP IN NSEI
a

• For admission in a NSE, a written examination and an interview is conducted.

en
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The interview is done by a committee consisting of experienced people from the

N

industry to assess the applicant’s capability to operate as an exchange member. The

exchange admits members separately for the capital market segment and whole sale
debt market segment.
Eligibility requirements for membership
A. Trading membership in the capital market segment:
a) Eligibility : Individuals, body corporates, institutions and registered
persons are eligible for membership in capital segment.
b) Minimum networth: The minimum networth required is Rs 75 lakhs for
individuals and Rs 1 Crores for body of corporate.
c) Minimum paid-up capital : The minimum paid up capital required is Rs 30
lakhs in the case of corporate bodies.
d) Minimum qualification: Minimum qualification is required is graduation,
two years experience of dealing in capital market.
B. Trading membership on the wholesale debt market segment:
us
Pl
a) Eligibility: Members eligible are corporate bodies, institutions and other
e

entities as may be permitted by RBI or SEBI.

5) ac

b) Minimum networth: Minimum networth required is Rs 2 crores.

81 i R

c) Minimum paid up capital: Minimum paid up capital required is Rs 30 lakhs

39 ar
13 ak

in the case of corporate bodies.

28 ah

d) Minimum qualification: The whole time directors or the dealers should

(8 S

possess at least 2 years experience in any activity, related to banking or financial

services.
a

OPERATING MECHANISM OF NSE

en

• NSE has 2 category of members. They are Principal Trading members(PTM) and
ile

Dealers. A PTM undertakes trading activity only on his behalf and acts as a market
N

maker in securities by providing two way quotations. The intermediary dealer act for
their clients through PTM.
• The NSE is an over the counter market having no trading floor. The principal
trading members are highly professionalised and have a strong infrastructure.
• They are individuals or corporations having good facilities such as the
telecommunication, on line processing System, publicity departments etc. Their
computer terminals are connected with that of other members and of the exchange.
• The orders are processed through the computers and will be recorded in the
members computer and the central system. Each day the next record of trading
activities confirmed will be sent to the computer of the PTM .There are Separate
segments of trading for debt and equity markets and the same members cannot
operate in both the markets at the same time.

SETTLEMENT SYSTEM

us
• The settlement deals are done based on rolling settlement system of T+7. It means
Pl
that the settlement is done after 7 days of the engagement in the deal.
e

• The number and volume of trade in the NSE is quite large because of the instant
5) ac
81 i R

trading linked by electronic system. The settlement of such transactions is done by

39 ar

passing debit or credit entries based on the information conveyed electronically.

13 ak
28 ah

CLEARING OF SECURITIES
(8 S

• Clearing is done through a Central Depository System (CDS). The Stock Holding
Corporation of India and banks provide facilities by acting as Central Depositories
a

under this system.

en
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• There is no need for physical transfer of securities from investor to investor. The
N

transfer is effected through the statement issued by the Central Depository. This
statement is the evidence of ownership of securities, which is valid as share or
debenture certificate.
N
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en
a
(8 S
28 ah
13 ak
39 ar
81 i R
5) ac
e
Pl
us
SECURITIES TRADED IN STOCK EXCHANGE
SECURITIES TRADED IN STOCK EXCHANGE
1. CORPORATE SECURITIES
• These are the securities issued by Companies for raising
capital.
• These are two types:
A. Ownership Securities
B. Creditorship Securities
A. OWNERSHIP SECURITIES
us
• Ownership securities are classified into two as per
Pl
Sec.43 of Companies Act, 2013.
e
5) ac

• Ownership securities of a company include :

81 i R

• Equity shares
39 ar

• preference shares
13 ak
28 ah

i. EQUITY SHARES
S

• Equity shares are the shares which do not have any

preferential rights.
(8

• The rate of dividend of these shares is not fixed.

a
en

• Equity shareholder are the real owners of a company

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who have voting right on the basis of number of shares

N

held by them.
• They will get dividend only after paying preference
shareholders.
• ii. PREFERENCE SHARES
 • Preference shares are the shares which have some
preferential right relating to the payment of dividend
and repayment of capital on the winding up of the
company.
• Dividend is payable to such shareholders at a fixed rate.
• However preference shareholder do not have voting
right in a company.
• B. CREDITORSHIP SECURITIES
• Creditorship securities are issued by the corporate
us
sectors to find out their long term fund . The different
Pl
type of creditorship securities are:
e
5) ac

a) Debentures
81 i R

b) Innovative Debt Instruments

39 ar

a. DEBENTURES
13 ak

• A debenture is a debt instrument issued by a company

28 ah
S

under the seal of the company.

• It is usually secured with a fixed or floating charge on
(8

companies properties.
a
en

• A debenture holder is a creditor of the company and

ile

interest is payable to them at a fixed rate.

N

• b. INNOVATIVE DEBT INSTRUMENTS

• It include deep discount bonds, zero coupon bonds,
secured premium notes and floating interest rate bonds.
A) DEEP DISCOUNT BOND
• These are issued for a fairly long period of time with
maturities of 10 to 30 years.
• The issue price of such bonds is fixed after a discount
and they mature at par.
• There is no interest is payable during the life of the deep
discount bonds.
• These are not convertible into shares.
B) ZERO COUPON BONDS
us
• Zero Coupon Bonds (ZCB) are bonds which are issued
Pl
with out any coupon rate and have a fixed maturity
e
5) ac

period.
81 i R

• They are always issued at discount and redeem at

39 ar

nominal value.
13 ak

• The difference between the redemption value and the

28 ah
S

issue price is the return of investor.

• ZCBs may be converted into equity shares.
(8

C) SECURED PREMIUM NOTE (SPN)

a
en

• SPN is just like a debenture redeemable at premium.

ile

The redemption of SPN is spread over several years. No

N

interest is payable initially.

• The Note will be redeemable in instalments paying a
part of the principal together with a premium.
• Each SPN is accompanied with a detachable warrant,
which can be converted in to equity shares after a
defined period.
D) FLOATING INTEREST RATE BONDS
• These are debt instruments on which no coupon rate of
interest is fixed.
• The rate of interest payable half yearly will be 2 percent
above the bank deposits are prevailing at that time.
• Thus the interest rate on bonds vary in tune with bank
deposit rate.
us
Pl
e
5) ac

2. GOVERNMENT SECURITIES
81 i R

• These are securities issued by the central government,

39 ar

State government, Semi government agencies and

13 ak

public sector undertakings.

28 ah

• The public debt is raised through market borrowing by

S

the issue of securities known as Gilt Edged Securities.

(8

• They include
a
en

a) Inscribed stocks
ile

b) Government Promissory Notes

N

c) Bearer Bonds
a. INSCRIBED STOCK (STOCK CERTIFICATE)
• When the original subscriber’s name is written on the
face of the certificate and the same is registered in the
 book of Public Debt Office, it is known as Inscribed
Stock.
• The rate of interest along with maturity period are
affixed on the certificate.
• The stock certificate is transferable only by executing a
duly signed transfer deed both by the transferor and
transferee.
• b. GOVERNMENT PROMISSORY NOTES
• These are negotiable instruments issued by government.
•
us
It is a promise made by the government (the President
Pl
of India) to a person named there in, to pay a specified
e
5) ac

amount on a specified date and to pay periodical

81 i R

interest at a fixed rate at a particular office of RBI.

39 ar

• c. BEARER BONDS
13 ak

• Bearer bonds are issued by the government for raising

28 ah
S

long term funds. Printed coupons for interest are

attached to the bond.
(8

• Interest is payable on the presentation of the coupons

a
en

and on the due date the loan will be repaid to the

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person who physically present.

N

3. DERIVATIVES:
• Financial contracts whose value is derived from
underlying assets like stocks, commodities etc.
• Examples: options, futures, warrants.
• Options: Contracts giving the right (but not obligation)
to buy/sell assets at a set price before a date.
• Futures: Agreements to buy/sell an asset at a future
date for a predetermined price.
• Warrants: Long-term options issued by a company.

us
Pl
e
5) ac
81 i R
39 ar
13 ak
28 ah
(8 S
a
en
ile
N
 SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

• Securities and Exchange Board of India (SEBI) is a statutory regulatory body entrusted with the
responsibility to regulate the Indian capital markets.
• It monitors and regulates the securities market and protects the interests of the investors by enforcing
certain rules and regulations.
• The objective of SEBI is to ensure that the Indian capital market works in a systematic manner and
provide investors with a transparent environment for their investment.
• To put it simply, the primary reason for setting up SEBI was to prevent malpractices in the capital
market of India and promote the development of the capital markets.

ABOUT SEBI
• The Securities and Exchange Board of India is the highest regulatory body with regards to the
functioning of the Security Markets, Stock Exchanges, Commodities Markets etc in India.
• It was formed in 1988 as a non-statutory body.
us
• It was made an Autonomous and Independent Regulatory body after the passing of the Securities and
Pl
Exchange Board of India Act, 1992 by the Indian Parliament.
e

• SEBI now has Statutory powers with regards to regulation of the Securities and Commodities market in
5) ac

India.
81 i R

• The main objective of SEBI is to facilitate the growth and development of the capital markets and to
39 ar

ensure that the interests of investors are protected.

• The Head office of SEBI is in Mumbai and regional offices at Kolkata (East), Ahmedabad (West), New
13 ak

Delhi (North) and Chennai (South).

28 ah

• It also has local offices in almost all major cities of the country.
(8 S

STRUCTURE OF SEBI
• The functions of SEBI are carried out by a Board of 9 members – 1 Chairman and 8 members
• The Chairman of SEBI is nominated by Central Government
a

• Two members are nominated by the Finance Ministry of India.

en

• The Reserve Bank of India nominates one member to the SEBI board.
ile

• Rest of 5 members(3 of them must be full time) are nominated by the Government of India.
N

• The current Chairman of SEBI is Mr Tuhin Kanta Pandey.

POWERS OF SEBI
For the discharge of its functions efficiently, SEBI is vested with the following powers:
• to approve by-laws of stock exchanges.
• to require the stock exchange to amend their bylaws.
• inspect the books of accounts and call for periodical returns from recognized stock exchanges.
• inspect the books of accounts of financial intermediaries.
 • compel certain companies to list their shares in one or more stock exchanges.
• registration brokers.

RESPONSIBILITIES OF SEBI
• To promote the development of the Securities Market and to regulate the Securities Market.
• To Protect the Interest of Investor in Securities.
• To overview the market operations, organizational structure and administrative control of exchange.
• Registration and regulation of the working of the intermediaries.
• To prohibit the unfair trade practices in the market.
• Promoting and regulating self-regulatory organizations.
• To provide education for the investors and to give training for the intermediaries.

PURPOSE AND ROLE OF SEBI:

• SEBI was set up with the main purpose of keeping a check on malpractices and protect the interest of
investors.
• It was set up to meet the needs of three groups.
1. Issuers:
us
Pl
• For issuers it provides a market place in which they can raise finance fairly and easily.
2. Investors:
e
5) ac

• For investors it provides protection and supply of accurate and correct information.
81 i R

3. Intermediaries:
• For intermediaries it provides a competitive professional market.
39 ar
13 ak

OBJECTIVES OF SEBI:
28 ah

• The overall objectives of SEBI are to protect the interest of investors and to promote the development
(8 S

of stock exchange and to regulate the activities of stock market.

• The objectives of SEBI are:
i. To regulate the activities of stock exchange.
ii. To protect the rights of investors and ensuring safety to their investment.
a

iii. To prevent fraudulent and malpractices by having balance between self regulation of business
en

and its statutory regulations.

ile

iv. To regulate and develop a code of conduct for intermediaries such as brokers, underwriters, etc.
N

FUNCTIONS OF SEBI:
• The SEBI performs functions to meet its objectives.
• To meet three objectives SEBI has three important functions.
• These are:
i. Protective functions
ii. Developmental functions
iii. Regulatory functions.
 I. Protective Functions:
• These functions are performed by SEBI to protect the interest of investor and provide safety of
investment.
• As protective functions SEBI performs following functions:
i. It Checks Price Rigging:
• Price rigging refers to manipulating the prices of securities with the main objective of inflating or
depressing the market price of securities.
• SEBI prohibits such practice because this can defraud and cheat the investors.
ii. It Prohibits Insider trading:
• Insider is any person connected with the company such as directors, promoters etc.
• These insiders have sensitive information which affects the prices of the securities.
• This information is not available to people at large but the insiders get this privileged information by
working inside the company and if they use this information to make profit, then it is known as insider
trading,
• e.g., the directors of a company may know that company will issue Bonus shares to its shareholders at
the end of year and they purchase shares from market to make profit with bonus issue.

us
• This is known as insider trading. SEBI keeps a strict check when insiders are buying securities of the
Pl
company and takes strict action on insider trading.
iii. SEBI prohibits fraudulent and Unfair Trade Practices:
e
5) ac

• SEBI does not allow the companies to make misleading statements which are likely to induce the sale
81 i R

or purchase of securities by any other person.

iv. SEBI undertakes steps to educate investors so that they are able to evaluate the securities of various
39 ar

companies and select the most profitable securities.

13 ak

v. SEBI promotes fair practices and code of conduct in security market by taking following steps:
28 ah

a. SEBI has issued guidelines to protect the interest of debenture-holders wherein companies cannot
(8 S

change terms in midterm.

b. SEBI is empowered to investigate cases of insider trading and has provisions for stiff fine and
imprisonment.
c. SEBI has stopped the practice of making preferential allotment of shares unrelated to market prices.
a
en

II. Developmental Functions:

ile

• These functions are performed by the SEBI to promote and develop activities in stock exchange and
N

increase the business in stock exchange.

• Under developmental categories following functions are performed by SEBI:
i. SEBI promotes training of intermediaries of the securities market.
II. SEBI tries to promote activities of stock exchange by adopting flexible and adoptable approach in
following way:
a. SEBI has permitted internet trading through registered stock brokers.
b. SEBI has made underwriting optional to reduce the cost of issue.
c. Even initial public offer of primary market is permitted through stock exchange.
III. Regulatory Functions:
• These functions are performed by SEBI to regulate the business in stock exchange.
• To regulate the activities of stock exchange following functions are performed:
i. SEBI has framed rules and regulations and a code of conduct to regulate the intermediaries such as
merchant bankers, brokers, underwriters, etc.
ii. These intermediaries have been brought under the regulatory purview and private placement has been
made more restrictive.
iii. SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer agents, trustees,
merchant bankers and all those who are associated with stock exchange in any manner.
iv. SEBI registers and regulates the working of mutual funds etc.
v. SEBI regulates takeover of the companies.
vi. SEBI conducts inquiries and audit of stock exchanges.

WHAT ARE THE POWERS OF SEBI

• Securities and Exchange Board of India has the following three powers:
• Quasi-Judicial: With this authority, SEBI can conduct hearings and pass ruling judgements in cases of
unethical and fraudulent trade practices.
us
Pl
• This ensures transparency, fairness, accountability and reliability in the capital market. SEBI PACL
case is an example of this power.
e
5) ac

• Quasi-Legislative: Powers under this segment allow SEBI to draft rules and regulations for the
81 i R

protection of the interests of the investor.

• One such regulation is SEBI LODR (Listing Obligation and Disclosure Requirements).
39 ar

• It aims at consolidating and streamlining the provisions of existing listing agreements for several
13 ak

segments of the financial market like equity shares.

28 ah

• This type of regulation formulated by SEBI aims to keep any malpractice and fraudulent trading
(8 S

activates at bay.
• Quasi-Executive: SEBI is authorised to file a case against anyone who violates its rules and regulation.
• It is empowered to inspect account books and other documents as well if it finds traces of any
suspicious activity.
a
en

SEBI COMMITTEES
ile

• Technical Advisory Committee

• Committee for review of structure of infrastructure institutions
N

• Advisory Committee for the SEBI Investor Protection and Education Fund
• Takeover Regulations Advisory Committee
• Primary Market Advisory Committee (PMAC)
• Secondary Market Advisory Committee (SMAC)
• Mutual Fund Advisory Committee
• Corporate Bonds & Securitisation Advisory Committee
 BANKING INTRODUCTION Part 1
INTRODUCTION and EVOLUTION OF BANKING
Bank is institution authorized to collect peoples' saving or deposits with the
purpose of lending those under the condition of returning when the depositor
demand.
● The term ‘Bank’ is derived from the Italian word ‘Banco’ , French word
‘Banque’, Latin word Bancus, All of these means “Bench or exchange
table”( The Jews in Lombardy (Itali) having benches in the market place
for the exchange of money and bills)
● German word “Bank” which means heap of money or joint stock fund

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● If a banker failed his Banque (Bench) was broken up by the people hence
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the word In Simple term has come - Bankrupt
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● Bankrupt means A person who lost all the money, Wealth or Financial
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Resources
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● The origin of banking, in the modern sense, is traced to-Italy

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Definition of Banking
A bank is an institution which deals with money or credit. A person who is
doing the banking business is called Banker
The following are some of the definitions given by authorities in this field;
• According Sec 5 (b)of Banking Regulations Act, 1949 :- “accepting for the
purpose of lending or investment, of deposits of money from the public,
repayable on demand, order or otherwise and withdrawable by cheque,
draft, order or otherwise.”
• According to Sec 5 (c) of the Banking Regulation Act, Banking Company
is defined as any “company which transacts the business of banking in
India”
• According Bill of exchange Act,1882: “Banker includes a body of persons
whether incorporated or not who carry on the business of banking”
• According NI Act sec 3: “ the term banker includes any person acting as a
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banker and any post office savings bank.( It also may include corporation
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or a company)
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• According Sir John Paget Says( in his book Law of banking): "no person or
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body corporate or otherwise can be banker who does not take deposit
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accounts, takes current accounts, issue and pay cheques and collect
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cheques crossed and uncrossed for his customer’s” .

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• According Prof. R S Sayer defines "a bank is an institutions whose debts

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are widely accepted in settlement of other people's debts to each other

• According Sayer: Banks are not mealy purveyors of money but also in an
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important sense manufactures of money

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• According Geoffrey Crowther, “a banker as a "dealer in debt, his own

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and other peoples”

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• According Dr. Herbert. L Hart : “ one who in the ordinary course of his
business, honours cheque drawn upon him by person from and for
whom he receives money or current accounts”
 • According to Macleod :The essential business of a banker is to buy
money and debts by creating other debts. A banker is essentially a
dealer in debts or credit'.
• According Horace white: “a bank is a manufacturer of credit and a
machine for facilitating exchange”.
Modern Banking is a recent origin. According to “Crowther", banker has
three ancestors :
1. Merchant bankers
Merchant bankers were originally traders in commodities. They were engaged
in trade; internal as well as external.

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In course of time, besides trading, they undertook the financing of trade;
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especially the foreign trade.
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2. Money Lenders
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Second ancestor to modern bank is the money lenders. Money lenders were
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men of means and reputation.

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They usually conduct business with their own money. They used to lend their
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surplus funds to the needy at high rate of interest and earned large income.
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They allowed overdraft facility

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In fact, money lenders laid the foundation of modern banking viz. receiving of
deposits of money from those who have surplus and lending of funds to the
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needy for productive purposes.

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Goldsmiths
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Gold smith were considered as men of honesty, integrity and reliability. They
mainly dealt with precious metal.
They had facilities (i.e., strong iron safe) for the safe keeping of valuables and
money. So, people deposited their spare money with the goldsmiths for safe
custody.
For the money accepted for safe custody the goldsmiths issued 'deposit
receipts' to acknowledge debts. The people received their deposit back when
they presented the deposit receipts.
These gold smith also called “seths”

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INDIGENOUS BANKING
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• It is certainly one of the oldest banking system which have been

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functioning for centuries.

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• It is a system of banking that involves private firms or individuals who

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act as bank by providing financial services.

• This system is made up of Indigenous bankers who do not fall under the
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purview of the GOVT.

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• They are professional dealers in Hundis.

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• Hundis were important instruments of money exchange for the

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businesses in times before new instruments were introduced

• The bill of exchange issued by indigenous bankers were known as
Hundis.
• Discounting Hundis is one of the most profitable businesses for the
Indigenous Bankers.
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 ORGIN OF THE WORD BANK Part 2
Evolution of Banking in INDIA
• The first bank in India, the Bank of Hindustan was established in 1770 in
Calcutta started by Alexander and Co. (failed 1832)
• Next came General Bank of India established in 1786.
• the East India Company established the Bank of Bengal in 1809,
• Bank of Bombay was established in 1840
• Bank of Madras was established in 1843,.
• These three banks were generally called Presidency Banks.
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• These three banks were amalgamated in 1921 and the Imperial Bank of
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India was established.
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• The imperial bank was nationalised in 1955 and renamed it as SBI. (July 1
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1955 as per the recommendation of Gorwala committee)

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• In 1865 Allahabad Bank was established (first joint stock bank in India) (
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merged with Indian Bank in 2021)

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• Alliance bank was established in 1875

• First purely commercial bank was formed in 1881 at Faizabad - Oudh
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commercial bank,(1881- 1958)

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• First Bank of India with Limited Liability to be managed by Indian Board.

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-1881
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• It is also known as First Indian managed joint stock bank with limited
liability- Oudh commercial bank
• First commercial bank which was wholly owned and managed by
Indians- central Bank of India (1911)
• So it is purely swadeshi Bank- Central Bank of India
 • In 1894, Punjab National Bank was started with headquarters in Lahore
and peoples bank was formed in 1901
• Punjab National Bank was purely an 'Indian Bank' with Indian
shareholders.(purely managed by Indian)
• Oldest public sector bank still exist- PNB
The Reserve Bank of India was set up in April 1st 1935.

The RBI was nationalised in January 1st 1949

Banking Companies Act was passed in 1949. Later renamed as BR Act in

March 1st 1966
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In 1967 the Govt introduced social control of the [Link] was aimed at bringing
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some major changes in the management and credit policy of commercial

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banks.
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• 14 banks were nationalised in 19 July 1969. And 6 more commercial

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banks were nationalised in 15 April 1980.

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Definition of Banking
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A bank is an institution which deals with money or credit. A person who is

doing the banking business is called Banker
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Bank is defined as “a financial institution licensed to receive deposits, make

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loans and provide different kinds of services to its customers.”

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The following are some of the definitions given by authorities in this field;
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• According Sec 5 (b)of Banking Regulations Act, 1949 :- “accepting for the
purpose of lending or investment, of deposits of money from the public,
repayable on demand, order or otherwise and withdrawable by cheque,
draft, order or otherwise.”
• According to Sec 5 (c) of the Banking Regulation Act, Banking Company
is defined as any “company which transacts the business of banking in
India”
• According Bill of exchange Act,1882: “Banker includes a body of persons
whether incorporated or not who carry on the business of banking”
• According NI Act sec 3: “ the term banker includes any person acting as a
banker and any post office savings bank.( It also may include corporation
or a company)
• According Sir John Paget Says( in his book Law of banking): "no person or
body corporate or otherwise can be banker who does not take deposit
accounts, takes current accounts, issue and pay cheques and collect
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cheques crossed and uncrossed for his customer’s” .
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• According Prof. R S Sayer defines "a bank is an institutions whose debts
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are widely accepted in settlement of other people's debts to each other

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• According Sayer: Banks are not mealy purveyors of money but also in an
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important sense manufactures of money

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• According Geoffrey Crowther, “a banker as a "dealer in debt, his own

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and other peoples”

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• According Dr. Herbert.L Hart : “ one who in the ordinary course of his
business, honours cheque drawn upon him by person from and for
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whom he receives money or current accounts”

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• According to Macleod :The essential business of a banker is to buy

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money and debts by creating other debts. A banker is essentially a

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dealer in debts or credit'.

• According to Walter Leaf: “ a bank as “a person or corporation which
holds itself out to receive from public deposits payable on demand or by
cheque”
 • According Horace white: “a bank is a manufacturer of credit and a
machine for facilitating exchange”.
Salient features of Bank
• Commercial establishment/dealing money
• Accepts deposit
• Giving loans / advances
• Repayment of accepted deposits
• Payment and Withdrawal
• Agency and Utility Services
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• Ever increasing Functions
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• Connecting Link(Financial Intermediary)

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• Banking Business
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• Uniqueness
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• Capacity to create credit:

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Role of Banks in Business

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o Help to capital formation

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o Promote the habit of thrift

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o Provide safety and security

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o Provide a convenient means of payment and transfer of fund

o Help in movement of funds
o Help trade and commerce
o Serve as best financial intermediaries
 o Acquire control over the supply of money
Importance of banking

➤ It helps the national development by providing credit to farmers, SSI, and

self-employed people as well as to large business houses which leads to
balanced economic development of the country.

➤ Deposit accepted by banks are converted into loans and advances for
industrial and trading activities to business organizations. Through this,
banking controls savings into investment leading for capital formation and
development of economy.

➤ Bank allows savings to be deposited in different types of accounts carrying

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different interest rates as their income which encourage people to save money
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and put it in the banks.
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➤ It helps in raising the standard of living of people in general by providing

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loans for purchase of consumer goods, houses, automobiles etc.

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➤ Banks support the development of rural economy.

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➤ It facilitates balanced regional development of the nation.

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➤ It supports foreign trade. RBI regulates all the imports and exports
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transactions and facilities bringing foreign exchange to be used for country's

economic development.
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First in Banking
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• First Bank in the World – Bank of Venice 1157 (It is an Italian bank).
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• First Bank to begin permanent issue of bank notes – Bank of

England(1694)
• First Bank in India- Bank of Hindustan(1770)
• First Indian Bank open Branch outside India – Bank of India (London,
1946)
• First private bank in India – City Union Bank
• first Bank of India with Limited Liability to be managed by Indians-Oudh
Commercial Bank (1881)
• first joint stock bank in India- Allahabad bank (1865)
• First bank started with Indian Capital
• First indigenous bank in India … Punjab National Bank (1894)
• First Digital Bank - Digi Bank
• First computerised bank in India – Bank of India
• The first Bank get ISO Certificate – Canara Bank

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• First bank in India introduced cheque system - Bengal Bank
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• First Bank introduced Net Banking (internet banking) in India – ICICI
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• First Bank introduce Credit card in India – Central Bank of India

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• First payment Bank-Airtel Payments Bank

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• First small finance Bank – Capital Small Finance Bank

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• First Bank introduce ATM in India – HSBC 1987

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• First Mutual Fund in India- Unit Trust of India (UTI) -1963

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• First bank to introduce merchant bank in India- Grind lays Bank

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• First Indian bank to introduce merchant bank in India- SBI

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• First foreign Bank in India-Standard Chartered Bank

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• First RRB in India- Pradama Grameen Bank (sponsored by syndicate

Bank)
• Firs Bank introduce Mobile ATM – ICICI
• First floating ATM- SBI
 • First Talking ATM - Union Bank of India
• First collective Bank - Anyonna Co-operative Bank (Baroda 1889)
• First Bank in Kerala/ First Private Sector Bank in South India – Nedugadi
Bank (1899)
• First Bank introduced ATM in Kerala – British Bank of Middle East 1993
TVPM
• First Indian bank to get Green Bond Award of Britain – YES Bank
• First Green Field Bank licence awarded by RBI - YES Bank
• Voice Biometric ATM introduce Citi Bank, Bangalore

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• First Bank introduce Robot on Banking Service – Citi union Bank
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• First Bank introduce Electronic Pass Book – Federal Bank
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CONFUSING FACT!!
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• first joint stock bank in India- Allahabad Bank

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• First Indian managed joint stock bank with limited liability-- Oudh
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commercial bank
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• First purely commercial bank - Oudh commercial

• first commercial bank which was wholly owned and managed by Indians-
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central Bank of India

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• purely swadeshi Bank- central Bank of India

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• purely an 'Indian Bank' with Indian shareholders- Punjab National Bank

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• Oldest public sector bank still exist- PNB

Points to remember
• Modern Banking begins by English Gold Smiths
• Father of Modern Banking – Alexander Hamilton
• oldest public bank in Europe- Bank of Barcelona – 1401
• Bank of Amsterdam established in the year 1609
• Bank of England Came into existence by a special Royal Charter in the
year - 27th July 1694
• Oldest surviving bank in the world- ‘Banca Monte Paschi – di –
Siena’(1472- it is an Italian bank)
• Second Oldest Central bank- Bank of England
• Bank of England was established by William Patterson
• Old lady of Tread-Needle Street is the nick name of Bank England
• Oldest Public Sector Bank till exist PNB
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• Oldest Bank in India till exist SBI
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• Largest Bank in the world on the basis of Number of branches and ATM
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– HSBC
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• Largest bank in the world on the basis of asset – The Industrial And
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Commercial Bank Of China Ltd

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• Savings bank facility (SB A/C) introduced in India by Presidency Bank,

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1833
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• Union Bank was inaugurated by Gandhiji in 1919

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• PNB Established – Lajpat Rai in 1894

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• Co-operative Banks came within the regulations of the RBI. -1966

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 BANKING OMBUDSMAN
Banking Ombudsman
• Banking Ombudsman is for the purpose of redressal of
grievance of customers appointed by RBI for deficiency in
banking services
• Banking Ombudsman Scheme introduced in India in the year
14th June 1995.
• Banking Ombudsman Scheme is specified in Section 35A of the
Banking Regulation Act, 1949
• Banking Ombudsman is a quasi- judicial authority
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• The remuneration and other perquisites payable to a banking
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ombudsman will be determined by RBI from time to time.
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• The New Banking Ombudsman Scheme Came into force on

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January 1st 2006.

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• All Scheduled Commercial Banks, RRBs, Scheduled Primary

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Urban Co-operative Banks, Payments Bank, Small Finance

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Banks are coming under Banking Ombudsman Scheme.

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• The scheme also provided facility For online complaint

submission
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• There are 22 Banking Ombudsmen works in all over India. The

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Ombudsman has all power of a court.

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• The appellate authority vested with the Deputy Governor of

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RBI. The Banking Ombudsman doesn’t charge any fee

• The term of office of the Banking Ombudsman is 3 years
• Banking ombudsman shall be Chief General Manager or
General Managers of RBI
• Qualifications of Banking Ombudsman:
 • Should have experience in legal, banking, financial services,
public administration or management sectors
Committees relating to Banking Ombudsman
• Goi Poria Committee (Committee on Customer Service 1990).
Banking Ombudsman 1995 came into existence as per the
recommendation of Goi Puria Committee.
• Damodaran Committee 2010 (Committee on Customer Service
in Banks)
• Suma Verma Committee 2012 (To update the Banking
Ombudsman Scheme, 2006)
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• Ombudsman Scheme for Non-Banking Financial
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Companies,2018 Section 45L of the Reserve Bank of India Act,

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1934 and Ombudsman Scheme for Digital Transactions, 2019

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Section 18 of the Payment and Settlement Systems Act, 2007

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• Latest Amendment in Banking Ombudsman Scheme was made

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2021
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• Present Ombudsman scheme is known as “Integrated

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Ombudsman scheme 2021”, which was launched by PM

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Narendra Modi on 12.11.2021.

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Integrated Banking Ombudsman Scheme 2021(RB-IOS)

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Banking Ombudsman Scheme, 2006 Section 35A of the Banking

Regulation Act, 1949
Ombudsman Scheme for Non-Banking Financial Companies,
2018 Section 45L of the Reserve Bank of India Act, 1934
Ombudsman Scheme for Digital Transactions, 2019 Section 18 of the
Payment and Settlement Systems Act, 2007
Section 11 of the Credit Information Companies (Regulation) Act,
2005
Integrated Scheme was prepared on the basis of the
recommendations of the Committee (Internal Working Group) set up
by RBI to review the existing Ombudsman Schemes.
“One Nation One Ombudsman”
RBI’s Executive Director-in charge of Consumer Education and

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Protection Department would be the Appellate Authority under the
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integrated scheme.
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For redress of his grievance, the complainant must first approach the
concerned financial institution.
If the bank does not respond within a period of 30 days, rejects the
complaint or the complainant is not satisfied with the response , they
can complaint under the RB-IOS within one year
There is NO CHARGE OR FEE for a customer for filing or for resolving
the complaint.
The complaint should be made to the RBI Ombudsman not later than
ONE YEAR.
A person having grievance shall file a complaint with CRPC through;
Online portal([Link]), electronic mode(e-mail) or physical
mode
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CRPC – Central Receipts and Processing Centre, Chandigarh
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Now complaints are made to CRPC and CRPC will forward such
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complaints to concerned Ombudsman.

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There is no limit on the amount of disputed transaction that can be

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taken by the RBIOS

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The compensation of 20 lakh or lower are admissible under RB-IOS

In addition to that, the Ombudsman can also provide compensation
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up to 1 lakh for mental agony or harassment , loss of time , expenses.

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Types of Complaints
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Non-acceptance of small denomination notes or coins tendered or

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charging of commission in respect thereof;

Non-payment or delay in payment of inward remittances;
Failure to issue or delay in issue of drafts, pay orders or bankers'
cheques;
Non-adherence to prescribed working hours;
Failure to honour guarantee or letter of credit commitments;
Failure to provide or delay in providing a banking facility .
Refusal to open deposit accounts, without any valid reason for
refusal;
Levying of charges without adequate prior notice to the customer
Non-adherence by the bank to RBI instructions on ATM/Debit
card/credit card operations
Non-disbursement or delay in disbursement of pension (due to
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Refusal to accept or delay in accepting payment towards taxes, as

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required by RBI/Government;
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Forced closure of deposit accounts without due notice or without

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sufficient reason;
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Refusal to close or delay in closing the accounts, if requested by the

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customer;
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Non-adherence to the fair practices code adopted by the bank;

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For non-payment of cheques, draft, Bills or delay in it

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Complaint Filling in Banking Ombudsman Scheme

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For redress of his grievance, the complainant must first approach the
concerned financial institution. (Regulated Entity)
If the bank does not respond within a period of 30 days, rejects the
complaint or the complainant is not satisfied with the response, they
can complaint under the Banking Ombudsman, within 1 year
The Complaint Must have:
Name & Address of the Complainant and bank, documents,
Nature of complaint
Approaching the RBI Ombudsman without first lodging a complaint
with the RE or doing so before 30 days after lodging the complaint, if
there is no response from the RE, would make the complaint non-

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The Banking Ombudsman shall have the power to summon both the
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parties of the complaint

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The Banking Ombudsman shall endeavour to solve it through

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mediation, and if it compromises, he shall pass an order as per the

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terms of the settlement

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If the Complaint is not settled through mediation, within 1 month, he

shall pass ana award after providing opportunities for the parties to
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present their cases

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After passing the award , its copy is sent to the complainant and to
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the concerned bank, If the award is acceptable to the complainant he

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is required to send a letter of acceptance of award to the bank

concerned within 30 days from date of receipt of the copy of award.
If the bank is satisfied with the award, within a period of one month
from the date of receiving the Letter of acceptance, comply with the
award for settlement.
Either the parties, within 30 days of the receipt of the award shall
appeal against the award to the appellate authority, i.e. the Deputy
Governor.
The Banking Ombudsman may reject the complaint at any stage if is
satisfied to do so

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 BANKING
RTGS, NEFT
RTGS (Real Time Gross Settlement)
Real time : Real time means the processing of instructions at the
time they are received.
Gross Settlement : Gross settlement means that the settlement of
funds transfer instructions occurs individually.
• Introduced in March 26, 2004 by Reserve Bank of India.
• Minimum amount 2 lakh per transaction and no upper limit.
• RTGS settlement takes place in the books of the RBI.
• It process immediately, 24*7*365 Availability.
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The transaction charges have been Capped by RBI.
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Charges for RTGS transaction

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• With effect from July 01, 2019, RBI has waived the processing
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charges levied by it for RTGS transactions. Banks may pass on the

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benefit to its customers. There is a broad framework of charges

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has been mandated as under;

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a) Inward transactions – Free, no charge to be levied.

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b) Outward transactions – ₹ 2,00,000/- to 5,00,000/-: not

exceeding ₹ 25/- (exclusive of tax, if any)
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c) Above ₹ 5,00,000/-: not exceeding ₹ 50 (exclusive of tax, if any)

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• Banks may decide to charge a lower rate but cannot charge more
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than the rates prescribed.

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• In case of any delay in returning the failed payment, the

originating customer is eligible to receive compensation at current
repo rate plus 2%.
• Unique Transaction Reference (UTR) number is a 22-character
code used to uniquely identify a transaction in RTGS system.
• RTGS payments are final and irrevocable.
• RTGS system does not accept future value dated transactions.
• RTGS is primarily used for high value and time critical transactions
in India.
NEFT(National Electronic Fund Transfer)
• Introduced in November 2005 with working principle of Deferred
net settlement.
• Settled in batches of half an hour, It take maximum of 2 hrs,
24*7*365 Availability.
• NEFT SFMS ( NEFT Structured Financing Messaging Solution) is a
message containing a batch of NEFT payment instructions.
• Institute for Development and Research in Banking
Technology(IDRBT) act as clearing system of NEFT.
• No minimum or maximum limit prescribed by RBI but certain bank
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set limit for NEFT. Minimum of 1 rupee is needed to transfer fund.
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• Thera is no charges for Inward transactions.
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• Maximum charges which can be levied for outward transactions;

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✓ For transactions up to ₹ 10,000 : not exceeding ₹ 2.50 (+

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Applicable GST)
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✓ For transactions above ₹ 10,000 up to ₹ 1 lakh : not exceeding ₹

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5 (+GST)
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✓ For transactions above ₹ 1 lakh and up to ₹ 2 lakhs : not

exceeding ₹ 15(+GST)
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✓ For transactions above ₹ 2 lakhs : not exceeding ₹ 25 (+GST)

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✓ With effect from January 1, 2020, banks have been advised to

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not levy any charges from their savings bank account holders for
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NEFT funds transfers initiated online.

✓ If the transaction has failed / timed out / declined due to
technical reasons, Bank shall not bear any liability to
compensate.
✓ In other cases if amount credited or returned with in 2 hour
after settlement, bank will liable to compensate the customer at
RBI current repo plus 2%
 SWIFT
SWIFT (SOCIETY FOR WORLD WIDE INTER BANK FINANCIAL
TELECOMMUNICATION)
• Founded in 3rd may 1973 with Headquarters in Brussels.
• It is a co operative society under Belgian law.
• It provides network that enables financial institutions worldwide to send
and receive information about transactions in secure and reliable way.

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➢ Only American banks can hold US Dollar for international

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transactions.
➢ Every country in the world have bank account (NOSTRO)
in USA.
• It transports messages in a highly secure way but does not hold account
for its members.
• The code is approved by ISO(International Organisation for
Standardization).
• SWIFT / BIC(Bank Identifier code) is a 8-11 character code
• First 4 character : Bank code
• Next 2 character : Country code
• Following 2 character : City code
• Last 3 character : Branch code(This is
optional)
• All members paying a onetime joining fee and annual charges each year.

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• SWIFT Messaging format are MT 1xx, MT 2xx & MT 3xx.
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➢ MT 1 : Customer payment and cheques.
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➢ MT 2 : Financial Institution Transfers.

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➢ MT 3 : Treasury markets, Foreign Exchange, Money market &

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Derivatives.
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 NEW GENERATION BANKS E-BANKING PIN TAN
NEW GENERATION BANKS
• New Generation Banks are Private banks which were given
banking license
• in the mid-1990s with a precondition that all their operations
will be automated.
• After India adopt New Economic Policy 1991, RBI Issued
guideline for new generation banks on January 22, 1993.
• RBI receive 113 applications and out of which 10 were given
license to act as New Generation Bank. us
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• The above applications are reviewed by Sharad
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Marathe(Chairman of IDBI).
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• Global Trust bank known as first new generation bank in India.

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• Later Global trust bank merged in Oriental Bank of Commerce.

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• Another New generation banks Times bank & Centurion bank

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merged with HDFC.

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• In 2004, RBI licenced two more New generation banks : Kotak

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Mahindra Bank & YES Bank.

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• Currently 21 private sector banks works in India, out of which

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the New Generation Banks;

1. HDFC
2. ICICI
3. Indus land Bank
 4. Axis Bank
5. Kotak Mahindra Bank
6. Yes Bank
7. IDFC Bank
8. Development Credit Bank
9. Bandhan Bank.
E-BANKING / INTERNET BANKING
• Internet banking first introduced in 1980 by USA.
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• In India ICICI bank introduced E-Banking in 1998. City bank was
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the first bank to provide Net banking to High value customers
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in India.
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• Security methods are PIN(Personal Identification Number),

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TAN(Transaction Authentication Number) and DIGITAL

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Signature
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• PIN is password to login and TAN is one time password to

authenticate transactions
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• Digital signature is the newer, faster, better way of signing

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documents online. It’s a mathematical technique which

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validate authenticity, integrity and non-repudiation.

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• IT Act 2000, along with the subsequent amendments, provide

the legal framework for Digital Signatures in India.
• E-Banking also known as online banking, Neo banking, Virtual
banking etc.
E-PURSE & E-WALLET
• E-Purse is a type of smartcard with micro chip (Debit card,
Credit card)
• E-Wallet is an application installed in phone for financial
transactions and require internet connection (G pay, Phone
pay)
• E-Purse is chip based and E-Wallet is server based.

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 INNOVATIONS AND REFORMS
IN BANKING
E-BANKING / INTERNET BANKING
• E- banking is simply the use of electronic means to transfer funds directly from one account to another,
rather than by cheque or cash and provide other banking services online.

VARIOUS FORMS OF E-BANKING

i. INTERNET BANKING
ii. TELE BANKING
iii. SMART CARD
iv. E-CHEQUE:
v. AUTOMATED TELLER MACHINES (ATM)

INTERNET BANKING
• Internet Banking lets you handle many banking transactions via your personal computer.

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• For instance, you may use your computer to view your account balance, request transfers between
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accounts, and pay bills electronically.
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Features of Internet Banking

i. Check the account statement online.
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ii. Open a fixed deposit account.

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iii. Pay utility bills such as water bill and electricity bill.
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• Make merchant payments.

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• Transfer funds.
• Order for a cheque book.
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• Buy general insurance.

• Recharge prepaid mobile/DTH

TELE BANKING
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• Undertaking a host of banking related services including financial transactions from the convenience of
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customers chosen place anywhere across the GLOBE and any time of date and night has been made
possible by introducing on-line Telebanking services.
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• By dialing the given Telebanking number through a landline or a mobile from anywhere, the customer
can access his account and by following the user-friendly menu, entire banking can be done through
Interactive Voice Response (IVR) system
SMART CARD
• A smart card usually contains an embedded 8-bit microprocessor (a kind of computer chip). The
microprocessor is under a contact pad on one side of the card
• The chips in these cards are capable of many kinds of banking transactions
• Smart cards can also be used with a smart card reader attachment to a personal computer to
authenticate a user.

E-CHEQUE
• An e-Cheque is the electronic version or representation of paper cheque.
• The Information and Legal Framework on the E-Cheque is the same as that of the paper cheque’s
• An E-cheque work the same way a cheque does, the cheque writer "writes" the e-Cheque using one of
many types of electronic devices and "gives" the e-Cheque to the payee electronically

AUTOMATED TELLER MACHINES (ATM)

• An unmanned electronic machine in a public place, connected to a data system and related equipment
and activated by a bank customer to obtain cash withdrawals and other banking services.
• Internet banking first introduced in 1980 by USA.
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• In India ICICI bank introduced E-Banking in 1998. City bank was the first bank to provide Net
banking to High value customers in India.
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• Security methods are PIN(Personal Identification Number), TAN(Transaction Authentication Number)

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and DIGITAL Signature

• PIN is password to login and TAN is one time password to authenticate transactions
39 ar

• Digital signature is the newer, faster, better way of signing documents online.
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• Its a mathematical technique which validate authenticity, integrity and non-repudiation.

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• IT Act 2000, along with the subsequent amendments, provide the legal framework for Digital
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Signatures in India.

CORE BANKING
• CORE(Centralized Online Real-time Exchange) banking service provided by a group of
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networked bank branches where customers may access basic transactions from any of the member
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branch offices.
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• The network of bank branches is called CORE Banking Solutions (CBS).

• CBS allow customers to access and manage their accounts through different channels, such as internet,
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phone, ATM, or branch.

• The e-Kuber is the Core Banking Solution of the RBI which enables each bank to connect their single
current account across the country
key aspects of CBS
i. INFORMATION FLOW
ii. CUSTOMER CENTRIC
iii. REGULATORY COMPLIANCE
iv. RESOURCE OPTIMIZATION

components of CBS IT Environment.

i. Application Server
ii. Database Server
iii. ATM Channel Server
iv. Internet Banking Channel server
v. Internet Banking Application Server
vi. Web Server
vii. Proxy Server
viii. Anti virus software server

ECS (Electronic Clearing Service)

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• ECS is an electronic mode of payment / receipt for transactions that are repetitive and periodic in
nature.
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• ECS is used by institutions for making bulk payment of amounts towards distribution of dividend,
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interest, salary, pension, etc

• Primarily, there are two variants of ECS - ECS Credit and ECS Debit
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• ECS Credit is used by an institution for affording credit to a large number of beneficiaries (for instance,
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employees, investors etc.) having accounts with bank branches at various locations within the
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jurisdiction of a ECS Centre by raising a single debit to the bank account of the user institution.
• ECS Credit enables payment of amounts towards distribution of dividend, interest, salary, pension, etc.,
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of the user institution

• ECS Debit is used by an institution for raising debits to a large number of accounts (for instance,
consumers of utility services, borrowers, investors in mutual funds etc.)
• maintained with bank branches at various locations within the jurisdiction of a ECS Centre for single
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credit to the bank account of the user institution.

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• ECS Debit is useful for payment of telephone / electricity / water bills, cess / tax collections, loan
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installment repayments, periodic investments in mutual funds, insurance premium etc.

• There is no value limit on the amount of individual transactions that can be collected by ECS
• The Reserve Bank of India has deregulated the charges to be levied by sponsor banks from user
institutions.
• The sponsor banks are, however, required to disclose the charges in a transparent manner.
• With effect from 1st July 2011, originating banks are required to pay a nominal charge of 25 paise and
50 paise per transaction to the Clearing house and destination bank respectively.
 • Bank branches do not generally levy processing / service charges for debiting the accounts of
customers maintained with them.

EFT (Electronic Funds Transfer)

• Electronic Funds Transfer (EFT) banking is a convenient and secure way to move money electronically
between accounts.
• It eliminates the need for paper checks and allows for faster and more efficient transactions.
• EFTs are widely used for various banking operations, including direct deposits, bill payments, and
online transfers

EFT IN BANKING:
1. Direct Deposit:
• EFT enables employers to directly deposit employee salaries into their bank accounts.
2. Bill Payments:
• Online banking and mobile banking platforms use EFT to facilitate bill payments to various service
providers.
3. Online Transfers:
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• EFT allows users to transfer funds between their accounts and those of other individuals or businesses
via online banking.
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4. POS Transactions:
• Electronic funds transfers are used at point-of-sale (POS) terminals for debit and credit card payments.
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Examples of EFT in India:

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i. RTGS (Real-Time Gross Settlement): A high-value payment system for larger transactions.
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ii. NEFT (National Electronic Funds Transfer): A system for transferring funds between banks in India.
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iii. IMPS (Immediate Payment Service): A mobile banking service for instant money transfers.
iv. UPI (Unified Payments Interface): A mobile payment system for various transactions.
v. Credit and Debit Cards Transactions
vi. Online Payment Systems
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vii. The Automated Clearing House (ACH) network

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Mobile Banking (M-Banking)

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i. Mobile banking is a system that allows customers of a financial institution to conduct a number of
financial transactions through a mobile device such as a mobile phone or personal digital assistant.

FEATURES & BENEFITS OF MOBILE BANKING

a) Simplicity
b) Universality
• M-payments service must provide for transactions between one customer to another customer (C2C),
or from a business to a customer (B2C) or between businesses (B2B).
 c) Security, Privacy and Trust
d) Cost effective
e) Speed
f) Cross border payments

RETAIL BANKING
• Retail banking, also known as personal or consumer banking, refers to the banking services provided to
individual customers
• It encompasses a range of products and services designed for the general public to manage their
finances, including savings and checking accounts, loans, mortgages, credit cards, and other financial
products
• Retail banking provides financial services to individual consumers rather than large institutions.
• Services offered include savings and checking accounts, mortgages, personal loans, debit or credit
cards, certificates of deposit (CDs), and more.
• Retail banks can be local community banks or the divisions of large commercial banks.
• Today, many Fintech companies can provide all the same services as retail banks through internet

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platforms and smartphone apps. Pl
• While retail banking services are aimed at individuals in the general public, corporate banking services
are offered only to small or large companies and corporate bodies.
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Retail Banking vs. Corporate Banking

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• retail banking services are provided to individuals in the general public where corporate
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banking services are only offered to companies and corporate bodies.

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• The scope of the products and services available is also different: Retail banking is customer-oriented
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and corporate banking is business-oriented.

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