COMPARISION OF USA 1)Political- India has been

 COMPARISIONBETWEEN INDIAN AND USA CAPITAL MARKET-           CAPITAL MARKET OF INDIA            CAPITAL MARKET OF USA 1)Political-   India has been politically instable in the past but it is little stable now a days. This political instability has a very strong impact on the capital market. The share market of India changes as the political changes took place. 1)Political-   Political state of USA is very stable when compared to India. Trading in USA is done on hard facts instead of speculations as we did. 2)Economical-   Whenever the annual budget is announced the capital market goes up and down with the economic policies of the government. If the policies are supportive to the company then the capital market takes it positively and if there is any other policy that is not supportive and it is not welcomed then the capital market goes down. 2)Economical-   The economic factors of any country are very important for the capital market of that country and USA is no exception.

Example- The Great Depression of 1931. 3)Social-   India is socially rich but the capital market is not very attached with the social factors. If there is any big social factor then up to some extent if affects the capital market.   3)Social-   They almost don’t affect the capital market in USA. They are less emotionally attached to each other in terms of business. 4)Technological-   India is technological backward country.

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Same as social factors, technological factors can have an effect on the individual form but it cannot have a big impact on the whole market.   4)Technological-   It is technologically developed country and companies spend a lot of money on the R & D of any product. Any new technological improvement in the industry will see a growth in the capital market.   5)Environmental-   Earlier these factors were not considered but the time has changed and people are more eco-friendly. An increasing number of people, investors, and corporate executives are paying importance to these factors, the capital markets still see the environment as liability.

  5)Environmental-   Capital markets believe it is of no use for their strategy. The environmental factors are even under-valued by the markets.   6)Legal-   These factors play an important role and sustain the capital markets.

Legal issues relating to any industry or firm decides the fate of the capital market. If the government of India or parliament introduces a new law that can affect the running of the industry then the industry will be demotivated and this demonization will lead the demonization of the investors and will result in the fall of capital market. 6)Legal-   Most important factor that effects the capital market. It encourages or discourages investors depending upon the nature of law passed.

Like after doom of LEHMAN BROTHERS, USA government provided them funds and passed a new law. This helped investors to regain faith in the capital market and the investment was increased.       INDIAVS USA (ECONOMY STATS)-       S.No.          PARAMETER             INDIA               USA 1) Revenue $172.

10 billion Ranked 23rd   $2.45 trillion Ranked 1st 14 times more than India 2) Government Debt 49.6 CIA Ranked 64th   72.5 CIA Ranked 36th 46%  more than India 3) Exports $301.9 billion Ranked 19th   $1.

56 trillion Ranked 5th 5 times more than India 4) GDP $1.84 trillion Ranked 11th   $15.68 trillion Ranked 2nd 9 times more than India 5) Gross National Income $477 billion Ranked 12th   $9.78 trillion Ranked 1st 21 times more than India     6) Population below poverty line 29.8% Ranked 19th 97% more than United States   15.1% Ranked 34th   7) Unemployment Rate 8.

5% Ranked 46th 5% more than United States 8.1% Ranked 47th  All these factors havea great impact on Capital markets as explained above in the table. The abovedata show that we are far behind than United States in most of the aspects.This has an adverse effect on the Indian Capital markets and effect the same ina huge way.        CHALLENGESFINANCIALINCLUSIONThere havebeen some recent reports of malpractices with respect to Jan Dhan accounts.

Inthis context, it may be interesting to know the grass-root level challengesthat are impacting financial inclusion.In India,where nearly one-fourth of population is illiterate and below the poverty line,ensuring financial inclusion is a challenge. The two indicators, poverty andilliteracy, vary widely between different States in India.

Rural poverty isabove 30 per cent of population in places such as Assam, Bihar, Madhya Pradesh,Uttar Pradesh, Orissa, Jharkhand, Chhattisgarh, and Manipur. Rural poverty canbe attributed to lower farm income, lack of sustainable livelihood, lack ofskills, under employment and unemployment. Thus, ensuring deposit operations inthese accounts is a challenge.REASON BEHIND FRAUD?? India hasa literacy rate of 73 per cent with some States such as Bihar, Uttar Pradesh,Jharkhand, Madhya Pradesh and Rajasthan where the literacy rate ranges between62 per cent and 70 per cent. The banks have devised ways to address limitationsarising out of illiteracy by ensuring biometric access to bank accounts.However, Aadhaar seeding implies that some numericals have still to be punchedin the machine to operate an account. As all the numerals are in English, onlythe banker or the business correspondent (BC) can punch in the Aadhaar number.Similarly, the messages that are received on mobile phones from banks are alsoin English and therefore the illiterate person has to seek someone’s assistanceto understand and interpret the message.

In each ofthe above cases, the privacy of an individual’s bank balance is breached. Thismakes the illiterates, and population confined at home – females and elderly –vulnerable to malpractices. There are also anecdotes that enterprising BCs, toensure ease of business, give the same Personal Identification Number (PIN) toall the residents in a single village. This can further compromise privacy andcause embarrassment to the authorities when direct benefit transfers throughbank accounts are implemented on a larger scale. Therefore, a financialinclusion strategy sensitive to regional, demographic and gender relatedfactors, needs to be carefully crafted.Further,it needs to be considered that why despite extensive efforts from authorities,the Prime Minister’s Jan Dhan Accounts (PMJDA) have underperformed. This couldbe, in addition to poverty and illiteracy, due to the type of products beingoffered to the unbanked population.

Illustratively, recurring deposits areproducts which are more suitable to the salaried income group rather thanpeople in informal sector whose incomes are uncertain, seasonal and unplanned.  OPENING OPERATIONAL ACCOUNTS- In theopening of PMJDA, mainly public sector banks (PSBs) rose to the occasion inensuring that every unbanked household had a bank account. Now that 25 crorePMJDAs have been opened in the last two years, a feat unparalleled in historyof financial inclusion, it needs to be considered whether is it also theresponsibility of the PSBs to ensure that these are operational.Theopening of PMJDA was a mammoth task, as in March 2014 just before PMJDA, totalaccounts on books of commercial banks were around 1 lakh crore. As can beimagined, given the limited resources in banking sector, opening of such largenumber of PMJDA within 24 months in far flung areas diverted the attention ofbankers from their principal activity of mobilizing resources and lending toreliable borrowers.The nextchallenge is monitoring existing borrower accounts. Therefore, to ensure thatthe banking industry is robust and existing banking assets safe, given thatheavy lifting has been done by PSBs, should the newly opened PMJDA in ruralareas and some in urban too, in a sequentially planned manner be moved to ruraland urban cooperatives?Further,at present, there are a number of regulatory authorities that have a role toplay in financial inclusion – Reserve Bank, National Bank for Agriculture andRural Development (NABARD), Securities and Exchange Board of India, SmallIndustries and Development Bank of India, and MUDRA bank.

There is a need tofix responsibility on a single regulatory authority to ensure that JDAs areoperational. In this context, given that NABARD has an extensive presenceacross the country and was formed for the purpose of development of agricultureand rural areas, it should be made the nodal and accountable agency forfinancial inclusion. NABARD may not have the existing capacity, as of now, toaccept the challenge but can certainly be prepared in a phased manner in nextfew years. It has been investing in modernizing, and infusing technology incooperative institutions.INFLUENCE FORMED BY MONEYLENDERS- There isalso need for further research on why the moneylender despite persistentefforts by institutions in formal sector has continued to flourish in thefinancial market. Money lenders continue to account for nearly 30 per cent oftotal banking business. This then gives rise to an interesting relatedquestion: do interest rates matter?In moderntimes, if interest rate matters, why do people prefer to go to moneylenders,despite a network of banks, cooperatives, MFIs and SHGs? Is it simply due toease of doing business or some other factors? This is one area which requiresgrass-root level research. One of themain reason behind this activity is the illiteracy prevailing in India.

Peoplein remote parts of India are incapable in analyzing the harmful effects oftaking money from the moneylenders. Ideally it is a matter of concern theentire economic development of the country and it also promotes illegalactivities on a large scale.   CHALLENGES FACED IN THE E-BANKING SECTOR –SecurityRisk- The problem related to the security has become oneof the major concerns for banks. A large group of customers refuses to opt fore-banking facilities due to uncertainty and security concerns. TheTrust Factor- Trust is the biggest hurdle to onlinebanking for most of the customers. Conventional banking is preferred by thecustomers because of lack of trust on the online security. They have aperception that online transaction is risky due to which frauds can take place.CustomerAwareness- Awareness among consumers about thee-banking facilities and procedures is still at lower side in Indian scenario.

Banks are not able to disseminate proper information about the use, benefitsand facility of internet banking Privacyrisk- The risk of disclosing private information &fear of identity theft is one of the major factors that inhibit the consumerswhile opting for internet banking services. Most of the consumers believe thatusing online banking services make them vulnerable to identity theft. Strengtheningthe public support- In developing countries, in thepast, most e-finance initiatives have been the result of joint efforts betweenthe private and public sectors. If the public sector does not have thenecessary resources to implement the projects it is important that jointefforts between public and private sectors along with the multilateral agencieslike the World Bank, be developed to enable public support for e-financerelated initiatives. Availabilityof Personnel services- In present times, banks are toprovide several services like social banking with financial possibilities,selective up gradation, computerization and innovative mechanization, bettercustomer services, effective managerial culture, internal supervision andcontrol, adequate profitability, strong organization culture etc. Therefore,banks must be able to provide complete personnel service to the customers whocome with expectations.

Implementationof global technology- There is a need to have anadequate level of infrastructure and human capacity building before thedeveloping countries can adopt global technology for their local requirements.In developing countries, many consumers either do not trust or do not access tothe necessary infrastructure to be able to process e-payments. Non-Performing Assets (NPA)- Nonperforming assets are anotherchallenge to the banking sector. Vehicle loans and unsecured loans increasesN.P.

A. which terms 50% of banks retail portfolio was also hit due to upwardmovement in interest rates, restrictions on collection practices and soaringreal estate prices. So that every bank have to take care about regularrepayment of loans. Competition-The nationalized banks and commercial banks have the competition from foreignand new private sector banks. Competition in banking sector brings variouschallenges before the banks such as product positioning, innovative ideas andchannels, new market trends, cross selling ad at managerial and organizationalpart this system needs to be manage, assets and contain risk.   HandlingTechnology- Developing or acquiring the righttechnology, deploying it optimally and then leveraging it to the maximum extentis essential to achieve and maintain high service and efficiency standardswhile remaining cost effective and delivering sustainable return toshareholders.

Early adopters of technology acquire significant competitiveadvances Managing technology is therefore, a key challenge for the Indianbanking sector.ChallengesFaced with regard to convergence with IFRS-There are number ofchallenges that India is likely to face with regard to convergence with IFRS.Convergence with IFRS is not only just technical exercise but also involvesoverall changes in not only the perspective, but also the very objective ofaccounting in the country.

Despite of the various benefits of adopting IFRS,implementation of IFRS is a herculean task in India. Following are a fewchallenges faced during adoption and implementation of IFRS-Interactionbetween Legislation and Accounting- There are concernsabout the compatibility of Indian laws with IFRS in certain matters pertainingto accounting, such as formats and presentation requirements. Similarly, thereis uncertainty over tax treatments of items arising from convergence such asunrealized gains and losses and the move from a tax basis for depreciation(IGAAP) to one of useful economic life (IFRS). Issueof GAAP Reconciliation- Securities Exchange Commission(SEC) laid out with two options in its proposal, firstly calling for thetraditional IFRS first time adoption process, secondly requiring that step plusan on-going unaudited reconciliation of the financial statements from IFRS toUS GAAP. Clearly the second one is a more costly approach for firms and itsusers. EfficientFinancial Reporting Processes- Although many Indiancompanies have still not thought about the impact on their information systems.

These will require a fundamental review and initial costs could be significant.At the same time, it is important to have in place sound systems in order toensure that subsequent generation of reporting information is efficient. Taxation-The convergence of IFRS in India will not only affect the Financial Statementsbut also the tax liabilities would also get changed. Present scenario, IndianTax laws do not recognize the Accounting Standards. To entertain immediatechange in the Indian Tax Law is the major challenge faced by the Indian Lawmakers. Re-negotiationof Contract- The contracts would have to bere-negotiated which is also a big challenge. This is because the financialresults under IFRS are likely to be very different from those under the IndianGAAP.

     PROBLEMSPERTAINING DUE TO CYBER THFREATS- An estimated 95% of transactions in India are paid for in cash butwith the growing penetration of computers and smartphones, and increasingaccess to the internet, Indians are taking to digital channels for theirbanking needs. Cybercrime is becoming a greater threat as a result.The FSR labeled cyber-attacks as a high-risk zone for India’s bankingsector. The RBI classifies bank fraud as transactions involving any cheating,negligence, misappropriation of funds, or forged documents.”Not only simple attacks using phishing, vishing and socialengineering, but also increasingly audacious attacks by organized gangs with orwithout backing by state players have come to light,”.The clamor to secureIndia’s banking system increased following a massive data breach of 3.2million debit and credit cards last year, one of the biggest attacks inthe country.

Another red flag was the recent global ransom ware attack that affected the computersystems of governments and several companies in various countries, includingIndia.Recommendation-The RBI recommendedthat banks invest in preventive software and frequently assess the risks athand, not just for in-house operations but also for the external vendors thatthe lenders employ. RECENTREFORMS IN THE INDIAN FINANCIAL SYSTEM-Financialsector reforms refer to the reforms in the banking system and capital market.

Majoraim of the financial sector reforms are to allocate the resources proficiently,increasing the return on investment and hastened growth of the real sectors inthe economy. The majorreforms relating to the banking system are-ü Capital base of the banks werestrengthened by recapitalization, public equity issues and subordinated debt.ü Prudential norms were introduced andprogressively tightened for income recognition, classification of assets,provisioning of bad debts, marking to market of investments.ü Pre-emption of bank resources by thegovernment was reduced sharply.

ü New private sector banks werelicensed and branch licensing restrictions were relaxed.  Similarly,several operational reforms were introduced in the area of credit policy-ü  Detailed regulations relating to Maximum Permissible BankFinance were abolished.ü  Consortium regulations were relaxed substantially.

ü  Credit delivery was shifted away from cash credit to loanmethod.  


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