SEBI GRADE A SYLLABUS

Finance
1) Financial System - a) Role and Functions of Regulatory bodies in Financial Sector.
2) Financial Markets - a) Primary and Secondary Markets (Forex, Money, Bond, Equity, etc.),
functions, instruments, recent developments.
3) General Topics
a) Basics of Derivatives: Forward, Futures and Swap
b) Recent Developments in the Financial Sector
c) Financial Inclusion- use of technology
d) Alternate source of finance, private and social cost-benefit, Public-Private
Partnership
e) Direct and Indirect taxes; Non-tax sources of Revenue, GST, Finance
Commission, Fiscal Policy, Fiscal Responsibility and Budget Management Act
(FRBM),
f) Inflation: Definition, trends, estimates, consequences, and remedies (control): WPI,
CPI - components and trends.
 Financial Inclusion

Savings Loan

Pension Insurance

Financial Inclusion is the delivery of financial services at an affordable cost to the

vast sections of the disadvantaged and low-income groups, providing them with
timely and adequate access to financial products and services. Simply, Financial
inclusion is to provide financial services to poorest of the poor.
 Financial Inclusion by Government
1.Savings

Jandhan account ensures access of various financial services to the excluded

sections i.e. weaker sections & low income groups at an affordable
cost and using the technology for the same.
Financial Literacy Program for promoting savings, use of ATMs, using basic
mobile phones for banking, etc.
Basic Savings Bank Accounts with OverDraft (OD) Facility of Rs. 10,000/- to
every household
•Creation of Credit Guarantee Fund for providing banks some guarantee
against defaults.
Free accidental insurance cover on RuPay cards of 2 lakh for PMJDY accounts
opened after August 2018.
Jan Dhan-Aadhar-Mobile (JAM) Trinity
The combination of Aadhaar, PMJDY, and a surge in mobile communication has reshaped
the way citizens access government services. By significantly changing the concept of
individual identity, Aadhaar has not only brought about a secure and easily verifiable
system but also easy to obtain as well to help in the financial inclusion process.
2.Loan

Pradhan Mantri Mudra Yojana was launched by the government in 2015 for
providing loans up to Rs. 10 lakh to the non-corporate, non-farm and small/micro-
enterprises.
MUDRA, which stands for Micro Units Development & Refinance Agency Ltd., is a
financial institution set up by the Government. It provides funding to the non-corporate
small business sector through various last-mile financial institutions like Banks, Non-
Banking Financial Companies (NBFCs) and Micro Finance Institutions (MFIs).
MUDRA does not lend directly to micro-entrepreneurs/individuals.
Shishu covers loans up to Rs. 50,000.
Kishore covers loans above Rs. 50,000 and up to Rs. 5 lakh.
Tarun covers loans above Rs. 5 lakh and up to Rs. 10 lakh.

It was launched in April 2016 to promote entrepreneurship at the grass-root

level focusing on economic empowerment and job creation. This government
initiative aims to leverage the institutional credit structure to reach out to the
underserved sector of people such as SCs, STs and Women Entrepreneurs.
This scheme is to facilitate bank loans between Rs.10 lakh and Rs.1 crore for setting
up a Greenfield enterprise.
 Financial Inclusion by Government
3.Insurance

50 yrs
330
PMJJBY is a life insurance scheme.
The age limit for PMJJBY is minimum
18 years and maximum 50 years.
70 yrs
12
PMSBY is an accidental insurance scheme.
The age limit for PMSBY is minimum 18
years and maximum of 70 years.

The annual premium for PMJJBY is The annual premium for PMSBY is Rs 12
Rs 330.
4.Pension

The scheme was launched on 9th May, 2015, with the objective of creating a
universal social security system for all Indians, especially the poor, the under-
privileged and the workers in the unorganised sector.
Any citizen of India can join the APY scheme. The age of the subscriber should be
between 18-40 years. It provides a minimum guaranteed pension ranging from Rs
1000 to Rs 5000 on attaining 60 years of age.
 Financial Tripod
Demand Financial Education

Supply
Financial Inclusion Financial Stability

Financial education, financial inclusion and financial stability are three elements of
Financial Tripod. While financial inclusion works from supply side of providing
access to various financial services, financial education feeds the demand side by
promoting awareness among the people regarding the needs and benefits of
financial services offered by banks and other institutions. Going forward, these two
strategies promote greater financial stability.
 Financial Inclusion by RBI
Sadhan Kumar (2011) worked out an Index on financial inclusion (IFI) based on three
variables namely penetration (number of adults having bank account), availability of
banking services (number of bank branches per 1000 population) and usage
(measured as outstanding credit and deposit).

Basic Saving Bank Deposit (BSBD)

RBI advised all banks to open Basic Saving Bank Deposit (BSBD) accounts with
minimum common facilities such as no minimum balance, deposit and withdrawal of
cash at bank branch and ATMs, receipt/ credit of money through electronic payment
channels, facility of providing ATM card.
Relaxed and simplified KYC norms to facilitate easy opening of bank accounts,
especially for small accounts with balances not exceeding Rs. 50,000 and aggregate
credits in the accounts not exceeding Rs. one lakh a year.
 Financial Inclusion by RBI
Compulsory Requirement of Opening Branches in Un-banked Villages, banks are
directed to allocate at least 25% of the total number of branches to be opened
during the year in un-banked (Tier 5 and Tier 6) rural centers.
Bank correspondents
Bank Correspondents are retail agents who represent banks and are responsible
for delivering banking services at locations other than a bank branch/ATM. BCs
support banks in providing its limited range of banking services at affordable cost.
Thus, they are pivotal in promoting financial inclusion.
The Aadhar-enabled payment system (AEPS) enables an Aadhar enabled bank
account (AEBA) to be used at any place and at any time, using micro ATMs.
The payment system has been made more accessible due to offline
transaction-enabling platforms, like Unstructured Supplementary Service Data
(USSD), which makes it possible to use mobile banking services without
internet, even on a basic mobile handset.
 Financial Inclusion by RBI
Issuing Kisan Credit Cards (KCC)

Increasing the number of automated teller

machines (ATMs)
Public and private sector banks had been advised to submit board approved
three year Financial Inclusion Plan (FIP) starting from April 2010.
These policies aim at keeping self-set targets in respect of rural brick and mortar
branches opened, BCs employed, coverage of un-banked villages with population
above 2000 and as well as below 2000, BSBD accounts opened, KCCs issued and
others. RBI has been monitoring these plans on a monthly basis.
Licensing of new types of Banks like payments and small finance banks will
give further fillip to financial inclusion efforts in our country.
Informal and Cash-Dominated Economy

India is the heavily dominated cash economy, this poses a challenge for
digital payment adoption.

Digital Divide
Lack of skills among the stakeholders to use digital services, infrastructural issues
and low-income consumers who are not able to afford the technology required to
access digital services are some of the reasons for digital divide.
Higher operative costs for banks
The Jan Dhan scheme has resulted in the opening of many dormant accounts
which never saw actual banking transactions. All such activities incur costs on the
institutions, and thus, huge operative costs only proved to be detrimental to the
actual objective.
Lack of Credit Penetration
One of the main constraints in providing credit to low-income households and
informal businesses is the lack of information available with formal creditors to
determine their credit worthiness. This results in a high cost of credit.
Leveraging JAM Trinity
Technology should be used to improve the assessment of credit-worthiness for
households and informal businesses. With the adoption of appropriate technology
a new data-sharing framework (using Jan Dhan and Aadhaar platforms), to enable
easier access to credit.
Reviving Banking Correspondent Model
Given the infeasibility of locating branches in every nook and corner of the
country, bank correspondents are used to reach out to prospective clients.
However, an inadequate compensation structure makes correspondent banking
unattractive. Thus, there is a need to create better monetary incentives for
banking correspondents as well as to provide them better training.

Promoting USSD for Rural Areas

Payments through the USSD channel should be promoted (by reimbursing the charges
incurred in the USSD process), as they have an advantage over the internet in that it
can also cover a large proportion of non-smartphone users. In India, USSD can be
particularly useful in rural areas where some segments still do not have reliable
access to the internet.
Need For Data Protection Regime
In addition to greater digitization, there is also a need to strengthen cyber
security and data protection regime in the country.
Alternate
source of
Finance
Crowdfunding is a way of raising money to finance projects and businesses. It enables
fundraisers to collect money from a large number of people via online platforms.

Peer to Peer (P2P) Lending

P2P lending is a method of debt financing enabling individuals and companies to lend
and borrow money through an online platform instead of making use of a traditional
bank as an intermediary. Because the loans are split up in minor parts, many
different agents can finance the loan. P2P lending is also known as marketplace
lending. For this the platforms charges a fee from both the lender and borrower.
RBI Now Regulates Peer to Peer Platforms and they are categorized as NBFCs . The
Reserve Bank of India has kept the limits imposed on peer-to-peer lenders to ₹50 lakh.
The limit is the total amount of money any investor can invest across all P2P platforms.
 A lease is defined as an agreement between the lessor (owner of the asset) and the
lessee (user of the asset), wherein, the lessor purchases an asset for the lessee and
allows him to use it in exchange of periodic payments called lease rentals. The
lessee is bound to pay the lease rental to the lessor for the use of assets. It is just
like renting of an asset for certain period of time.
Financial Lease
Financial leasing is a contract involving payment over a longer period. It is a long-
term lease. It is irrevocable. In this type of leasing the lessee has to bear all costs
and the lessor does not render any service.
Operating Lease
In an operating lease, the lessee uses the asset for a specific period. The lessor bears
the risk of obsolescence and incidental risks. There is an option to either party to
terminate the lease after giving notice. This kind of lease is preferred where the
equipment is likely to suffer obsolescence.
Factoring is a financial transaction and a type of debtor finance in which
a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at
a discount. In this purchase, accounts receivable are discounted in order to allow the
buyer to make a profit upon the settlement of the debt. Factoring therefore relieves the
first party of a debt for less than the total amount providing them with working capital to
continue trading, while the buyer, or factor, chases up the debt for the full amount and
profits when it is paid.

In recourse factoring, if your customer does not pay your factored invoices for any
reason, you are responsible to make the factor whole. That is, you must repay the
factor for the advance you received plus the factoring discount owed on date of the
“chargeback.” There is no debt protection under this type of service.
 In non-recourse factoring, if your customer does not pay due to insolvency or
bankruptcy – in other words, your customer can’t pay your invoices – the factor does
not need to be made whole by you, since you are factoring “without recourse.” The
factor simply absorbs the loss.

Forfaiting is a factoring arrangement used in international trade finance

by exporters who wish to sell their receivables to a forfaiter. Forfaiting is the purchase of
an exporter’s receivables at a discount by paying cash. The purchaser of the receivables,
or forfaiter, must now be paid by the importer to settle the debt.
A franchise is a type of license that a party (franchisee) acquires to allow them to
have access to a business’s (franchisor) proprietary knowledge, processes, and
trademarks in order to allow the party to sell a product or provide a service under the
business’s name. In exchange for gaining the franchise, the franchisee usually pays the
franchisor an initial start-up and annual licensing fees.

An angel investor (also known as a private investor, seed investor or angel funder) is
a high net worth individual who provides financial backing for
small startups or entrepreneurs, typically in exchange for ownership equity in the
company. The funds that angel investors provide may be a one-time investment to
help the business get off the ground or an ongoing injection to support and carry the
company through its difficult early stages.
A venture capitalist (VC) is a private equity investor that provides capital to companies
exhibiting high growth potential in exchange for an equity stake. This could be
funding startup ventures or supporting small companies that wish to expand but do not
have access to equities markets. Venture capitalists are willing to risk investing in such
companies because they can earn a massive return on their investments if these
companies are a success.

Difference
Angel investors are rich persons who invest their own money in companies. Venture
capitalists are employees of risk capital companies who invest other persons’ money in
companies.
 Private costs for a producer of a good, service, or activity include the costs the
firm pays to purchase capital equipment, hire labor, and buy materials or other
inputs. Private costs are paid by the firm or consumer and must be included in
production and consumption decisions.

External costs, on the other hand, are not reflected on firms’ income statements or
in consumers’ decisions. However, external costs remain costs to society, regardless
of who pays for them. Consider a firm that attempts to save money by not installing
water pollution control equipment. Because of the firm’s actions, cities located
down river will have to pay to clean the water before it is fit for drinking and the
fishing industry may be harmed.
Social costs include both the private costs and any other external costs to
society arising from the production or consumption of a good or service.

Private Costs + External Costs = Social Costs

Private benefits are the benefits to people who buy and consume a good. External
benefits are the benefits to a third party, someone who is not the buyer or the seller.

Social benefits are the total benefits to the society, arising from an economic activity.
They include both private and external benefits. Again, where social benefits are
greater than private benefits, external benefits exist
Social benefit = Private benefit + external benefit
 Public Private Partnership

A public-private partnership (PPP) involves the private sector in aspects of the provision of
infrastructure assets or of new or existing infrastructure services that have traditionally
been provided by the government. While there is no single definition of PPPs, they broadly
refer to long-term, contractual partnerships between the public and private sector agencies,
specifically targeted towards financing, designing, implementing, and operating
infrastructure facilities and services that were traditionally provided by the public sector.
Public
Private
Partnership
Under Design build model, the government contracts with a private partner to design
and build a facility in accordance with the requirements set by the government. After
completing the facility, the government assumes responsibility for operating and
maintaining the facility. This method of procurement is also referred to as Build-
Transfer (BT).

Design Build Maintain (DBM) model is similar to Design-Build except that the private
sector also maintains the facility. The public sector retains responsibility for
operations.
Under Design Build Operate (DBO) model, the private sector designs and builds a
facility. Once the facility is completed, the title for the new facility is transferred to
the public sector, while the private sector operates the facility for a specified
period. This procurement model is also referred to as Build-Transfer-Operate (BTO).

Design Build Operate Maintain (DBOM) model combines the responsibilities of design-
build procurements with the operations and maintenance of a facility for a specified
period by a private sector partner. At the end of that period, the operation of the facility
is transferred back to the public sector. This method of procurement is also referred to
as Build Operate-Transfer (BOT).
BOT Toll Model: The road developer constructs the road and is allowed to recover his
investment through toll collection till 30 years. Therefore, no government payment in
this case. Here, all the risks- land acquisition and compensation risk, construction risk
(i.e risk associated with cost of project), traffic risk and commercial risk lies with the
private party. The private party is dependent on toll for its revenues. The government
is only responsible for regulatory clearances.

In this model, the private player build, maintain and operate the road projects while
government pays each year (annually) the private player a fixed amount of annuity for
the term of contract. The private party recovers all the costs which it incurred for
building, maintaining and operating the road project from the annual annuity amount
paid by the government. It is obvious that there is no commercial and traffic risk to the
private party as was the case with BOT- TOLL model.
However in BOT Annuity model risk associated with cost of project is there.

Engineering, Procurement and Construction (EPC) model was brought in, where all
(100%) money or cost to build the road is provided by the government including that
for land acquisition and rehabilitation of people affected by project. Private
developers will only design and build fixed length of stretches and leave
after completing their part of work handing the road to the government, which then
maintains and operates the road by collecting toll or otherwise.
The HAM is a mix EPC and BOT- ANNUITY model, with the government and the
private companies sharing the total project cost in the ratio of 40:60 respectively.
Apart from 60% project cost, the private player will also build the road and on
completion will hand it over to the government. The government shoulders the
responsibility of revenue collection (by toll). The government will then pay the
fixed amount of annuity annually to the private player for the defined period (10 or
20 years) as per the contract.