Bond or Debt

Bond market is also know as Debt market. A debt instrument is used by government

or organization to generate funds for longer duration. The relation between person

who invest in debt instrument is of lender and borrower .This gives no ownership

right .A person receives fixed rate of interest on debt instrument.

If any company or organization want to raise money for long term purpose

without diluting his ownership that it is know as Debentures. These are backed by security so there is no risk involves but return on these instrument is low as compared to shares .Company pay fixed rate of interest on debentures.

If government want to generate funds to meet long term needs like infrastructure it issue bonds know as sovereign bonds which are backed by government security so there is no risk

NARASIMHAM COMMITTEE

A high level committee on Financial System (CFS) was constituted by Government of India in 1991 to examine all aspects relating to structure, organization, function and procedures of the financial system under the Chairmanship of M. Narasimhan.

The Narasimham Committee’s recommendations aimed at

ensuring

 A degree of operational flexibility of the banks.

 Internal autonomy for Public Sector Banks in their decision making process.

 Considerable professionalism in banking operations.

The major recommendations of the (CFS) or Narasimham

Committee I were the following:

 The Banking supervision should be strengthened and its character must be drastically changed i.e., prudential regulations.

 The government accepted these recommendations and through the RBI issued guidelines for income recognition, asset classification and provisioning and adopted the Basel Capital adequacy standard.

 Establishment of a four tier hierarchy for the banking structure with 3 or 4 large Banks including State Bank of  India. At the top and Rural Banks at the bottom mainly engaged in financial agriculture and related activities.

 Phased achievement of 8% capital adequacy ratio as recommended by Basel Committee.

 Abolition of branch licensing policy.

 Competition among financial institutions which will adopt a syndicating or participating approach rather a consortium approach.

 Prudential guidelines should govern the functioning of financial institutions.