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Documente Cultură
THE INDIAN
FINANCIAL SYSTEM
LEARNING OBJECTIVES
Define system financial system
Say why to study financial system
Discuss the functions of financial system
Define, Classify financial assets
Define, Classify financial markets
List out the instruments of money market and capital market
Distinguish between money market and capital market
Give the structure of Indian financial intermediaries
Discuss the regulatory bodies RBI, SEBI, IRDA.
System
System is a set of inter-related components
working together to achieve some purpose
Financial System
Financial System
Shares
Commercial Banks
Merchant Banking
Money Market
Debentures / Bonds
Industrial Banks
Project
Commercial Paper (CPs)
Consultancy
Insurance Policies
Savers / Lenders
Flow of Funds
Householders
Funds Securities:
Business Firms
Shares/Bonds
Government
Foreigners
Deposits/Policies/Units Funds
S
e
c
Financial Institutions u Financial
Banks r Markets
Provident Funds Funds i F
Insurance Companies t u Money Market
Mutual Funds i Private n Capital Market
e d
NBFCs Placement Over-the-Counter
s s Market
Mode
Securities
Investors/Borrowers
Householders
Loans Business Firms
Government Fund
Foreigners s
Securities:
Funds Shares/Bonds
Financial Assets
Non-Marketable Marketable
Equity Preference
Shares Shares
Bonds
Debentures
Interest
Debt
Preference share
Equity share Dividend
Price information
Marketability/Liquidity
Reduction of Transaction cost
Promotes savings and investments
Financial Instruments
Financial Intermediaries
FIs that act as bridge between savers and investors and provides
needed funds to investors
Example:
Banks
NBFCs
Specialised
Financial
Institutions Exim
Bank, IFCI Venture Capital Public Sector
Funds Insurance
Companies
Refinance
Institutions
NABARD, NHB
NBFCs
Regulatory Institutions
RBI
SEBI
IRDA
NABARD
NHB
RBI Contd..
It acts as the custodian of the foreign reserves;
It formulates and implements monetary and credit policies;
It moderates the fluctuations in the exchange value of the rupee.
b) Developmental Functions:
The prime developmental function is to integrate the unorganized
financial sector with the organized financial sector;
It encourages opening of semi-urban and rural branches;
It provides education and training to banking personnel of commercial
and co-operative banks;
It influences the allocation of credit;
It promotes the collection pooling and dissemination of credit
information among banks;
It promotes the establishment of new institutions.
Objectives
The SEBI has been entrusted with both the regulatory and
developmental functions.
The following are the objectives of SEBI:
Investor protection with a view to get steady flow of savings into capital
market;
Ensuring fair practices by the issues of securities by which corporations
can raise resources of least cost;
Promotion of efficient services by brokers, merchant bankers, and other
intermediaries with a view to make them competitive and professional;
Development and regulation of securities market.
SEBI Contd..
Functions
a) Regulatory Functions
Registration and Regulation of capital market
intermediaries (Brokers, sub-brokers, and other players in
the market);
Register and regulate the working of venture capital
funds and Collective Investment Schemes including
mutual funds;
Regulate the business in Stock Exchanges and any other
securities market;
Promoting and regulating Self Regulatory Organisations
(SRO);
Prohibition of all fraudulent and unfair trade practices
relating to securities market;
Prohibition of insider trading and takeover bids and
imposing penalties for such practices;
SEBI Contd..
Registering and regulating the working of depositors,
custodians of securities, FIIs, credit rating agencies;
Regulating substantial acquisition of shares and takeover
of companies.
Development Function of SEBI is to promote investors
education, training intermediaries and conduct research
and publish information
b) Developmental Functions
Promote investors education;
Training of intermediaries;
Promotion of fair practices and code of conduct for all
SROs
Conduct research and publishing information useful to all
market participants.
Insurance Regulatory
Functions Development Authority
To exercise all powers and functions of controller of insurance;
Protection of the interests of the policyholders;
To issue, renew, modify, withdraw or suspend certification of registration;
To specify requisite qualifications and training for insurance intermediaries and agents;
To promote and regulate professional organisations connected with insurance;
To conduct inspection / investigations etc.;
To regulate investment of funds and margins of solvency;
To prescribe method of insurance accounting;
To adjudication upon disputes;
To conduct inspection and audit of insurers, intermediaries and other organisations
concerned with insurance.