INTRODUCTION TO

INDIAN FINANCIAL
SYSTEM
 FORMAL AND INFORMAL FINANCIAL
SECTOR
Formal financial sector is characterized by the
presence of an organized, institutional and
regulated system.

Informal financial sector is an unorganized

,non- institutional, and non- regulated system
dealing with the traditional and rural spheres of
the economy.
Components of the Formal Financial
System

Financial Institutions
Financial Markets
Financial Instruments
Financial Services
 Financial Institutions
Banking Institutions: Participate in the
economy's payment mechanism, deposit
liabilities constitute a major part of national
money supply.
Non-Banking Institutions: LIC, SIDBI,
IIBI, IFCI ( All India Financial Institutions),
SFCs & SIDCs
 Financial Markets
Primary ( Direct) Market or New Issue
Market: Dealing in the new financial claims or
new securities.
Secondary Market: Dealing in the securities
already issued or existing or outstanding.
 Financial Markets
Money Markets: Highly liquid short term
debt instruments market including Call Money
Market, Certificates of Deposits, Commercial
Papers and Treasury Bills.
Capital Markets: Market for Long-Term
securities and provides risky capital in the form
of equity.
 Financial Instruments
Primary Securities: Equity, Preference, Debt
and Various combinations.
Secondary Securities: Mutual Fund Units and
Insurance Policies etc.
 Financial Services
Depositories
Custodial
Credit Rating
Leasing
Portfolio Management
Underwriting etc.
 Functions of the Financial
system
To link the savers & investors.
To inspire the operators to monitor the
performance of the investment.
To achieve optimum allocation of risk bearing.
It makes available price - related information.
It helps in promoting the process of financial
deepening and broadening