Indian Financial system

Presented by
Anchu P R
 Indian financial system
Is..
• A tool for economic development
• An institutional framework existing in a country to enable
financial transactions.
• Helping in creation of wealth
• Linking savings with investment
• Facilitating flow of funds from household to business firms.
• Helping in the development of both savers and investors
• Developing financial markets
• Facilitating financial development
 Functions of financial system
• Link between saver and investor
• Encouraging savings and mobilizing them.
• Making available money for production of goods and services.
• Allocation of risk and reduction of risks
• Makes information available for making decisions.
• Creates liquidity.
• Helps in financial deepening and broadening.
• Classified as
– Formal (Organised)
• Comes under MoF, RBI, SEBI
– Informal (Unorganised)
• Individual/ group - money lenders, landlords, pawn
brokers
 Financial Institutions/intermediaries
• A financial intermediary is an institution which
connects the deficit and surplus money. The
best example of an intermediary is a bank
which transforms the bank deposits to bank
loans.
• To distribute funds from people who have an
extra inflow of money to those who don’t
have enough money to fulfil the needs.
 Classification of FI
• Financial institutions may be classified as:
(a) Regulatory institutions
(b) Banking institutions
(c) Non-banking institutions
 Regulatory institutions
• Regulates the financial market and protect the
interests of investors.
– Ministry of Finance,
– Company Law Board
– RBI
– SEBI
– IRDA
(All financial institutions are under the control of RBI.
The financial markets are under the control of SEBI. )
 Banking Institutions
• Provides services such as accepting deposits including saving
account deposits, recurring account deposits, and fixed deposits,
making business loans
• These deposits are returned whenever the customer demands it or
after a certain time period
• Other functions include
– Payment of taxes, bills
– Collection of funds through bills, cheques etc.
– Transfer of funds
– Sale-purchaseof shares and debentures
– Collection/Payment of dividend or interest
– Acts as trustee & executor of properties
– Forex Transactions
– General Utility Services: locker facility
 NBFC
• Non-banking financial companies (NBFCs) are
financial institutions that offer various banking
services like brokerage, insurance, mutual
funds,
• Do not have a banking license
• they are restricted from taking any form of
deposits from the general public
 Financial markets
• Place where borrowers of fund and lenders of
fund meet
• Market place where buyers and sellers
participate in trading of assets.
• Trading of shares, bonds , currencies etc.
– Capital market-primary and secondary markets
– Money market
 Money market
• The Indian money market is the market in which short-
term funds are borrowed and lent.
• The money market does not deal in cash, or money but
in bills of exchange, grade bills and treasury bills and
other instruments.
• Short term monetary assets with a maturity period of
one year or less.
• Eg:
1. Call/Notice Money
2. Treasury Bills
3. Term Money
4. Certificate of Deposit
5. Commercial Papers
 Capital market
• The capital market in India is the market for
the medium term and long term funds such as
Equity shares, preference shares, etc
• Deals in the long term claims, securities and
stocks with a maturity period of more than
one year
• Eg:
– stock market, the government bond market and
derivatives market etc.
 Primary and secondary market
• Primary market: Primary markets are those markets which
deal in the new securities.
– new issue markets.
– securities are issued for the first time.
– securities issued directly by the companies.
– is a market for raising fresh capital in the form of shares and
debentures.
• Secondary market: Secondary markets are those markets
which deal in existing securities.
– already been issued and are already outstanding.
– consists of stock exchanges. Stock exchanges are self regulatory
bodies under the overall regulatory purview of the Govt. /SEBI.
 Financial instruments
• Is a claim against a person/financial institution
for payment,of a specific amount, on a certain
future date or to pay the principal amount
along with interest.
• Asset that can be traded
ex: shares, insurance, Cash deposits, cheques,
loans, accounts receivable, letter of credit, bank
note
 Financial services
• Are concerned with the design and delivery of
financial instruments and advisory services to
individuals and business
– Fund based advisory services
– Fee based based advisory services
Thank you