Financial Intermediary Has Integrated subsystems like

Financial institutions Financial Markets Financial Instruments Financial services

Financial dualism Formal is characterised by

Organised Institutional Regulated

Cater to the financial needs of modern spheres of economy Informal is characterised by

Unorganised Non-institutional Non regulated

Cater to the financial needs of traditional and rural spheres of the economy

Consists of Individual money lenders such as neighbors, relatives, landlords, traders etc Groups of persons operating as funds or associations They have their own rules Partnership firms consisting of local brokers, pawnbrokers, and non-bank financial intermediaries such as finance, investment and chit-fund companies

Financial institutions Financial markets Financial instruments Financial services

SEBI RBI IRDA Dept of Financial services (MoF)

Banking institutions Non banking institutions Mutual funds Insurance and Housing finance companies

Scheduled commercial banks Scheduled coop banks Non-scheduled commercial banks Non-scheduled cooperative banks

Public sector banks Private sector banks Foreign banks in India Regional Rural banks

Non banking financial companies DFI Development financial institutions All india FIs- IFCI, IDBI, SIDBI, IDFC, NABARD, EXIM bank, NHB State level FIs- SFCs, SIDCs, etc Other institutions DICGC, ECGC, Stock exchanges

Public sector Private sector

Capital market Money market Fex market GSec market

Equity market Debt market Equity market

Primary
Public issues
Private placement

Secondary Derivatives market

Private corporate debt PSU bond market G sec market Primary dealers (PDs)

Fin instrument is a claim against a person or an institution for payment, at a future date, of a sum of money and / or a periodic payment in the form of interest or dividend Financial securities are financial instruments that are negotiable and tradeable Financial instruments differ in respect of Marketability Liquidity Reversibility/ fungibility Type of options Return Risk Transaction costs

Provides transformation services: Liability, asset and size transformation Maturity transformation Risk transformation

Short term Medium term Long term Primary securities Secondary securities Equity, debentures, mixed, Time deposits, MF units, Insurance policies CPs, CDs,

Depositories Custodial services Credit Rating services Factoring Forfaiting Merchant banking Leasing, HP Guaranteeing PMS Venture capital

Strong legal and regulatory environment Stable money Sound public debt management Strong central bank Sound banking system Transparent information system well functioning securities market

Mobilise and allocate savings Monitor corporate performance Provide payment and settlement system Optimum allocation of risk bearing and reductions Disseminate price related information Offer portfolio adjustment facility Lower the cost of transaction Promote the process of financial deepening and broadening

Bank based Market based Bank based: Few large banks play a dominant role and the financial market is not important eg. India, Germany, Japan, France, Pakistan Market based: Financial markets play an important role while the banking industry is much less concentrated eg. US UK, singapore, Korea

Advantages: Provides attractive terms to both investors and borrowers Facilitates diversification Allows risk sharing Allowing financing of new technologies Drawbacks: Prone to instability Exposure to market risk Free- rider problem

Advantages Close relationship with parties Provides tailor-made contracts Efficient risk sharing No free-rider problem Drawback Retards innovation and growth Impedes competition

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