Indian Financial System

Indian financial system refers to the system of

borrowing and lending of funds or the demand for
the supply of funds of all
Individuals
Institutions
Companies
Governments

Classification of Financial System

Funds required Funds required

for industry for agriculture
and trade & allied
activities
Funds required for
Funds required for
development DnS of funds to meet
including government
(agriculture & expenditure
Industry)
 Composition of Indian Financial System

Banking system, insurance companies, mutual funds,

investment funds, and institutions which
promotes savings from public and transfer
them to actual investors

Investors of the country – individuals, industries

and trading companies and the government
Functions of Indian financial
system
Crucial role in rapid economic
development of the country- basic
function is capital formation
Increase in savings
Mobilization of savings
Proper Investment – (capital formation)
This stage cannot arise
without first two
processes
 Money Supply
indicators
Narrow Money (M1) and Broad
Money (M )
M1 M2 M3 M4 3 these indicators are used to calculate Money
supply and monetary aggregates in the economy
According to RBI -The conventional concept of
money supply with the public refers to narrow
money – Currency + Bank money held by people
refers to narrow money M1
M1 = Currency + Demand deposits + Other deposits
which refers to existing currency and coins in the
market and near money convertible savings and
deposits

M2 = M1 + Time liabilities portion of saving

deposits with bank + Certificate Deposits
(CDs)issued by banks + Term deposits, maturing
within a year (M1 and M2 can be readily converted
to money if need arises)

M3 = M2+ term deposits with banks with maturity of

This M3 is designated as broad money
over one year + call/term borrowing of the banking
 Warning signals of industrial sickness

1. Shortage of liquid funds to meet short term financial obligations of creditors

as also to meet statutory obligation
2. Growth of excessive inventories
3. Non payment of interest
4. Under utilization of capacity
5. RoI
6. Maintenance of certain financial ratios