INDIAN

FINANCIAL
SYSTEM

What is the meaning

of Finance ????
The term "finance" in our simple
understanding it is perceived as equivalent
to 'Money'. We read about Money and
banking in Economics, about Monetary
Theory and Practice and about "Public
Finance". But finance exactly is not money, it
is the source of providing funds for a
particular activity. Thus public finance does
not mean the money with the Government,
but it refers to sources of raising revenue for
the activities and functions of a Government.
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What is the meaning

of system ?????
The word "system", in the term "financial
system", implies a set of complex and
closely connected or interlined
institutions, agents, practices, markets,
transactions, claims, and liabilities in the
economy. The financial system is
concerned about money, credit and
finance-the three terms are intimately
related yet are somewhat different from
each other. Indian financial system
consists of financial market, financial
instruments and financial intermediation.

Financial system Introduction

The economic development of a
nation is reflected by the progress of
the various economic units, broadly
classified into corporate sector,
government and household sector.
While performing their activities
these units will be placed in
surplus/deficit/balanced budgetary
situations.
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Flow of fund(saving)
Seeker of fund
Supply of funds
(mainly
Flow of financial services
(mainly
business firm
household)
and
government )
Incomes, and financial claims

There are areas or people with surplus funds and there are those with a
deficit.
A financial system or financial sector functions as an intermediary and
facilitates the flow of funds from the areas of surplus to the areas of deficit.
A Financial System is a composition of various institutions, markets,
regulations and laws, practices, money manager, analysts, transactions and
claims and liabilities.
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INDIAN FINANCIAL SYSTEM

Indian financial system can also be broadly classified
into the formal (organized and financial system and
the informal (unorganized) financial system
The formal system comes under the purview of
ministry of finance (MOF) RBI , SEBI and other
regulatory bodies
The informal system consist of :
Individual money lender such as neighbors ,
relatives, traders, store owners etc.
Group of persons operating as funds or associations
Partnership firms consisting of local borrower, NBFCs

Constituents of an Indian Financial

System
Financial
Institutions

Financial
Market
Shares

Commerci
al Banks
Industrial
Banks
Provident
Funds
Mutual
funds
NBFCs

Debentur
es/
Bonds
Commerc
ial Paper
Certificat
e of
Deposits
Public
Deposits
Mutual
Fund
Units
Insurance
Policies
Governm
ent
Bonds

Financial
Instruments

Financial
services

Money
Market

Merchant
Banking

Capital
Market

Project
Consultanc
y

Financial Institutions:
Financial institutions are the intermediaries who facilitates
smooth functioning of the financial system by making
investors and borrowers meet.
They mobilize savings of the surplus units and allocate them
in productive activities promising a better rate of return.
Financial institutions also provide services to entities
seeking advises on various issues ranging from
restructuring to diversification plans.
They provide whole range of services to the entities who
want to raise funds from the markets elsewhere.
Financial institutions act as financial intermediaries
because they act as middlemen between savers and
borrowers. Were these financial institutions may be of
Banking or Non-Banking institutions.

Financial Markets
A Financial Market can be defined as the market
in which financial assets are created or
transferred. As against a real transaction that
involves exchange of money for real goods or
services, a financial transaction involves creation
or transfer of a financial asset.
Financial Assets or Financial Instruments
represents a claim to the payment of a sum of
money sometime in the future and /or periodic
payment in the form of interest or dividend.

Classification of
Financial Market

On the
basis of
maturity
of
securitie
s
Money
market

On the
basis of
seasoning
of claim

Capital
market

Primary
market

On the basis
of timing of
delivery

On the
basis of
organizatio
nal
structure

Exchang
e market

Secondar
y market

Cash or
spot
market

Over
the
counter
market

Forward
of future
market
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Distinguish between
Money Market and
Capital
Market
DIFFERENCE
MONEY
CAPITAL
MARKET

MARKET

Maturity of
funds

Less than one Above one

year
year

Instruments

Call Money
Equity,
market ,
Shares,
Treasury
Debentures,
Bills(TB), CB , government
CP, CDS,
securities
MMMF
and loan

Existence of
secondary
market

No

YES
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Financial Services
Financial Services is concerned with
the design and delivery of advise and
financial product to individual and
business.
Financial Services is concern with
advisory services & financial product
and both are provided mainly by
NBFC , Merchant banking
services
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Financial services falls into two broad

categories
Asset/Fund based Financial Services

Financial evaluation Leasing

Hire purchase
Factoring & Forfeiting
Bills Discounting
Housing Finance
Insurance Services and product
Venture capital financing
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ASSET /FUND BASED FINANCIALSERVISCES

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Fee based /Advisory Financial

Services
Issue Management Intermediaries
Issue Management Activities/ Procedures
Issue Management Pre Issue and Post
Issue obligations and other requirement
Corporate Restructuring
Stock Broking , Depositories , custodial
Services & Securities Lending Scheme
Credit Rating

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Structure of Indian financial

Regulatory Institutes
RBI
Public and
PVT
commercial
Bank
All India
developme
nt bank
Refinance
Institutes
NABARD,
NHB
NBFCs

SEBI

Mutual
Fund
Units

Venture
Capital
fund

IRDA

Private
sector
Insurance
Companies
Public
sector
Insurance
Companies

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