Economic Trends

The Composition of the Indian Financial System

The Indian financial system which refers to the borrowing and lending of funds or to the demand for and supply of funds, consists of two parts, viz., the Indian Money Market and the Indian Capital market. The Indian money market is the market in which shortshort-term funds are borrowed and lent. The capital market in India, on the other hand, is the market for medium and long-term funds. long-

THE INDIAN FINANCIAL SYSTEMS

INDIAN MONEY MARKET A money market may be defined as the market for lending and borrowing of short-term funds. shortfunds. The Indian money market consists of two parts: the parts: unorganised and the organised sectors. sectors. The unorganised sector consists of an indigenous banker who pursues the banking business on traditional lines and nonnon-banking financial companies (NBFCs). (NBFCs). The organised sector comprises the Reserve Bank of India (RBI), the State Bank of India (SBI) and its associate banks, the 19 nationalised banks, and other private sector banks, both Indian and foreign. foreign.

The Composition of the Indian Banking System

The organised banking system in India can be broadly divided into three categories, viz., the central bank of the country known as the Reserve Bank of India (RBI), the commercial banks, and the cooperative banks.

CoCo-operative Banks
CoCo-operative Banks are organised and managed on the principal of co-operation, coselfself-help, and mutual help. help. do not pursue the goal of profit maximisation. maximisation. The State Co-operative Banks (SCBs), CoCentral Co-operative Banks (CCBs) and CoUrban Co-operative Banks (UCBs) can Conormally extend housing loans upto Rs 1 lakh to an individual. individual.

INDIAN CAPITAL MARKET

The supply of funds for the capital market comes largely from individual savers, corporate savings, banks, insurance companies, and the government. government.

CALL MONEY MARKET

One important sub-market of the Indian submoney market is the Call Money Market, which is the market for short-term funds. shortThis market is also known as money at call and short notice . This market has actually two segments, viz., (a) the call market or overnight market and (b) short notice market. The rate at which funds are borrowed and lent in this market is called the call money rate . Call money rates are market determined, that is, by demand for and supply of short-term funds. short-

The public sector banks account for about 80 per cent for the demand (i.e., borrowings), and (i. foreign banks and Indian private sector banks account for the balance of 20 per cent of borrowings. borrowings. NonNon-banking financial institutions, such as IDBI, LIC, GIC, and so on, enter the call money market as lenders and supply up to 80 per cent of the shortshort-term funds. funds. The balance of 20 per cent of the funds is supplied by the banking system. system. Although some banks operate both as lender and borrowers, others are either only borrowers or only lenders in the call money market. market.

Bill Market
Bill market or the discount market is the one in which short term bills are normally up to 90 days are brought and sold. T-bills are the main important component.

Financial System
Finance refers to the funds or monetary resources needed by individuals, business houses and government. Individuals and households: Current or day to day requirements. Business units: For wages and salaries, raw materials, machinery etc.

FUNCTIONS OF THE INDIAN FINANCIAL SYSTEM: PROMOTION OF CAPITAL FORMATION portion of capital which is actually used for investment purposes and not saved or consumed. consumed. any method for increasing the amount of capital owned or under one's control, or any method in utilizing or mobilizing capital resources for investment purposes. purposes. Thus, capital could be "formed" in the sense of "being brought together for investment purposes" in many different ways. ways.