INTRODUCTION

TO INDIAN
FINANCIAL
SYSTEM

FORMAL AND INFORMAL

FINANCIAL SECTOR

Formal financial sector is characterized

by the presence of an organized,
institutional and regulated system.

Informal financial sector is an

unorganized
,non- institutional, and
non- regulated system dealing with the
traditional and rural spheres of the
economy.

Components of the Formal

Financial System

Financial Institutions
Financial Markets
Financial Instruments
Financial Services

Financial Institutions

Banking Institutions: Participate

in the economy's payment
mechanism, deposit liabilities
constitute a major part of national
money supply.

Non-Banking Institutions: LIC,

SIDBI, IIBI, IFCI ( All India Financial
Institutions), SFCs & SIDCs

Financial Markets

Primary ( Direct) Market or New

Issue Market: Dealing in the new
financial claims or new securities.

Secondary Market: Dealing in

the securities already issued or
existing or outstanding.

Financial Markets

Money Markets: Highly liquid

short term debt instruments market

including Call Money Market,
Certificates of Deposits, Commercial
Papers and Treasury Bills.

Capital Markets: Market for LongTerm securities and provides risky

capital in the form of equity.

Financial Instruments

Primary Securities: Equity,

Preference, Debt and Various

combinations.
Secondary Securities: Mutual
Fund Units and Insurance Policies
etc.

Financial Services

Depositories
Custodial
Credit Rating
Leasing
Portfolio Management
Underwriting etc.

Functions of the
Financial system

To link the savers & investors.

To inspire the operators to monitor the
performance of the investment.
To achieve optimum allocation of risk
bearing.
It makes available price - related
information.
It helps in promoting the process of
financial deepening and broadening