Overview of Financial services sector

– Characteristics of Financial services

– role of financial services sector in
the Economy – Institutional
Framework of Indian financial system
SESSION 1 & 2, JUNE 11, 2019
Need for Financial Services
An economy is in equilibrium when:
◦ Demand = Supply
◦ Aggregate demand = Aggregate supply
◦ C + I + G + Nx = Y
◦ Rearranging the equation:
◦ Y – C – G – Nx = I
◦ Y = Aggregate supply and also aggregate Income
◦ C = Consumption expenses, G = Government Expenses and Nx = Foreigner’s
expenses.
◦ Hence Y – C – G – Nx = Aggregate Savings or “S”
◦ An economy is in equilibrium when S = I, or, aggregate savings = aggregate
investment.
◦ Financial markets facilitate ‘I’ to be equal to ‘S’
Importance of Financial
Services
Financial services are critical for producing
an efficient allocation of capital, allowing
funds to move from people who lack
productive investment opportunities to
people who have them.
Financial services also improve the well-
being of consumers, allowing them to time
their purchases better.
Function of Financial Services
Channels funds from person or business without
investment opportunities (i.e., “Lender-Savers”) to
one who has them (i.e., “Borrower-Spenders”)
Improves economic efficiency
Main Components of a
Financial System
1. Financial Markets
2. Financial Institutions
3. Financial Instruments
4. Financial Services
Types of Financial Markets
1. Debt Markets
2. Equity Markets
3. Primary Markets
4. Secondary Markets
5. Money Markets
6. Capital Markets

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Financial Institutions
Banking Institutions
Non-Banking Institutions
Banking Institutions
Banks
◦ Public sector banks
◦ Private sector banks
◦ Regional Rural Banks
◦ Co-operative Banks
◦ New generation Banks
◦ Old generation banks
NBFCs
Residual Non-banking Finance Companies (Sahara &
Peerless)
Non-Banking Institutions
Development Finance Companies (Dead & gone)
Insurers (LIC, GIC, Star Health)
Regulatory Institutions (RBI, SEBI, IRDA)
Credit rating agencies (CRISIL, ICRA, Deff & Phelps, Standard & Poor,
Moody’s)
Investment (Merchant) Bankers (Goldman Sachs)
Broking companies (Geogit, Motilal Oswal, Sharekhan)
Chit Funds
The list can include any type of entities related to financial markets
Financial Instruments
1. Equity Shares
2. Preference shares
3. Debentures / Bonds
4. Mutual fund units
5. Insurance policies
6. Derivative instruments (Options & Futures Contracts)
7. Fixed deposit receipts
8. Participatory notes
9. Promissory notes......
Structure of Financial Services
Financial
Services

Fund Based Fee Based

Investment
Banks NBFCs Depository
banking

Commercial
RRBs Retail B2B R & T Agents Rating Agencies
Banks

Co-op Banks Insfrastructure Credit Bureaux

Insurance

Life General
Institutional Framework of Indian
Financial System