Submitted By:

India Financial System

Submitted By:
Himaja Habismati Gharai
Roll No- 21202047
Sec-A(MBA-I)
INTRODUCTION:
The term financial system is a set of inter-related activities/services working together to achieve some predetermined
purpose or goal. The Indian Financial System includes all the institutions, structures, and services that provide pecuniary
facilities to the public. It makes possible trade and transfers of funds in a secure manner.

It makes possible trade and transfers of funds in a secure manner. Indian democracy has independent pillars of the
financial system especially in the areas of banking, capital and stock markets, insurance, liabilities, claims, transactions. It
is important for wealth creation and the economic development of the country.

The process of savings, finance and investment involves financial institutions, markets, instruments and services. Above
all, supervision control and regulation are equally significant. Thus, financial management is an integral part of the
financial system.

On the basis of the empirical evidence, Goldsmith said that " a case for the hypothesis that the separation of the functions
of savings and investment which is made possible by the introduction of financial instruments as well as enlargement of
the range of financial assets which follows from the creation of financial institutions increase the efficiency of investments
and raise the ratio of capital formation to national production and financial activities.”

COMPONENTES OF INDIAN FINANCIAL SYSTEM:

It has five important components-

a) Financial Institution

b) Financial Assets

c) Financial Service

d) Financial Markets

e) Money

a)Financial Institution:

A financial institution is responsible for the supply of money to the market through the transfer of funds from
investors to the companies in the form of loans, deposits, and investments. It also include credit unions and
finance firms. These provide a balance between the loan taker and the amount depositor.
Financial Institutions have 2 major types:

Banking Institutions or Depository Institutions

Their role is to acquire money from the public.Examples include banks and other credit unions.
Non-banking Institutions or Non-depository Institution

Their role is to sell commercial and financial goods and products to those who visit them. These are based
on offering insurance, mutual funds, brokerage deals, etc.
Examples of these majorly include companies

Further it includes 3 categories-

Regulatory: Those managements and institutions which regulate and overlook the commercial and
financial market. Example – RBI, IRDA, SEBI, etc.

Intermediates: Those institutions which provide financial counseling and help by offering loans etc.
Example – PNB, SBI, HDFC, BOB, Axis Bank.
Non – Intermediates: These institutions help corporate visitors with their finances.
Examples – NABARD, SIDBI, etc.
b)Financial Assets: It provide convenient trade of securities in the commercial and financial market based
on the requirements of those who seek credit.

It includes following-

• Call Money: Without any assurance, this is a loan lent for just a day which is repaid the next day.
• Notice Money: Without any assurance, this is a loan rent for more than a day but less than a duration of
14 days.
• Term Money: When the duration of the maturity of a particular amount deposited is more than 14 days.
• Treasury Bills: With the duration of maturity of less than a year, these belong to the government in the
bond or debt security format. These are bought in the form of government T– Bills which are taken as
loans from the government.
• Certificate of Deposit: This works on the format of electronic funds that remain deposited in a particular
bank for a fixed period of time.
• Commercial Paper: Used by corporates, it is an instrument that is not secured even though for a short
duration of debt
c)Financial Services: It provide counseling to their visitors regarding the purchase or selling of a property,
permitting transactions, deals, lending, and investments. These make sure the effectiveness of the investment
and arrangement of the fund source too.
It include followings-
• Banking Services: Functions performed by a bank such as the provision of loans, accepting debits,
giving out credit or debit cards, account opening, granting checkbooks, etc are a part of these services.
• Insurance Services: These include services of offering insurance, selling policies, brokerage deals, etc.
• Investment Services: These services include overlooking and management of investment, assets, and
deposits.
• Foreign Exchange Services: These include currency exchanges, foreign exchanges, and foreign fund
transfers.
d)Financial Markets: The markets where trade and exchange of bonds, shares, money, investments, and
assets take place between buyers and purchasers are these.

Financial markets have 4 major types-

• Capital Market- The primary role of the capital market is to raise long-term funds for Governments,
banks, and corporations while providing a platform for the trading of securities. The member
organizations of the capital market may issue stocks and bonds in order to raise funds.
• Money Market-The Money market in India is a correlation for short-term funds with maturity ranging
from overnight to one year in India including financial instruments that are deemed to be close substitutes
of money.
• Foreign exchange Market-India's foreign exchange reserves are mainly composed of US dollar in
the forms of US government bonds and institutional bonds.

• Credit Market-Credit market refers to the market through which companies and
governments issue debt to investors, such as investment-grade bonds, junk bonds, and
short-term commercial paper.

e)Money: Money is the important medium of exchange and it can be used to purchase goods and services. It
can also act as a store of value. It is uniformly accepted everywhere.It eases transactions especially
impromptu daily purchases. It makes the goods and services easily exchangeable. It acts as a verifiable record
in the socio-economic context.

The Covid-19 has crisis raised both short- and long-term challenges for the insurance sector. Insurance
companies were facing operational and procedural challenges, dips in revenue and depleting reserves as well
as the mandate to meet the growing coverage requirements faced by the entire country.
CONCLUSION-
The financial system is possibly the most important institutional and functional vehicle for economic
transformation. Finance is a bridge between the present and the future and whether it be the mobilization of
savings or their efficient, effective and equitable allocation for investment, it is the success with which the
financial system performs its functions that sets the pace for the achievement of broader national objectives.