Indian Financial System

- Prof. Megha Y. Bhatt

Agenda:-
Meaning of financial system
Functions of financial system
Components of financial system

- Prof. Megha Y. Bhatt

Meaning:-
Financial system means in which the saver can save
the money in different types of financial instruments
from which they can get more money in return.

 Formal financial system includes banks and recognized

financial institutions.
 Informal financial system includes local and
unrecognized financial institutions i.e. shahukars.

- Prof. Megha Y. Bhatt

Functions of financial system:-
It links between saver and borrower.
It helps in mobilizing and allocating the saving
efficiently and effectively.
It helps in selecting project to be funded and also
inspires the operators to monitor the performance of
the investment.
To achieve optimum allocation or risk bearing.
Provides price related information (for taking
economic and financial decision)

- Prof. Megha Y. Bhatt

Provides financial services such as insurance and
pension and offers portfolio management.
Helps in the creation of a financial structure that
lowers the cost of transaction.
Reduces the cost of borrowing.
It helps to organization to collect adequate fund from
market.
Helps to increase national income.

- Prof. Megha Y. Bhatt

Components of financial system:-
1. Financial institutions: Those institutions which
provide the finance or fund and financial instruments
to the society.
2. Financial markets: The market in which the financial
instruments are traded (purchased and sold)
3. Financial instruments: They are the securities
(negotiable or non-negotiable) against which money is
landed or borrowed.
4. Financial services: The services to boost up, to support
and for the smooth functioning of financial system.

- Prof. Megha Y. Bhatt

 (1)Financial Institutions

(D) Insurance
(A)Banking (B) Non banking (C) Mutual
&Housing Finance
Institutions Institutions Funds
Corporations

- Prof. Megha Y. Bhatt

 (A) Banking
Institutions

Scheduled Scheduled
Commercial Co-operative
Banks Banks

Public Sector Private Sector Regional Rural

Foreign Banks
Banks Banks Banks

SBI, BOI, Central bank, Bank of Rajkot district

BOB etc. Syndicate bank America gramin bank
etc.

- Prof. Megha Y. Bhatt

 (B) Non Banking
Institutions

Non banking Development

financial financial
institutions institutions

State level Fin. Other

All India Fin. Inst.
Inst. Institutions

IFCI, IDBI, SIDBI, SFC, SIDC, etc. ECGC, DICGC

NABARD, IDFC

- Prof. Megha Y. Bhatt

 (C) Mutual Funds

Public Sector Private Sector

UTI Mutual fund, Reliance Mutual fund,

LIC Mutual fund Tata Mutual fund

- Prof. Megha Y. Bhatt

 (D) Insurance &
Housing Finance
Corporation

Insurance Housing

LIC, GIC, Other HDFC, ICICI, LIC

private insurance co. Housing co., GRUH

- Prof. Megha Y. Bhatt

 (2) Financial Market

Capital Market Money Market

1. Call money market

2. Commercial bill
Equity Debt 3. Treasury bill
4. Commercial papers
5. Certificate of deposits
6. Repo
7. Money market mutual fund
Primary Secondary 8. Inter bank participation
certificates

- Prof. Megha Y. Bhatt

Primary Market:-
 Primary market is also known as new issue market. It
is an informal form with a national or international
boundaries.
 Individuals, trusts, AOP, mutual fund institutions,
banks, financial institutions, pension fund
institutions and for that matter any identity can
participate in the market.

- Prof. Megha Y. Bhatt

Methods of new issue:
 Offer through prospectus
 Bought out deal (offer for sale)
 Private placement
 Right issue
 Book building

- Prof. Megha Y. Bhatt

Secondary market:-
The secondary market is the market in which the
securities are traded for the second time.
 National stock exchange
 Bombay stock exchange
 Over the counter exchange of India
 International stock exchange
 Regional stock exchange

- Prof. Megha Y. Bhatt

 (3) Financial
Instruments

Term Type

Short Medium Long Primary/ Secondary

term term term Direct / Indirect

- Prof. Megha Y. Bhatt

(4) Financial Services

1. Depositories
2. Custodial
3. Credit rating agencies
4. Factoring
5. Merchant banking
6. Leasing
7. Hire purchase
8. Guarantying
9. Portfolio management
10. Underwriting

- Prof. Megha Y. Bhatt