INDIAN FINANCIAL

SYSTEM

govt.
kamla raja girls
post graduate ( autonomous)
college , GWALIOR(M.P.)

III- INTERNAL
B.B.A. FIFTH SEMESTER
SESSION 2020-21

UNDER THE GUIDANCE OF: PRESENTED BY:

ALL TEACHERS PUSHPLATA YADAV

 ACKNOWLEDGEMENT
I WOULD LIKE TO EXPRESS MY SPECIAL THANKS OF GRATITUDE TO ALL
THE TEACHERS WHO GAVE ME THE GOLDEN OPPORTUNITY TO DO THIS
WONDERFUL PRESENTATION ON THE TOPIC INDIAN FINANCIAL SYSTEM,
WHICH ALSO HELPED ME IN DOING A LOT OF RESEARCH AND COME TO
KNOW ABOUT SO MANY NEW THINGS.
I’M REALLY THANKFUL TO THEM.
SECONDLY, I WOULD LIKE THANKS MY FAMILY WHO HELPED ME A LOT
IN FINISHING THIS PPT. IN LIMITED TIME PERIOD .
IT HELPED ME INCREASE MY KNOWNLEDGE AND SKILLS.
THANKS AGAIN TO ALL WHO SUPPORTED.
 PREFACE
THANK YOU FOR LOOKING INTO MY PRESENTATION . THIS
DELIBERATELY EDITED PRESENTATION IS TO INTRODUCE THE INDIAN
FINANCIAL SYSTEM,
IT’S FUNCTION, IT’S CONSTITUENTS AND DIFFERENTIATION
BETWEEN FORMAL AND INFORMAL FINANCIAL SECTOR
AND LAST BUT NOT THE LEAST ITS CONCLUSION.
THIS PPT. IS INTENDED TOWARDS ENHANCING KNOWLEDGE,
SHARING AND DISCUSSING .
IT IS PURELY BASED ON INFORMATION AVAILABLE OVER THE
INTERNET.
CONCLUSIONS ARE PURELY AN INDIVIDUAL POINT OF VIEW AND
ARE OPEN TO DISCUSSIONS.
CONTENTS
INTRODUCTION
 INDIAN FINANCIAL SYSTEM
 FUNCTION OF INDIAN FINANCIAL
SYSTEM
 CONSTITUENTS OF A FINANCIAL
SYSTEM
 DIFFERENCE BETWEEN FORMAL AND
INFORMAL FINANCIAL SECTOR
CONCLUSION
BIBLIOGRAPHY
 INTRODUCTION
• The term “Finance” in our simple
understanding it is perceived as equivalent to
‘Money’. But finance exactly is not money, it
is the source of providing funds for a
particular activity. Thus public finance does
not mean the money with the govt., but it is
refers to sources of raising revenue for the
activities and functions of a govt. We thus
speak of ‘finance’ only in relation to proposed
activity.
 . Conti..

• Finance goes with commerce, business, banking

etc. Finance is also referred to as “Funds” or
“Capital”, when referring to the financial needs of
a corporate body. When we study finance as a
subject for generalizing its profile and attributes,
we distinguish between ‘personal finance’ and
‘corporate finance’ i.e. resources needed
personally by an individual for his family and
individual needs and resources needed by a
business organization to carry on its functions
intended for the achievement of its corporate
goals.
 INDIAN FINANCIAL SYSTEM

• The economic development of a nation is reflected by the progress of the

various economic units, broadly classified into corporate sector, government
and household sector. While performing their activities these units will be
placed in a surplus/deficits.

• There are people with surplus funds and there are those with a deficits.

• A financial system or financial sector functions as an intermediary and

facilitates the flow of funds from the areas of surplus to the area of deficit.

• A financial system is composition of various institutions, markets,

regulations and laws, practices, money manager, analysts, transactions and
claims and liabilities.
 Some definitions of –
INDIAN FINANCIAL SYSTEM

• “Financial system is the integrated form of financial institutions, financial markets,

financial securities, and financial services which aim is to circulate the funds in an
economy for economic growth.”

• “Financial system is the set of interrelated and interconnected components consisting

of financial institutions, markets, and securities.”

• “The financial system of India refers to the borrowing and lending of funds or the
demand for and the supply of funds of all individuals, institutions and companies of
the government.”
 Commonly , the Financial System is classified into -

●
Funds needed and
●
Funds required for
supplied for the
the conduct of
conduct of agriculture
industry and trade. and allied activity.

Industrial Agriculture
Finance Finance

Development Government
Finance Finance

●
Funds needed for ●
Relates to the Demand
development, actually it for and Supply of funds
includes both Industrial to meet Government
& Agriculture Finance. Expenditure.
 Functions Of The Indian Financial
System

●
The resources that would have been normally used for consumption purposes,
should be released for other purposes.

Encourage
Savings.

Thus, the general public should save
and be prepared to release real
resources from consumption goods to
the capital goods.
The saving of the people should be
mobilized by banking and financial
institutions.
Finally, the savings of the people should
be made available to investors to
produce capital goods.
All these three steps or processes,
though dependent of each other, are
necessary for accumulation of capital.
The importance of Banking and
Financial Institutions in the capital
formation process arises because those
who save and those who invest in India
are generally not the same person or
institutions .
The financial institutions and the banks
act as intermediaries to bring the savers
and investor together.
Constituents Of A Financial System

Financial
System

Financial Financial Financial

Instruments Markets Intermediaries
 FINANCIAL MARKETS
• A Financial Market can be
defined as the market in which
financial assets are created or
transferred.
• As against a real transaction that
involves exchange of money for
real goods or services, a financial
transaction involves creation or
transfer of a financial assets.
• Financial Assets or financial
instruments represents a claim to
the payment of a sum of money
sometime in the future and/or
periodic payment in the form of
interest or dividend.
 Types Of Financial Markets

The money market is a wholesale debt market for low-risk, highly-liquid , short-term
instrument. Funds are available in this market for periods ranging from a single day up to a
year. This market is dominated mostly by government, banks and financial institutions.

The capital market is designed to finance the long-term investments . The

transaction taking place in this market will be for periods over a year.

The Forex Market deals with the multicurrency requirements which are met
by the exchange of currencies. Depending on the exchange rate that is
applicable the transfer of funds takes place in this market. This is one of the
most developed and integrated market across the globe.

Credit Market is a place where banks, FI and NBFC purvey short, medium and long-
term loans to corporate and individuals.
 FINANCIAL INSTRUMENTS/ASSETS
MONEY MARKET INSTRUMENTS
Financial Instruments can
be defined as a market for
short-term money and
financial assets that is a
substitute for money. The
term short-term means
generally a period of one
year substitutes for money
is used to denote any
financial asset which can
be quickly converted into
money with minimum
transaction cost.
 TYPES OF MONEY MARKET
INSTRUMENTS
• Call /Notice-Money: Call/Notice money is the
money borrowed on demand for a very short period. When
money is lent for a day it is known as Call Money.
Intervening holidays and Sunday are excluded for this
purpose. Thus money borrowed on a day and repaid on the
next working day is Call Money. When the money is
borrowed or lent for more than a day up to 14 days it is
called Notice Money. No collateral security is required to
cover these transactions. 
 Conti…
• Term Money: Deposits with maturity period beyond 14
days is referred to as the term money. The entry
restrictions are the same as that of Call/Notice Money, the
specified entities not allowed to lend beyond 14 days. 
• Treasury Bills: Treasury Bills are short-term (up to one
year) borrowing instruments of the union government. It’s
a promise by the Government to pay the stated sum after
the expiry of the stated period from the date of issue (less
than one year). They are issued at a discount off the face
value and on maturity, the face value is paid to the holder. 
 Cont..
• Certificate of Deposits: Certificates of Deposits is a
money market instrument issued in dematerialised form
or as a Promissory Note for funds deposited at a bank,
other eligible financial institution for a specified period. 
• Commercial Paper: CP is a note in evidence of the
debt obligation of the issuer. On issuing commercial
paper the debt is transformed into an instrument. CP is
an unsecured promissory note privately placed with
investors at a discount rate of face value determined by
market forces. 
CAPITAL MARKET INSTRUMENTS
The Capital Market
generally consists of the
following long-term period
i.e., more than one year
period, financial
instruments; In the Equity
Segment: Equity Shares,
Preference Shares,
Convertible preference
shares, non- Convertible
preference shares, etc and
in the Debt Segment
Debentures, Zero Coupon
Bonds, Deep Discount
Bonds etc.
HYBRID FINANCIAL INSTRUMENT
Hybrid Instrument have
both the features of
Equity and Debentures.
This kind of instruments
is called as Hybrid
Instruments.
Examples are
Convertible Debentures,
Warrants. Etc.
 FINANCIAL INTERMEDIARIES
A financial intermediary is an entity that acts as
the middleman between two parties in a financial
transaction, such as a commercial bank ,investment bank,
mutual fund, or pension fund. 
A financial intermediary is an institution which connects the
deficit and surplus money. The best example of an
intermediary is a bank which transforms the bank deposits to
bank loans. The role of the financial intermediary is to
distribute funds from people who have an extra inflow of
money to those who don’t have enough money to fulfill the
needs.
This service was offered by Banks, FI, Brokers, Dealers.
However , as the financial system widened along with the
developments taking place in the financial markets, the scope
of its operation also widened. Some of the important
intermediaries operating in the FM includes:
Investment Bankers, Underwriters, Stock Exchange,
Registers, Depositories, Custodians, Portfolio Manager,
Mutual Fund, Financial Advisor, Financial Consultant,
Primary Dealers, Satellite Dealers, Self-Regulatory
Organization, etc.
 DIFFERENCE BETWEEN FORMAL & INFORMAL
FINANCIAL SECTOR
FORMAL FINANCIAL SECTOR INFORMAL FINANCIAL SECTOR
• Formal financial institutions ignore
small farmers, lower-income • Informal financial sector provides savings
households, & small-scale enterprises in and credit facilities for small farmers in rural
favour of a larger-scale , well-off, and areas, and for lower-income households and
literate clients which can satisfy their small-scale enterprises in urban areas.
stringent loan conditions.

• Access to credit is Simple.

• Access to credit is Complex.
• Collateral are not required.
• Banks require Collateral.
• Transactions costs are Low.
• Transaction costs are High.
• Repayment rates are High.
• Repayment rates are Low.
• Includes Moneylenders, Friends &
• Includes Banks & Cooperatives. Relative.
 CONCLUSION

India’s financial system is quite huge and caters to every kind of demand for funds.
Banks are at the core of our financial system and therefore, there is greater expectation
from them in terms of reaching out to the vast populace as well as being competitive.
Indian Financial System accelerates the rate and volume of savings through the provision
of various financial instruments and efficient mobilization of savings.
It aids in increasing the national output of the country by providing funds to corporate
customers to expand their respective business.
It helps economic development and raising the standard of living of people and promotes
the development of the weaker section of society through rural development banks and co-
operative societies. These are the important facts about the Indian Financial system.
 bibliography

My Notes

https://Bankexamstoday.com

https://data-flair.training/blogs/indian-financial-
system/