OVERVIEW OF THE INDIAN FINANCIAL SYSTEM

 The economic development of any country depend

upon the existence of well organized financial
system.
 It is the financial system which supplies the
necessary financial inputs for production of goods
and services which in turn promotes the well
being and standard of living.
 The responsibility of financial system is to mobilize the
saving in form of money and invest them to productive
ventures.
Financial system functions as an intermediary
and facilitate the flow of fund from surplus area
to deficit area.
 A Financial System is a composition of
various institutions, markets, regulations and
laws, practices, money manager, analysts,
transactions and claims and liabilities
 WORKING OF INDIAN FINANCIAL
SYSTEM
FUNDS FUNDS
FINANCIAL
INSTITUTIONS
Commercial bank
Insurance company
Mutual fund

SUPPLIERS OF DEMANDERS
FUND FUNDS OF FUND
Individual
Individual Business
Business Govt

FUNDS
FUNDS FINANCIAL
MARKET

Money market
Capital market
 FEATURES OF FINANCIAL SYSTEM

1. It plays vital role in economic

development
2. It encourages saving and Investment
3. In links savers and investors
4. It helps in allocation of risk
Financial system and Economic
Development

SAVING AND INVESTMENT RELATIONSHIP

GROWTH OF CAPITAL MARKET

FOREIGN EXCHANGE MARKET

GOVT SECURITIES

INFRASTRUCTURE AND GROWTH

TRADE DEVELOPMENT

EMPLOYMENT AND GROWTH

VENTURE CAPITAL
 Structure of Indian Financial System

FINANCIAL
SYSTEM

FINANCIAL FINANCIAL FINANCIAL FINANCIAL

MARKET INSTITUTIONS INSTRUMENTS SERVICES
Organised Sector

• Reserve Bank of India (RBI) as the main

regulator 
• Organised financial system comprises of an
banks, financial and investment institutions
and a range of financial instruments, which
together function in fairly developed capital
and money markets.
• Short-term funds are mainly provided by the
commercial and co-operative banking
structure.
Unorganised Sector
•  Unregulated Non-Bank Financial
Intermediaries. These are functioning in the
form of chit funds, Nidhis (operate in South
India, which lend to only their members)
• Loan companies.
 FINANCIAL MARKET
Are centres or arrangement that provide facilities for
buying and selling of financial claim and services.

FIs,Govt., Industries,Individuals trade in financial

products in these markets either directly or through
dealers on organized exchange or off-exchange.
Organised market is divided into:-
1.Capital Market
2.Money Market
 CLASSIFICATION OF FINANCIAL
MARKET

MONEY FOREX
CAPITAL MARKET
MARKET
MARKET

PRIMARY
MARKET

SECONDARY
MARKET
CAPITAL MARKET

 The capital market is designed to finance the

long-term investments.  The transactions
taking place in this market will be for periods
over a year
 Example:- equity, preference, etc
 Itis subdivided into:-
Primary and secondary market
 MONEY MARKET

 Money market deals in short term financial

claim generally. Funds are available in this
market for periods ranging from a single day
up to a year. 

 Thismarket is dominated mostly by

government, banks and financial institutions
 Primary Markets Secondary Markets
When companies need financial resources for The place where such securities are traded
its expansion, they borrow money from by these investors is known as the secondary
investors through issue of securities. market.

Securities issued Securities like Preference Shares and

a)Preference Shares Debentures cannot be traded in the
secondary market.
b)Equity Shares
c)Debentures
Equity shares is issued by the under writers Equity shares are tradable through a private
and merchant bankers on behalf of the broker or a brokerage house.
company.
People who apply for these securities are: Securities that are traded are traded by the
a)High net worth individual retail investors.
b)Retail investors
c)Employees
d)Financial Institutions
e)Mutual Fund Houses
f)Banks
One time activity by the company. Helps in mobilising the funds for the
investors in the short run.
FOREX MARKET

 Foreignexchange refers to the process of

converting the home currencies into foreign
currencies & vice-versa.

 Where foreign exchange transaction takes

place is called forex market.

 There are no of brokers engaged in buying &

selling of foreign currencies.
• GOVERNMENT SECURITIES MARKET

Gilt-edged security market is where Govt securities ate

traded. In India there are short and long term Govt

securities. Securetities issued by central govt, state govt,

semi Govt authorities like port truct, state electricity board

trade in capital market

 LONG TERM LOAN MARKET
1. Development banks and commercial banks paly a
significant role in this market by supplying loan to

corporate customers. These are classified into

Term Loan market

Mortgage market
 FINANCIAL INSTRUMENTS

In financial transaction there is creation or transfer of

financial assets/instruments. These financial assets instruments should
have certain characteristics i.e. marketability, liquidity, convertibility,
transferability and transaction costs. Financial asset can be of various
types:--

 Cash Asset
 Debt Asset
 Stock Asset

Broadly they can be categorized as under:---

FINANCIAL INSTRUMENTS/ASSET

MONEY MARKET
INSTRUMENTS

CAPITAL
MARKET
INSTRUMENTS
MONEY MARKET INSTRUMENTS:

1. Call/Notice Money

2. Treasury Bill

3. Commercial Bill

4. Commercial Papers
Capital Market Instruments

 Equity shares
 Preference shares
 Convertible preference shares
 Non-convertible preference shares
 Debentures
 FINANCIAL INSTITUTIONS

BANKING

INTERMEDIARIES
NON BANKING NON
FIs INTERMEDIARIES
Financial services
Apart from money additional sevices like providing
help for market survey, management structure,
financial structure, etc
1. Fund based
•Leasing Finance
•Hire Purchase
•Venture capital
•Factoring
2. Fee based
•Merchant banking
pre issue and post issue management
•Credit rating
•Stock broking