Indian Fi nancial System

Session Coverage

Introduction -- What is Financial System ?

Components of Financial System

Indian Financial System – a snapshot

Overview of financial Institutions in India

Role of Financial Markets

Overview of Financial Assets & Services

 What is a financial System ?

• A financial system is a structure / framework

which is available in an economy to mobilize the
capital from various surplus sectors of the
economy and allocate and distribute the same to
the various needy sectors.

• The transformation of savings into investments

and consumption is facilitated by the active role
played by the financial system
 Structure of Financial System

Financial Financial
Institutions Markets

Financial Assets Financial Services

 INDIAN FINANCIAL SYSTEM – A Snap Shot
Government of India- Ministry of Finance

Financial Institutions Financial Markets Financial Financial

Instrume services
nts
Banking Institutions Non-Banking Mutual Insurance Capital Markets Money Stocks Banking Services
( Regulator RBI) Finance Funds Companies ( Regulator- SEBI) Markets Bonds Forex Services
Institutions ( Regulator ( Regulator ( SEBI & Bank Investment
( Regulator –SEBI) IRDAI) RBI) Deposits Services
RBI) CD Insurance Services
Advisory Services
Etc. Venture Capital
Angel Services etc.
Commercial -Finance and Public Life Equity Market Treasury
loan sector Insurance Bills
Banks companies Companies
Primary Market
Call Money
• Private Banks Private -Public Issues Market
Public Sector -Private Placements
• -Development sector Non Life
Secondary Market
Commerci
Banks Finance Insurance
NSE
al Bills
• Foreign Banks Institutions Companies/ BSE Commerci
Regional Rural E,g, General al Papers
• IFCI Insurance
OTCEI
Cert. of
Banks ISE
SIDBI Companies Regional Stock Exchange Deposits
IDFC
Cooperative NABARD
EXIM
Banks SFC
SIDC Debt Market
Small Finance NHB Government Securities
Banks Fintech
Market
PSU Bond Market
Companies Private Corporate Bond
Payment Banks Micro Finance
Companies
Local Area Banks Derivatives
Markets
Future & Option
Interest Rate derivatives
 Overview of financial Institutions in India

Non-
Intermediaries Regulatory
intermediaries

• Banks • NABARD •
• Insurance
RBI
Companies • IFC • SEBI
• Certain NBFCs • IREDA
• Mutual Fund
companies • Pension Fund
Regulators
 Overview of financial Institutions in India

Non- Banking
Banking Companies
Finance Companies

• Banks are an integral

part of the payment • NBFC is not a part of
and settlement this system.
System
• NBFC’s in India are
• Can accept demand not permitted to
deposits accept demand
deposits
 Overview of financial Institutions in India

Banking Structure in India

• Commercial Banks
• Private Banks
• Public Sector Banks
• Foreign Banks
• Regional Rural Banks

• Cooperative Banks

• Small Finance Banks

• Payment Banks
• Local Area Banks
 Established on 1st April 1934.
Regulatory Institutions in India Fully Owned by Government of
India

Member of Basel Committee on

Banking Supervision

Main Function of RBI

• Monetary Authority of the
country
• Regulator & Supervisor of the
financial System i.e. Commercial
Banks, Cooperative Banks , Non-
Banking Financial Companies
• Manager of Foreign Exchange
• Issuer of Currency
• Developmental Roles
• Banker to Government
• Banker to Banks
 Security & Exchange Board of
Regulatory Institutions in India India
• Established on April 12, 1992
• Protective functions
• Developmental functions
• Regulatory functions.
Protective Function
Checks Price Rigging:
Prohibits Insider trading
Promote fair Practices
Prohibits fraudulent and Unfair Trade
Practices
Educate Investors

Development Functions
Training to intermediaries
Promotion of fair trade
Research

Regulatory Function
Registration of Brokers and Agents
Notifications of Rules and Regulations
Levying of Fees
Regulator of Investment Schemes
Prohibits Unfair Trade Practices
Inspection and Enquiries
Regulatory Institutions in India

• Founded in 1999 , Its duties and functions

are :
• It issues the registration certificates to insurance
companies and regulates them.
• It protects the interest of policy holders.
• It provides license to insurance intermediaries
such as agents and brokers after specifying the
required qualifications and set norms/code of
conduct for them.
• It promotes and regulates the professional
organisations related with insurance business to
promote efficiency in insurance sector.
• It regulates and supervise the premium rates and
terms of insurance covers.
• It specifies the conditions and manners, according
to which the insurance companies and other
intermediaries have to make their financial
reports.
• It regulates the investment of policyholder's funds
by insurance companies.
• It also ensures the maintenance of solvency
margin (company's ability to pay out claims) by
insurance companies.
 Financial Markets

Money & Capital Markets

Organized & Unorganized Markets

• Financial Markets deals in financial securities /instruments & Financial Services

Primary & Secondary Markets

Formal & Informal Markets

Financial Markets

MoneyCapital
MarketMarket

Based on
Nature of
Securities
Financial Markets

Primary
Secondary
MarketMarket

Based on
Nature of
Securities
Company
Shares
Govt. Bonds
Corporate
Bonds
 Derivative Markets
Derivatives are instruments whose value is derived from the
price of some underlying assets such as securities , currency.
Commodities etc.
Forward Future Options

• A contract
between two
parties where • It is formal trade • Same as forward/
futures but
settlement takes contract which is
place on a specific traded in an without any
date in future at exchange obligations to
today’s pre agreed honor the contract
price
 Financial Assets
Money Market Capital Markets Products
Short term Assets Long Term Assets

Funds raised beyond 1 year

Call & short at Notice Money
Inter Bank Borrowings Under Repo IPDI Bonds
from Mkt Secured Bonds
From RBI Unsecured Bonds
Certificate of Deposits Govt Bonds
 Treps by providing SLR securities to Capital Bonds
CCIL Equity
Under MSF window from RBI by
pledging SLR securities.
Under REPO in LAF window by pledging
SLR securities
 Financial Services
Services Description
Banking Services
Investment Services
Merchant Banking
Credit Ratings
Hire Purchasing
Factoring
Under--writing
Retail loans
Mortgage loans
Housing Loans
Industrial loan
Export Import finance
Consumer Credit
Life insurance
Pension
 References
• Financial Institutions and Markets by L. M.
Bhole & Jitendra Mahakud

• Principles & Practices of Banking by IIBF