Live Virtual Class – 1

Overview of the Indian Financial

System
Nandini Sud
Agenda

 Overview of the Financial System

 Financial Institutions
 Financial Markets
 Financial Instruments
 Financial Services
 Financial Regulatory and Promotional Institutions
Introduction

 Financial system manages the flow of funds between the people (household
savings) of the country and the ones who may invest it wisely
(investors/businessmen) for the betterment of both the parties.
 It plays a vital role in the economic development of the country as it
encourages both savings and investment
 It plays a key role in capital formation
 It facilitates the expansion of financial institutions and markets
Components of the Financial System

Financial System

Financial Financial
Financial Markets Financial Services
Institutions Instruments

Mobilize the Place where They are Financial assets

savings of buyers and seller responsible for which can be
investors in the meet to exchange mobilizing funds traded in the
right direction and and trade financial from the investor financial markets.
provide it to the goods and to the right
borrowers. services, like, venture
shares and money
Financial Institutions - Based on Method of Operation
Financial Institutions
(Based on Method of
Operation)

Depository Institutions Non-Depository Institutions

Non-Banking
Banking Institutions Institutions – E.g.:
Insurance companies
Financial Institutions - Based on Roles

Financial
Institutions
(Based on Roles)

Non-
Regulatory Intermediaries
intermediaries

e.g.: Commercial
e.g.: SEBI e.g.: NABARD
Banks
Components of Financial Market
Financial
Market

Capital Market Money Market Foreign Exchange

Credit Market
Market
Deals with short
Deals with long term investments
term investments Deals with Deals with both
currencies from short term and
Long-term Loan Market Organised Money other countries long term loans
Market
Government Securities
Market Unorganised Money
Market
Corporate Securities
Market
Types of Financial Instruments

Financial Instruments

Cash Instruments Derivative Instruments

There include loans, deposits, Financial instrument that

securities, etc. Their values derives its performance from
are directly influenced by the the performance of an
market and can be easily underlying asset. E.g.: futures,
transferred. options, etc.
Financial Services

Financial Services

Banking Services Insurance Services Investment Services Foreign Exchange

Services

Provided for both Includes all types of Helps with asset

small and big issues financial services management and Involves exchanging
pertaining to pertaining to deviating fund to foreign currency
money deposit, insurance and the right
loan, etc. insurance related investment
products opportunity
Financial Regulatory and Promotional Institutions
Introduction
 India has five major regulators who are responsible for overlooking and
regulating the financial sector in the country.
 It is necessary to have such regulators in order to safeguard the investments
or borrowing terms and conditions of the citizens and organisations of the
economy.
Reserve Bank of India
 RBI is the central bank of India.
 It is the backbone of the Indian financial system.
 It regulates all financial institutions that are concerned with deposits and
selling of financial assets.
 Both commercial banks and non-banking financial institutions come under
the regulations of the RBI.
Financial Regulatory and Promotional Institutions
Securities and Exchange Board of India
 SEBI was established to curb increasing corruption in the securities market and protect
the interests of the investors.
 It is the primary regulating authority of the security market.
 It is responsible for controlling registration of new issues and regulating the
intermediaries.
 It prevents any unfair practices in the financial market and insider trading.
Insurance Regulatory and Development Authority
 IRDAI was established in order to protect policyholders and to promote the goodwill of
the insurance sector.
 It’s main function is to provide healthy competition to improve customer satisfaction by
giving multiple choices and keep premiums in check.
Financial Regulatory and Promotional Institutions
Pension Fund Regulatory and Development Authority
 PFRDA is a body established to regulate, develop and promote the pension sector of
the Indian economy.
Board for Financial Supervision
 BFS is an autonomous body under the RBI.
 It monitors financial institutions and provide quarterly reports to the RBI.
 Summary

 Financial system includes the financial services provided by financial institutes

 Financial institutions can be classified into depository and non depository institutions
 Financial markets can be classified into capital, money, exchange rate and credit
markets
 Financial instruments can be classified into cash and derivative instruments
 Financial services can be classified into banking, insurance, investment and foreign
exchange services
 5 regulatory institutions in India are RBI, SEBI, IRDAI, PFRDA, BFS
Thank You