In a broad sense finance. refers to funds or monetary resources needed by individuals, business houses and the government.

Individuals and households require funds essentially for meeting their current requirements or day to - day expenses or for buying capital goods. A business unit - a factory or a workshop needs funds for paying wages and salaries, for buying raw-materials, for purchasing new machinery or replacing the old one, etc. Traders require finance for buying and stocking goods in their shops and godowns. Farmers require finance for short periods of 12 to 15 months for cultivation purposes, such as for buying seeds, manure, fodder for cattle etc Such short , period loans are normally . paid off after the harvest has been collected. The farmers may need finance for medium - term and longterm. for the purchase of livestock, agricultural machinery and implements, digging wells, making permanent improve on land etc. Finally, the government needs funds to meet its expenditure on goods and services and finance its development programmers.

Structure of the Indian Financial System: The financial system of India refers to the system of borrowing and lending of funds or the demand for and the supply of funds of all individuals, institutions, and companies and of the government.

Commonly, the Financial System is Classified into: Industrial Finance: Funds required for the conduct of industry and trade. Agricultural Finance : Funds needed and supplied for the conduct of agriculture and allied activity. Development Finance : Funds needed for development, actually it includes both industrial finance and agricultural finance, and Government Finance : Relates to the demand for and supply of funds to meet government expenditure.

Indias financial system includes the many institutions and the mechanism which affects the generation of savings by the community, the mobilization of savings and the effective distribution of the savings among all those who demand the funds for investment purposes. Broadly, therefore, the Indian financial system is composed of 1) The banking system, the insurance companies, mutual funds, investment funds; and other institutions which promote savings among the public, collect their savings and transfer them to the actual investors, and 2) The investors in the country composed of individual investors, industrial and trading companies and the government - these enter the financial system as borrowers. Apart from these broad categories of institutions which promote savings on one side and investments on the other, there are certain other essential institutions of the Indian financial system which are actually facilitators. For example, . the new issues market which facilitates new savings to flow into new issues of stocks and shares. In the same way,

the stock exchanges in India facilitate the buying and selling of shares and debentures of existing companies and thus help savers to shift from one type of investment to another. The new issues market and the stock exchanges may not promote savings and investment directly but they facilitate savings on the one side and help the transfer of funds for investment, on the other.

Functions of the Indian Financial System : The Indian financial system performs a crucial role in economic development of India through saving - investment process, also known as capital formation. It is for this reason that the financial system is sometimes called the financial market. The purpose of the financial market is to mobilize savings effectively and allocate the same efficiently among the ultimate users of funds, namely, investors. A high rate of capital formation is an essential condition for rapid economic development. The process of capital formation depends upon:

1) Increase in savings, that is, the resources that would have been normally used for consumption purposes, should be released for other purpose. 2) Mobilization of savings - domestic savings collected by banking and financial institutions and placed at the disposal of actual investors, and 3) Investment proper, which is the production of capital goods.

The third stage or process is the real capital formation but this stage cannot arise or exist without the first two processes. Thus, the general public should save and be prepared to release real resources from consumption goods to capital goods. The savings 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 independent 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 persons or institutions. The financial institutions and the banks act as intermediaries to bring the savers and investors together.

Composition of the Indian Financial System: The Indian financial system which refers to the borrowing and lending of funds or to the demand for and supply of funds, consists of two parts, namely, the Indian money market and the Indian capital market.