MODULE-A

PRINCIPLE & PRACTICES OF BANKING-JAIIB

INDAIN
FINANCIAL
SYSTEM
 CHAPTER 1 INDIAN FINANCIAL SYSTEM

Indian Financial
System
2

Log on https://www.myonlineprep.com/app/Registers/go for more free study materials, mock test and previous year question for JAIIB & CAIIB exam.
 A financial system is the system that covers financial transactions and the exchange of money between
CHAPTER 1 lender and borrowers. A financial system INDIAN
investors, FINANCIAL
can be defined SYSTEM
at the global, regional or firm specific
level. Financial systems are made of intricate and complex models that portray Financial Institutions,
Services, Markets, and Instrument & Regulatory that link depositors with investors.

INDIAN FINANCIAL SYSTEM

FIN INSTITUTIONS FIN MARKET FIN INSTRUMENT FIN SERVICE REGULATORY

SHORT, MED LONG

BANKING CAPITAL MONEY MIN OF

NON BANKING MUTUAL FUND INSURANCE DEPOSITORIES
MARKET MARKET FINANCE

PRIVATE NBFC EQUITY DEBT TRESURY BILLS CREDIT RATING RBI

DEVELP FIN
PUBLIC PRIMARY SECONDARY DERIVATIVE CALL MONEY FACTORING SEBI
INSTI

FOREIGN NSE FUTURE CP HIRE PURCHASE IRDA

PUBLIC ISSUE

MARCHANT
RRB BSE OPTION CD BANKING

PRIVATE
PLACEMENT
PORTFOLIO
REG STOCK EXC BILLS OF EX MGMT

OCTEI
3

Log on https://www.myonlineprep.com/app/Registers/go for more free study materials, mock test and previous year question for JAIIB & CAIIB exam.
 CHAPTER 1 INDIAN FINANCIAL SYSTEM

COMMERCIAL BANK PRIMARY DEALAR

A pre-approved bank, broker/dealer or other financial

Commercial Banks are banking institutions that accept
institution that is able to make business deals with the
deposits and grant short-term loans and advances to their
U.S. Federal Reserve, such as underwriting new
customers. In addition to giving short-term loans,
government debt. These dealers must meet certain
commercial banks also give medium-term and long-term
liquidity and quality requirements as well as provide a
loan to business enterprises. Now-days some of the
valuable flow of information to the Fed about the state of
commercial banks are also providing housing
the worldwide markets.
loan on a long-term basis to individuals. There are also
many other functions of commercial banks, which are
discussed later in this lesson.
FINANCIAL INSTITUTION

A financial institution (FI) is a company engaged in the

NON- BANKING FINANCIAL business of dealing with monetary transactions, such as
deposit, loans, investments and currency exchange.
COMPAINIES (NBFC) Financial institutions encompass a broad range of
business operations within the financial services sector,
Non-banking financial companies, or NBFCs, are
including banks, trust companies, and brokerage firms or
financial institutions that provide certain types of banking
investment dealers. Virtually everyone living in a
services, but do not hold a banking license. Generally,
developed economy has an ongoing or at least periodic
these institutions are not allowed to take deposits from
need for the services of financial institutions.
the public, which keeps them outside the scope of
traditional oversight required Under Banking Regulation.
NBFCs can offer banking services such as loans and
COOPERATIVE BANK
credit facilities, Retirement planning money markets, Established by the Farm Credit Act of 1933, these
under writing, and merger activities.
4
regional, privately-owned and government-sponsored
banks make loans to farmer-owned marketing, supply
and service cooperatives, and rural utilities. The loans
Log on https://www.myonlineprep.com/app/Registers/go for more free study materials, mock test and previous year question for JAIIB & CAIIB exam.
 CHAPTER 1
are financed primarily by the sale of debt securities
issued by the Federal Farm Credit Bank. Banks for
cooperatives are part of the Federal Farm Credit System
and are subject to regulation by the Farm Credit
Administration.
PAYMENT AND SETTLEMENT SYSTEM
An efficient and effective payment system is a necessary
condition for smooth functioning of financial system.
Maintenance of clearing houses at various centers,
creation of necessary holdings chest in different
geographical area and creation of the mechanism for
electronic transfer of fund are other activities under taken
by the central bank.
MANAGEMENT OF GOVERNMENT DEBT
Debt management refers to strategies state and local
governments use to manage their debt. There is a variety
of debt management strategies state and local
governments employ. Common strategies include
adopting policies on debt, such as limits, structure
practices, issuance practices, and general management
practices. Debt limits are acceptable levels of debt and
may be determined by legal restrictions, internal
5 standards, and/or financial restrictions. Debt structuring
practices refers to the term, maturity, and debt service
payments. Debt issuance practices relates to determining
Log on https://www.myonlineprep.com/app/Registers/go for more free study materials, mock test and previous year question for JAIIB & CAIIB exam.
INDIAN FINANCIAL SYSTEM
the sale method and investment of proceeds and use of
credit and bond services and ratings as well as
professional service providers to assist with such matters.
General debt management practices refer to disclosure
and compliance practices associated with debt issuance
as well as investor relations efforts.
BANKERS TO GOVERNMENT
Most of the central banks provides liquidity support on a
temporary basis through the facilities of repurchase
(REPO) of securities to bank to meet there short term
liquidity requirement
LENDER OF LAST RESORT TO BANK
A lender of last resort is an institution, usually a country's
central bank that offers loans to banks or other eligible
institutions that are experiencing financial difficulty or are
considered highly risky or near collapse. In United States,
the Federal Reserve acts as the lender of last resort to
institutions that do not have any other means of
borrowing and whose failure to obtain credit would
dramatically affect the economy.
 CHAPTER 1
CASH RESERVE RATIO (CRR)
Cash Reserve Ratio (CRR) is a specified minimum
fraction of the total deposits of customers, which
commercial banks have to hold as reserves either in cash
or as deposits with the central bank. CRR is set according
to the guidelines of the central bank of a country.
STATUTORY LIQUIDITY RATIO
Statutory liquidity ratio (SLR) is the Indian government
term for reserve requirement that the commercial banks in
India require to maintain in the form of gold, government
approved securities before providing credit to the
customers. Statutory Liquidity Ratio is determined by
Reserve Bank of India maintained by banks in order to
control the expansion of bank credit.
The SLR is determined by a percentage of total demand
and time liabilities. Time Liabilities refer to the liabilities
which the commercial banks are liable to pay to the
customers after a certain period mutually agreed upon,
and demand liabilities are such deposits of the customers
which are payable on demand. An example of time liability
is a six month fixed deposit which is not payable on
demand but only after six months. An example of demand
6 liability is a deposit maintained in saving account or
current account that is payable on demand through a
withdrawal form such as a cheque.
Log on https://www.myonlineprep.com/app/Registers/go for more free study materials, mock test and previous year question for JAIIB & CAIIB exam.
INDIAN FINANCIAL SYSTEM
CAPITAL MARKET
Capital markets are markets for buying and selling equity
and debt instruments. Capital markets channel savings
and investment between suppliers of capital such as retail
investors and institutional investors, and users of capital
like businesses, government and individuals. Capital
markets are vital to the functioning of an economy, since
capital is a critical component for generating economic
output. Capital markets include primary markets, where
new stock and bond issues are sold to investors, and
secondary markets, which trade existing securities.
EQUITY AND DEBT MARKET
The debt market is the market where debt instruments
are traded. Debt instruments are assets that require a
fixed payment to the holder, usually with interest.
Examples of debt instruments include bonds
(government or corporate) and mortgages. The equity
market (often referred to as the stock market) is the
market for trading equity instruments. Stocks are
securities that are a claim on the earnings and assets of
a corporation. An example of an equity instrument would
be common stock shares, such as those traded on the
New York Stock Exchange.
 CHAPTER 1
STOCK EXCHANGE
A stock exchange or bourse is an exchange where stock
brokers and traders can buy and/or sell stocks (also called
shares), bonds, and other securities. Stock exchanges
may also provide facilities for issue and redemption of
securities and other financial instruments, and capital
events including the payment of income and dividends.
Securities traded on a stock exchange include stock
issued by listed companies, unit trusts, derivatives, pooled
investment products and bonds. Stock exchanges often
function as "continuous auction" markets, with buyers and
sellers consummating transactions at a central location,
such as the floor of the exchange.
BROKERS
A broker is an individual person who arranges
transactions between a buyer and a seller for a
commission when the deal is executed. A broker who also
acts as a seller or as a buyer becomes a principal party to
the deal. Only the brokers approved by the capital market
regulator can operate on the stock exchange
EQUILITY AND DEBT RAISERS
Companies wishing to raise equality to debt through stock
7 customers. On instructions of the stock exchange
exchanges have to approach a capital market regulator
with the prescribed application and a preforma prospectus
Log on https://www.myonlineprep.com/app/Registers/go for more free study materials, mock test and previous year question for JAIIB & CAIIB exam.
INDIAN FINANCIAL SYSTEM
for permission to raise equity and debt and to get them
listed on a stock exchange.
INVESTMENT BANKERS (MERCHANT
BANKERS)
Merchant banks under takes a number of activities such
as under taking the issue of stock, fund raising and
management. They also provide advisor services and
counsel on mergers and acquisition etc. They are licensed
by the capital and market regulators.
FORIGN INSTITUTIONAL INVESTORS
(FLLS)
Fill is an investor or investment fund that is form or
registered in a country outside of the one in which it is
currently investing. Fill are foreign-based funds authorized
by the capital market regulator to invest in the Indian
equity and debt market through stock exchanges.
DEPOSITORIES
Depositories hold securities in demat form (as opposed
to physical form), maintain accounts of depository
participants who, in turn, maintain sub-accounts of their
clearing house, supported by documentation, a
 CHAPTER 1 INDIAN FINANCIAL SYSTEM
depository transfers securities from the buyers to sellers including licensing of insurance companies, framing
accounts in electronic form. regulations about the conduct of business and
supervising all insurance activities in the country etc..

MUTUAL FUNDS
THE MULTI COMMODITITY EXCHANGE
A mutual fund is a form of Collective Investment that
pools money from investors and invests in Stocks, Debt OF INDIA LIMITED (MCX)
and other Securities. It is a less risky investment option
Multi Commodity Exchange of India Ltd (MCX) is an
for an individual investor. Mutual funds require the
independent commodity exchange based in India. It was
regulators approval to start an asset management
established in 2003 and is based in Mumbai. It is India's
company (the fund) and each scheme has to be
largest commodity futures exchange where the clearance
approved by the regulator before it is launched.
and settlements of the exchange happens and the
turnover of the exchange for the year 2015 was 55.52
trillion rupees (865.55 billion US dollars). MCX offers
REGISTRARS futures trading in bullion, non-ferrous metals, energy, and
a number of agricultural commodities (menthe oil,
Registrars maintain a register of share and debenture
cardamom, crude palm oil, cotton and others).
holders and process share and debenture allocation,
when issues are subscribed. Registrars too need
regulators approval to do business.

INSURANCE REGULATORY &

DEVELOPMENT AUTHORITY (IRDA)
8 Regulator for Insurance business, both general and life
assurance. Regulates all aspects of insurance business,

Log on https://www.myonlineprep.com/app/Registers/go for more free study materials, mock test and previous year question for JAIIB & CAIIB exam.
 CHAPTER 1 INDIAN FINANCIAL SYSTEM

OUR SPECIALISATION
JAIIB/ CAIIB CLASSROOM PREPARATION

BEST FACULTY WITH 10+ YEAR EXP. JAIIB & CAIIB PREPRATION

BEST STUDY MATERIALS (HIGHLY ACCLAIMED)

TOPIC WISE MOCK TEST

FULL LENTH MOCK TEST

RESULT ASSESSMENT WITH GRAPHICAL REPRESENTATION

APP BASED LEARNING AND PREPARATION

Log on https://www.myonlineprep.com/app/Registers/go for more free study materials, mock test and previous year question for JAIIB & CAIIB exam.