"Financial system" implies a set of complex and closely connected or interlined institutions, agents, practices, markets, transactions, claims, and liabilities in the economy. "Finance" in our simple understanding it is perceived as equivalent to 'Money' But Finance exactly is not money. It is the source of providing funds for a particular activity.
"Financial system" implies a set of complex and closely connected or interlined institutions, agents, practices, markets, transactions, claims, and liabilities in the economy. "Finance" in our simple understanding it is perceived as equivalent to 'Money' But Finance exactly is not money. It is the source of providing funds for a particular activity.
"Financial system" implies a set of complex and closely connected or interlined institutions, agents, practices, markets, transactions, claims, and liabilities in the economy. "Finance" in our simple understanding it is perceived as equivalent to 'Money' But Finance exactly is not money. It is the source of providing funds for a particular activity.
organization & assemblage of facts , principles or components relating to particular field or for specified purpose. The word "system", in the term "financial system", implies a set of complex and closely connected or interlined institutions, agents, practices, markets, transactions, claims, and liabilities in the economy.
Finance" in our simple understanding it is perceived as equivalent to 'Money'.
But Finance exactly is not money.
It is the source of providing funds for a particular activity. Finance is the art and science of managing money. Virtually all individuals and organisations earn or rise money and spend or invest money. Finance is concerned with the process, institutions, markets and instruments involved in the transfer of money among and between individuals, business and governments. The word system in Financial System refers to set of closely held financial institution, services, instruments & markets. A Financial System of country can be defined as set of organizations & methods of operational procedures that are interrelated with each-other.
Every modern economy is based on a sound financial system. The principal aim of financial system is to transform surplus income & savings into investments.
SEEKERS OF FUNDS, MAINLY BUSINESS FIRM & GOVT.
SUPPLIERS OF FUNDS, MAINLY HOUSEHOLD FLOW OF FUNDS FLOW OF FINANCIAL SERVICES Mobilization Of Savings. Provision Of Liquidity Providing Information Credit Function and payment function Reduce cost of transaction and borrowing Risk function Proper allocation of the fund for the development of the economy Projects selection
A Financial Asset is the one which is used for production or consumption or for future creation of assets.
Types Of Financial Assets:
Marketable Non-marketable Market able Assets Debentures Shares & Bonds Govt. Securuties Mutual fund units Financial Assets Non- Marketa ble Assets PO certificates Bank deposits PF LIC schemes Financial Assets FINANCIAL MARKET Financial markets provide channels for allocation of savings to investment. It is a market where financial assets are created or transferred through buying & selling of financial assets. FINANCIAL MARKET MONEY MARKET CAPITAL MARKET PRIMARY MARKET SECONDARY MARKET FOREX MARKET CREDIT MARKET A Financial Market can be defined as the market in which financial assets are created or transferred. As against a real transaction that involves exchange of money for real goods or services, a financial transaction involves creation or transfer of a financial asset. Financial Assets or Financial Instruments represents a claim to the payment of a sum of money sometime in the future and /or periodic payment in the form of interest or dividend. Financial Markets can be referred as to those centers & arrangements which facilitate buying & selling of financial assets, claims & services.
Financial markets in India consists of Organized & Unorganized Sector.
Organized Sector consists of Capital market & Money market.
Function of Financial Markets 1. Allows transfers of funds from person or business without investment opportunitie s to one who has them 2. Improves economic efficiency Source: Mishkin, Frederic S. and Apostolos Serletis, The Economics of Money, Banking and Financial Markets, 2 nd Canadian Edition, Pearson Addison Wesley, 2004 An Overview of the Financial System Regulation of Financial Markets Two Main Reasons for Regulation 1. Increase information to investors A. Decreases adverse selection and moral hazard problems B. Securities commissions force corporations to disclose information 2. Ensuring the soundness of financial intermediaries A. Prevents financial panics B. Chartering, reporting requirements, restrictions on assets and activities, deposit insurance, and anti-competitive measures
Capital Market Industrial Sector Market Govt. Securities Market Long Term Market Money Market Call money Market Commercial bill Market Treasury bill Market Short term loan Market Financial Market ORGANIZED MARKET UNORGANIZED MARKET LENDER Money Market- The money market ifs a wholesale debt market for low-risk, highly-liquid, short-term instrument. Funds are available in this market for periods ranging from a single day up to a year. This market is dominated mostly by government, banks and financial institutions. it refers to the market, where borrowers & lenders exchange short term funds to solve their liquidity needs. funds are available in this market for periods ranging from a single day upto a year. the financial claims here have low risk, high liquidity & maturities under one year
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.
2.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. AGAIN THE CAPITAL MARKET CAN BE CLASSIFIED ON THE BASIS OF CLAIMS REPRESENTING NEW ISSUES OR OUTSTANDING ISSUES AS PRIMARY & SECONDARY .
A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year
PRIMARY MARKET
SECONDARY MARKET
PRIMARY MARKET : First Time Sales of Equity Also Called the new issue market, is the market for issuing new securities. Many companies, especially small and medium scale, enter the primary market to raise money from the public to expand their businesses. They sell their securities to the public through an initial public offering. it is the market which provides the channel for sale of new issues. resources are required for both new as well as existing projects with a view to expansion, modernisation, diversification & upgradation. it is the market where resources are mobilised by companies through issue of new securities. A market where investors trade outstanding securities/ issues are called secondary market. secondary market comprises of stock exchanges, which provide platform for purchase & sale of securities by investors, where the trading is accessible only through brokers & trading is confined only to stock exchanges.
FOREX MARKET:
THIS MARKET DEALS WITH THE MULTICURRENCY REQUIREMENTS, WHICH ARE MET BY THE EXCHANGE OF CURRENCIES. DEPENDING ON THE EXCHANGE RATE THAT IS APPLICABLE, THE TRANSFER OF FUNDS TAKES PLACE IN THIS MARKET. THIS IS ONE OF THE MOST DEVELOPED & INTEGRATED MARKET ACROSS THE GLOBE.
CREDIT MARKET: IT IS A PLACE WHERE BANKS, FINANCIAL INSTITUTIONS & NBFCS RENDER SHORT, MEDIUM & LONG TERM LOANS TO CORPORATE & INDIVIDUALS. Intermediary
Market
Role
Stock Exchange Capital Market Secondary Market to securities Investment Bankers Capital Market, Credit Market
Corporate advisory services, Issue of securities
Underwriters Capital Market, Money Market Subscribe to unsubscribed portion of securities Registrars, Depositories, Custodians Capital Market Issue securities to the investors on behalf of the company and handle share transfer activity Primary Dealers Satellite Dealers Money Market Market making in government securities
It refers to document that represent financial claims or financial assets.
A financial instrument is either cash; evidence of an ownership interest in an entity; or a contractual right to receive, or deliver, cash or another financial instrument.
Features Of Financial Instruments:
Easily Transferable. Ready Market. Posses Liquidity. Used as securuty for raising loan. Specified maturity period.
Money Market Instruments THE MONEY MARKET IS A MARKET FOR SHORT TERM MONEY & FINANCIAL ASSETS THAT ARE CLOSER SUBSTITUTES OF MONEY. HERE THE TERM SHORT TERM MEANS GENERALLY A PERIOD UPTO ONE YEAR & CLOSER SUBSTITUTES OF MONEY MEANS ANY ASSET WHICH CAN BE QUICKLY CONVERTED INTO MONEY WITH MINIMUM TRANSACTION COST.
Money market instruments are briefly discussed below;
1. Call/Notice Money 2. Treasury Bills 3. Term Money 4. Certificate of Deposit 5. Commercial Papers 1. Call /Notice-Money Market Call/Notice money is the money borrowed or lent on demand for a very short period. When money is borrowed or lent for a day, it is known as Call (Overnight) Money. Intervening holidays and/or Sunday are excluded for this purpose. Thus money, borrowed on a day and repaid on the next working day, (irrespective of the number of intervening holidays) is "Call Money". When money is borrowed or lent for more than a day and up to 14 days, it is "Notice Money". No collateral security is required to cover these transactions. 2. Inter-Bank Term Money Inter-bank market for deposits of maturity beyond 14 days is referred to as the term money market. The entry restrictions are the same as those for Call/Notice Money except that, as per existing regulations, the specified entities are not allowed to lend beyond 14 days. 3. Treasury Bills. Treasury Bills are short term (up to one year) borrowing instruments of the union government. It is an IOU of the Government. It is a promise by the Government to pay a stated sum after expiry of the stated period from the date of issue (14/91/182/364 days i.e. less than one year). They are issued at a discount to the face value, and on maturity the face value is paid to the holder. The rate of discount and the corresponding issue price are determined at each auction. 4. Certificate of Deposits Certificates of Deposit (CDs) is a negotiable money market instrument and issued in dematerialized form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period. Guidelines for issue of CDs are presently governed by various directives issued by the Reserve Bank of India, as amended from time to time. CDs can be issued by (i) scheduled commercial banks excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs); and (ii) select all-India Financial Institutions that have been permitted by RBI to raise short- term resources within the umbrella limit fixed by RBI. Banks have the freedom to issue CDs depending on their requirements. An FI may issue CDs within the overall umbrella limit fixed by RBI, i.e., issue of CD together with other instruments viz., term money, term deposits, commercial papers and interoperate deposits should not exceed 100 per cent of its net owned funds, as per the latest audited balance sheet. 5. Commercial Paper CP is a note in evidence of the debt obligation of the issuer. On issuing commercial paper the debt obligation is transformed into an instrument. CP is thus an unsecured promissory note privately placed with investors at a discount rate to face value determined by market forces. CP is freely negotiable by endorsement and delivery. A company shall be eligible to issue CP provided - (a) the tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs. 4 crore; (b) the working capital (fund-based) limit of the company from the banking system is not less than Rs.4 crore and (c) the borrowal account of the company is classified as a Standard Asset by the financing bank/s. The minimum maturity period of CP is 7 days.
Capital Market Instruments The capital market generally consists of the following long term period i.e., more than one year period, financial instruments; In the equity segment Equity shares, preference shares, convertible preference shares, non- convertible preference shares etc and in the debt segment debentures, zero coupon bonds, deep discount bonds etc. Hybrid Instruments Hybrid instruments have both the features of equity and debenture. This kind of instruments is called as hybrid instruments. Examples are convertible debentures, warrants etc.
CALL/NOTICE MONEY: IT IS THE MONEY BORROWED OR LENT ON DEMAND FOR A VERY SHORT PERIOD. WHEN MONEY IS BORROWED OR LENT FOR A DAY, IT IS KNOWN AS CALL/ OVERNIGHT MONEY. HOLIDAYS & SUNDAYS ARE EXCLUDED HERE. THUS MONEY BORROWED ON A DAY & REPAID ON THE NEXT WORKING DAY IS CALL MONEY. BUT WHEN MONEY LENT OR BORROWED FOR MORE THAN A DAY & UPTO 14 DAYS, IT IS NOTICE MONEY.
TERM MONEY : INTER BANK MARKET FOR DEPOSITS OF MATURITY BEYOND 14 DAYS IS REFERRED TO AS THE TERM MONEY MARKET.
TREASURY BILL : IT IS A SHORT TERM BORROWING INSTRUMENT OF THE UNION GOVT. IT IS AN IOU I.e. ACKNOWLEDGEMENT OF DEBT OF THE GOVT. TO PAY A STATED SUM OF AFTER EXPIRY OF STATED PERIOD FROM THE DATE OF ISSUE.(LESS THAN 1 YEAR).
COMMERCIAL PAPERS : IT REPRESENTS SHORT TERM UNSECURED PROMISORY NOTES ISSUED BY FIRMS THAT ARE GENERALLY CONSIDERED TO BE FINANCIALLY STRONG. COMMERCIAL PAPERS USUALLY HAS A MATURITY PERIOD OF 90 - 180 DAYS. IT IS GENERALLY SOLD AT DISCOUNT & REDEEMED AT PAR. IT IS EITHER DIRECTLY PLACED WITH THE INVESTORS OR SOLD THROUGH DEALERS. BUT IT DOES NOT PRESENTLY HAVE A WELL DEVELOPED SECONDARY MARKET IN INDIA. EQUITY SEGMENTS : DEBT SEGMENTS : EQUITY SHARES . DEBENTURES . PREFERENCE SHARES . ZERO-COUPON BOND CONVERTIBLE PREFERENCE SHARES . DEEP DISCOUNT BOND NON-CONVERTIBLE PREFERENCE SHARES . CAPITAL MARKET INSTRUMENTS :
THE CAPITAL MARKET GENERALLY CONSISTS OF THE FOLLOWING LONG TERM PERIOD i.e. MORE THAN 1 YEAR PERIOD. THE MAJOR FINANCIAL INSTRUMENTS USED FOR A CAPITAL MARKET ARE : HYBRID INSTRUMENTS :
HYBRID INSTRUMENTS HAVE BOTH THE FEATURES OF EQUITY & DEBENTURE. THIS KIND OF INSTRUMENT IS CALLED AS HYBRID INSTRUMENTS. EXAMPLES ARE: CONVERTIBLE DEBENTURES.
WARRANTS, ETC.
Financial Intermediaries WHEN THE BORROWER OF THE FUNDS APPROACHES THE FINANCIAL MARKET TO RAISE FUNDS, ADEQUATE INFORMATION OF ISSUE, ISSUER & THE SECURITY SHOULD BE PROVIDED. SO THERE SHOULD BE A PROPER CHANNEL TO ENSURE SUCH TRANSFER WITHIN THE FINANCIAL SYSTEM. FOR THIS PURPOSE FINANCIAL INTERMEDIARIES CAME INTO EXISTENCE.
IN INDIA FINANCIAL INTERMEDIATION IN THE ORGANISED SECTOR IS CONDUCTED BY VARIOUS INSTITUTIONS UNDER THE VIGILANCE OF R.B.I. IN THE INITIAL STAGE THE ROLE OF INTERMEDIARIES WAS MOSTLY RELATED TO ENSURE TRANSFER OF FUNDS FROM THE LENDER TO THE BORROWER. THIS SERVICE WAS OFFERED BY BANKS, INANCIAL INSTITUTIONS, BROKERS & DEALERS.
HOWEVER, AS THE FINANCIAL SYSTEM WIDENED ALONG WITH THE DEVELOPMENTS TAKING PLACE IN THE FINANCIAL MARKETS, THE SCOPE OF ITS OPERATION TOO WIDENED. Financial Intermediaries Specialized financial firms that facilitate the indirect transfer of funds from savers to borrowers by offering savings instruments and borrowing instruments Financial Intermediation The process by which financial intermediaries transform funds provided by savers into funds used by borrowers The Financial Intermediation Process Benefits of Intermediaries Reduced costs Risk/diversification Funds divisibility/pooling Financial flexibility Related services Types of Intermediaries Commercial banks Credit unions Thrift institutions Mutual funds Whole life insurance companies Pension funds Safety (Risk) of Financial Institutions Banks, thrifts and credit unions insured by FDIC regulated by Federal Reserve Insurance companies regulated by states Pensions ERISA established PBGC Mutual funds SEC Having designed the instrument, the issuer should then ensure that these financial assets reach the ultimate investor in order to garner the requisite amount. When the borrower of funds approaches the financial market to raise funds, mere issue of securities will not suffice. Adequate information of the issue, issuer and the security should be passed on to take place. There should be a proper channel within the financial system to ensure such transfer. To serve this purpose, Financial intermediaries came into existence. This service was offered by banks, FIs, brokers, and dealers. However, as the financial system widened along with the developments taking place in the financial markets, the scope of its operations also widened. Some of the important intermediaries operating ink the financial markets include; investment bankers, underwriters, stock exchanges, registrars, depositories, custodians, portfolio managers, mutual funds, financial advertisers financial consultants, primary dealers, satellite dealers, self regulatory organizations, etc. Financial intermediaries includes all types of organisation which intermediate & facilitate financial transactions of both individuals & corporate customers.
It refers to all financial institutions & investing institutions which facilitate financial transactions in financial markets.
Financial intermediaries in India consisits of Organised & Unorganised Sector. SOME OF THE IMPORTANT INTERMEDIARIES OPERATING IN THE FINANCIAL MARKETS INCLUDE :
INVESTMENT BANKERS
STOCK EXCHANGES
MUTUAL FUNDS
FINANCIAL ADVISORS
FINANCIAL CONSULTANTS
PRIMARY DEALERS, ETC. The Function of Financial Institutions Financial intermediaries channel funds between borrowers and lenders. Intermediation transforming assets the function of transforming assets or liabilities into other assets or liabilities Liabilities deposits Assets loans this is the principal activity of most financial institutions. intermediation improves social welfare by channeling resources to their most effective use. The Functions of Intermediation Facilitate the acquisition/payment of goods &services via lower transactions costs Chequing services provided by banks improve economic efficiency. Facilitate the creation of a portfolio A portfolio is a collection of financial assets The financial system provides economies of scale & scope Economies of Scope: cost savings that stem from engaging in complementary activities. Economies of Scale: obtained when the unit cost of an operation decreases as more of it is done. Function of Financial Intermediaries Financial Intermediaries Engage in process of indirect finance Are needed because of transactions costs and asymmetric information Function of Financial Intermediaries (Contd) Transactions Costs 1. Financial intermediaries make profits by reducing transactions costs. 2. They reduce transactions costs by developing expertise and taking advantage of economies of scale.
Function of Financial Intermediaries (Contd) Risk Sharing Create and sell assets with low risk characteristics and then use the funds to buy assets with more risk (also called asset transformation) Lower risk by helping people to diversify portfolios
Asymmetric Information
Adverse Selection Before transaction occurs Potential borrowers most likely to produce adverse outcomes are ones most likely to seek loans and be selected
Asymmetric Information (Contd)
Moral Hazard After transaction occurs Hazard that borrower has incentives to engage in undesirable activities making it more likely that loan wont be paid back Ease liquidity constraints Reallocate consumption/savings patterns Often the liquidity required to make certain purchases is not in line with the immediate flow of income available to individuals. The ability to influence the allocation of consumption and investment is probably the most important function of intermediation. Provide security Intermediation provides a host of services that reduce or shift risk. Financial institutions can also influence the riskiness of financial transactions [contracts and insurance].
Reduce asymmetric information problem Moral hazard the chance that an individual may have an incentive to act in a way such as to put that individual at greater risk; the individual perceives as beneficial actions that are deemed undesirable by another. Adverse selection decision making that results from the incentive for some people to engage in a transaction that is undesirable to everyone else Banks have a comparative advantage in offering specialized services that help to reduce this problem. Banks can also take advantage of this asymmetric information problem, with dire consequences. Adverse Selection 1. Before transaction occurs 2. Potential borrowers most likely to produce adverse outcomes are ones most likely to seek loans and be selected Moral Hazard 1. After transaction occurs 2. Hazard that borrower has incentives to engage in undesirable (immoral) activities making it more likely that wont pay loan back Financial intermediaries reduce adverse selection and moral hazard problems, enabling them to make profits The Function of Financial Institutions Brokerage an agency function Brokers are agents who bring would-be buyers and sellers together so transactions can be made. Intermediation provides value- added but there are potential externalities. One intermediarys actions can have consequences for the entire system. Banks are particularly adept at intermediation because they can perform the necessary functions more cheaply than most institutions. Technological change and deregulation have narrowed the comparative advantage of banks. Types of Financial Institutions Deposit-taking (a.k.a. depository institutions) accept and manage deposits and make loans. These institutions are divided into banks and other deposit-taking institutions (near-banks). Other deposit-taking institutions: Trust companies also provide administrative services for estates and trusts (fiduciaries). Credit unions or caisses populaires these are member owned so that depositors are also shareholders. Mortgage loan companies also permit investors to invest in a portfolio of assets primarily real estate. Insurance Companies and Pension Funds Insurance companies provide the means of channeling savings to provide for unforeseen expenses by pooling the risks of their clientele. There are also institutions that specialize in the management of pension plans and funds. Government legislation plays are large role in dictating how these pensions are administered. Registered Retirement Savings Plans (RRSPs) are individuals tax- sheltered funds administered by the individuals themselves or by a deposit-taking institution or investment dealer on their behalf. Registered Retirement Plans (RRPs) are the pooled retirement savings of a group of employees administered by their employer or labour union. Investment Dealers and Investment Funds The plethora of investment funds (a.k.a. mutual funds) pool funds for investment in a wide range of activities and instruments without providing the other functions of a typical bank Investment dealers primarily underwrite corporate and government securities. Government financial institutions Deposit-taking role Channeling funds from the public to private sector Protecting private funds by providing deposit insurance (CDIC). Other Intermediaries Sales, finance, and consumer loan companies. Financial services refer to the services provided by the finance industry.
Finance industry encompasses a broad range of organisations that deal with management of money.
Organisations are Banks , Credit card co.s, Insurance co.s , Consumer Finance co.s , Stock brokerage , Investment Funds etc.
The economic development of a nation is reflected by the progress of the various economic units, broadly classified into corporate sector, government and household sector. While performing their activities these units will be placed in a surplus/deficit/balanced budgetary situations. There are areas or people with surplus funds and there are those with a deficit. A financial system or financial sector functions as an intermediary and facilitates the flow of funds from the areas of surplus to the areas of deficit. A Financial System is a composition of various institutions, markets, regulations and laws, practices, money manager, analysts, transactions and claims and liabilities. Most banks were state-owned Banks, pension funds and insurance companies were forced to buy State Issued bonds - primary investment. Bombay Stock Exchange was closed market. Run by Brokers for the benefit of its members. There was no right governance and regulation. There was no single derivative market. All financial transactions were controlled by the RBI and Ministry of Finance Socialistic Model Weapons Strict entry barriers in every sub- industry. Difficult to start a bank, a mutual fund, a brokerage firm, an insurance company, a pension fund, a securities exchange or sub-broking firm. Foreign firms were restricted to touch any one of these parts Comprehensive capital control and restrictive legislations Look at a typical bureaucrats of yester years as perceived Big Villains were MRTP act, 1969 The Capital Issues (control) act, 1947 Indian Companies Act, 1956 Industries Act, 1956 Foreign Exchange Regulation Act, 1973 Male , Balding head , Ugly stained metal rimmed glasses . Thick bushy eyebrows[Usually as a mono-brow], Mustache[See pictures], No beard., Paan Chewing [ The teeth and tongue are often discolored]. I-don't-care-what-you-say, I'll-do-it-only-my-way attitude. Drinking coffee 10 times a day. Looking for a slightest opportunity to take bribe. Take home salary is Rs. 5000[Official] + Rs. 25000[Bribes and Misc. tips]. Taking the rules and law by word and not understanding the true essence of it. Even though the laws usually date back to the 1850 British Colonial period . No respect for anyone's privacy. Not taking anyone's ideas on improving productivity even though they are right. Piles and piles of paper with folders and gem-clips strewn about. A rotary dial telephone on the desk.. No air-conditioning and a ceiling fan that rotates 6 times in an hour. Runs errands for his bosses or chats with family during work. Also misuses official equipment. Is usually in a vital position of authority/ In a position that requires interaction with people everyday. www.sriraminhell.com Individuals, Firms, State Surplus Units Money Market Debt Market Equity Market Derivative Market Forex Market
Free Financial System Equity Bonds Hybrid Money Market Instruments All are customized Vehicles Individuals, Firms, State Deficit Units Market driven All players with integrity and accountability Innovators and Creators flourish Contributes favorably to the Economy No greedy Global but not taking external shocks State facilitates rather than suppresses Liberalization Facilitators Eighteen to Three Scheduled Industries Eight Hundred to Fifty SSI MRTP not active Capital Issues Act repealed Foreign Exchange Regulation Act repealed Insurance, Banking Industries open its gates for Private Players MNC allowed
Banking Regulation Act simplified Security Exchange Board constituted Foreign Exchange Management Act passed Companys Act subject to scrutiny Private players allowed to do insurance and banking business SEZs opened FDI encouraged
Lender's risk has dwindled substantially Liquidity position is improved Return is certain on his savings (either fixed or variable) Lender gets impetus to save He will get accurate information from specialized financial institutions. Lenders botheration with respect to selecting a prompt borrower is reduced
Their need make less effort and minimum time in questing for an ultimate lender. In whatsoever fashion they needs funds they can procure They can seek professionals and specialized assistance from specialist in the field.
1. Banking financial institutes (RBI, Commercial banks and co-operative banks) 2. Development banks (all India financial institutes like IDBI, IFCI) 3. Investment financial institutes (LIC,GIC,UTI, since 2000 Private insurance companies like SunLife, Allianz Bajaj, ICICI Prudential etc. ) 4. Non-Banking financial institutes (SBI capital services, Merchant banking companies Hire-purchase companies, etc.,) 5. Postal department Financial services (Recurring deposits, NSC, KVP, Postal Life-Insurance etc.).
Individuals, Firms, State Surplus Units Market State Financial System Money Market Equity Market Debt Market Financial Market Customized Instruments Vehicles Individuals, Firms, State Deficit Units 1. Under developed saving Vehicles or Negative Returns on Saving or both 2. Inefficient allocation of saving by Finanacain intermediaries 3. Poor financial policies Discourage firms from investing Indian financial system was characterized by : Absence of organized capital market Dependence of industries & other users on internal sources. Rare cases of public issues of capital for expansion & modernization. Few financial institutions & players in the market. Awkward & very strict conditions for loan assistance to companies . Nationalization of banks in 1969 was a major step to ensure that timely and adequate credit support was available. Grant of credit to agricultural & small industries by expansion of rural banking proved to be a boon offered by the new policy.
the Indian financial system has made command able progress in extending its geographic spread & functional reach. the sudden burst of activities of banking system has been a major factor in promoting financial intermediation in the economy & growth of financial savings.
Indian money market consists of formal & informal segments. the formal market comprises of RBI, various commercial banks, cooperative banks, uti etc. informal market consists of chitfunds, nidhis, indegenous bankers etc. the money market instruments includes treasury bills, commercial papers etc. INDIAN FINANCIAL STSTEM IN