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Finnacial System in India-Unit1

The document summarizes key aspects of the financial system in India. It discusses the components of the Indian financial system including financial institutions, financial assets, financial services, and financial markets. Financial institutions act as intermediaries between investors and borrowers. Components include banking and non-banking institutions classified as regulatory, intermediaries, and non-intermediates. Financial assets traded in markets include call money, term money, treasury bills, and commercial paper. Financial services include banking, insurance, investment, and foreign exchange services. Financial markets bring together buyers and sellers and include capital, money, foreign exchange, and credit markets.

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Chandini Kambapu
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78 views11 pages

Finnacial System in India-Unit1

The document summarizes key aspects of the financial system in India. It discusses the components of the Indian financial system including financial institutions, financial assets, financial services, and financial markets. Financial institutions act as intermediaries between investors and borrowers. Components include banking and non-banking institutions classified as regulatory, intermediaries, and non-intermediates. Financial assets traded in markets include call money, term money, treasury bills, and commercial paper. Financial services include banking, insurance, investment, and foreign exchange services. Financial markets bring together buyers and sellers and include capital, money, foreign exchange, and credit markets.

Uploaded by

Chandini Kambapu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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FINANCIAL

SYSTEM IN
INDIA
K.Sireesha, Sr.Asst.Professor, DMS, BITS VIZAG.
FINANCIAL SYSTEM IN INDIA
The Indian Financial System is one of the most
important aspects of the economic development of
our country. By definition, this 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.
FEATURES OF INDIAN
FINANCIAL SYSTEM
 It plays a vital role in the economic development of the country as
it encourages both savings and investment
 It helps in mobilizing and allocating one’s savings
 It facilitates the expansion of financial institutions and markets
 Plays a key role in capital formation
 It helps forms a link between the investor and the one saving
 It is also concerned with the Provision of funds
 
COMPONENTS OF INDIAN FINANCIAL
SYSTEM

 Components of Indian Financial System


 There are four main components of the Indian Financial system. Let's discuss each component of the system in detail.
 
 Financial Institutions
 The Financial Institutions act as a mediator between the investor and the borrower. The investor’s savings are mobilised
either directly or indirectly via the Financial Markets.
 
 The main functions of the Financial Institutions are as follows:
 A short term liability can be converted into a long term investment
 It helps in conversion of a risky investment into a risk-free investment
 Also acts as a medium of convenience denomination, which means, it can match a small deposit with large loans and a
large deposit which small loans
 
 The best example of a Financial Institution is Bank. People with surplus
amounts of money make savings in their accounts and people in dire need of
money take loans. The bank acts as an intermediate between the two.
 
 The financial institutions can further be divided into two types:
 Banking Institutions or Depository Institutions - This includes banks and
other credit unions which collect money from the public against interest
provided on the deposits made and lend that money to the ones in need

Non Banking Institutions or Non Depository Institutions - Insurance,
mutual funds and brokerage companies fall under this category. They cannot
ask for monetary deposits but sell financial products to their customers.
 Further, Financial Institutions can be classified into three
categories:
 Regulatory - Institutes that regulate the financial markets like RBI,
IRDA, SEBI, etc.
 Intermediates - Commercial banks which provide loans and other
financial assistance such as SBI, BOB, PNB, etc.
 Non Intermediates - Institutions that provide financial aid to
corporate customers. It includes NABARD, SIDBI, etc.
FINANCIAL ASSETS
 Financial Assets
 The products which are traded in the Financial Markets are called the Financial
Assets. Based on the different requirements and needs of the credit seeker, the
securities in the market also differ from each other.
 
 Some important Financial Assets have been discussed briefly below:
 Call Money - When a loan is granted for one day and is repaid on the second
day, it is called call money. No collateral securities are required for this kind of
transaction.
 Notice Money - When a loan is granted for more than a day and for less than
14 days, it is called notice money. No collateral securities are required for this
kind of transaction.
 Term Money - When the maturity period of a deposit is beyond 14
days, it is called term money.
 Treasury Bills - Also known as T-Bills, These are Government
bonds or debt securities with maturity of less than a year. Buying a
T-Bill means lending money to the Government.
 Certificate of Deposits - It is a dematerialised form (Electronically
generated) for funds deposited in the bank for a specific period of
time.
 Commercial Paper - It is an unsecured short-term debt instrument
issued by corporations
FINANCIAL SERVICES
 Financial Services

 Services provided by Asset Management and Liability Management Companies. They help to get the
required funds and also make sure that they are efficiently invested.
  

 The financial services in India include:

 Banking Services - Any small or big service provided by banks like granting loan, depositing money,
issuing debit/credit cards, opening accounts, etc.
 Insurance Services - Services like issuing of insurance, selling policies, insurance undertaking and
brokerages, etc. are all a part of the Insurance services
 Investment Services - It mostly includes asset management


Foreign Exchange Services - Exchange of currency, foreign exchange, etc. are a part of the Foreign
exchange services
  
FINANCIAL MARKETS
 Financial Markets

 The marketplace where buyers and sellers interact with each other and participate in trading of money,
bonds, shares and other assets is called a financial market.
  

 The financial market can be further divided into four types:

 Capital Market - Designed to finance the long term investment, the Capital market deals with
transactions which are taking place in the market for over an year. The capital market can further be
divided into three types:
 Corporate Securities Market (b)Government Securities Market (c)Long Term Loan Market

 Money Market - Mostly dominated by Government, Banks and other Large Institutions, the type of
market is authorised for small term investments only. It is a wholesale debt market which works on low-
risk and highly liquid instruments. The money market can further be divided into two types:
 Organised Money Market

 Unorganised Money Market


 Foreign exchange Market - One of the most developed markets
across the world, the Foreign exchange market, deals with the
requirements related to multi currency. The transfer of funds in this
market takes place based on the foreign currency rate.
 Credit Market - A market where short-term and long-term loans
are granted to individuals or Organisations by various banks and
Financial & Non-Financial Institutions is called Credit Market

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