IFS Growth

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Indian Financial System : 

Indian Financial System

Financial System : 

Financial System Existence of a well organized financial system Promotes the well being and standard of living of the people of a country Money and monetary assets Mobilize the saving Promotes investment

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Financial System of any country consists of financial markets, financial intermediation and financial instruments or financial products

Indian Financial System : 

Indian Financial System Non- Organized Organized Money lenders Local bankers Traders Landlords Pawn brokers Chit Funds Regulators Financial Institutions Financial Markets Financial services

Evolution of Financial System : 

Barter Money Lender Nidhi's/Chit Funds Indigenous Banking Cooperative Movement Societies Banks Joint-Stock Banks Evolution of Financial System

Slide 6: 

Consolidation Commercial Banks Nationalization Investment Banks Development Financial Institutions Investment/Insurance Companies Stock Exchanges Market Operations Specialized Financial Institutions Merchant Banking Universal Banking

Slide 7: 

Financial System Savers Lenders Households Foreign Sectors Investors Borrowers Corporate Sector Govt.Sector Un-organized Sector Economy Interrelation--Financial system & Economy

Slide 8: 

Organized Indian Financial System Money Market Instrument Capital Market Instrument Forex Market Capital Market Money Market Credit Market Primary Market Financial Instruments Financial Markets Financial Intermediaries Secondary Market Regulators

Slide 9: 

Indian Capital Market Market Instruments Intermediaries Primary Secondary Equity Debt Hybrid Regulator Brokers Investment Bankers Stock Exchanges Underwriters SEBI Players Corporate Intermediaries CRA Banks/FI FDI /FII Individual

Capital Market Instruments : 

Capital Market Instruments

Financial Regulators : 

Financial Regulators

Financial Regulators : 

Financial Regulators Securities and Exchange Board of India (SEBI) Reserve Bank of India Ministry of Finance

Reforms in the Financial System : 

Reforms in the Financial System

Pre-Reforms Period : 

Pre-Reforms Period The period from the mid 1960s to the early 1990s. Characterized by: Administered interest rates Industrial licensing and controls Dominant public sector Limited competition High capital-output ratio

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Banks and financial institutions acted as a deposit agencies. Price discovery process was prevented. Government failed to generate resources for investment and public services. Till 90s it was closed, highly regulated, and segmented system.

Steps Taken : 

Steps Taken Economic reforms initiated in June 1991. The committee appointed under the chairmanship of M Narasimham. He submitted report with all the recommendations Government liberalized the various sectors in the economy. Reform of the public sector and tax system.

Objectives : 

Objectives Reorientation of the economy Macro economic stability To Increase competitive efficiency in the operations To remove structural rigidities and inefficiencies To attain a balance between the goals of financial stability & integrated & efficient markets

Recommendations : 

Recommendations Reduce the level of state ownership in banking Lift restrictions on foreign ownership of banks Spur the development of the corporate-bond market Strengthen legal protections

Recommendations : 

Recommendations Deregulate the insurance industry Drop proposed limits on pension reforms Increase consumer ownership of mutual-fund products Introduce a gold deposit scheme

Recommendations : 

Recommendations Speed up the development of electronic payments. Separate the RBI's regulatory and central-bank functions Lift the remaining capital account controls Phase out statutory priority lending and restrictions on asset allocation

Conclusion : 

Conclusion The financial system is fairly integrated, stable, efficient. Weaknesses need to be addressed. The reforms have been more capital centric in nature. Foreign capital flows and foreign exchange reserves have increased but absorption of foreign capital is low.