BTP BCOM3

GOOD MORNING TO ONE N ALL:

GOOD MORNING TO ONE N ALL

Introduction to Indian Financial System :

Introduction to Indian Financial System Economic growth and development of any country depends to a large extent on the efficiency of a developed financial system. Growth of financial sector is an indicator of an economic development of a country. On the other hand, economic development depends on the sound banking system which is a part of financial system. Hence, it is necessary to understand the financial system of a country.

Slide 3:

The word system , in the term financial system , implies a set of complex and closely connected or inter-linked Institutions, agents, practices, markets, transactions, claims, and liabilities in the economy. The financial system is concerned about money, credit and finance--the three terms are intimately related yet are somewhat different from each other. Thus, a financial system can be said to play a significant role in the economic growth of a country.

Functions of financial system:

Functions of financial system It serves as a link between savers and investors. It channelises flow of savings into productive investment. It provides a payment mechanism for the exchange of goods and services. It provides a mechanism for the transfer of resources. It provides a mechanism for managing and controlling the risk involved in mobilizing savings and allocating credit. It promotes the process of capital formation. It provides detailed financial information to the players in the market.

Components of financial system:

Components of financial system The following are the four major components that comprises the Indian financial system: Financial Institutions Financial Markets Financial Instruments (Assets/Securities) & Financial Services.

Financial Institutions:

Financial Institutions In financial system, a financial institution acts as an agent that provides financial services for its clients or members or entities (individual, business, Government ). Financial institutions are also termed as financial intermediaries who facilitate smooth functioning of the financial system by making investors and borrowers meet. They mobalise savings of the surplus units and allocate them in productive activities promising a better rate of return.

Slide 7:

Financial institutions provide a service as intermediaries of the capital and debt markets. They are responsible for transferring funds from investors to companies, in need of those funds. The presence of financial institutions facilitate the flow of monies through the economy. This segment is divided into two types of Institutions: Regulators & Intermediaries

REGULATORS:

REGULATORS Regulatory Institutions are statutory bodies assigned with the job of monitoring and controlling different segments of the Indian Financial System (IFS). These Institutions have been given adequate powers through the vehicle of their respective Acts to enable them to supervise the segments assigned to them. It is the job of the regulator to ensure that the players in the segment work within recognised business parameters maintain sufficient level of disclosure and transparency of operations and do not act against the national interests. At present, there are two regulators directly connected to IFS: Reserve Bank of India Security and Exchange Board of India

INTERMEDIARIES:

INTERMEDIARIES Intermediary Financial Institutions are essentially of two types: Banking Non Banking A distinguishing characteristic of banking Financial Institutions lies in the fact that, unlike other institutions, they participate in the economy’s payments mechanism, i.e., they provide transaction services, their deposit liabilities constitute a major part of the national money supply, and they can, as a whole, create deposits or credit, which is money. Banks, subject to legal reserve requirements, can advance credit by creating claims against themselves.

Slide 10:

Financial Institutions(Non Banking), on the other hand, can lend only out of resources put at their disposal by the savers. Most FIs, however, work on commercial lines with an eye on the development of the sectors assigned to them. Financial institutions have been the primary source of long term lending for large projects. Conventionally, they raised their resources in the form of bonds subscribed by RBI, Public Sector Enterprises, Banks and others.

Slide 11:

Financial institution Regulators Intermediaries R B I S E B I Banking Non Banking Commercial Banks Co-operative Banks Development banks Investment Institutions NBFC’s NOTE: Developments banks include IDBI, ICICI, IFCI, SFC’s, SIDC’s, NABARD etc. Investment institutions include LIC, UTI, GIC, Mutual funds etc. Non-banking financial companies (NBFC’s) include leasing companies, housing finance companies, credit rating agencies, merchant banking companies etc.

Financial Markets :

Financial Markets It is through financial markets and institutions that the financial system of an economy works. Financial markets refer to the institutional arrangements for dealing in financial assets and credit instruments of different types such as currency, cheques, bank deposits, bills, bonds etc.

Functions:

Functions To serve as intermediaries for mabilisation of savings To provide financial convenience To assist the process of balanced economic growth To cater to the various credit needs of the business houses.

Slide 14:

The financial markets are divided into two categories: Money market : It refers to the institutional arrangements facilitating borrowing and lending of short-term funds. In a money market, funds can be borrowed for a short priod varing from a day, a week, a month, or three to six months and against different types of instruments, such as bill of exchange, bonds, commercial papers etc., called ‘near money’. According to ‘ Crowther ’, “the collective name given to the various firms and institutions that deal in the various grades of near money.”

Slide 15:

Capital market : It refers to the institutional arrangements facilitating borrowing and lending of long-term funds. It is defined as “an organised mechanism for effective and efficient transfer of money or financial resources from the investing parties to the entrepreneurs engaged in industry or commerce either be in the private or public sectors.”

Slide 16:

FINANCIAL MARKET Money Market Capital Market 1.Call Money Market 2.Bill Of Exchange 3.Commercial Papers 1.Primary Market 2.Secondary Market 3.Derivative Market