INTRODUCTION TO

INDIAN FINANCIAL
SYSTEM

UNIT I
IFS

FORMAL AND INFORMAL FINANCIAL
SECTOR
Formal financial sector is characterized by the
presence of an organized, institutional and
regulated system.

Informal financial sector is an unorganized
,non- institutional, and non- regulated system
dealing with the traditional and rural spheres of
the economy.
Components of the Financial System

Financial Institutions
Financial Markets
Financial Instruments
Financial Services


Financial Institutions
Banking Institutions: Participate in the
economy's payment mechanism, deposit
liabilities constitute a major part of national
money supply.
Non-Banking Institutions: LIC, SIDBI,
IIBI, IFCI ( All India Financial Institutions),
SFCs & SIDCs
Structure of Banking in India
Scheduled
bank
Commercial
bank
Public sector
(27)
Nationalized
banks (19)
State bank of
India & its
associates (8)
Private sector
(30)
Foreign
banks (40)
Regional
Rural banks
(196)
Co-operative
bank
Funds flow from commercial bank
STRONG DEMAND
CREDIT FLOW FROM SCHEDULED COMMERCIAL BANKS (RS CRORE)
Item
Outstanding as
on
March 26, 2010
As on March 27,
2009
As on March 26,
2010
Amount Per cent Amount Per cent
Public Sector
Banks
27,93,705 3,25,608 16.9 5,41,737 24.1
Foreign Banks 1,90,766 -14,028 -8.1 31,474 19.8
Private Banks 6,89,232 41,424 8.4 1,51,618 28.2
All Scheduled
Commercial
Banks*
37,63,213 3,66,914 13.8 7,38,641 24.4
*: Including Regional Rural
Banks
Source:RBI
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
MONEY 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
Capital Market in
India
Government
security (Gill-edged
market)
Industrial security
market
New issues market
and
Old issue market
Development
financial Institution
IFCI
ICICI
SFCs
IDBI
IIBI
UTI
Financial
Intermediaries
Merchant banks
Mutual funds
Leasing companies
Venture capitalist
Gilt Edged Market And Types
This market refers to the market for government
securities which are of the best quality.
Credible instrument used by government for
meeting its financial requirement.
Types:-
I. Dated Securities with a fix maturity date.
II. Zero coupon bonds
III. Partly paid stock
IV. Treasury Bills
Industrial security market

An initial public offering (IPO), referred to simply as an "offering"
or "flotation", is when a company (called the issuer) issues common
stock or shares to the public for the first time.
Indias largest IPO is from Coal India Ltd which raised upto
Rs.15000 crore
A stock exchange is an entity that provides "trading" facilities
for stock brokers and traders to trade stocks, bonds, and
other securities.

Recent changes by SEBI

Investment limit in IPO is increased from
1 lakh to 2 lakh
SEBI decides IPOs should be listed with in
12 days
SEBI introduced spot delivery system for
derivatives from April 1
st
2011
Pre open market introduced by SEBI


Development financial
Institutions
It was developed by The Narasimham
committee in 1991
These institutions provide a crucial role in
providing credit in the form of higher risk
loans, equity positions and risk guarantee
instruments to private sector investments in
developing countries

Financial Instruments
Primary Securities: Equity, Preference, Debt
and Various combinations.
Secondary Securities: Mutual Fund Units and
Insurance Policies etc.
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 Services
Depositories
Custodial
Credit Rating
Leasing
Portfolio Management
Underwriting etc.
Functions of the Financial system
To link the savers & investors.
To inspire the operators to monitor the
performance of the investment.
To achieve optimum allocation of risk bearing.
It makes available price - related information.
It helps in promoting the process of financial
deepening and broadening


INTERMEDIARIES
Some Of The Important Intermediaries Operating In The Financial
Markets Include :
Investment Bankers
Stock Exchanges
Mutual Funds
Financial Advisors
Financial Consultants
Primary Dealers, Etc
EVOLUTION, GROWTH & FUNCTIONS
OF INDIAN FINANCIAL SYSTEM
Nationalization of banks
expansion of rural banking
Extending geographic spread & functional reach
Growth of financial savings
World wide liberalization of monetary & trade
policies
Arrival of WTO & removal of artificial barriers
Increasing Industrial & Trade
variety of investors from different sectors
Concept of safety, liquidity & profitability of the
investment.




CONCLUSION
In India money market is regulated by Reserve bank of
India & Securities Exchange Board of India/SEBI
regulates capital market.
Capital market consists of primary market & secondary
market. All initial public offerings/IPOs comes under the
primary market, & all secondary market transactions
deals in secondary market.
Secondary market refers to a market where securities are
traded after being initially offered to the public in the
primary market & are listed on the stock exchange.
Secondary market comprises of equity market & debt
markets.
In the secondary market transactions BSE & NSE plays a
great role in exchange of capital market instruments.