INDIAN FINANCIAL SYSTEM

GROUP MEMBERS

Abhishek Chaudhary Jatinder Dangwal Nupur Jain Click to edit Sharma RavinderMaster subtitle style Rishi Panwar Sakshi Chauhan Shashi Kumar Shankar Narayan Batabyal
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Financial System- An overview

Existence of a well organised 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. Financial System of any country consists of 3/10/12 financial markets, financial

Evolution of Financial System

Barter Money Lender Chit funds Indigenous Banking Cooperative Movement
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Joint-Stock Banks Consolidation Commercial Banks Nationalization Investment Banks

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Financial Institutions

Investment /Insurance Companies Stock Exchanges Market Operations Specialized Financial Institutions Merchant Banking
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Universal Banking

Components of Indian Financial System

INDIAN FINANCIAL SYSTEM

ORGANIZED ORGANIZED Regulators Lenders bankers

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NONMoney Local Traders Landlords

Financial Institutions Financial Markets Financial Services

Organized Indian Financial System

Regulators

Financial Instruments- Money market

instrument and Capital market instrument

Financial markets- Forex market,Capital

market,Money market,Credit market.

Capital market and Money market further combines and forms Primary markets and Secondary markets.

Financial Intermediaries 3/10/12

Regulators

RBI (Reserve Bank of India) SEBI (Securities and Exchange Board of India) CBDT (Central Bank of Direct Taxes) IRDA (Insurance Regulatory and Development Authority) BIFR (Board for Industrial and Financial Reconstruction)
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Financial Institutions
1.Banking Institutions (a)Scheduled Commercial Banks -Public Sector Banks -Private Sector Banks -Foreign Banks -Regional Rural Banks (b)Scheduled Cooperative Banks
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2.Non- Banking Institutions (a)Non Banking Financial Companies (b)Development Financial Institutions -All India Financial Institutions(exICICI,IDBI,IFCI etc) -State Level Institutions(exSFCs,SIDCs) -Other Institutions 3.Mutual Funds (a)Public Sector 3/10/12

NOTE:

Non-banking financial companies

Carry out financial activities . Resources are not directly obtained from the savers as debt. Oblige public savings for rendering other financial services including investments. UTI, LIC, GIC
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Established to fill the gaps between banking systems and capital market. Channeling funds to particular firms, industries, sectors, during the development process. To reduce financial constraints faced by companies. Converting themselves into universal banks. E.g.: ICICI bank
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Development Financial Institutions

Mutual Funds A fund established in the form of a trust by a sponsor ,to raise monies by the trustees through the scale of units to the public, under one or more schemes, 3/10/12 for investing in

IHFCs Filing the gap of credit supply for house building. Big mobilisers of funds. Provide finance in form of mortgage loan. HUDCO LIC

Scheduled Commercial Banks : Which have been included in the second schedule of RBI Act,1934 Scheduled cooperative Banks : Organized & managed on the principle of co operation , self help, and mutual help. They function with the rule of one member, one vote function on no profit, no loss basis.

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FINANCIAL MARKETS

A Financial Market can be defined as the market in which financial assets are created or transferred. Financial assets or Financial Instruments represents a claim to the payment of a sum of money sometime in
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Forex Market
The forex 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 fundatakes place in this market. Credit Market- Credit market is a place where banks, FIs and NBFCs purvey short,medium and long term loans to corporate and individuals.
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Capital Market
Market for securities (debt or equity),where business enterprises and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a Year.

Long Term Funds raised by

Government Corporate Shares

Trading Instruments used

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Money Market
It involved in short-term borrowing and lending with original maturities. Trading in the money markets involves

Treasury bills Commercial paper Bankers' acceptances Certificates of deposit Short-lived mortgage and asset-backed securities. It provides liquidity funding for the
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Capital market

Equity Market Market

1.Primary Market Corporate Debt 2.Secondary Market market 3.Derivatives Market
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Debt
1.Private 2.PSU Bond 3.Govt. Securities

Equity Market

Equity market is a private or public market for the trading of company stock and derivatives act at an agreed price. These are securities listed on a stock exchange . The Indian market of equities is transacted on the basis of NSE and BSE, the trading being carried on in a dematerialized form.
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Debt market

Various kinds of debts like mortgage, promissory notes etc can be traded with ease between interested parties . Participants :

Banks Financial Institutions Mutual Funds Insurance Companies etc.

Instruments:

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Government Securities 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 [ IPO].

Secondary Market : Financial market for trading of securities that have already been issued in an initial private or public offering. 3/10/12

Money Market

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Call Money Market : Market where call funds are borrowed and lent. Deals in very short period funds. This market is being used by the central bank for conducting the open market operations. Collateral Loan Market :

A place where loan, which are backed by collateral assets are facilitated. Also called as secured loan.

Bill Market :

Where different types of bills or commercial bills are circulated. A commercial bill is one which arises out of a credit transactions.
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Financial Services
Bridges the gap between lack of knowledge of investors and financial instruments and markets.

Help in raising fund from individuals,

Efficient Distribution of fund.

investors, institutions, and corporate organization. Effective mobilization of saving into productive units.

Indian 3/10/12 financial system has provided

Types of Financial Services

Book building Credit Rating Deposit Insurance E-Commerce Hire Purchase Lease financing Syndicated Loan Depository
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Financial Instruments
Documents which represents financial claims on assets and securities. Refers to claim periodical payments of certain amount of money by way of principle, interest or dividend. There are instruments for savers such as equities, mutual fund units, etc. There are instruments for borrowers such as loans, overdrafts, etc. 3/10/12

Characteristics

Liquidity, for the quick conversion into cash. Collateral value, for pledging of instruments for obtaining loan. Price fluctuations of security. Tax status.

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Unorganized Financial System

Money lenders: Offers small personal loans at high rate of interest. Important source of credit to a particular category of borrowers Pawn brokers: An individual or business entity offers loans in exchange for an item of value given to the pawn broker. Indigenous bankers: offer loan on short term.
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Financial System and Economy

INTERRELATION Financial System Savers Lenders Foreign Sectors Households

Corporate Sector/Govt. Sector Investors/Borrowers Unorganized Sector

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REFORMS

Each scam has brought in reforms1992/2001 Screen based Trading through NSE Capital adequacy norms stipulated Dematerialization of Shares-risks of fraudulent paper eliminated Entry of foreign investors Investor awareness programs Rolling settlements
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Reforms/Initiatives post 2000

Corporatisation of exchange memberships Banning of Badla/ALBM Introduction of Derivative productsIndex/Stock Futures & Options Reforms/Changes in the margining system STP- electronic contracts Margin Lending Securities Lending
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Reforms in the Financial System

PRE REFORMS PERIOD STEPS TAKEN OBJECTIVES CONCLUSION

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Reforms in the Financial System

PRE REFORMS PERIOD

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

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.

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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 liberlised various sectors in the economy Reform of the public sector and tax system
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Objectives

Reorientation of the economy Macroeconomic stability To increase competitive efficiency in the operations To remove structural rigidities and inefficiencies To attain a balance between the goals of financial stability and integrated and efficient markets.
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Recommendations

Reduce the level of state ownership in banking Lift restrictions on foreign ownership of banks Spur the development of the corporate bond market Strenghthen legal protections
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Deregulate the insurance industry Drop propose limits on pension reforms Increase consumer ownership of mutual-fund products Introduce a gold deposit scheme Speed up the development of electronic payments Separate RBIs regulatory and central bank functions Lift the remaining capital account 3/10/12 controls

Conclusion

Financial System is fairly integrated, stable and 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

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THANK YOU

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