This presentation describes Indian financial system and its various important components..

1. Finance Management
FINANCIAL INSTITUTION AND FINANCIAL MARKET
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2. Indian Financial System
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• “a set of markets and institutions to facilitate the exchange of assets and risks.”
• Financial System refers to the financial needs of different sectors of the
economy and the ways and means to meet such needs efficiently and
economically.
• Financial System acts as a connecting link between savers of money and users
of money and thereby promotes faster economic and industrial growth.
• Efficient functioning of the financial system enables proper flow of funds from
investors to productive activities which in turn facilitates investment.

3. Indian Financial System
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• financial system comes under the purview of the Ministry of Finance (MOF) Reserve
Bank of India (RBI), Securities Exchange Board of India (SEBI) and other regulatory
bodies
Indian financial System
Financial
Institutions (FI’s)
Financial
market
Financial
Instruments
Financial
Services

4. Indian Financial System: FI’s
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• Financial institutions are intermediaries that
mobilize the savings and facilitate the
allocation of funds in an efficient manner.
• Financial institutions are classified as banking
and non banking financial institutions.
• Banking institutions are creator of credit while
non banking financial institutions are
purveyors of credit.
Financial Institution
Banking FI’s
Non Banking
FI’s

5. Indian Financial System: FI’s
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Major credit paying FI’s
• Development Financial Institutions (DFIs)
• Non Banking Financial Companies (NBFCs)
• Housing Finance Companies (HFCs)
Term Finance Institutions
• Industrial Development Bank of India (IDBI),
• Industrial Credit and Investment Corporation of India (ICICI),
• Industrial Financial Corporation of India (IFCI),
• Small Industries Development Bank of India (SIDBI)
• Industrial Investment Bank of India (IIBI).

6. Indian Financial System: FI’s
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Specialized finance institutions
• Export Import Bank of India (EXIM),
• Tourism Finance Corporation of India (TFCI)
• ICICI Venture,
• Infrastructure Development Finance Company (IDFC)
sectoral financial institutions
• National Bank for Agricultural and Rural Development (NABARD)
• National Housing Bank (NHB).
Investment institutions
• UTI / Public Sector and Private Sector Mutual Funds)
• insurance activity (LIC, GIC and 67 its subsidiaries)

7. Financial System: Saving and Investment
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Saving
 Saving is abstaining from present consumption for a future use.
 Savings comes from households as a matter of habit
 bulk of the savings come for specific objectives like interest on income, future
needs, contingencies, precautionary purposes, growth in future wealth, leading to
rise in the standard of living etc.

8. Financial System: Saving and Investment
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Investment
 Investment is the exchange of the money or cash for a future claim on money or
the purchase of a security or a promise to pay at a later date along with a regular
income as in the case of a share, bond, debenture etc.
 Investment is also a service like consultancy, construction, hotel or hospital and
services in future as in the case of consumer durables.
 Securities purchases are investment for the economy and some investments are
offset by corresponding disinvestments.
 Net investment are those which are total investment minus disinvestments
 Gross Assets and Investments minus Depreciation for the economy or a company
or corporate sector or government sector is net investment, which is termed as
capital formation.

9. Financial market:
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Financial markets are a mechanism enabling participants to deal in financial claims.
Equity Debt
Financial Market
Capital Market Money
Market
Commodities
Market
Primary Secondary Derivatives
•Public issue (IPO)
•Private placement
(domestic/ foreign)
•NSE
•BSE
•Other stock
exchanges)
•Exchange
traded
•OTC
•Corporate
debt
•PSU Bonds
•G secs
•T-bills
•Call money
•Commercial bills
•Commercial papers
•Deposit certificates
•Term loans

10. Financial market: Money Market
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 Money market is for short term securities
 Money market is a market for debt securities that pay off in the short term usually
less than one year, for example the market for 90-days treasury bills.
 This market encompasses the trading and issuance of short term non equity debt
instruments including treasury bills, commercial papers, bankers acceptance,
certificates of deposits, etc.
 Money market is regulated by RBI.

11. Financial market: Capital Market
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 Capital market is a market for long-term debt and equity shares.
 Equity and debt are issued and traded in capital market
 It also includes private placement sources of debt and equity as well as organized
markets like stock exchanges.
 Primary market: securities are offered to public for subscription for the purpose of
raising capital or fund.
 Secondary market is an equity trading avenue in which already existing/pre- issued
securities are traded amongst investors.
 Secondary market could be either auction or dealer market.
 While stock exchange is an auction market, Over-the-Counter (OTC) is a dealer market.
 Capital market is regulated by SEBI

12. Financial market: Commodities Market
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 Commodity market is a market that trades in primary economic sector rather than
manufactured products.
 Soft commodities are agricultural products such as wheat, sugar, pulses etc..
 Hard commodities are mined, such as gold, silver and oil.
 Futures contracts are the oldest way of investing in commodities. Futures are secured
by physical assets.
 Commodity markets can include physical trading and derivatives trading using spot
prices, forwards, futures, and options on futures.
 National commodity exchanges ex. MCX (Multi Commodity Exchange ), NCDEX, NMCE,
ICEX, etc. The regulatory body is Forward Markets Commission (FMC) set up in 1953. In
September 2015 FMC is merged SEBI.

13. Informal Financial System:
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The informal financial system consists of:
 Individual money lenders such as neighbours, relatives, land lords, traders,
store owners and so on.
 Groups of persons operating as funds or ‘associations’. These groups function
under a system of their own rules.
 Partnership firms consisting of local brokers, pawn brokers and non banking
financial intermediaries such as finance, investment, chit fund companies.