1. OVERVIEW OF
FINANCIAL SYSTEM
Dr. RAJITHA.R

2. INTRODUCTION
FINANCIAL SYSTEM
FINANCE SYSTEM
 the source of providing set of interrelated parts or
funds for a particular activity. Subsystems working
together to achieve some
objectives
 sources of raising revenue
for the activities and functions
of a Government.

3. FLOW OF FUNDS IN A SYSTEM
flow of funds
savings
incomes & financial claims
Seekers of
funds (firms&
government)
Suppliers of
funds OF
Fhouse holds)h

4. COMPONENTS OF INDIAN FINANCIAL SYSTEM

5. FEATURES OF FINANCIAL SYSTEM
 Set of subsystems
 Integrated and organised subsystems
 Regulatory organisations
 Operate in close cooperation
 Mechanism to transfer savings into productive
investment
 Each subsystem render services

6. FUNCTIONS OF FINANCIAL SYSTEM
 Formation of Capital
 Selection of Productive projects
 Monitors the Performance
 Payment mechanism & Settlement of debts
 Transfer of funds
 Control risk
 Reduce the cost of finance to projects
 Provision of liquidity
 Regulates the activities

7. COMPONENTS OF FINANCIAL SYSTEM
FINANCIAL
SYSTEM
FINANCIAL
INSTITUTION
FINANCIAL
MARKET
FINANCIAL
INSTRUNMENTS
FINANCIAL
SERVICES

8. FINANCIAL MARKET
 Place where people and organisation
wanting to borrow money are bought
together with those having surplus funds
 Centre for buying and selling of financial
claims
 May or may not have physical existence
 Mobilize the savings
 Economic development

9. FINANCIAL INSTRUMENTS
 It represents claim against future
income and wealth of others.
 Financial instruments possess
liquidity,
marketability
maturity period.

10. FINANCIAL INSTITUTION
 Includes institutions and mechanisms which
 Affect generation of savings by the community
 Mobilisation of savings
 Effective distribution of savings
 Institutions are banks, insurance companies,
mutual funds- promote/mobilise savings
 Individual investors, industrial and trading
companies- borrowers


11. FINANCIAL SERVICES
Activities that transform savings
into investment
Allocate the savings
Promote industrial development

12. MERCHANT BANKING
A Merchant bank is a financial institution primarily
engaged in internal finance and long term loans for
multinational corporations and governments.
It can also be used to describe the private equity
activities of banking.
Merchant
banks tend to advise corporations and wealthy
individuals on how to use their money

13. DEFINITION OF MERCHANT BANKING
The Notification of the Ministry of finance defines A
merchant banker as , any person who is engaged in
the business of
issue management either by making
arrangements regarding selling, buying or
subscribing to the securities as manager,
consultant, adviser or rendering corporate
advisory service in relation to such issue
management .

14. OBJECTIVES OF MERCHANT BANKING
 Channelizing the financial surplus of the general
public into productive investments
avenues
• Co-coordinating the activities of various
intermediaries like the registrar, bankers,
advertising agency, printers, underwriters, brokers,
etc., to the share issue
• Ensuring the compliance with rules and
regulations governing the securities market

15. FUNCTIONS OF MERCHANT BANKING
 Corporate counseling
Project Counseling
Capita l Structuring
Portfolio Management
Issue Management
Credit Syndication
Working capital
Venture Capital
Lease Finance
Fixed Deposits

16. REGULATORY FRAMEWORK
1.Is it mandatory for a merchant banker to register with the
SEBI?
2. Who is eligible to obtain registration as a merchant banker?
3. What are the various categories for which registration can be
obtained?
The categories for which registration may be granted are given
below:
Category I – to carry on the activity of issue management and to
act as adviser, consultant, manager, underwriter,
portfolio manager.
Category II - to act as adviser, consultant, co-manager,
underwriter, portfolio manager.
Category III - to act as underwriter, adviser or consultant to an
issue
Category IV – to act only as adviser or consultant to an issue

17. REGULATORY FRAMEWORK
What is the capital requirement for carrying on activity
as merchant banker?
The capital requirement depends upon the category.
The minimum net worth requirement for acting as
merchant banker is given below:
Category I – Rs. 5 crores
Category II – Rs, 50 lakhs
Category III – Rs. 20 lakhs
Category IV – Nil