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INDIAN FINANCIAL

SYSTEMGROUP MEMBERS

Abhishek Chaudhary

Jatinder DangwalNupur JainRavinder SharmaRishi Panwar

Sakshi ChauhanShashi KumarShankar NarayanBatabyal


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Financial System- An overview

Existence of a well organised financial

system.

Promotes the well being and standardof living of the people of a country.

Money and monetary assets.

Mobilize the saving.

Promotes investment. Financial System of any country

consists of

financial markets, financial


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Evolution of Financial SystemBarter

Money Lender

Chit funds

Indigenous Banking

Cooperative Movement


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Joint-Stock Banks

Consolidation

Commercial Banks

Nationalization

Investment Banks

Development Financial Institutions


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Investment /Insurance Companies

Stock Exchanges

Market Operations

Specialized Financial Institutions

Merchant Banking

Universal Banking


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Components of Indian FinancialSystem

INDIAN FINANCIAL SYSTEM

ORGANIZED NON-ORGANIZED

Regulators MoneyLenders

Financial Institutions Localbankers

Financial Markets TradersFinancial Services Landlords


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Organized Indian FinancialSystem

Regulators

Financial Instruments- Money marketinstrument and Capital market instrument

Financial markets- Forex market,Capitalmarket,Money market,Credit market.

Capital market and Money market furthercombines and

forms

Primary markets and Secondary markets.

Financial Intermediaries


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Regulators RBI (Reserve Bank of India)

SEBI (Securities and Exchange Boardof India)

CBDT (Central Bank of Direct Taxes)

IRDA (Insurance Regulatory andDevelopment Authority)

BIFR (Board for Industrial andFinancial 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(ex-

ICICI,IDBI,IFCI etc)-State Level Institutions(ex-SFCs,SIDCs)

-Other Institutions

3.Mutual Funds

(a)Public Sector


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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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Development FinancialInstitutions

Established to fill the gaps betweenbanking systems and capital market.

Channeling funds to particular firms,industries, sectors, during thedevelopment process.

To reduce financial constraints facedby companies.

Converting themselves into universalbanks. E.g.: ICICI bank


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Mutual Funds

A fundestablished inthe form of atrust by a

sponsor ,to raisemonies by thetrustees through

the scale of unitsto the public,under one ormore schemes,for investing in

IHFCs

Filing the gap ofcredit supply forhouse building.

Big mobilisers offunds.

Provide finance

in form ofmortgage loan.

HUDCO

LIC


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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 mutualhelp. 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 bedefined as the market inwhich financial assets arecreated or transferred.

Financial assets or Financial

Instruments represents aclaim 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 aremet by the exchange ofcurrencies.Depending on the exchange

rate that is applicable,the transfer offundatakes place in this market.

Credit Market- Credit market is a placewhere banks, FIs and NBFCs purveyshort,medium and long term loans tocorporate and individuals.


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Capital MarketMarket for securities (debt or

equity),where business enterprises andgovernments 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

Trading Instruments used

Shares


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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 Debt

Market1.Primary Market 1.Private

Corporate Debt

2.Secondary Market 2.PSU Bond

market

3.Derivatives 3.Govt. SecuritiesMarket


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Equity Market Equity market is a private or public

market for the trading of companystock and derivatives act at an agreedprice.

These are securities listed on a stockexchange .

The Indian market of equities is

transacted on the basis of NSE and BSE,the trading being carried on in adematerialized form.

Venture capital funds and Private equity


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Debt market Various kinds of debts like mortgage,

promissory notes etc can be traded with easebetween interested parties .

Participants :

Banks

Financial Institutions

Mutual Funds

Insurance Companies etc.

Instruments:

Government Securities Market


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Primary Market : First time sales ofequity .

Also called the new issue market, is themarket for issuing new securities. Manycompanies, especially small and medium

scale, enter the primary market to raisemoney from the public to expand theirbusinesses. They sell their securities to thepublic 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.


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Money Market


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Call Money Market : Market where callfunds are borrowed and lent. Deals in veryshort period funds. This market is being used

by the central bank for conducting the openmarket operations.

Collateral Loan Market :

A place where loan, which are backed bycollateral assets are facilitated. Also called assecured loan.

Bill Market :Where different types of bills or commercialbills are circulated. A commercial bill is onewhich arises out of a credit transactions.


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Financial Services

Bridges the gap between lack of

knowledge of investors and financialinstruments and markets.

Help in raising fund from individuals,

investors, institutions, and corporateorganization.

Efficient Distribution of fund.

Effective mobilization of saving intoproductive units.

Indian financial system has provided


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Types of Financial Services Book building

Credit Rating

Deposit Insurance

E-Commerce Hire Purchase

Lease financing

Syndicated Loan

Depository

Portfolio management


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Financial Instruments

Documents which represents financial

claims on assets and securities.

Refers to claim periodical payments ofcertain amount of money by way of

principle, interest or dividend.

There are instruments for savers such asequities, mutual fund units, etc.

There are instruments for borrowers such

as loans, overdrafts, etc.


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Characteristics Liquidity, for the quick conversion into

cash. Collateral value, for pledging of

instruments for obtaining loan.

Price fluctuations of security.

Tax status.

U i d Fi i l S t


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Unorganized Financial SystemMoney lenders:

Offers small personal loans at high rate ofinterest.

Important source of credit to a particularcategory of borrowers

Pawn brokers:

An individual or business entity offers loans inexchange for an item of value given to the

pawn broker.

Indigenous bankers:

offer loan on short term.

lent mone on sec rit of ewels n on


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Financial System and Economy

INTERRELATION

Financial System

Savers Lenders HouseholdsForeign Sectors

CorporateSector/Govt. Sector

Investors/BorrowersUnorganized Sector


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REFORMS

Each scam has brought in reforms-

1992/2001

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 products-Index/Stock Futures & Options

Reforms/Changes in the margining

system STP- electronic contracts

Margin Lending

Securities Lending


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Reforms in the FinancialSystem PRE REFORMS PERIOD

STEPS TAKEN

OBJECTIVES

CONCLUSION

R f i th Fi i l


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Reforms in the FinancialSystem

PRE REFORMS PERIOD

The period from the mid 1960s to early1990s

Characterized by:-Administered interest rates

-Industrial liscensing and controls

-Dominant public sector

-Limited competition

-High capital-output ratio


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Banks and financial institutions acted as

a deposit agencies. Price discovery process was prevented.

Government failed to generate

resources for investment and publicservices.

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 thechairmanship of M Narasimham

He submitted report with all therecommendations

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 goalsof financial stability and integratedand efficient markets.


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Recommendations Reduce the level of state ownership in

banking

Lift restrictions on foreign ownership ofbanks

Spur the development of the corporatebond market

Strenghthen legal protections


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Deregulate the insurance industry

Drop propose limits on pension reforms

Increase consumer ownership ofmutual-fund products

Introduce a gold deposit scheme Speed up the development of

electronic payments

Separate RBIs regulatory and centralbank functions

Lift the remaining capital account

controls


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Conclusion Financial System is fairly integrated,

stable and efficient Weaknesses need to be addressed

The reforms have been more capitalcentric in nature

Foreign capital flows and foreignexchange reserves have increased butabsorption of foreign capital is low


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THANK YOU