Introduction To Indian Financial System

INTRODUCTION TO INDIAN FINANCIAL SYSTEM

FORMAL AND INFORMAL FINANCIAL SECTOR 

Formal financial sector is characterized by the presence of an organized, institutional and regulated system.

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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 Formal 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

Financial Markets 

Primary ( Direct) Market or New Issue Market: Dealing in the new financial claims or new securities.

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Secondary Market: Dealing in the securities already issued or existing or outstanding.

Financial Markets 

Money Markets: Highly liquid

short term debt – instruments market including Call Money Market, Certificates of Deposits, Commercial Papers and Treasury Bills. 

Capital Markets: Market for

Long-Term securities and provides risky capital in the form of equity.

Financial Instruments 

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Primary Securities: Equity,

Preference, Debt and Various combinations. Secondary Securities: Mutual Fund Units and Insurance Policies etc.

Financial Services      

Depositories Custodial Credit Rating Leasing Portfolio Management Underwriting etc.

Functions of the Financial system  

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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