Constituents of financial system

Financial system in India

1. Role and functions of participants in the Financial Markets

2. Lenders Borrowers Savers Spenders Households Business firms Business firms Government Government Households Foreigners Foreigners

3. Investors Intermediaries: Banking Institutions Non-Banking Institutions Investment Institutions Financial Service companies Fund Based and Fee Based Regulatory Agencies RBI,SEBI, Government

4. Factors Impacting the dynamics of Financial System Collection of Markets, institutions, laws, regulations Securities are traded Interest rates are determined Financial Services are produced Financial Services are delivered around the World

5. Primary Task of the Financial System: It moves scarce loanable funds Funds are shifted from those who save to those who buy goods and services and to make investments The movement enables the global economy to grow and the standard of living to increase.

6. Channels for Savings and Investments Nature of savings: Households: Current income -tax Payments- Consumption expenditure Businesses: Retained Earnings Government: Revenues-Expenditure Nature of Investment: Households: Bank deposits, purchase of a house Businesses: Expenditure on Capital goods and inventories Government: Building Public Facilities

7. Dynamic Financial System The global financial system rapidly changing into a new system Trend towards global integration of financial systems: 1. Powered by innovations as new financial services and instruments continually appear to attract customers. 2. Benefiting from increasing harmonization of regulations

8. The results are led to major changes: 1. Increasingly intense competition 2. Many new financial Services 3.Increased Risk 4.A wave of mergers among financial institutions

9. overview Before Independence After Independence till 1990 After 1990

10. Before Independence Unorganised Few securities are traded in securities market No separate issuing institution Participation of financial intermediaries had almost nil Industry’s access to outside savings was also restricted

11. After Independence Transfer of ownership from private to public 1.Nationalisation of RBI 2. setting up of SBI 3. Nationalisation of Life Insurance business 4. Nationalisation of Commercial Banks 5. Nationalisation of General Insurance Setting up of Financial Institutions 1. Development Finance Institutions 2. Investing Institutions 3. Other Institutions Changing role of commercial Banks

12. After 1990’s Entry of Private sector Changing role of Development Finance Institutions Growth of Mutual Fund Industry Establishment of SEBI Developments in secondary market Significant changes in Financial system

13. II UNIT Indian Banking System- Overview