Indian financial system and role of financial institutions

The Financial System of any country refers to a system that provides
smooth and efficient relationship between the borrowers and the lenders.
This system aims at establishing effective medium for generating funds from
various sources. A financial system may be defined as a set of institutions,
instruments and markets which fosters savings and channels them to their
most efficient use. The main function of this financial system is to assemble
wide spread savings from household individuals and industrial firms.

FEATURES OF INDIAN FINANCIAL SYSTEM
-It plays a vital role in economic development of a country.
-It encourages both savings and investment.
-It links savers and investors.
-It helps in capital formation.
-It helps in allocation of risk.
-It facilitates expansion of capital markets.
-It aids in financial deepening and financial broadening.

FINANCIAL INSTITUTIONS
Financial institutions are the participants in a financial market. They are business organizations dealing in financial resources. They collect resources by accepting deposits from individuals and institutions and lend them to trade, industry and others. They buy and sell financial instruments.
and many more things about the Indian financial system.

1. INDIAN FINANCIAL SYSTEM AND ROLE OF FINANCIAL INSTITUTIONS PRESENTED BY : SIDDHARTHA GUPTA PRIYANSH KESARWANI VIJAY SINGH

2. INTRODUCTION The economic development of a nation is reflected by the progress of the various economic units, broadly classified into corporate sector, government and household sector.   While performing their activities these units will be placed in a surplus/deficit/balanced budgetary situations. There are areas or people with surplus funds and there are those with a deficit.  A financial system or financial sector functions as an intermediary and facilitates the flow of funds from the areas of surplus to the areas of deficit.  A Financial System is a composition of various institutions, markets, regulations and laws, practices, money manager, analysts, transactions and claims and liabilities. The word " system" , in the term "financial system", implies a set of complex and closely connected or interlined institutions, agents, practices, markets, transactions, claims, and liabilities in the economy.  Indian financial system consists of financial market, financial instruments and financial intermediation.

3. CIRCULAR FLOW IN AN ECONOMY

4. The Financial System of any country refers to a system that provides smooth and efficient relationship between the borrowers and the lenders. This system aims at establishing effective medium for generating funds from various sources. A financial system may be defined as a set of institutions, instruments and markets which fosters savings and channels them to their most efficient use. The main function of this financial system is to assemble wide spread savings from household individuals and industrial firms . Also, it helps to gather other productive investments in a country. This system helps in fastening the process of capital formation. Further accelerates process of economic prosperity of any nation. Financial System includes various aspects such as financial markets, financial institutions, banking firms, financial services, financial intermediaries, financial assets and instruments, etc. All these are closely related and work in combination with each other. Financial System through their huge network of elements helps to serve needs of different individuals, institutions and companies.

5. Dan O’Brien (Economics editor of Irish Times newspaper)- The function of financial system is to channel money from people who have it but want to save it to people who don’t have it but want to spend it. According to ROBINSON (British Economist), the primary function of a financial system is “ to provide link between savings and investment for creation of wealth and to permit portfolio adjustment in the composition of existing wealth.”

6. FINANCE

7. FEATURES OF INDIAN FINANCIAL SYSTEM It plays a vital role in economic development of a country. It encourages both savings and investment. It links savers and investors. It helps in capital formation. It helps in allocation of risk. It facilitates expansion of capital markets. It aids in financial deepening and financial broadening.

8. FUNCTIONS OF INDIAN FINANCIAL SYSTEM It bridges the gap between savings and investments through efficient mobilization and allocation of surplus funds. It helps a business in capital formation. It helps in minimizing risk and allocating risk efficiently. It helps to liquidate tied up funds. It facilitates financial transactions through provision of various financial instruments. It facilitates trading of financial assets/instruments by developing and regulating financial markets.

9. IMPORTANCE OF INDIAN FINANCIAL SYSTEM It accelerates the rate and volume of savings through provision of various financial instruments and efficient mobilization of savings. It aids in increasing the national output of the country by providing funds to corporate customers to expand their respective business. It protects the interests of investors and ensures smooth financial transactions through regulatory bodies such as RBI, SEBI etc. It helps in economic development and raising the standard of living of people. It helps to promote the development of weaker section of the society through rural development banks and co operative societies.

10. It helps corporate customers to make better financial decisions by providing effective financial as well as advisory services. It aids in financial deepening and broadening.

11. Financial Structure And Institution

12. DIAGRAMMATIC REPRESENTATION OF INDIAN FINANCIAL SYSTEM

13. The formal financial system comprises financial institutions, financial markets, financial instruments an d financial services

14. FINANCIAL INSTITUTIONS Financial institutions are the participants in a financial market. They are business organizations dealing in financial resources. They collect resources by accepting deposits from individuals and institutions and lend them to trade, industry and others. They buy and sell financial instruments.

15. Financial institutions classified as:- a) Regulatory and financial institutions : The two major Regulatory and Promotional Institutions in India are Reserve Bank of India (RBI) and Securities Exchange Board of India (SEBI). Both RBI and SEBI administer, legislate, supervise, monitor, control and discipline the entire financial system . RBI is the ap e x o f a ll fi n an c i al in s titutions in financial institutions are under the control of RBI . The financial markets are under the control of SEBI .

16. b) Banking institutions :- Banking institutions mobilize the savings of the people . They provide a mechanism for the smooth exchange of goods and services. Basic categories of banking institutions are commercial banks, co-operative banks, developmental banks

17. c) Non banking financial institutions :- Nonbanking financial institutions also mobilize financial resources directly or indirectly from the people . They lend funds but not create credit Companies like LIC, GIC, UTI, Development Financial Institutions, Organisation o Funds etc. fall in this category. Nonbanking financial institutions can be categorized as investment companies, housing companies, leasing companies, hire purchase companies, specialized financial institutions (EXIM Bank etc.) investment institutions, state level institutions etc

18. FINANCIAL MARKETS

19. FINANCIAL MARKETS Financial market deals in financial securities (or financial instruments) and financial services. Financial markets are the centers or arrangements that provide facilities for buying and selling of financial claims and services. These are the markets in which money as well as monetary claims is traded in. Financial markets exist wherever financial transactions take place. Financial transactions include issue of equity stock by a company, purchase of bonds in the secondary market, deposit of money in a bank account, transfer of funds from a current account to a savings account etc.

20. Financial market can be classified in 2 on basis of maturity of claims Money Market and Capital Market Money Market: A market where short term funds are borrowed and lend is called money market. It deals in short term monetary assets with a maturity period of one year or less. Liquid funds as well as highly liquid securities are traded in the money market. Examples of money market are Treasury bill market, call money market, commercial bill market etc. Capital Market: Capital market is the market for long term funds. This market deals in the long term claims, securities and stocks with a maturity period of more than one year. The stock market, the government bond market and derivatives market are examples of capital market.

21. Financial market can be classified in 2 on basis of seasoning of claim Primary Market and Secondary Market Primary Market: Primary markets are those markets which deal in the new securities. Therefore, they are also known as new issue markets. These are markets where securities are issued for the first time. In other words, these are the markets for the securities issued directly by the companies. Secondary Market: Secondary markets are those markets which deal in existing securities. Existing securities are those securities that have already been issued and are already outstanding. Secondary market consists of stock exchanges.

22. Financial Instruments

23. FINANCIAL INSTRUMENTS Financial instruments are the financial assets, securities and claims. They may be viewed as financial assets and financial liabilities. Financial assets: represent claims for the payment of a sum of money sometime in the future (repayment of principal) and/or a periodic payment in the form of interest or dividend. Financial liabilities: are the counterparts of financial assets. They represent promise to pay some portion of prospective income and wealth to others.

24. FINANCIAL SERVICES

25. Financial services refer to services provided by the finance industry. Services that are financial in nature. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are banks, credit card companies, insurance companies, consumer finance companies, stock brokerages, investment funds and some government sponsored enterprises.

26. TYPES OF FINANCIAL SERVICES Fund or asset based financial services Fee based financial services

27. Fund Based Services The firm raises funds through debt, equity, deposits and the bank invests the funds in securities or lends to those who are in need of capital. The following are some of these fund-based services such as: Leasing and Hire Purchase Housing Finance Credit Cards Venture Capital Factoring Forfeiting Bill Discounting Insurance

28. Fee Based Services The services wherein financial institutions operate in specialized fields to earn a substantial income in the form of fees or dividends or brokerage on operations. Th e ma j o r f ee b ased f i nancia l se r vic e s a r e as follows: Issue Management Corporate Advisory Services Credit Rating Mutual Funds Asset Securitization Stock Broking Services

29. Financial Institutions Of India

30. RBI (Reserve Bank of India) Established:  The Reserve Bank of India was established following the Reserve Bank of India Act of 1934. Though privately owned initially, it was nationalised in 1949 and since then fully owned by Government of India ( GoI ). 1 April 1935; 84 years ago Headquarter : Mumbai, Maharashtra,  India . Governor:   Dr. Shaktikanta Das . First RBI governor- sir osborne smith First Indian RBI governor - sir C .d deshmukh Deputy governor 1 shri M.K jain 2 shri b p kahungi 3 dr. Viral v Acharya 4 shri n s Vishwanathan

31. NABARD ( National Bank for Agriculture and Rural Development ) Established:  NABARD was established on 12th July 1982 on the recommendation of CRAFICARD committee which is also known as the SivaRaman Committee. Headquarter :  Mumbai, Maharashtra. Chairman :  Harsh Kumar Bhanwala . Biggest Rural Development Bank  AIM   To uplift Rural India & rural non-farm sector.  NABARD acts as regulator for co-operative banks &RRB's (Regional Rural Banks). Primary Function: NABARD is the apex organisation related to financing in the agricultural sector. It looks after matters concerned with policy, planning and operations in rural areas in India.  Rural Infrastructure Development Fund (RIDF) is operated by NABARD. Provides refinance to lending institutions in rural areas.  Helps SHG (Self Help Group) & poor people in rural areas.  Runs programme for agricultural & rural development. Recommends about licensing for RRBs, Co-operative banks to RBI .

32. SIDBI ( Small Industries Development Bank of India ) Established:  Small Industries Development Bank of India (SIDBI in short) was established on 2nd April 1990 under the Small Industries Development Bank of India Act 1989 as a subsidiary of Industrial Development Bank of India. Headquarter : Lucknow , Uttar Pradesh. Chairman :   Dr. Kshatrapati Shivaji . Primary Function: SIDBI refinances loan & advances provided by the existing lending institution to small-scale units.  SIDBI is an independent financial institution which provides help for the growth and development of micro, small and medium-scale enterprises (MSME’s). The second fund is a debt fund called SIDBI make in India loan for enterprises (SMILE), which was announced in the Union budget (2015) in February. The fund will provide short-term loans and loans in the nature of quasi-equity of MSMEs to meet debt-to-equity norms and pursue growth.

33. EXIM BANK ( Export Import Bank ) Established:  EXIM Bank was established on January 1, 1982 for the purpose of financing, facilitating and promoting foreign trade of India. Headquarter :  Mumbai, Maharashtra. Chairman :  Yaduvendra Mathur . It was established in 1982 under  EXIM Bank of India Act 1981.  The bank lays special  emphasis on extension of Lines of Credit (LOCs)  to overseas entities, national govts ., regional financial institution and Commercial Banks.  The bank extends Buyers credit & suppliers credit to finance and promote country's exports.  To promote hi-tech exports from India,  the bank has a lending programme to finance Research & Development (R & D) activities of export-oriented companies.  The authorised capital of the EXIM bank is Rs . 200 crore & paid up capital is Rs . 100 crore , wholly subscribed by the central government. Primary Function: The Export-Import (EXIM) Bank of India is the principal financial institution in India for coordinating the working of institutions engaged in financing export and import trade. To tap domestic & foreign markets for resources. undertaking development & financial activities in export sector (export & import ).

34. SEBI ( Securities and Exchange Board of India ) Established:  SEBI was first set up as a non-statutory body in April 1988, to regulate the working of the stock exchange. Later it was made an autonomous body on 12 April 1992 via SEBI Act 1992. 1st chairman of SEBI is  Dr S.A. Dave [12 April 1988-23 Aug 1990]  Headquarter :  Mumbai, Maharashtra. Chairman :   Upendra Kumar Sinha. Objective:  Protects the interest of investors and to promote the development of stock exchange & regulate the activities of stock market.    As per the SEBI regulations, the level of risk will be depicted by the colour code boxes for Mutual Funds:  Blue:  Principal at low risk  Yellow:  Principal at medium risk  Brown:  Principal at high risk.  This regulation came into effect on 1 July 2013 post which all the fund houses have labelled their funds can be the basis of the risk levels. SEBI has launched a centralised web based system to redress complaints by SCORES. Primary Function: SEBI is the security market regulator in India .

35. IRDAI (Insurance Regulatory and Development Authority of India ) Established:  IRDDAI was set up in the year 1999 by the Insurance Regulatory and Development Authority Act, 1999, which was passed by the Government of India. Headquarter :  Hyderabad, Telengana . Chairman :  T.S. Vijayan . It is an autonomous apex statutory body to control & develop insurance agency in India. IRDA is a national agency of GOI.   Passed by Government of India under  IRDA Act 1999  on the recommendation of Malhotra Committee.  It was incorporated as statutory body in April 2000  IRDA act 1999, amended in 2002 to incorporate some emerging requirements  Objective To protect the interest of policyholder, to regulate, promote & ensure orderly growth of the insurance industry & for matters connected there with or incidental there to. Primary Function: The IRDAI is an autonomous, statutory agency tasked with regulating and promoting the insurance and re-insurance industries in India .