Indian financial system ppt...............

Indian financial system

1. INDIAN FINANCIAL INDIAN FINANCIAL
SYSTEMSYSTEM

2. Financial SystemFinancial System

The economic development of The economic development of
any country depends upon the any country depends upon the
existence of a well organized existence of a well organized
financial system. It is the financial system. It is the
financial system which supplies financial system which supplies
the necessary financial inputs for the necessary financial inputs for
the production of goods and the production of goods and
services which in turn promote services which in turn promote
the well being and standard of the well being and standard of
living of the people of a country. living of the people of a country.

3. Financial SystemFinancial System

The financial system is a broader The financial system is a broader
term which brings under its fold term which brings under its fold
the financial markets and the the financial markets and the
financial institution which support financial institution which support
the system. The major assets the system. The major assets
traded in the financial system are traded in the financial system are
money and monetary assets.money and monetary assets.

4. Financial SystemFinancial System

Definition-A set of institutions, Definition-A set of institutions,
instruments and markets which instruments and markets which
promote savings and channel promote savings and channel
them to their most efficient them to their most efficient
use.use.

5. Financial Institutions
Commercial Banks
Insurance Companies
Mutual Funds
Provident Funds
Non Banking Financial Companies
Demanders of Funds
Individuals
Businesses
Governments
Suppliers of Funds
Individuals
Businesses
Governments
Financial Markets
Money Market/ Capital Markets
Private
Placement
Funds
Deposits/Shares
Funds
Loans agreement
Funds
Securities
Funds
Securities
Funds
Securities

6. Importance of Financial Importance of Financial
SystemSystem

Mobilize the savings Mobilize the savings
Facilitates the free flow of fundsFacilitates the free flow of funds

Provides the intermediation Provides the intermediation

7. Functions of the Financial Functions of the Financial
SystemSystem

It provides a payment system for It provides a payment system for
the exchange of goods and the exchange of goods and
services.services.

It enables the pooling of funds for It enables the pooling of funds for
undertaking large – scale undertaking large – scale
enterprises.enterprises.

It provides a mechanism temporal It provides a mechanism temporal
transfer of resources.transfer of resources.

8. It provides a way for managing It provides a way for managing
uncertainty and controlling risk.uncertainty and controlling risk.

It generates information that It generates information that
helps in coordinating helps in coordinating
decentralized decision-making.decentralized decision-making.

It helps in dealing with the It helps in dealing with the
incentive problem when one incentive problem when one
party has an informational party has an informational
advantageadvantage..

9. Functions of the Financial Functions of the Financial
SystemSystem

Provision of LiquidityProvision of Liquidity : The : The
major function of the financial major function of the financial
system is the provision of system is the provision of
money and monetary assets for money and monetary assets for
the production of goods and the production of goods and
services. In financial language, services. In financial language,
the money and monetary assets the money and monetary assets
are referred as liquidity.are referred as liquidity.

10. 
Mobilization of savings: Mobilization of savings: it refers it refers
to mobilize the savings of public to mobilize the savings of public
and channelise them into and channelise them into
productive activities. In other productive activities. In other
words, the financial system words, the financial system
facilitates the transformation of facilitates the transformation of
savings into investment and savings into investment and
consumption.consumption.

Economic growth:Economic growth: it promotes it promotes
economic growth by balancing of economic growth by balancing of
distribution of finds, particularly distribution of finds, particularly
to the under privileged and the to the under privileged and the
poorer section of society .poorer section of society .

11. Development of financial Development of financial
system in Indiasystem in India

At the time of independence in At the time of independence in
1947, there was no strong 1947, there was no strong
financial system in India.financial system in India.

The industrial sector also had The industrial sector also had
no access to the savings of no access to the savings of
the public.the public.

12. 
Some serious attention was paid to Some serious attention was paid to
development of sound financial development of sound financial
system of India only after the system of India only after the
launching the planning era in launching the planning era in
country.country.

With the adoption of mixed With the adoption of mixed
economy, the development of the economy, the development of the
financial system took a different financial system took a different
turn so as to fulfill the socio- turn so as to fulfill the socio-
economic and political objectives economic and political objectives

13. GROWTH IN THE INDIAN GROWTH IN THE INDIAN
FINANCIAL SYSTEMFINANCIAL SYSTEM

Emergence of a wide range of Emergence of a wide range of
financial institutions to provide financial institutions to provide
a variety of services.a variety of services.

Significant expansion of the Significant expansion of the
network of commercial banks network of commercial banks
and operations of the financial and operations of the financial
institutions.institutions.

14. 
Introduction of a variety of Introduction of a variety of
schemes and instruments for schemes and instruments for
mobilizing savings remarkable mobilizing savings remarkable
growth in the primary as well growth in the primary as well
as the secondary segments of as the secondary segments of
the capital marketthe capital market..

15. TREND IN THE INDIAN TREND IN THE INDIAN
FINANCIAL SYSTEMFINANCIAL SYSTEM

The field of market-determined The field of market-determined
interest rates is increasing and interest rates is increasing and
correspondingly the domain of correspondingly the domain of
administered interest rates is administered interest rates is
shrinking. This is accompanied shrinking. This is accompanied
by greater volatility in interest by greater volatility in interest
rates.rates.

16. 
Financial intermediaries like Financial intermediaries like
the industrial Development the industrial Development
Bank of India, which Bank of India, which
traditionally had substantial traditionally had substantial
access to cheaper SLR access to cheaper SLR
borrowing, have to now rely borrowing, have to now rely
more on the capital marketmore on the capital market

17. 
In the regulation of financial In the regulation of financial
markets and financial markets and financial
intermediaries, prudential intermediaries, prudential
regulation and supervision regulation and supervision
(capital adequacy, disclosure, (capital adequacy, disclosure,
transparency, and so on) are transparency, and so on) are
being emphasized and product being emphasized and product
and price controls are being and price controls are being
done away with.done away with.

18. 
Financial innovation Financial innovation
(introduction of new financial (introduction of new financial
instruments or processes) is instruments or processes) is
gaining momentum. Options gaining momentum. Options
and futures have been and futures have been
introduced in India.introduced in India.

19. Financial Sector Reforms Financial Sector Reforms
in Indiain India

Removal of financial Removal of financial
repression.repression.

Creation of efficient, Creation of efficient,
productive, and profitable productive, and profitable
financial sector.financial sector.

Evolution of market-Evolution of market-
determined interest rates.determined interest rates.

20. 
Granting of operational and Granting of operational and
functional autonomy to functional autonomy to
institutions.institutions.

Opening up of the external Opening up of the external
sector in a calibrated fashion.sector in a calibrated fashion.

Maintenance of financial Maintenance of financial
stability in face of domestic stability in face of domestic
and external disturbances.and external disturbances.

21. Weakness of Indian Weakness of Indian
Financial SystemFinancial System

Lack of Co-ordination between Lack of Co-ordination between
different Financial Institutionsdifferent Financial Institutions

Monopolistic Market StructuresMonopolistic Market Structures

Dominance of Development Dominance of Development
Banks in Industrial FinancingBanks in Industrial Financing

Inactive Capital MarketInactive Capital Market

22. Components / Organization Components / Organization
of financial systemof financial system
a. Financial assetsa. Financial assets
b. Financial intermediariesb. Financial intermediaries
c. Financial marketsc. Financial markets
d. Financial instrumentsd. Financial instruments
e. Financial Servicese. Financial Services

23. Financial Instruments & AssetsFinancial Instruments & Assets

It refers to those documents It refers to those documents
which represent financial which represent financial
claim on assets; for ex. Bills of claim on assets; for ex. Bills of
exchange, Promissory notes, exchange, Promissory notes,
Shares, Debentures Shares, Debentures

24. 
Financial assetsFinancial assets:: the basic the basic
product of any financial product of any financial
system is the financial assets. system is the financial assets.
A financial asset is one, which A financial asset is one, which
is used for production or is used for production or
consumption or for further consumption or for further
creation of assets creation of assets

25. FINANCIAL INTERMEDIARIESFINANCIAL INTERMEDIARIES

Financial intermediaries are Financial intermediaries are
firms that provide services and firms that provide services and
products that customers may products that customers may
not be able to get more not be able to get more
efficiently by them in financial efficiently by them in financial
markets. markets.

26. FINANCIAL MARKETSFINANCIAL MARKETS

A financial market is a market A financial market is a market
for creation and exchange of for creation and exchange of
financial assets. If you buy or financial assets. If you buy or
sell financial assets, you will sell financial assets, you will
participate in financial markets participate in financial markets
in some way or the other.in some way or the other.

27. Functional of Financial Functional of Financial
MarketsMarkets

Financial markets facilitate Financial markets facilitate
price discoveryprice discovery

Financial markets provide Financial markets provide
liquidity to financial assets liquidity to financial assets

Financial markets Financial markets
considerably reduce the cost considerably reduce the cost
of transacting of transacting

28. Classification of Financial Classification of Financial
MarketsMarkets
Financial markets can classified Financial markets can classified
as different types as different types

Financial claim- Fixed claims (debt Financial claim- Fixed claims (debt
instruments) and Residual claims instruments) and Residual claims
(equity instruments). (equity instruments).

Maturity of claims- Short – term Maturity of claims- Short – term
financial claims (money market) financial claims (money market)
and Long – term financial claims and Long – term financial claims
(capital market). (capital market).

29. 
Issue Claim- New issues (Primary Issue Claim- New issues (Primary
market) and outstanding issues market) and outstanding issues
(Secondary Market). (Secondary Market).

Timing of delivery- Cash or Spot Timing of delivery- Cash or Spot
market and Future or Forward market and Future or Forward
Market. Market.

Organizational structure. – Organizational structure. –
Centralized and Decentralized Centralized and Decentralized
market.market.

30. Main Classification of Main Classification of
Financial MarketFinancial Market
Financial markets can be referred to Financial markets can be referred to
those centers and arrangement those centers and arrangement
which facilitate buying and selling of which facilitate buying and selling of
financial assets and services.financial assets and services.
There are mainly two types of There are mainly two types of
Financial Capital Financial Capital
Unorganized Markets.Unorganized Markets.
Organized MarketsOrganized Markets

31. Organized marketsOrganized markets
These organized markets can be These organized markets can be
further classified into two they are:further classified into two they are:

Capital MarketCapital Market

Money MarketMoney Market

32. Capital Market:Capital Market:
The capital market is a market for The capital market is a market for
financial assets, which have a long or financial assets, which have a long or
indefinite maturity, which have a indefinite maturity, which have a
maturity period of more than one year. maturity period of more than one year.
Capital market may be further divided Capital market may be further divided
into three namely:into three namely:

Industrial securities marketIndustrial securities market

Government securities marketGovernment securities market

Long term marketLong term market

33. Industrial Securities MarketIndustrial Securities Market::
As the name implies, it is a market As the name implies, it is a market
for industrial securities namelyfor industrial securities namely

Equity shares or ordinary shares.Equity shares or ordinary shares.

Preference shares, andPreference shares, and

Debentures or bonds.Debentures or bonds.

34. It is a market where industrial It is a market where industrial
concerns raise their capital or concerns raise their capital or
debt by issuing appropriate debt by issuing appropriate
instruments. It can be further instruments. It can be further
sub-divided into two: sub-divided into two:

Primary market or New issue Primary market or New issue
marketmarket

Secondary market or stock Secondary market or stock
exchange.exchange.

35. Primary MarketPrimary Market
There are three ways by which a There are three ways by which a
company may raise capital in a company may raise capital in a
primary market. They are:primary market. They are:

Public IssuePublic Issue

Rights issue – (Issue of additional Rights issue – (Issue of additional
shares to existing shareholders)shares to existing shareholders)

Private placement – selling of Private placement – selling of
securities privately to a small securities privately to a small
group of investors.group of investors.

36. Secondary Market:Secondary Market:

It is a market for secondary sale of It is a market for secondary sale of
securities. In other words, securities securities. In other words, securities
which have already passed through which have already passed through
the new issue market are traded in the new issue market are traded in
this market. This market consists of this market. This market consists of
all stock exchange recognized by all stock exchange recognized by
government of India. The stock government of India. The stock
exchanges in India are regulated exchanges in India are regulated
under the securities controls under the securities controls
(Regulation) Act, 1956.(Regulation) Act, 1956.

37. Government Securities MarketGovernment Securities Market

It is a market where government It is a market where government
securities are traded. In India there securities are traded. In India there
are many kinds of Government are many kinds of Government
securities-- short term and long securities-- short term and long
term. Government securities are term. Government securities are
issued in denomination of Rs. 100. issued in denomination of Rs. 100.
Interest is payable half-yearly and Interest is payable half-yearly and
they carry tax exemption also.they carry tax exemption also.

38. Long-Term Loans MarketLong-Term Loans Market
Development banks and Development banks and
commercial banks plan a commercial banks plan a
significant role in this market by significant role in this market by
supplying long-term loans to supplying long-term loans to
corporate customers. Long-term corporate customers. Long-term
loans market may further be loans market may further be
classified into.classified into.

Term loans market – IDBI, IFCITerm loans market – IDBI, IFCI

Mortgage market – HUDCO, LIC, Mortgage market – HUDCO, LIC,
Land Development BanksLand Development Banks

Financial guarantees market.Financial guarantees market.

39. Importance Of Capital Importance Of Capital
MarketMarket

It serves as an important source It serves as an important source
for the productive use of the for the productive use of the
economy’s saving.economy’s saving.

It provides incentives to savings It provides incentives to savings
and facilitates capital formation by and facilitates capital formation by
offering suitable rates of interest.offering suitable rates of interest.

It provides an avenue for investors It provides an avenue for investors
to invest in financial assets.to invest in financial assets.

40. It facilitates increase in production It facilitates increase in production
and productivity in the economy and productivity in the economy
and thus, enhances the economic and thus, enhances the economic
welfare of the society.welfare of the society.
A healthy capital market consisting A healthy capital market consisting
of expert intermediaries promotes of expert intermediaries promotes
stability in values of securities.stability in values of securities.
It serves as an important source for It serves as an important source for
technological up gradation in the technological up gradation in the
industrial sector by utilizing the industrial sector by utilizing the
funds invested by the public funds invested by the public

41. Money MarketMoney Market

Money market is a market for Money market is a market for
dealing with financial assets and dealing with financial assets and
securities which have a maturity securities which have a maturity
period of up to one year. In other period of up to one year. In other
words, it is a market for purely words, it is a market for purely
short term funds. short term funds.

42. Types of Money MarketTypes of Money Market

Call money marketCall money market

Commercial Bill MarketCommercial Bill Market

Treasury Bills MarketTreasury Bills Market

Short-Term Loan MarketShort-Term Loan Market

43. Foreign Exchange MarketForeign Exchange Market

The term foreign exchange refers to The term foreign exchange refers to
the process of converting home the process of converting home
currencies into foreign currencies currencies into foreign currencies
and vice-versa. According to Dr. and vice-versa. According to Dr.
Paul Einzing “Foreign exchange is Paul Einzing “Foreign exchange is
the system or process of the system or process of
converting one national currency converting one national currency
into another, and of transferring into another, and of transferring
money form one country to money form one country to
another”another”

44. Functions Foreign Functions Foreign
Exchange MarketExchange Market

To make necessary arrangements To make necessary arrangements
to transfer purchasing power from to transfer purchasing power from
one country to another.one country to another.

To provide adequate credit To provide adequate credit
facilities for the promotion of facilities for the promotion of
foreign trade.foreign trade.
To cover foreign exchange risks by To cover foreign exchange risks by
providing hedging facilities.providing hedging facilities.

45. Financial AssetsFinancial Assets

The basic product of any financial system is The basic product of any financial system is
the financial assets. A financial asset is one, the financial assets. A financial asset is one,
which is used for production or consumption which is used for production or consumption
or for further creation of assets. For or for further creation of assets. For
instance, A buys equity shares and these instance, A buys equity shares and these
shares are financial assets since they can shares are financial assets since they can
earn income.earn income.

In this context, one must know the In this context, one must know the
distinction between financial assets and distinction between financial assets and
physical assets are not useful for further physical assets are not useful for further
production of goods or earning income. For production of goods or earning income. For
instance, X purchases land and buildings, instance, X purchases land and buildings,
gold and silver. These are physical assets.gold and silver. These are physical assets.

46. Classification of financial Classification of financial
assetsassets

Financial assets can be classified Financial assets can be classified
differently under different differently under different
circumstances. One such circumstances. One such
classification is :classification is :
1.marketable assets1.marketable assets
2.non-marketable assets 2.non-marketable assets

47. Marketable assetsMarketable assets

Marketable assets are those, which Marketable assets are those, which
can be easily transferred from one can be easily transferred from one
person to another without much person to another without much
hindrance. Examples: shares of hindrance. Examples: shares of
listed companies, government listed companies, government
securities etc.securities etc.

48. Non-Marketable AssetsNon-Marketable Assets
The assets which can’t be The assets which can’t be
transferred easily from one person transferred easily from one person
to another is termed as non-to another is termed as non-
marketable assets such asmarketable assets such as
▪ ▪ Bank DepositsBank Deposits
▪ ▪ Provident Funds/Pension FundsProvident Funds/Pension Funds
▪ ▪ National Savings CertificatesNational Savings Certificates
▪ ▪ Insurance Policies Insurance Policies

49. Financial IntermediariesFinancial Intermediaries

The term financial intermediary The term financial intermediary
includes all kinds of organizations, includes all kinds of organizations,
which intermediate and facilitate which intermediate and facilitate
financial transactions of both financial transactions of both
individuals and corporate customer. individuals and corporate customer.
Thus, it refers to all kinds of financial Thus, it refers to all kinds of financial
institutions and investing institutions, institutions and investing institutions,
which facilitate financial transaction in which facilitate financial transaction in
financial markets financial markets