INTRODUCTIONThe term financial system is a set of inter-relatedactivities/services working together to achievesome predetermined purpose or goal. It includesdifferent markets, the institutions, instruments,services and mechanisms which influence thegeneration of savings, investment capitalformation and growth.
OBJECTIVE OF FINANCIAL SYSTEM"supply funds to various sectors and activities of theeconomy in ways that promote the fullest possibleutilization of resources without the destabilizingconsequence of price level changes or unnecessaryinterference with individual desires."
The Organisation of the Financial System in Indiai) Organised sectori) Unorganised sector.
ORGANISED SECTOR•COMPRISES OF BANKS,FINANCIAL AND INVESTMENT INSTITUTIONS•SHORT TERM FUNDS ARE MAINLY PROVIDED BY COMMERCIAL AND CO-OPERATIVE BANKSThe organised financial system comprises the following sub-systems:1. Banking system2. Cooperative system3. Development Banking system(i) Public sector(ii) Private sector4.Money markets5. Financial companies/institutions.
Unorganised Financial SystemRelatively less controlled moneylenders,indigenous bankers, lendingpawn brokers, landlords, traders etc.This part of the financial system is notdirectly amenable to control by the ReserveBank of India (RBI).
RBIThe Reserve Bank of India as the central bank of the country, is at the head of thisgroup. Commercial banks themselves may be divided into two groups, the scheduledand the non scheduled.A. Public Sector Banksi) State Bank of India State Bank Groupii) Associate Bankiii) 14 Nationalized Banks (1969) Nationalized Banksiv) 6 Nationalized Banks (1980)v) Regional Rural Banks Mainly sponsored by PublicSector BankB. Private Sector Banksi) Other Private Banks;ii) New sophisticated Private Banks;iii) Cooperative Banks included in the second schedule;iv) Foreign banks in India, representative offices, andv) One non-scheduled banks
Cooperative SectorThe cooperative banking sector has been developed in the country to supplantthe village moneylender, the predominant source of rural finance, as the termson which he made finance available have generally been usurious anddetrimental to the development of Indian agricultureCentral Co-operative BanksThese are the federations of primary credit societies in a district. These banksfinance member societies within the limits of the borrowing capacity ofsocieties. They also conduct all the business of a joint-stock bank.
MONEY MARKET-SHORT TERM-FIANCIAL ASSESTS THAT ARE NEAR SUBSTITUTE MONEY-GOLD etcCAPITAL MARKET-LONG TERM PERIOD-FINANCIAL INSTRUMENTS EG EQUITY SHARES PREFERENCESHARES
Intermediary Market RoleStock Exchange Capital Market Secondary Market to securitiesInvestment Bankers Capital Market, Credit Market Corporate advisory services, Issue of securitiesUnderwriters Capital Market, Money Market Subscribe to unsubscribed portion of securities Issue securities to the investors on behalf of the companyRegistrars, Depositories, Custodians Capital Market and handle share transfer activityPrimary Dealers Satellite Dealers Money Market Market making in government securitiesForex Dealers Forex Market Ensure exchange ink currencies