The document discusses the structure and composition of the financial system. It is comprised of several key components: 1. Financial services which include banking, insurance, investment services, and more. 2. Financial instruments that are used to facilitate capital transfers such as debt, equity, and derivative instruments. 3. Financial institutions such as banks, non-banking financial corporations, stock exchanges, and depository participants. 4. Financial intermediaries that connect savers and borrowers like merchant banks, credit rating agencies, and mutual funds. 5. Financial markets for trading instruments including the capital, money, derivatives, and commodities markets. 6. Financial regulations set by bodies like the R

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2. Who are the providers (savers) and
users (borrowers) of capital?
• Households: Net savers
• Non-financial corporations: borrowers
• Governments: Net borrowers
• Financial corporations: Slightly net borrowers,
but almost breakeven
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3. Transfer of Capital from Savers to
Borrowers
• Direct transfer (e.g., corporation issues commercial
paper to insurance company)
• Through an investment banking house (e.g., IPO,
seasoned equity offering, or debt placement)
• Through a financial intermediary (e.g., individual
deposits money in bank, bank makes commercial loan to
a company)
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4. S S N Raju Indukoori
Financial System
It is the systematic function of all the elements
related lending, borrowing, investing that arise
due to demand and supply of capital and other
related activities in an economy
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Need and Importance
 Demand for capital
 Surplus capital
 Bridging the gap between demand and supply
 Safety and security
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Functions of Financial System
 Facilitates Savings, Investments and Borrowings
 Transfer of capital from savers to borrower
 Direct transfer (e.g., corporation issues commercial paper to insurance company)
 Through an investment banking house (e.g., IPO, seasoned equity or debt placement)
 Through a financial intermediary (e.g., individual deposits money in bank, bank makes
commercial loan to a company)
 Protect the interest of investors and borrowers
 Provide Marketability and liquidity for financial instruments
 Provide payment and settlement system
 Disseminate price related information
 Regulate market participants.
 Monitor corporate performance
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Features of a
Good financial System
 Strong legal and regulatory environment
 Active role of central bank
 Effective and productive Public finances and public debt management
 Stable internal and external value of money
 Information system
 Efficient markets
 Technology driven
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Composition of Financial System
Relationship between components of
a financial system
 Interdependent
 Interactive
 Closely associated
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Role of a Financial System
 Role in Economic Growth and Development
 Role in Corporate world
 Role in supporting Individuals

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Role of a Financial System
Economy
 Facilitates economic activity
 Provides the channel for regulators to design and
implement their policies
 Base for innovative products and services
 Common platform for interaction of all economic
and financial activities
 Targets sustained economic growth rate

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Role of a Financial System
Corporates
 Flexible borrowing and productive investments
 Mobilize funds
 Provide resources for investments

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Role of a Financial System
Individuals
 Accelerates the rate and size of savings
 Promotes investments culture
 Minimizes transaction costs
 Helps small investors to get best returns
 Ensure security to the investors and participants

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Financial Reforms in India
 With the advent of technology and integrating international
markets and economies, GOI desperately initiated reforms to
boost its economy through liberalization, privatization and
globalization (LPG).
 Reforms transformed Indian financial system including
financial markets, regulations, intermediaries and institutions
like banks, mutual funds and stock broking.
 The financial reforms has become a continual activity based
on the need for the economy like demonetization and GST in
the recent times
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Major Outcomes of financial reforms
 Savings and Investment culture promoted
 Foreign investors participation
 Increased demand for Indian exports
 Increase in imports due increased production.
 Technology became the platform banking,
trading and investments
 Transparency and quick trading, clearing and
settlement process.
 Continual growth of GDP.
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15. STRUCTURE OR COMPOSITION OF
FINANCIAL SYSTEM
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16. S S N Raju Indukoori
Structure of a Financial System
1. Financial Services
2. Financial Instruments
3. Financial Institutions
4. Financial Intermediaries
5. Financial Broking
6. Financial Markets
7. Financial Regulators
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1. FINANCIAL SERVICES
In India, Financialisation is increasing year on year
reflected in its contribution to GDP. Significant services
are as follows
1) Commercial Banking
2) Non Banking Financial Services of NBFCs
3) Mutual Fund
4) Insurance
5) Primary Market Services
6) Stock Exchange Services
7) Investment Services: Private Equity, Venture Capital, Angel
Investor
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Contd…
Other Financial Services
1. Bills Discounting
2. Clearing services
3. Consultants
4. Corporate Advisory Services
5. Credit Rating
6. Custodial services
7. Depository Services
8. Factoring
9. Financial Analysts
10. Financial exchange or trading services
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Contd…
11. Financial Exports: Lead by UK followed by financial centers like
Luxembourg and Bermuda.
12. Financial Data Vendors : Bloomberg, Thomson Reuters, Capital
line, Dalal street, prowess
13. Financial Technology Service Providers
14. Hire Purchase
15. Leasing
16. Portfolio Management Services
17. Primary Market Services
18. Securities or Stock Broking
19. Underwriting
20. Wealth Management
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2. FINANCIAL INSTRUMENTS
They are the contractual agreement between two parties for
benefit of financial nature. They can be classified as
1) Non Transferable and no scope to trade.
Ex: Commercial bank term deposits, life insurance policies,
Post office deposits, mutual fund units (Open Ended) etc..
2) Transferable and traded: They are called as securities
which come under the regulation of Securities Contracts
(Regulation) Act, 1956 through Securities Exchange Board of
India (SEBI)
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Contd..
Financial securities can be classified as follows
1. Debts Instruments
a. Long Term
b. Medium Term
c. Short Term
2. Equity Instruments
3. Hybrid Instruments
4. Derivative Instruments
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3. FINANCIAL INSTITUTIONS
1. Banks:
1. Development Banks
2. Commercial Banks
3. Co operative Banks
2. Non Banking Financial Corporations (NBFCs)
3. Institutional Investors
1. Domestic : Mutual funds, Insurance Companies, Trusts
2. Foreign Institutional Investors (FIIs)
4. Exchanges : Equity, Debt and Derivatives
5. Depository Participants (DPs)
6. Clearing Corporations (CCs)
7. Credit rating agencies
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4. FINANCIAL INTERMEDIARIES
Banking
1. Commercial Banking
2. Development Banking
3. Rural Banking
4. Retail Banking
5. Industrial Banking
6. Exim Banks
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Merchant Banks
1. Investments
2. Lead banking
3. Securitization
4. Cross Selling
5. Foreign Banking
6. Hedging
7. Merchant Banking

24. S S N Raju Indukoori
Contd..
1. Credit Rating companies
2. Financial Consultants
3. Forex Dealers
4. Insurance Firms
5. Mutual funds or Asset Managing Companies
(AMCs)
6. Registrars
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5. FINANCIAL BROKERS
– Agents
• Individuals
• Corporates
– Stock Brokers
• Registered with Stock Exchange and SEBI
• Sub Brokers
• Franchisee
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6. Financial Markets
• Capital Market
• Money Market
• Derivatives Market
• Commodities Market
• Forex Market
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27. Market Relationship
1. Physical assets vs. financial assets
2. Spot Vs future markets
3. Money Vs capital markets
4. Primary Vs secondary markets
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7.FINANCIAL REGULATION
1. Reserve Bank of India (RBI)
2. Department of Economic Affairs (DEA)
3. Department of Company Affairs (DCA)
4. Financial Stability and Development Council (FSDC)
5. Forward Markets Commission (FMC)
6. Insurance Regulatory and Development Authority (IRDA)
7. National Housing Bank
8. Pension Fund Regulatory and Development Authority
(PFRDA)
9. Registrar of Companies (ROC)
10. Securities Exchange Board of India (SEBI)
11. Securities Contract Regulation Act (SCRA), 1956
12. The Finance Act
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FINANCIAL ASSOCIATIONS
1. Associations of Mutual funds in India (AMFI)
2. Association of National Exchanges Members in India
(ANEMI)
3. Foreign Exchange Dealers Association of India (FEDAI)
4. Indian Banks’ Association (IBA)
5. Insurance Association of India (IAI)
a. Life Insurance Council
b. General Insurance Council
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INTERNATIONAL
INSTITUTIONS & INTERMEDIARIES
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Financial Intermediaries
• Savings and loan associations
• Mutual savings banks
• Credit unions
• Life insurance companies
• Mutual funds
• Pension funds
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Global Banking Companies
• ABN AMRO
• Bank of America
• Bank of Tokyo
• Citigroup
• Credit Suisse
• Deutsche Bank
• HSBC Holdings
• ING
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Investment Bankers
• Meryl Lynch
• Goldman Sachs
• Morgan Stanley
• Credit Suisse First Boston
• Dean Witter
• Deutsche bank
• ABN Amro
• Chase Manhattan
• Lehman Brothers
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Rating agencies
• Moody’s Investor Service
• Standard & Poor
• Fitch Ratings
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Bench Mark Markets based on Capitalization
1. New York Stock Exchange: USA
2. NASDAQ : USA
3. Tokyo Stock Exchange: Japan
4. Shanghai Stock Exchange: China
5. Hong Kong Stock Exchange: China
6. Euronext: European Union
7. London Stock Exchange: UK
8. Shenzen Stock Exchange: China
9. TMX: Canada
10.BSE: India
11.NSE: India
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Any Questions
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