The document discusses the Indian financial system. It describes the key components of the system, including specialized financial institutions, organized and unorganized financial markets, and financial instruments and services. It then provides details on the role and functions of the Indian financial system in fostering industrial development, providing expertise, acting as a catalyst for investment, allocating resources, and more. The document also outlines several innovations and developments in the Indian financial system from the 1990s onward, such as new stock markets, credit rating agencies, depository institutions, and the growth of mutual funds, private banks, and foreign investment.

1. The Indian Financial System
The economic development of any country depends upon the existence of
well organized financial system. The responsibility of the financial system is to
mobilize the saving in the form of money and monetary assets and invest them to
productive ventures. The efficient functioning of the financial system facilitates
the free of flow of funds to more productive activities and thus promotes
investment. The financial system provides the intermediation between savers
and investors and promotes faster economic development.
The financial system of the financial sector of any country consists of a
1) Specialized financial institutions
2) Organized and unorganized financial markets
3) Financial instruments and services which facilitates transfer of funds.
ROLE OF THE INDIAN FINANCIAL SYSTEM
The Indian financial system performs many wide varieties of functions; some
important functions of Indian financial system can be briefly summarized below.
Foster’s industrial development:
The Indian financial system has fostered industrial development of a country by
supplying venture for capital to entrepreneur’s skiing to exploit highly
technological ideas. Indian financial system has also developed many
development banks like as IDBI, IFCI, ICICT, SFC. To faster industrial
development.
Expert knowledge and professional guidance :
Various financial institutions existing within the Indian financial system provide
professional knowledge and expertise to citizens to choose their investment
portfolio.
It plays the role of catalyst:
A financial system plays a positive and catalyst role by providing finance or
credit through creation of credit in anticipation of saving.
Allocation of resources to different investment channels :
Besides encouraging investment, a financial system effectively allocates
resources to different investment channels; as per the priority.
Lower risk and diversification of funds:

2. In India an average saver issue to invest their surplus income because of their
lack of adequate knowledge about complicated investment system lower the
risk. It is also provides diversified opportunities of an investors.
Role as a promoter:
As such financial system plays the role of a promoter to foster the economic
growth in the country. As a promoter of the financial system undertake
comprehensive growth potential surveys of the existing industrial structure of
the various parts of the country supply of finance of the various projects, identify
venture which can be established in different region in near future.
Financial innovation of Indian financial system:
Indian financial system since 1990’s has undergone drastic changes.
Indian financial system has been diversified moved towards maturity and many
few innovations have taken place. This has been due to government policy of
liberalization, delicensing and globalization of Indian economy.
Some of the important development and innovations that have taken place in the
Indian financial system can be briefly summarized below:
1) Development in the new issue market:
There has been a sharp increase in the new issue market during the last decade.
Three important development with respect to the new issue market as
follows:
i) Capital issue (control) Act repealed.
ii) Office the controller of capital issues abolished.
iii) Introduction of free pricing of public issues.
iv) Commercial banks have also been permitted to raise equity share
capital from capital market.
2) Expansion and Development of stock market in India:
The Indian stock market has shown considerable progress and development.
Many institutions have entered in the area of stock market. These include
foreign institutional investors, foreign funds and private mutual funds,
pension’s funds, new technology and the securities and exchange board of
India. More institutions are entering into the Indian market.

3. 3) Development of credit rating agencies:
Many credit rating agencies have been developed to rate companies as well as
fixed interest
Bearing securities coming to capital market. Some important credit rating
agencies are as follows:
i) CRISIL promoted in 1987 by ICICI and UTI.
ii) IFCI and a number of other financial institutions set up investment
information and ICRA in 1991.
iii) CARE and Research Limited was developed by IDBI a long with
CANARA BANK & UTI
4) Development of stock Holding Corporation of India:
I t is a depository institution. It was set up jointly by public financial
institution to promote funds to clearing house safe custody and transfer of
securities. Its objective is to introduce a book entry system for the transfer of
shares and avoid the volume of paper work involved and thus reduce delays
in transfers.
5) Development of SEBI:
Securities and Exchange board of India was constituted by the government of
India in 1988 for promoting orderly and healthy development of securities
market and for providing adequate investors protection. SEBI was given
statutory power effective form march 31 st 1992 to regulate the operations of
stock markets and their players.
6) NSE:
It is another development of Indian financial system. NSE was incorporated in
1992 by the financial institutions and banks with IDBI as nodal agency. The
NSE has two segments:
1) One dealing with wholesale debt instruments
2) The other dealing with capital market instruments.
7) Development of mutual funds:

4. Many mutual funds have been developed. Many term lending financial
institutions like IFCI, ICICI, IDBI have entered into the field of mutual funds.
Thus, besides UTI there are several financial institutions including LIC and
GIC to mobilize house hold saving.
8) Development of merchant banking:
Indian financial system has seen the development of much merchant banking
service. In this services are includes professional advice and services to
entrepreneurs in formulating and implementing projects and helping them in
raising capital from the markets and availing of financial assistance from
various financial intermediaries.
9) Investors services of India Limited (ISIL):
It is another innovation that has been taken place in the Indian financial
system. ISIL was set up by IDBI with a view to providing registrar and
transfer services on par with international standards and under taking
custodian services.
10) Development of private and foreign banks:
With the Indian financial system many private banks and foreign banks have
found their way. In last few years many private banks like HDFC Bank, Global
Trust Bank etc.. Have been established. Many new braches for foreign banks
have been opened.
11) Entry of foreign Institutional Investors:
Foreign institutional investors were allowed to invest in Indian capital
market in September 1992 but they started investing in India only in January
1993 and became active since August 1993. As on October 1 st 1994 234
foreign institutional investors were registered with the SEBI
FINANCIAL INSTITUTIONS
The financial institutions are business organizations that act as mobilizes and
depositories of saving and credit or finance. They also provide various
financial services to the commodity. The financial institutions which cater to

5. the notions of savers of high liquidity and safety along with profitability.
Financial institutions which raise resources from saver.
Financial institutions may be categorized in two groups:
A) BANKING INSTITUTIONS B) NON-BANKING INSTITUTIONS
1) BANKING INSTITUTIONS: Banking institutions are participated in the
BANKING ACTIVITIES. Generally banks are providing finance to the
public, industries and collect the money from the public. Its main object is
to rising of the funds through the investors.Ex: RBI, SBI, COMMERICAL
BANKS AND CO-OPRATATIVE BANKS.
2) NON-BANKING INSTITUTIONS: NON-BANKING INSTITUTIONS are part
of the financial institutions. But they are not direct participated to the
banking activities. (Providing the finance, accepting the deposits).EX: LIC,
UTI, IDBI.
II) Financial markets:
Financial markets are the centers or arrangements that provide facilities
for buying and selling of financial claims and services. The corporations,
financial institutions and government trade in financial products.
Financial markets are an important component of financial system.
Financial markets have as their participant’s financial institutions,
dealers, brokers, agent’s borrowers, lenders etc…,
Financial markets have been classifies into many ways. Some
important types of financial markets as follows.
I) UN-ORGANIZED MARKET 2) ORGANIZED MARKET
1) UN-ORGANIZED: The unorganized segment is also is also called the
UNORGNISED MARKET. It is largely made-up indigenous bankers and
moneylenders. It is unorganized because the activities of its parts are not
systematically co-ordinate by the RBI or any other authorities. The un-
organized money markets flexible terms and attractive rate of interest to
deposits and high rates of interest to borrowers. EX: UN-REGULATED
ORGANISATIONS, INDIGENOUS BANKES, MONEY LENDERS, CHIT FUND
ORGNISATIONS ETC..,

6. a. ORGANIZED MARKET:
It comprises the RBI and banks. It is called organized because its parts are
systematically co-ordinate by the RBI. Besides, commercial banks that
dominated the organized money markets. There are co-operated banks.
Organized markets can be classifies into two ways: 1) CAPITAL MARKETS
2) MONEY MARKETS.
PRIMARY MARKET
PRIMARY MARKET is a market for new issues or new financial claims.
Hence, it is also called New ISSUED MARKET. The primary market deals
with those securities which are issued to the public for the first time. In the
primary market, borrowers exchange new financial securities for long
period funds. Thus, primary market facilitates capital formation.
SECONDARY MARKET:
Secondary market is market for secondary sale of securities. In other,
words securities which have already passed through the new issue market
are traded in these markets. Generally such securities are quoted for
buying and selling securities. This market consists for all stock exchanges
recognized by the government of India.
Capital markets:
The capital market is a market. Capital market for financial assets which
have long or indefinite maturity. Generally, it deals with long term
securities which have a maturity period of above one year.
Money market:
Money market is market for dealing with financial assets and securities
which have a maturity period of up to one year. In other, words it is a
market for purely short term funds. The money market can be subdivided
into four ways:
a) Call money market b) commercial bill market c) Treasury bill
market d) short-term loan market.
III) Financial instrument

7. Financial instruments refer to those documents which represents financial
claims on asset. As discussed earlier, financial assets refers to a claim to the
repayment for a certain sum of money at the end of a specified period
together with interest or divided. EX: shares, debentures, bonds, securities.
Financial instruments can also be called financial securities. Financial
securities can be classified into
2 types:
1) Primary or direct securities 2 ) secondary securities.
IV FINANCIAL SERVICES
Financial services can also called “FINANCIAL INSTRUMENTATION”.
Financial intermediation is a process by which funds are mobilized from a
large number of savers and make them of it’s and particularly to corporate
customers.
TYPES OF FINANCIAL SERVICES:
1) MERCHANT BANKING 2) LEASING 3) VENTURE CAPITAL 4) MUTUAL
FUNDS etc...