This document provides an overview of the Indian financial system. It discusses how the financial system aids the flow of savings from savers to investors through various intermediaries and regulations. It outlines the evolution of the Indian financial system from a pre-planned economy with few financial intermediaries to today's mixed economy. It also describes the key components of the Indian financial system including money markets, capital markets, financial intermediaries, and regulatory institutions. Finally, it discusses the concept of equilibrium in financial markets between interest rates and loan funds as well as prices and amounts of securities.

1. By
eNotesMBA
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2. Objective of this PPT
To understand the working and organisation of
Indian financial system
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3. Introduction to Financial System
Financial system is a mechanism that works for
investors and people who want finance.
It is an interaction of various intermediaries, market
instruments, policy makers and various regulations to
aid the flow of saving from savers to investors and
checking various abuses faced in the proper
functioning of the system.
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4. Financial System
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5. Indian Financial System
Pre- planned period
Close character of entrepreneurship
Absence of financial Intermediaries
Low industrial growth rate
Mixed economy based planned period
Public/ Govt. ownership of financial institutions

RBI, Nationalised banks, Special purpose financial
institutions
Investors’ protection

Companies act, Securities contract act
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6. Money Market Meaning
Prof Sayers- money market is that area of market that
deals in short term capital.
Market for funds and assets that are close substitutes
for money
Focuses on providing means by which government
and institutions are able to rapidly adjust their actual
liquidity position.
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7. Instruments of Money Market
Call money instruments- one day loan
Treasury bills- meeting short term deficits of govt
Commercial papers- short term instruments
issued by corporate- introduced in Jan 1990
Certificate of deposits- issues by banks to the
depositor, introduced in June 989- lowest period
15 days for 5 lakhs
Repo transactions- maturity of 1 day to six
months
Money market mutual funds-introduced by RBI
in April 1992 and regulated by SEBI
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8. Capital Market Meaning
Market where long term and medium term financial
instruments are traded.
This market consists of two parts:
Primary market
By prospectus
 Offer for sale
 Private placement
 Right issue
 Right issue
 Employees stock option
 Sweat equity

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9. Secondary Market
Located at a fixed place
 Securities of listed companies are traded
 Purpose is to transfer ownership

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10. Instruments of Capital Market
Equity shares
Preference shares
Debentures/ bonds
Innovative debt instruments
Convertible debentures/bonds
Warrants
Zero interest bond
Secured premium notes
Floating rate bond
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11. Instruments of Capital Market
cont..
Forward contract
Not standardized, regulated through trading, margin is
required
Futures
Standardized , traded at over the counter market,
involves counter party risk
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12. Financial Intermediaries
Banking
Non-banking
Developmental
Regulatory
Institutions
•RBI
•Commercial
banks
•Co-operative
banks
•Post office
savings banks
•LIC
•GIC
•UTI
•Housing
development finance
companies-HDFC,
HUDCO
•ICICI, IDBI,IFCI
•NABARD
SIDBI
•Tourism finance
corporation
•SFCs
•SEBI
•RBI
•IRDA- insurance
regulatory and
development
authority
•Board of regulatory
and development
authority-BIFR
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13. Equilibrium in Financial Markets
Interest rate
Lending
Price
Supply
Borrowings
Amount of loan funds
If the interest rate rises lenders
are ready to provide more funds
Borrowers are ready to borrow
when interest rate falls.
Demand
Amount of securities
Investors are willing to buy more
securities as price falls, and sell
more when price rises.
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