The document discusses the key aspects of the Indian financial system including its features, constituents, importance and objectives. It describes the various types of financial institutions and markets in India such as commercial banks, stock exchanges, mutual funds, insurance companies, development banks, and non-banking financial corporations. It also covers the roles and functions of major regulatory bodies like RBI, SEBI, IRDA, FMC and PFRDA. Overall, the document provides a comprehensive overview of the Indian financial system, its components and their functions in supporting economic development.

1. INDIAN FINANCIAL SYSTEMS
Features of Indian financial system
 It plays a vital role in economic development of a country.
 It encourages both savings and investment.
 It links savers and investors.
 It helps in capital formation.
 It helps in allocation of risk.
 It facilitates expansion of financial markets.
Constituents of Financial system
 Financial Institutions
 Financial Markets
 Financial Instruments/ Assets/ Securities
 Financial Services.
Importance of Financial system
 To attain economic development
 It helps in monitor corporate performance
 It links savers and investors. This process is known as capital formation
 It helps in lowering the transaction cost and increase returns which will motivate people to save more
 It helps government in deciding monetary policy
Objectives of Financial system
 To provide a payment system,
 To give money time value,
 To offer products and services to reduce financial risk or to compensate risk-taking for
desirable objectives,
 To collect and disperse information that allows the most efficient allocation of economic
resources,
 To create and maintain financial markets that provide prices
Role and Functions of financial market
 To facilitate creation and allocation of credit and liquidity.
 To serve as intermediaries for mobilisation of savings.
 To assist the process of balanced economic growth.
 To provide financial convenience.
 To serve the various credits needs of the business houses.

2. Financial Markets
Types of Financial institution
 Banking Institutions
 Commercial Banks
 Co-operative banks
 Regional Rural Banks (RRBs)
 Foreign Banks
 Non - Banking Financial Institutions
Functions of stock exchange:
 Providing Liquidity and Marketability to Existing Securities
 Pricing of Securities
 Safety of Transactions
 Contributes to Economic Growth
 Spreading Equity related information
 Providing Scope for Speculation
Trading procedure in stock exchange
 Selection of a broker
 Opening Demat Account with Depository
 Placing the Order
 Executing the Order
 Settlement
 On the spot settlement
 Forward settlement
Regulatory bodies
 RBI
 SEBI
 IRDA
 FMC
 PFRDA
Financial markets
Organized
market
Capital market
Industrial
securities market
Primary market
Secondary
market
Govt securities
market
Long term loans
market
Term loan
market
Market for
mortgages
Market for
financial
guarentees
Money market
Call money
market
Commercial bill
market
Treasury bill
market
Short term loan
market
Unorganized
market
Money lenders,
indigenous
bankers ets.

3. Functions of RBI
 Issue of Notes
 Banker to the Government
 Banker’s Bank
 Controller of the Credit
 Custodian of Foreign Reserves
 Other Functions
Role of SEBI
 To the issuers
 To the investors
 To the intermediaries
Objectives if SEBI
 Protection
 Competitive and professional
 Prevention of malpractices
 Balancing
 Orderly functioning
Functions of SEBI
Regulatory functions:-
 Registration of brokers and agents
 Notification of rules and regulations
 Levying of fees
 Regulator of investment
 Prohibits unfair trade practices
 Inspection and enquiries
 Promoting and exercising powers
Developmental functions:-
 Training to intermediaries
 Promotion of fair trade
 Research
Protective functions:-
 Prevents insider trading
 Prohibits fraudulent and unfair trade practices
 Promotes fair practices
 Educates investors
Functions of IRDA
 It issues the registration certificates to insurance companies and regulates them.
 It protects the interest of policy holders.
 It provides license to insurance intermediaries such as agents and brokers after specifying the required
qualifications and set norms/code of conduct for them.
 It promotes and regulates the professional organisations related with insurance business to promote
efficiency in insurance sector.
 It regulates and supervise the premium rates and terms of insurance covers.
 It specifies the conditions and manners, according to which the insurance companies and other
intermediaries have to make their financial reports.
 It also ensures the maintenance of solvency margin by insurance companies.

4. Functions of FMC
 It counsels the Central Government for matters regarding recognition or withdrawal of the previously
accorded recognition from any of the registered association.
 It also provides advice on any other matters that arise as a result of the administration of the Forward
Contracts (Regulation) Act 1952.
 FMC provides suggestions to uplift and improve the functioning of the Commission as well as the
Futures markets.
 The Commission can cross-check and inspect the accounts as well as any other documents of the registered
associations and their members.
 It keeps a vigil on the Future commodities market and also exercises its discretionary powers in the interest
and growth of the markets and consumers.
 FMC is mandated to source, collect and publish the information about trading conditions for
various commodities covered under the purview of the governing act. These details are generally about the
demand, supply and prices.
Functions of PFRDA
 Regulating the NPS
 Educating the subscribers and the general public on issues relating to pension, and training of intermediaries
 Adjudicating disputes between intermediaries as well as between intermediaries and subscribers; and
 Establishing mechanisms for grievance redress of the subscribers
Financial instruments
 Money market instruments
 Treasury bills
 Certificate of deposits
 Commercial papers
 Repurchase agreements
 Bankers acceptance
 Capital market instruments
 Debt instruments
 Equities
 Preference shares
 Derivatives
Functions of Merchant bank
 Rising finance for clients
 Managing the portfolio
 Services to non resident Indian
 Stock exchange broker
 Handling companies public issues
 Services to public sector undertakings
Functions of Mutual funds
 Growth funds
 Income funds
 Pooling investments
 Management and fees

5. Characteristics of Mutual funds
 Low fees or expenses
 Sticking to a solid strategy
 Trustworthy with solid reputation
 Plenty of assets but not too much money
 The bottom line
Innovative financial instruments
 Inter-bank participations(IBPs)
 Zero interest convertible debentures/bonds
 Deep discount bonds
 Option bonds
 Secured premium notes
 Medium term debentures
 Variable rate debentures
 Equity with 100% safety net
 Cumulative convertible preference shares
 Convertible bonds
 Easy exit bond
 Retirement bond
 Regular income bond
 Loyalty coupons
 Global depository receipt (GDR)
Functions of commercial banks
 Accepting the Deposits
 Giving loans to the Businessmen
 Keeps fine balance between deposits and loans
 Discounting Bills of exchange
 Clearing the Hundi
 Agency Services
 Collection of bills, cheques
 Collection of dividends, interest, premiums
 Purchase and sale of shares and debentures
 Payment of insurance premium
 Traveller’s cheque, Bank draft
 Supplying trade information
 Economic surveys
 Project report preparation
Features of Development bank
 A development bank does not accept deposits from the public like commercial banks and other financial
institutions who entirely depend upon saving mobilization.
 It provides financial assistance to both private as well as public sector institutions.
 The role of a development bank is of gap filler.
 The objective of these banks is to serve public interest rather than earning profits.

6. Development banks in India
 Industrial Finance Corporation of India (IFCI), 1948
 Industrial Credit and Investment Corporation of India (ICICI), 1955
 Industrial Development of Bank of India (IDBI), 1964
 State Finance Corporation (SFC), 1951
 Small Industries Development Bank of India (SIDBI), 1990
 Export Import Bank (EXIM)
 Small Industries Development Corporation (SIDCO)
 National Bank for Agriculture and Rural Development (NABARD).
Promotional activities of IFCI
 Entrepreneurial Guidance by IFCI
 Technical Consultancy Organization Sponsored by IFCI
 Risk Capital Scheme of IFCI
Functions of ICICI
 Providing finance in the form of long-term or medium term loans.
 Underwriting new issues of shares and other securities,
 Making funds available for reinvestment by revolving investment as rapidly as possible.
 Providing project advisory services i.e. offering advice
Functions of IDBI
 To grant loans and advances
 To discount or re-discount bills of industrial concerns.
 To underwrite or to subscribe to shares or debentures of industrial concerns.
 To subscribe to or purchase stock, shares, bonds and debentures of other financial institutions.
 To grant line of credit
 To guarantee deferred payment due from any industrial concern.
 To guarantee loans raised by industrial concerns in the market or from institutions.
 To provide consultancy and merchant banking services in or outside India.
Development activities of IDBI
 Promotional Activities
 Technical Consultancy Organisations
 Entrepreneurship Development Institute
Functions of SFC
 The SFCs provides loans mainly for the acquisition of fixed assets like land, building, plant, and machinery.
 The SFCs provide financial assistance to industrial units whose paid-up capital and reserves do not exceed Rs.
3 crore
 The SFCs underwrite new shares, debentures etc., of industrial units.
 The SFCs provide guarantee loans raised in the capital market by scheduled banks, industrial concerns, and
state co-operative banks to be repayable within 20 years.
Functions of SIDBI
 Refinance to SSI
 Discounting the bills of SSIs
 SIDBI offers assistance to exports
 Seed capital and also soft loan Assistance
 Non finance services

7.  Factoring, Leasing and HP finance
 Assistance to other financial institutions
 Modernization
 Venture capital
 Single window scheme
Functions of EXIM
 Finance for exports and Imports
 Finance on deferred basis
 Lease Finance
 Finance to export projects
 Line of credit
 Refinance in foreign exchange
 Contribution to Equity fund
 Consultancy Services
Objectives of SIDCO
 The main objective of SIDCO is to stimulate the growth of industries
 To provide infrastructure facilities like roads, drainage, electricity, water supply, etc
 To promote industrial estates which will provide industrial sheds of different sizes with all basic
infrastructure facilities.
 To provide technical assistance through training facilities to the entrepreneurs.
 To promote skilled labor through the setting up of industrial training institutes
Functions of SIDCO
 SIDCO supplies scarce raw materials
 SIDCO provides marketing assistance
 SIDCO assists in Bills discounting
 SIDCO provides Export marketing assistance
 SIDCO set up Captive power plants
 SIDCO promotes skill development centres
 SIDCO promotes women entrepreneurs
Functions of NABARD
 NABARD provides refinancing facilities to Commercial banks, State co-operative banks, Central Co-operative
banks, Regional rural banks and Land Development banks.
 It provides refinancing to agriculture, small scale industries and other village and cottage industries by
lending to commercial banks
 It promotes rural industries, small scale and cottage industries including tiny sectors by providing loans to
commercial and co-operative banks.
 The bills of commercial and co-operative banks are discounted to enable them to finance for agricultural
operations.
 The bank provides funds to State governments for undertaking developmental and promotional activities in
rural areas.
 The bank is also financing research and development of agricultural and rural industries.
 It promotes minor irrigation projects by financing State Government’s sponsored irrigation projects.
 The bank is undertaking inspection work of Co-operative banks and Regional rural banks.

8. Services offered by a NBFI
 Risk Pooling Institutions
 Institutional Investors
 Other Non-Bank Financial Institutions
Procedure for NBFC registration in India
Step 1: Company incorporation
Step 2: Must have net owned funds of Rs 2 crores.
Step 3: File for an online NBFC Registration on the Reserve Bank of India website COSMOS.
Step 4: Submit the hard copy of your application attached with necessary listed documents. All to be
submitted to the Reserve Bank of India office.
Step 5: Eventually, after careful inspection and examination of your provided details, you will be granted
with the NBFC Registration
Types of NBFCs
 Asset Finance Company
 Hire purchase company
 Chit fund company
 Investment Company
 Loan Company
 Infrastructure Finance Company
 Microfinance Company
 Mortgage Company
 Housing Finance company
 Core Investment company
Importance / Role of NBFC
 Profitability
 Growth in the employment sector
 Infrastructure lending
 Promoting inclusive growth
 Credit to Micro, Small and Medium Enterprises-MSMEs
 To finance economically weaker section
 Board base economic development
 Help and increase wealth creation
 Improvement in the standard of living
 Technology innovation
Objectives of LIC
 To mobilize maximum savings of the people by making insured savings more attractive.
 To extend the sphere of life insurance
 Promote all employees and agents of the LIC
 To ensure economic use of the resources collected from the policyholders.
 Maximize mobilization of people’s savings by making insurance-linked savings

9. Role and Functions of LIC
 It collects the savings of the people through life policies and invests the fund in a variety of investments.
 It subscribes to the shares of companies and corporations. It is a major shareholder in a large number of blue
chip companies.
 It provides refinancing activities through SFCs in different states and other industrial loan giving institutions.
 It gives loans to those projects which are important for national economic welfare. The socially oriented
projects such as electrification, sewage and water channelizing are given priority by the LIC.
 It gives housing loans at reasonable rates of interest.
 It acts as a link between the saving and the investing process. It generates the savings of the small savers,
middle income group and the rich through several schemes.
Objectives of GIC
 To carry on the general insurance business other than life, such as accident, fire etc.
 To aid and achieve the subsidiaries to conduct the insurance business and
 To help the conduct of investment strategies of the subsidiaries in an efficient and productive manner.
Functions of GIC
 Carrying on of any part of the general insurance, if it thinks it is desirable to do so.
 Aiding, assisting and advising the acquiring companies in the matter of setting up of standards of conduct
and sound practice in general insurance business.
 Rendering efficient services to policy holders of general insurance.
 Advising the acquiring companies in the matter of controlling their expenses including the payment of
commission and other expenses.
 Issuing directives to the acquiring companies in relation to the conduct of general insurance business.
 Issuing directions and encouraging competition among the acquiring companies in order to render their
services more efficiently.
Global financial system
Official Source
 World Bank
 IFC(International Finance corporation)
 IDA(International Development Association)
 MIGA(Multinational Investment Guarantee Agency)
 IMF(International Monitory Fund)
 Asian development bank
 UNCTAD(United Nations Conference on Trade and development)
 EXIM Bank
Non official sources
 International Bank
 Securities market

10. Functions of World bank
 Granting reconstruction loans to war devastated countries.
 Granting developmental loans to underdeveloped countries.
 Providing loans to governments for agriculture, irrigation, power, transport, water supply, educations,
health, etc
 Providing loans to private concerns for specified projects.
 Promoting foreign investment by guaranteeing loans provided by other organisations.
 Providing technical, economic and monetary advice to member countries for specific projects
 Encouraging industrial development of underdeveloped countries by promoting economic reforms.
Functions of IFC
 Advisory services
 Asset management company
Objectives of IDA
 To provide development finance on easy terms to less developed member countries.
 To promote economic development, increase productivity and thus, raise the standards of living in the
underdeveloped areas.
Functions of MIGA
 Offers insurance to cover different types of non-commercial risks such as- Currency Inconvertibility,
Government expropriation, War, terrorism
 Offers insurance coverage to investment vehicles such as- Equity, loan, share holder loans, Management
contracts, leasing activities, franchise agreements and license agreements.
 Offers political risk insurance to a wide range of investments effectively, especially in developing nations.
 Promotion of Foreign Direct Investment into developing countries to support economic growth, reduce
poverty and improve standard of living.
 Creation of new Job opportunities, development of infrastructural facilities, generation of new tax revenues,
as well as effective utilization of natural resources via adoption of Judicious programmes and policies.
Objectives of IMF
 To promote international monetary cooperation through a permanent institution which provides the
machinery for consolation and collaboration on international monetary problems.
 To facilitate the expansion and balanced growth of international trade,
 To promote exchange stability
 To assist in the establishment of a multilateral system of payments
Functions of IMF
 Exchange Stability
 Eliminating BOP Disequilibrium
 Determination of Par Value
 Stabilize Economies
 Credit Facilities
 Maintaining Balance Between Demand and Supply of Currencies
 Maintenance of Liquidity

11.  Technical Assistance
 Reducing Tariffs
 General Watch
Functions of Asian development bank
 Mobilisation and promotion of investment of private and public capital for productive purposes.
 Utilisation of its resources for financing those development projects which contribute most to the
harmonious economic growth of the region as a whole, with special emphasis on the needs of the smaller or
less developed members.
 Coordination of plans and policies of the member countries with a view to achieving better utilisation of
their resources, making them economically more complementary, and expanding their foreign trade.
 Provision of technical assistance to the member countries for the preparation, financing and execution of
development projects.
 Cooperation with the United Nations and its various organs and other international organisations with the
objective of persuading them to make investments in this region.
Objectives of United Nations Conference on Trade and development
 To reduce and eventually eliminate the trade gap between the developed and developing Countries.
 To accelerate the rate of economic growth of the developing world.
Functions of United Nations Conference on Trade and development
 To promote international trade between developed and developing countries with a view to accelerate
economic development.
 To formulate principles and policies on international trade and related problems of economic development.
 To make proposals for putting its principles and policies into effect
 To negotiate trade agreements.
 To review and facilitate the coordination of activities of the other U.N. institutions in the field of
international trade.
 To function as a centre for a harmonious trade and related documents in development policies of
governments.
Benefits of International banks
 Flexibility
 Accessibility
 International transaction
 Accounts maintenance
Types of International banks
 Correspondent bank
 Foreign Branch Bank
 Subsidiaries and Affiliates
 Edge Act banks
 Offshore banking centers

12. Importance of Financial services
 Promoting investment-stock market
 Promoting savings-mutual funds
 Minimizing the risk-insurance
 Maximizing the returns
 Economic growth-development of all the sectors by equal distributions of fund to three major sectors
 Benefit to government: The presence of financial services enables the government to raise both short-term
and long-term funds to meet both revenue and capital expenditure.
 Expand activities of financial institutions:financial institutions to not only raise finance but also get an
opportunity to disburse their funds in the most profitable manner.
 Capital market: When the capital market is more active, funds from foreign countries also flow in
 Promotion of domestic and foreign trade
 Balanced regional development
Various financial services offered by financial institutions
 Factoring
 Forfaiting
 Leasing
 Hire Purchase Finance
 Credit card
 Merchant Banking
 Book Building
 Asset Liability Management
 Housing Finance
 Portfolio Finance
 Underwriting
 Credit Rating
 Interest & Credit Swap
 Mutual Fund
 Wealth management
 Banking
 Professional Advisory
 Wealth Management
 Insurance
 Stock Market
 Treasury/Debt Instruments
 Tax/Audit Consulting
 Capital Restructuring
 Portfolio Management

13. Bookbuilding process
Public issue methods
 Initial public offer(IPO) / Public issue
 Private placement
 Offer for sale
 Sale through intermediaries
 Sale to inside Coterie
 Sale through managing brokers
 Privileged subscription
Advantages of Commercial papers
 Contributes to funds
 Flexible
 Reliable
 Save money
 Lasting source of funds