The document summarizes key aspects of the Indian financial system. It discusses that the financial system includes institutions that affect savings mobilization and distribution. It also describes the functions of the financial system in transferring resources across time/sectors, managing risks, and pooling/subdividing funds. The major financial instruments mentioned are money, savings accounts, bonds, stocks, mutual funds, pension funds, and derivatives. The types of markets outlined are the money market and capital market.

1. INDIAN
FINANCIAL
SYSTEM

2. FINANCIAL INSTITUTIONSFINANCIAL INSTITUTIONS
• Includes institutions and mechanisms whichIncludes institutions and mechanisms which
• Affect generation of savings by the communityAffect generation of savings by the community
• Mobilisation of savingsMobilisation of savings
• Effective distribution of savingsEffective distribution of savings
• Institutions are banks, insurance companies, mutual funds-Institutions are banks, insurance companies, mutual funds-
promote/mobilise savingspromote/mobilise savings
• Individual investors, industrial and trading companies-Individual investors, industrial and trading companies-
borrowersborrowers

3.  Formal financial system – organized, institutional
and regulated
 Informal financial system
Advantages
Low transaction costs
Minimum default risk
Transparency of procedures
Disadvantages
Wide range of interest rates
Higher rates of interest
Unregulated
Types of Financial System

4. FUNCTIONS OF FINANCIAL SYSTEMFUNCTIONS OF FINANCIAL SYSTEM
• The financial system transfer resources across time, sectors, andThe financial system transfer resources across time, sectors, and
regions.regions.
• The financial system manages risks for the economy-(Fire Insurance)The financial system manages risks for the economy-(Fire Insurance)
• The financial system pools and subdivides funds depending upon theThe financial system pools and subdivides funds depending upon the
need of the individual saver or investor.need of the individual saver or investor.
• Performs an important clearinghouse function, which facilitatesPerforms an important clearinghouse function, which facilitates
transactions between payers and payees.transactions between payers and payees.

5. MAJOR FINANCIALMAJOR FINANCIAL
INSTRUMENTSINSTRUMENTS
• MoneyMoney
• Savings accountSavings account
• Credit market Instruments-bonds, mortgagesCredit market Instruments-bonds, mortgages
• Common StocksCommon Stocks
• Money market funds and mutual fundsMoney market funds and mutual funds
• Pension fundsPension funds
• Financial DerivativesFinancial Derivatives

6. Savers
Financial markets
Financial markets
Savers
Financial
Intermediaries
Investors
Financial flows in the economy
Mutual funds
buys
diversified
portfolio of
stocks
Purchase of
Govt. Bonds
Save
salary
Business
borrows
Bonds,
IPO

7. FINANCIAL MARKETSFINANCIAL MARKETS
• Money Market- for short-term funds (less than a year)Money Market- for short-term funds (less than a year)
• Organised (Banks)Organised (Banks)
• Unorganised (money lenders, chit funds, etc.)Unorganised (money lenders, chit funds, etc.)
• Capital Market- for long-term fundsCapital Market- for long-term funds
• Primary Issues MarketPrimary Issues Market
• Stock MarketStock Market
• Bond MarketBond Market

8. INDIAN ‘MODERN BANKING’INDIAN ‘MODERN BANKING’
Alexander & Company a leading agency house started managing theAlexander & Company a leading agency house started managing the
Bank of Hindustan in 1770’s.Bank of Hindustan in 1770’s.
The Bank of Calcutta was established by the East India Company inThe Bank of Calcutta was established by the East India Company in
18061806
Commercial Bank – in 1819Commercial Bank – in 1819
The concept of limited liability was not known – hence, till 1860 banksThe concept of limited liability was not known – hence, till 1860 banks
had to either obtain a special charter from the crown or had tohad to either obtain a special charter from the crown or had to
operate under ‘unlimited liability’operate under ‘unlimited liability’
1921 – three Presidency Banks at Calcutta, Bombay and Madras were1921 – three Presidency Banks at Calcutta, Bombay and Madras were
merged into the Imperial Bank (vide Imperial Bank of India Act,merged into the Imperial Bank (vide Imperial Bank of India Act,
1920)1920)

9. • Reserve Bank of India was established in 1934Reserve Bank of India was established in 1934
• It was given the right of note issue;It was given the right of note issue;
• Was also to act as ‘bankers bank’;Was also to act as ‘bankers bank’;
• However, Imperial Bank was allowed to operate as theHowever, Imperial Bank was allowed to operate as the
agent of RBI, especially in those places where RBI hadagent of RBI, especially in those places where RBI had
no branches.no branches.
• The RBI was initially a shareholder’s bank –but wasThe RBI was initially a shareholder’s bank –but was
nationalized in 1948 [vide Reserve Bank (Amendment)nationalized in 1948 [vide Reserve Bank (Amendment)
Act, 1948] State Bank of India Act, 1955Act, 1948] State Bank of India Act, 1955
• Imperial Bank was taken over by SBIImperial Bank was taken over by SBI

10. TYPES OF BANKING SERVICESTYPES OF BANKING SERVICES
IN INDIAIN INDIA
• CENTRAL BANKCENTRAL BANK
• NON-BANKING FI’’SNON-BANKING FI’’S
• INSTITUTIONAL BANKSINSTITUTIONAL BANKS
• COMMERCIAL BANKCOMMERCIAL BANK
• SPECIALIZED BANKSSPECIALIZED BANKS

11. CALL MONEY MARKETCALL MONEY MARKET
• Is an integral part of the Indian money market where day-to-Is an integral part of the Indian money market where day-to-
day surplus funds (mostly of banks) are traded.day surplus funds (mostly of banks) are traded.
• The loans are of short-term duration (1 to 14 days). Money lentThe loans are of short-term duration (1 to 14 days). Money lent
for one day is called ‘call money’; if it exceeds 1 day but is lessfor one day is called ‘call money’; if it exceeds 1 day but is less
than 15 days it is called ‘notice money’. Money lent for morethan 15 days it is called ‘notice money’. Money lent for more
than 15 days is ‘term money’than 15 days is ‘term money’
• The borrowing is exclusively limited to banks, who areThe borrowing is exclusively limited to banks, who are
temporarily short of funds.temporarily short of funds.

12. BILL MARKETBILL MARKET
• Treasury Bill market- Also called the T-Bill marketTreasury Bill market- Also called the T-Bill market
• These bills are short-term liabilities (91-day, 182-These bills are short-term liabilities (91-day, 182-
day, 364-day) of the Government of Indiaday, 364-day) of the Government of India
• It is an IOU of the government, a promise to pay theIt is an IOU of the government, a promise to pay the
stated amount after expiry of the stated period fromstated amount after expiry of the stated period from
the date of issuethe date of issue
• They are issued at discount to the face value and atThey are issued at discount to the face value and at
the end of maturity the face value is paidthe end of maturity the face value is paid
• The rate of discount and the corresponding issueThe rate of discount and the corresponding issue
price are determined at each auctionprice are determined at each auction
• RBI auctions 91-day T-Bills on a weekly basis, 182-RBI auctions 91-day T-Bills on a weekly basis, 182-
day T-Bills and 364-day T-Bills on a fortnightly basisday T-Bills and 364-day T-Bills on a fortnightly basis
on behalf of the central governmenton behalf of the central government

13. Growth Pattern of the Indian Stock Market
Sl.N
o.
As on 31st
December
1946 1961 1971 1975 1980 1985 1991 1995
1
No. of
Stock Exchanges
7 7 8 8 9 14 20 22
2
No. of
Listed Cos.
1125 1203 1599 1552 2265 4344 6229 8593
3
No. of Stock
Issues of
Listed Cos.
1506 2111 2838 3230 3697 6174 8967 11784
4
Capital of Listed
Cos. (Cr. Rs.)
270 753 1812 2614 3973 9723 32041 59583
5
Market value of
Capital of Listed
Cos. (Cr. Rs.)
971 1292 2675 3273 6750 25302 11027
9
47812
1
6
Capital per
Listed Cos. (4/2)
(Lakh Rs.)
24 63 113 168 175 224 514 693
7
Market Value of
Capital per Listed
Cos. (Lakh Rs.)
(5/2)
86 107 167 211 298 582 1770 5564
8
Appreciated value
of Capital per
358 170 148 126 170 260 344 803

14. Thank
You!