INDIAN FINANCIAL SYSTEM

IFS and its Functions

System that allows the transfer of money between savers and borrowers It channels household savings to the corporate sector Allows asset - liability transformation It helps in risk transformation by diversification

Structure of Banking in India

Scheduled bank

Commercial bank

Co-operative bank

Public sector (27)

Private sector (30)

Foreign banks (40)

Regional Rural banks (196)

Nationalized banks (19)

State bank of India & its associates (8)

Commercial banks
Public sector banks are those where government holdings are more than 50% while nationalized banks are those banks which were nationalized on July 19, 1969. Thus all nationalized banks are public sector banks. so one can say public sector bank=Nationalized bank+ SBI + SBI associates + IDBI Thus in total 27 PSBs are there.

As on December 31st , Public sector banks recorded a rise of 24.1% when compare to 16.9% in the last year.

Private sector Banks

Private sector banks are those banks in which majority of stake is held by private individuals and not by government The first private bank in India was Induslnd Bank IDBI ranks the 10th largest development bank in the world as private banks in India As on December 31st , Private sector banks recorded a rise of 28% when compare to 8.4% in the last year.

Foreign Bank
Banks from other countries which have branches in a country. Citi Bank opened its branch in India in 1902 The foreign banks have brought forth some innovations and changes in the banking industry of the country. The banking industry is now more competitive and customer friendly than before. As on December 31st , Foreign banks recorded a rise of 19.8% when compared to a decline of 8% in the last year.

Regional rural bank

The banks provide credit to the weaker sections of the rural areas, particularly the small and marginal farmers and small entrepreneurs RRBs was set up by the government of India on October 2, 1975 The total authorized capital was earlier fixed at Rs. 1 crore which is now raised to Rs. 5 crore

The RRBs are under control of NABARD which is in charge of laying down policies for the RRBs

Funds flow from commercial bank

STRONG DEMAND CREDIT FLOW FROM SCHEDULED COMMERCIAL BANKS (RS CRORE) Item As on March 27, As on March 26, Outstanding as on 2009 2010 March 26, 2010 Amount Per cent Amount Per cent Public Sector Banks 27,93,705 3,25,608 16.9 5,41,737 24.1

Foreign Banks
Private Banks All Scheduled Commercial Banks* *: Including Regional Rural Banks Source:RBI

1,90,766
6,89,232 37,63,213

-14,028
41,424 3,66,914

-8.1
8.4 13.8

31,474
1,51,618 7,38,641

19.8
28.2 24.4

Capital market
Capital Market in India

Government security (Gilledged market)

Industrial security market

Development financial Institution

Financial Intermediaries

New issues market and Old issue market

IFCI ICICI SFCs IDBI IIBI UTI

Merchant banks Mutual funds Leasing companies Venture capitalist

Gilt Edged Market And Types

This market refers to the market for government securities which are of the best quality. Credible instrument used by government for meeting its financial requirement. Types:I. Dated Securities with a fix maturity date. II. Zero coupon bonds III. Partly paid stock IV. Treasury Bills

Industrial security market

An initial public offering (IPO), referred to simply as an "offering" or "flotation", is when a company (called the issuer) issues common stock or shares to the public for the first time. Indias largest IPO is from Coal India Ltd which raised upto Rs.15000 crore
A stock exchange is an entity that provides "trading" facilities for stock brokers and traders to trade stocks, bonds, and other securities.

Recent changes by SEBI

Investment limit in IPO is increased from 1 lakh to 2 lakh SEBI decides IPOs should be listed with in 12 days SEBI introduced spot delivery system for derivatives from April 1st 2011 Pre open market introduced by SEBI

Development financial Institutions

It was developed by The Narasimham committeein 1991 These institutions provide a crucial role in providing credit in the form of higher risk loans, equity positions and risk guarantee instruments to private sector investments in developing countries

Merchant banks
Merchant bankers assist corporate in raising capital. They assist in issue of Shares, syndicating loans, public issue of debentures. They do not provide funds. They only assist. They also actively arrange working capital, appraisal Projects scrutinize & persuade merger proposals

Merchant bankers as lead managers

Sl.no 1 Size of the issue Maximum number of lead managers Less than 50 crores 2

2
3

50 100 crores
100 200 crores

3
4

4
5

200 400 crores

Above 400 crores

5
5 or more as prescribed by SEBI

Mutual Funds
A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests typically in investment securities. Types of mutual Funds I. Open - ended schemes II. Close ended schemes

Bank v/s Mutual Fund

particulars BANKS MUTUAL FUNDS

Returns
Administrative Expenses Risk Investment Options Quality of assets Interest calculation

Low
High Low Less Not transparent

Better
Low Moderate More Transparent

Minimum balance Everyday between 10th & 30th of every year

Lease financing and hire purchase

Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments. A hire-purchase contract allows the buyer to hire the goods for a monthly rent.

A hire purchase is termed an installment plan.

Venture capital Financing

Venture capital is risk financing available in the form of equity A venture capitalist also provides management support and acts as a partner and advisor to the entrepreneur Methods of venture financing I. Equity Contribute 49% of the total equity capital II. Conditional loan Amount repayable in form of royalty, No interest charged III. Income notes Charges both interest and royalty on sales

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