INDIAN FINANCIAL SYSTEM

NAME ROLL NO.

NIKHIL R. MONDE 32
DIPIKA S. TAMBE 49
Consisting oI a variety oI institutions, markets, and
instruments related in a systematic manner.
It provides the principal means by which savings are
transIormed into investment.
This chapter provides a conceptual Iramework Ior
understanding how the Iinancial system work such as:
< Functions oI the Iinancial systems
< Financial markets
< Financial intermediaries
< Regulatory system
< Payment system
< Pooling oI Iunds
< TransIer oI resources
< Risk management
< Price inIormation Ior decentralized decision-making.
< Dealing with the incentive problem
A Iinancial market is a market Ior creation and exchange oI
Iinancial assets.
Functions oI Iinancial markets:
< Facilitate price discovery.
< Provide liquidity to Iinancial assets.
< Considerably reduce the cost oI transacting.
< By the type oI Iinancial claim.
< By the maturity oI claims.
< Based on whether the claims represent new issues or
outstanding issues.
< By the timing oI delivery.
< By the nature oI its organizational structure.
Financial intermediaries are Iirms that provides services and
products that customers may not be able to get more
eIIiciently by themselves in Iinancial markets.
Financial intermediaries seem to oIIer several advantages:
< DiversiIication
< Lower transaction cost
< Economies oI scale
< ConIidentiality
< Signaling beneIit
Reserve Bank
Of ndia
Commercial
Banks
Public Sector
Banks
Private Sector
Banks
Developmental
Financial
nstitutions
All ndia
nstitutions
State Level
nstitutions
nsurance
Companies
Life nsurance
Corporation Of
ndia
Private Sector
nsurance
Companies
General
nsurance
Corporation Of
ndia
Other Public
Sector Financial
nstitutions
POSB
NABARD
NHB
Mutual Funds
Public Sector
Mutual Funds
Private Sector
Mutual Funds
Non-Banking
Financial
Corporations
Public Sector
Firms
Private Sector
Firms
As a maker and enIorce oI laws in a society, the government
has the responsibility Ior regulating the Iinancial system.
The two major regulatory arms oI the government oI India are:
The Reserve Bank oI India(RBI)
The Securities Exchange Board oI India(SEBI)
As the central banking authority oI India, the Reserve Bank oI
India perIorms the Iollowing traditional Iunctions oI the
central bank:
It provides currency and operates the clearing system Ior the
banks.
It Iormulates and implements monetary and credit policies.
It Iunctions as the banker`s bank.
It supervises the operations oI credit institutions.
It regulates Ioreign exchange transactions.
It moderates the Iluctuations in the exchange value oI the
rupee.
The Securities Exchange Board oI India has been entrusted
with the responsibility oI dealing with various matters relating
to the capital market. SEBI`s principal tasks are to:
Regulate the business in stock exchanges and any other
securities markets.
Register and regulate the capital market intermediaries.
Register and regulate the working oI mutual Iunds.
Promote and regulate selI-regulatory organizations.
Prohibit Iraudulent and unIair trade practices in securities
markets.
Promote investors education and training oI intermediaries oI
securities markets.
Prohibit insider trading in securities.
Regulate substantial acquisition oI shares and takeovers oI
companies.
PerIorm such other Iunctions as may be prescribed.
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