REPORT ON

Comparative analysis of Indian Financial system

with that of Australia

Submitted by
Hiteishi A ( 1920265)
Vaddi jahnavitha (1920274)

Manaswini C (1920275)

Under the Guidance of

Associate Prof. Issac P Elias

In Partial Fulfillment of the Requirements for the Award of the Degree of

BACHELOR OF BUSINESS ADMINISTRATION

SCHOOL OF BUSINESS MANAGEMENT

BENGALURU, INDIA

FEBRUARY 2021
Introduction to Indian and Australian Financial System (elements):

India:-
The Indian financial system enables leaders and borrowers to exchange funds.India has a
financial system that is controlled by independent regulators in the sectors of insurance, banking,
capital markets and various services sectors. Thus, the financial system plays a significant role
in the economic growth of the country by mobilizing the surplus funds and utilizing them
effectively for productive purposes. Financial system encourages both savings and investment, as
it links savers and investors. It also helps in capital formation and allocation of risk and helps for
expansion of financial markets. RBI, SEBI and Ministry of Finance, Government of India play a
significant role in regulating and influencing the Indian financial system.
COMPONENTS OF INDIAN FINANCIAL SYSTEM: -
Financial Institutions: -Financial Institutions provide a whole range of services to the entities
who want to raise funds from the markets or elsewhere. These institutions include Banking and
non-banking financial institutions which future classified into organised and unorganised sectors.
Financial Markets: - Financial markets refer to the institutional arrangements for dealing in
financial assets and credit instruments of different types such as currency, cheques, bank
deposits, bills, bonds etc. These markets are further classified into capital markets and money
markets.
Financial Instruments:- Financial instruments refer to those documents which represent
financial claims on assets. Financial asset refers to a claim to the repayment of a certain sum of
money at the end of a specified period together with interest or dividend. Examples: Bill of
exchange, Promissory Note, Treasury Bill.
Financial Services: - The term financial services can be defined as “activities, benefits, and
satisfactions, connected with the sale of money, that offer to users and customers, financial
related value. within the financial services industry the main sectors are banks, financial
institutions, and non-banking financial companies.The kinds of financial services are Asset
based/fund based services and Fee based/advisory services.
Informal Sector: -The informal Financial sector provides savings and credit facilities for small
farmers in rural areas, and for lower income households and small scale enterprises in urban
areas.This sector comprises moneylenders, indigenous bankers, lending pawn brokers, landlords,
traders etc.
MONETARY POLICY: -
The monetary policy states the use of financial instruments under the control of the Reserve
Bank of India to standardise magnitudes such as availability of credit, interest rates, and money
supply to achieve the ultimate objective of economic policy mentioned in the Reserve Bank of
India Act, 1934

FISCAL POLICY: -Fiscal policy in India is the guiding force that helps the government decide
how much money it should spend to support the economic activity, and how much revenue it
must earn from the system, to keep the wheels of the economy running smoothly

Australia: -
The Reserve Bank is responsible for maintaining the stability of the financial system of
Australia. In a healthy and stable financial system, financial institutions, financial markets and
the payment system work smoothly.The Reserve Bank promotes the stability of the financial
system through managing and providing liquidity to the system, monitoring risks, and chairing
the Council of Financial Regulators .The Reserve Bank is also the regulator of the payments
system. The Payments System Board has a mandate to promote efficiency and competition in the
payments system, and contribute to the overall stability of the financial system.

COMPONENTS OF AUSTRALIAN FINANCIAL SYSTEM : -

Market Participants: - Participants in the financial system consists of commercial banks,
investment banks, finance companies,building or cooperative societies, credit unions,friendly
societies,superannuation and approved deposit funds, public unit trusts, cash management
trust,mortgage originators, insurance companies,institutional funds investing in and financial
institutes
Financial Institutions: - The banking sector of Australia consists of banks licensed to carry on
banking business under the Banking Act 1959,Foriegn banks license to operate through a branch
in Australia and australian incorporated foreign bank subsidiaries. The banking system is
liquid,competitive and well developed.
Insurance: - The insurance market of Australia is divided into 3 parts which are life
insurance,general insurance and health insurance and in recent several of their companies
broaden their scope into more generic financial services and have faced competition from banks
and subsidiaries of forign financial conglomerates.
Superannuation: - In 1992 the keating labor government introduced a superannuation
Guarantee.
As part of a major reform package addressing Australia’s retirement income policies.
● A safety net consisting of a mean tested government age pension system
● Private saving generated through compulsory contributions to superannuation
● Voluntary savings through superannuation and investments
Financial Market: - Financial market consists of
Under Australians securities exchange there are various exchanges operating for different kinds
of instruments.
● Payment system: - Most foreign exchange transactions are free from regulations, and the
Reserve bank of Australia has largely delegated its control to authorised money market
dealers and foriegn exchange dealers ,this includes cash, cheques,EFTPOS and high
value payments.

MONETARY POLICY:- The Reserve Bank of Australia is responsible for formulating and
implementing monetary policy. The Reserve Bank sets the target ‘cash rate’, which is the market
interest rate on overnight funds. The focus is on improving macroeconomic indicators.
FISCAL POLICY: -Fiscal policy of Australia represents government spending policies that
influence macroeconomic conditions. Through fiscal policy, regulators attempt to improve
unemployment rates, control inflation, stabilize business cycles and influence interest rates in an
effort to control the economy.

● Comparison: Both of them are bank based financial systems, the difference lies in the
way they approach their components. India has 4 well defined components with an
informal sector operating mostly in rural areas. On the other hand Australian system has
the market participants wherein major banks, cooperative societies, credit unions etc are
part of it.
● In the financial service sector Insurance is given more importance in Australia when
compared to India, where it comes under the umbrella of financial services.
● Australia also has a strong and well defined retirement income policy; Superannuation,
which is a significant factor in the system. India has a lot of scope to develop better
policies on this aspect.
● When it comes to regulation of the system; particularly the money market and various
policies the central banks have more or less the same roles in both the nations. When it
 comes to capital markets; in India SEBI is only a regulator but ASX is like an umbrella
stock exchange and regulator.
● Monetary policies are formulated and executed by the central banks by regulating various
interest rates and fiscal policies comes under the government’s purview in both
countries,

Comments: The introduction and brief comparison below signifies the similarity of both the
financial systems in terms of regulation. However the structures and importance of components
is different. Australia is among the top 10 countries with the best financial system as per the
2008 survey of the World Economic Survey and even today is leading by example as
development and living standards are high in the nation. As far as India is concerned there is
scope of improvement, especially with new policies regarding bad bank loans, disinvestment in
the sector and the setting up of a Development Finance Institution.
The Superannuation policy of Australia is one area where India can plan to create more strong
policies. This will contribute in improving the standard of living of the retired population, some
steps have already been taken with, like the Prime Minister Shram Yogi Mandhan Pension
Yojana (PM-SYM) for the workers of the unorganised sector or the recent proposal under the
budget that senior citizens (above 75) earning only pension and interest income from deposits
would not be required to file Income Tax Return. The government has proposed to allow tax
exemption on maturity of ULIP having annual premium up to Rs 2.5 lakh.

Comparison of the Systems based on criterias:

Sl.N Criterias Indian Financial System Australian Financial System

o

1 Type of financial The IFS is bank centric, the It is also a bank based system,
system performance of the banking where the majority of financial
sector is crucial in the system assets are held by the
development of the economy. banks.

2 Regulatory bodies India has two primary financial Australia's financial system
system regulators - the Reserve and capital markets are
 Bank of India (RBI) regulating
India’s banking industry and the
Securities & Exchange Board
of India (SEBI) regulating the
capital markets industry. Other
regulators are Insurance
Regulatory and Development
Authority of India (IRDAI),
Pension Fund Regulatory and
Development Authority
(PFRDA), Forward Markets
Commission, Foreign
Investment Promotion Board
and National Stock
Exchange(NSE).
3 Objectives of The main objectives are: to
monetary policies maintain price stability by
controlling money supply
through interest rates,
Controlled expansion of bank
credit, Promotion of fixed
investment, Restriction of
inventories and stocks,
promoting efficiency in the IFS
and reducing rigidity in financial people of Australia.
operations.
4 Stock Exchanges The SEBI approved permanent
stock exchanges are Bombay
Stock Exchange Ltd, National
Stock Exchange Ltd, Calcutta
Stock Exchange Ltd, Indian
Commodity Exchange Ltd.
governed and overseen by 3
separate regulatory
agencies, and a central
government agency: The
Australian Securities and
Investments Commission
(ASIC), The Reserve Bank
of Australia (RBA),The
Australian Prudential
Regulatory Authority
(APRA) and The Australian
Treasury (Treasury). The
coordinator body for these
agencies is the Council of
Financial Regulators.
The Reserve Bank Board sets
interest rates so as to achieve
the objectives set out in the
Reserve Bank Act 1959, which
are: the stability of the currency
of Australia; the maintenance
of full employment in
Australia; and the economic
prosperity and welfare of the
The Australian Securities
Exchange (ASX) operates the
Australian Stock Exchange and
the Sydney Futures Exchange
and facilitates trading in
securities and derivatives
Multi Commodity Exchange of
India Limited, and National
Commodity & Derivatives
Exchange Ltd The Metropolitan
Stock Exchange of India Ltd is
valid upto Sep 15, 2021 and the
NSE IFSC Ltd is valid upto May and market education.
28, 2021. Thus there are 8
SEBI approved stock
exchanges currently.
including shares, futures,
options and warrants. ASX also
provides market data, for
example share prices, and
related information including
stock market announcements
National Stock Exchange of
Australia (NSX) is a stock
exchange set up and managed
specifically to cater for the
listing of small to medium
enterprises. The exchange is
owned by NSX Limited which
is listed on ASX. NSX also
operates SIM Venture
Securities Exchange Limited.
Chi-X is the latest Stock
Exchange to be licensed in
Australia. Chi-X Australia
offers an alternative to trading
on ASX providing new order
types and potential for lower
costs. Newcastle stock
exchange and Bendigo stock
exchange also come under the
umbrella of ASX.
Thus there are around 6
exchanges under ASX
currently.
5 Financial reforms Reform of the financial sector Australia's weight in the global
was recognized, from the very economy was smaller, and its
beginning, as an integral part of financial reforms occurred in
the economic reforms initiated the context of a much smaller
in 1991. and less integrated global
The major delineations of the financial system. While its
financial sector reforms in India capital account in the 1970s
were found as under: and early 1980s was more
tightly restricted than other
● Removal of the erstwhile
similar economies, Australia
existing financial
was somewhat more open to
repression.
foreign portfolio investment
● Creation of an efficient,
than China is currently.
productive and profitable
the Australian example serves
financial sector.
to underscore both the potential
● Enabling the process of
importance of sequencing and
price discovery by the
the powerful catalytic effects of
market determination of
a decision to liberalise. The
interest rates that improves
floating exchange rate is now
allocate efficiency of
widely recognised as having
resources.
played a crucial role in helping
● Providing operational and
to steer the economy through
functional autonomy to
challenging periods
institutions.
● Preparing the financial
system for increasing
international competition.
● Opening the external sector
in a calibrated manner.
● Promoting financial
stability in the wake of
domestic and external
shocks.
 Financial ● Commercial banks
6 intermediaries ● Regional rural banks
(RRB)
● Cooperative banks/
societies
● Development banks and
All India finance
institutions (IDBI,
NABARD, SIDBI, NHB
etc.)
● Pension/provident funds
(NPS, EPFO etc.)
● Mutual funds (UTI and
private sector mutual
funds)
● Insurance companies (LIC, ‘registered financial
GIC etc.)
● Non banking financial
companies (NBFC)
7 Development In India, the first DFI was
Finance operationalised in 1948 with the
Institutions setting up of the Industrial
Finance Corporation (IFCI).
Subsequently, the Industrial
Credit and Investment
In addition to banks, building
societies and credit unions, all
of which are subject to
prudential regulation by APRA,
there are two other types of
financial institutions that
intermediate between lenders
and borrowers in the Australian
financial system, but are not
authorised to accept deposits –
finance companies and money
market corporations (also
known as merchant banks).
These institutions are also
collectively known as
corporations’. They are not
supervised by APRA, but are
subject to the same conduct and
disclosure regulations that the
Australian Securities and
Investments
Commission(ASIC) applies to
the non-financial corporate
sector.
It is proposed that Australia
creates a sovereign
Development Finance
Institution (DFI) to engage in
the growing market for
“impact” or “social” investing
 Corporation of India (ICICI)
was set up with the backing of
the World Bank in 1955.
The government plans to set up
a Development Finance
Institution (DFI) in the next
three to four months with a view
to mobilise Rs 111 lakh crore
required for funding of the
ambitious national infrastructure
pipeline,
8 Role of ministry They Determine The Fiscal
of Policies Which Should Be Used
By Government In Solving Any
Economic Problem In The
Country. Problems Like
Unemployment, Deflation,
Inflation And Many More Are
Set To Be Solved By The Use
Of Fiscal Policies Determined
By The Ministry Of Finance.
9 Banking There Are Two Broad
Categories Under Which Banks
Are Classified In India-
Scheduled And Non-scheduled
Banks.
The Scheduled Banks Include
Commercial Banks And
Cooperative Banks. The
Commercial Banks Include
that is revolutionising overseas
aid. Funding for development
assistance globally has grown
significantly in the last two
decades.
The Minister For Finance Has
Overall Responsibility For The
Finance Portfolio, And
Particular Responsibility For
The Following: ... Government
Financial Accountability,
Governance And Financial
Management Frameworks,
Including Grants And
Procurement Policy And
Services.
Australia And New Zealand
Banking Group (ANZ)
Commonwealth Bank Of
Australia (CBA)
National Australia Bank (NAB)
Westpac Banking Corporation.
 Regional Rural Banks, Small
Finance Bank, Foreign Banks,
Private Sector Banks, And
Public Sector Banks. Payments
Bank Is A New Introduction To
The Category.Cooperative
Banks Include Urban And Rural
Banks.
10 Credit Channel The credit channel plays a
critical role in transmitting
monetary policy impulses to the
credit market and from thereon
to the real economy in a country
like India. The stressed asset
ratio impacts credit growth
negatively, suggesting that
banks with higher stressed assets bank loans does not necessarily
are forced to curtail their credit
growth.
The transmission process of
monetary policy is a
longstanding macroeconomic
issue. The lending view is that
a monetary tightening affects
aggregate demand by shifting
the supply schedule of bank
loans left. The contraction of
mean a shift of the supply
schedule. Therefore, testing the
lending view requires the
identification of the shifts of
the demand and supply
schedules in the bank loan
market.
References:
https://www.cclcompliance.in/services/authorisation/#:~:text=India%20has%20two%20pri
mary%20financial,regulating%20the%20capital%20markets%20industry.
https://www.cfr.gov.au/#:~:text=The%20CFR%20is%20the%20coordinating,Australia%2
C%20which%20chairs%20the%20Council.
https://www.investogain.com.au/companies/stock-exchanges/
https://www.sebi.gov.in/stock-exchanges.html
https://www.intelligenteconomist.com/financial-system/
https://www.rba.gov.au/publications/fsr/2006/mar/struct-aus-fin-sys.html
http://tumkuruniversity.ac.in/oc_ug/comm/IFS%20FINAL.pdf
https://www.financialexpress.com/budget/income-tax-slab-rate-change-budget-2021-live-up
dates-tax-calculator-covid-cess-80c-latest-news/2183259/#:~:text=The%20Finance%20Mini
ster%20proposed%20that,up%20to%20Rs%202.5%20lakh.