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

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 26,
Outstanding as As on March 27,
2009
2010
on
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

-8.1

31,474

19.8

Foreign Banks

1,90,766

-14,028

Private Banks

6,89,232

41,424

8.4 1,51,618

28.2

37,63,213 3,66,914

13.8 7,38,641

24.4

All Scheduled
Commercial
Banks*

*: Including Regional Rural

Banks
Source:RBI

Capital market

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

Size of the issue

Maximum number
of lead managers

Less than 50 crores 2

50 100 crores

100 200 crores

200 400 crores

Above 400 crores

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

Low

Better

Administrative
Expenses

High

Low

Risk

Low

Moderate

Investment Options

Less

More

Quality of assets

Not transparent

Transparent

Interest calculation

Minimum balance
between 10th & 30th of
every year

Everyday

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

THANK YOU