INTRODUCTION TO

INDIAN FINANCIAL
SYSTEM
 FORMAL AND INFORMAL FINANCIAL
SECTOR
 Formal financial sector is characterized by the
presence of an organized, institutional and
regulated system.

 Informal financial sector is an unorganized

,non- institutional, and non- regulated system
dealing with the traditional and rural spheres of
the economy.
Components of the Formal Financial
System

 Financial Institutions
 Financial Markets
 Financial Instruments
 Financial Services
 Financial Institutions
 Banking Institutions: Participate in the
economy's payment mechanism, deposit
liabilities constitute a major part of national
money supply.
 Non-Banking Institutions: LIC, SIDBI,
IIBI, IFCI ( All India Financial Institutions),
SFCs & SIDCs
 Financial Markets
 Primary ( Direct) Market or New Issue
Market: Dealing in the new financial claims or
new securities.
 Secondary Market: Dealing in the securities
already issued or existing or outstanding.
 Financial Markets
 Money Markets: Highly liquid short term
debt – instruments market including Call Money
Market, Certificates of Deposits, Commercial
Papers and Treasury Bills.
 Capital Markets: Market for Long-Term
securities and provides risky capital in the form
of equity.
 Financial Instruments
 Primary Securities: Equity, Preference, Debt
and Various combinations.
 Secondary Securities: Mutual Fund Units and
Insurance Policies etc.
 Financial Services
 Depositories
 Custodial
 Credit Rating
 Leasing
 Portfolio Management
 Underwriting etc.
 Functions of the Financial
system
 To link the savers & investors.
 To inspire the operators to monitor the
performance of the investment.
 To achieve optimum allocation of risk bearing.
 It makes available price - related information.
 It helps in promoting the process of financial
deepening and broadening