Finance

THE FINANCIAL SYSTEM

PAUL HONGKUNG T. A.MBA (Marketing)Christ UniversityBangalore

08/04/2023 Text 100, Bangalore


CONTENTFinancial InstitutionNon Banking Financial InstitutionsNon Banking Financial CompaniesIndian Banking SystemBanking Titbits


FINANCIAL INSTITUTIONAn institution that collects funds and invests

them in financial assets. 1. Deposit-taking institutions that accept and

manage deposits and make loans (banks, credit unions, trust companies, and mortgage loan companies)

2. Insurance companies and pension funds3. Brokers, underwriters and investment funds.


FINANCIAL INSTITUTIONIntermediary of the capital and debt marketsTransfer funds from investors to companiesFacilitate the flow of money through the

economyEg. EXIM, IDBI, IIBI, SIDBI and UTI


COMMERCIAL BANKCommonly referred to as simply a "bank“Provides checking accounts, savings

accounts, and money market accounts and that accepts time deposits

Deal with deposits and loans from corporations


COMMERCIAL BANKIt raises funds by collecting deposits from

businesses and consumers via checkable deposits, savings deposits, and time deposits

It makes loans to businesses and consumers. It also buys corporate bonds and government

bonds Its primary liabilities are deposits and

primary assets are loans and bonds


INVESTMENT BANKIt is a financial institution that raises capital,

trades in securities and manages corporate M & A

Raise money through issuing and selling securities in the capital markets and insuring bonds

Provide advice on transactions such as M & A


UNIVERSAL BANKFinancial services companies engaged in

commercial and retail lendingDiversified and engage in multiple activitiesBoth banking and insurance Eg. Barclays, Citigroup, Deutsche Bank and

HSBC


NON BANKING FINANCIAL INSTITUTIONSMobilise the public savings for rendering

other financial services including investmentAlso called investment institutionsInvestmentRisk poolingContractual savingsMarket Brokering


NON BANKING FINANCIAL INSTITUTIONSDevelopment finance institutions (DFIs)

[Government-owned]Providers of long-term project loans.Insurance companies, Non Banking Financial Companies (NBFCs) Primary dealers (PDs) Capital market intermediaries (MFs)


NON BANKING FINANCIAL COMPANIES Provide banking services without meeting

legal defination of a bank3 broad categories(i) NBFCs accepting public deposit (ii) NBFCs not accepting/holding public deposit(iii) Core investment company with 90% of

their total assets as investments in the securities of their group/holding/subsidiary company


DIFFERENCE BETWEEN NBFC AND BANKSAn NBFC cannot accept demand deposits

It is not a part of the payment and settlement system and as such cannot issue cheques to its customers

Deposit insurance facility of DICGC is not available for NBFC depositors unlike in case of banks

Deposit Insurance and Credit Guarantee Corporation


NON BANKING FINANCIAL COMPANIESAsset Finance Company (AFC) (equipment leasing

company, hire-purchase company

Investment Company (IC)

Loan Company (LC) [VC, House Finance]


INDIAN FINANCIAL SYSTEMThe financial system is concerned about money, credit and finance


FINANCIAL MARKETThe market in which financial assets are

created or transferredA financial transaction involves creation or transfer of a financial assetA claim to the payment of a sum of money in the future in the form of interest or dividend


FINANCIAL MARKETMoney Market •A wholesale debt market for low-risk, highly-

liquid, short-term instrument

Capital Market •To finance the long-term investments

Forex Market •Deals with the multicurrency requirements, which are met by the exchange of currencies.

Credit Market •A place where banks, FIs and NBFCs purvey short, medium and long-term loans to corporate and individuals


FINANCIAL INSTRUMENTSMarket for short-term money and financial

assets that are near substitutes for moneyAny financial asset which can be quickly

converted into money with minimum transaction cost


FINANCIAL INSTRUMENTSCall/Notice Money •Money borrowed or lent on demand for a very short period

Treasury Bills •Borrowing instruments of the union government

Term Money •Deposits of maturity beyond 14 days

Certificate of Deposit

•Negotiable money market instrument

Commercial Papers

•A note in evidence of the debt obligation of the issuer


FINANCIAL INTERMEDIARYTransfer funds from the lender to the

borrowerTransfer funds from investors to companiesIntermediary of the capital and debt marketsFacilitate the flow of money through the

economy


FINANCIAL INTERMEDIARYInvestment bankers UnderwritersStock exchanges Portfolio managers Mutual fundsBanksDealers


INDIAN FINANCIAL SYSTEMMoney market regulated by RBI Capital market regulated by SEBIPrimary market (IPOs)Secondary market (equity and debt market)


BANKING TITBITSBanking in India originated in the late 18th

centuryThe oldest bank in existence in India, SBI

traces its origins back to June 1806In 1935, RBI formally took over responsibilities

from the then Imperial Bank of India, relegating it to commercial banking functions.

After India's independence in 1947, the Reserve Bank was nationalized and given broader powers


BANKING TITBITSIndia has 77 scheduled commercial banks 26 public sector banks (GoI holding a stake)22 private banks (may be publicly listed and

traded on stock exchanges) 29 foreign banks

Source: RBI


BANKING TITBITSThe first chartered bank of the US was the

First Bank of the United States, formed in 1791

Flatbush National Bank of Brooklyn, New York was the first bank to issue a credit card in 1946

The term "bank teller" originated in the wake of the 1929 stock market crash, when banks began hiring low-paid workers to "tell" throngs of frantic depositors that their money was gone. Source: Bargaineering


THANK YOU

Finance

Economy & Finance

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