INTRODUCTION INTRODUCTION TO INDIAN TO INDIAN FINANCIAL FINANCIAL

SYSTEMSYSTEM

FORMAL AND INFORMAL FORMAL AND INFORMAL FINANCIAL SECTORFINANCIAL SECTOR

Formal financial sector is characterized Formal financial sector is characterized by the presence of an organized, by the presence of an organized, institutional and regulated system.institutional and regulated system.

Informal financial sector is an Informal financial sector is an unorganized ,non- institutional, and unorganized ,non- institutional, and non- regulated system dealing with the non- regulated system dealing with the traditional and rural spheres of the traditional and rural spheres of the economy.economy.

Components of the Formal Components of the Formal Financial SystemFinancial System

Financial InstitutionsFinancial Institutions Financial MarketsFinancial Markets Financial InstrumentsFinancial Instruments Financial ServicesFinancial Services

Financial InstitutionsFinancial Institutions

Banking Institutions:Banking Institutions: Participate in the economy's payment Participate in the economy's payment mechanism, deposit liabilities mechanism, deposit liabilities constitute a major part of national constitute a major part of national money supply.money supply.

Non-Banking Institutions:Non-Banking Institutions: LIC, LIC, SIDBI, IIBI, IFCI ( All India Financial SIDBI, IIBI, IFCI ( All India Financial Institutions), SFCs & SIDCsInstitutions), SFCs & SIDCs

Financial MarketsFinancial Markets

Primary ( Direct) Market or New Primary ( Direct) Market or New Issue Market:Issue Market: Dealing in the new Dealing in the new financial claims or new securities.financial claims or new securities.

Secondary Market:Secondary Market: Dealing in Dealing in the securities already issued or the securities already issued or existing or outstanding. existing or outstanding.

Financial MarketsFinancial Markets

Money Markets:Money Markets: Highly liquid Highly liquid short term debt – instruments market short term debt – instruments market including Call Money Market, including Call Money Market, Certificates of Deposits, Commercial Certificates of Deposits, Commercial Papers and Treasury Bills.Papers and Treasury Bills.

Capital Markets:Capital Markets: Market for Market for Long-Term securities and provides Long-Term securities and provides risky capital in the form of equity. risky capital in the form of equity.

Financial InstrumentsFinancial Instruments

Primary Securities:Primary Securities: Equity, Equity, Preference, Debt and Various Preference, Debt and Various combinations.combinations.

Secondary Securities:Secondary Securities: Mutual Mutual Fund Units and Insurance Policies Fund Units and Insurance Policies etc.etc.

Financial ServicesFinancial Services

DepositoriesDepositories CustodialCustodial Credit RatingCredit Rating LeasingLeasing Portfolio ManagementPortfolio Management Underwriting etc.Underwriting etc.

Functions of the Functions of the Financial system Financial system

To link the savers & investors.To link the savers & investors. To inspire the operators to monitor To inspire the operators to monitor

the performance of the investment.the performance of the investment. To achieve optimum allocation of risk To achieve optimum allocation of risk

bearing.bearing. It makes available price - related It makes available price - related

information.information. It helps in promoting the process of It helps in promoting the process of

financial deepening and broadeningfinancial deepening and broadening