INDIAN FINANCIAL SYSTEM

DR.NAVNEET JOSHI - JIMS ROHINI ,DELHI

 Objectives of Study

 Structure of Financial System

 Financial system & Economic Development
 In finance, the financial system is the
system that allows the transfer of money
between savers and borrowers. It comprises a
set of complex and closely interconnected
financial institutions, markets, instruments,
services, practices, and transactions.
 Financial system are crucial to the allocation
of resources in a modern economy

 They channel household savings to the corporate

sector and allocate investment funds among
firms
These functions are common to the financial
systems of most developed economies. Yet the
form of these financial systems varies widely .
 Purpose of Financial System
 Financial system helps, to form your
organization’s planning and action plans

 Financial systems also help you track and manage

the resources required to successfully complete
your work

 These tips provide basic practices you will need to

build financial sustainability in your organization
 Why financial system is important ?

Financial system and capacity help the

organization to make sound decisions based on
cash flow and available resources

 Most governments require that registered,

charitable organizations create accounts that
track income and expenses
 Funders require reports that demonstrate
that grants were used for intended purposes

 Monitoring funds, or comparing actual income

and expenses versus budgeted amounts, helps
managers ensure that the necessary funds are in
place to complete an activity
 Establishing financial controls and clear
accounting procedures help ensure that
funds are used for intended purposes

 Transparency, clear planning and realistic

projections contributes to the credibility of
the organization
 In other words, financial system may be
said to be made up of all those channels
through which savings become available for
investment .
 Financial system is crucial significance to
capital formation. The Process of capital
formation involves three distinct ,although inter-
related activities :

 Savings

 Finance

 Investment
 Organization Of Financial
system

Financial Financial Financial

Intermediar-ies Markets Assets/Instru-ments
 Financial Intermediaries

Insurance
Banks NBFC’s Mutual Funds
Organizations

•Assets Finance companies

•Housing Finance Companies
• Venture Capital funds
•Merchant Banking Organizations
•Credit Rating Agencies
•Stock Broking Firms
•Custodial services
•Depositories
 Financial Markets

Money Capital/Securit
Market y Market

•Call Market Primary/New issue Secondary/Stock

•T-Bills Market market Market/Exchange
•Bills market
•CP Market
•CD Market
•Repo Market
 Financial
Assets/Instruments

Primary/Direct Indirect Derivatives

•Mutual Fund Units Forward

Equity Shares
•Security Receipts
•Securitize Debt Futures
Preference shares Instruments

Options
Debentures

•Convertible Debentures
•Non-Convertible Debentures
Innovative Debt
•Secure Premium Nodes
Instruments
•Warrants
 Organization of Indian
Financial System

Phase- I Phase- II Phase- III

Pre – 1951 1951 To Mid Post-Nineties
Eighties
 Phase- I Pre – 1951
Before 1951 the industry had very restricted
access to out side savings .the financial system
was not responsive to opportunities for industrial
investment .Such a financial system was clearly
incapable of sustaining a high rate of industrial
growth ,particularly the growth of new and
innovating enterprises.
 Organization of Indian Financial
System (phase-II)

Private/Gover Fortification Participation

nment of By Financial
Investor
Ownership of Institutional Institutions in
Financial structures Protection Corporate
Institutions Management
 Private/Government Ownership of
Financial Institutions

Nationalization of:
•RBI (1948)
New Institutions:
•SBI (1956)
•DFI’s ()
•LIC (1956) (245)
•UTI (1964)
•Banks (1969-14,1980-6)
•GIC (1972)
 Fortification Of Institutional
structures

DFIs: Banks:
•IFCI (1948,1993) •Diversification
•SFCs (1971) of Forms of LIC UTI
•ICICI (1994) Financing (1964)
•IDBI (1964) •Enlargement of (1956)
•SIDCs Functional
•SIIC (1964) Coverage (245)
•IIBI •Innovative
Banking
 Investor Protection

Monopol- Foreign
Capital
Securities ies and Exchange
Comp- Issues
Contracts(r Restricti-ve Regulati-on
(control)
anies Act Act
egulation) Trade Act
(1956) Act Practices
(1947) FERA
(1956) Act
(1970) (1973)
 Organization of Indian Financial
System (phase-III)

Privatization of
Financial Reorganizatio
Institutions n of structure Financial Investor
•Banks (2) Protection:
•Mutual Funds
Markets SEBI
•Insurance co. (3) (4)
(1)
 Reorganization of Structure
(2)

Banks
DFIs / (ii) Mutual
NBFCs
PFIs (iii)
Funds
(i) (iv)
 Banks - 2(ii)

Management of Non- Risk

Prudential Performing Assets : Management
•Debt Recovery
Norms: Tribunals
•Credit/Advance •Corporate Debt Asset Liability
Portfolio Restructuring Management
•Investment •Securitization, Credit Risk
Portfolio Reconstruction of Management
•Capital Financial Assets &
Adequacy Enforcement of Operational
Security Interest Risk
Management
 Financial Markets
(3)

Money
Capital Market
Market

Primary Market Stock Exchange

 IDBI
The Industrial Development Bank of India Limited
commonly known by its acronym IDBI is one of
India's leading public sector banks and 4th largest
Bank in overall ratings. RBI categorized IDBI as an
"other public sector bank".
It was established in 1964 by an Act of
Parliament to provide credit and other facilities for
the development of the fledgling Indian industry. It
is currently 10th largest development bank in the
world in terms of reach with 1228 ATMs, 725
branches and 486 centers.
 IFCI

The government established The Industrial

Finance Corporation of India (IFCI) on July 1,
1948, as the first Development Financial
Institution in the country to cater to the long-
term finance needs of the industrial sector.
IFCI was changed in 1993 from a statutory
corporation to a company under the Indian
Companies Act, 1956
 ICICI
ICICI Bank is India's second-largest bank
with total assets of US$ 81 billion at March 31, 2010
The Bank has presence in 18 countries.
ICICI Bank offers a wide range of banking
products and financial services to corporate and
retail customers through a variety of delivery
channels and through its specialized subsidiaries in
the areas of investment banking, life and non-life
insurance, venture capital and asset management.
 At the state level, the machinery of the State
Industrial Development Corporations (SIDCs )
/State Industrial Investment Corporations (SIICs)
were geared up to meet the financial needs, in
terms of the requirements of the Third Five Year
Plan.
In 1971, with the functional reorientation of the
development banks, the Industrial Reconstruction
Corporation of India (IRCI) LTD. Was jointly set up
by the IDBI, BANKS and LIC to look after the
rehabilitation of sick mills.
 It was renamed as the Industrial
Reconstruction Bank of India (IRBI)in
1984 .It was converted into a full-fledged
public financial institution (PFI) and was
renamed as the Industrial Investment
Bank of India (IIBI)in 1997.
 SFC’s
Gujarat State Financial Corporation (GSFC) is a
pioneer term lending development financial
institution in the State of Gujarat.
It is created under the State Financial
Corporation Act, 1951 passed by Parliament. GSFC’s
mandate is to provide finance to small and medium
scale enterprises. Formed in 1960, GSFC has
sanctioned loans and advances of over Rs.4400
crores; out of which, it has disbursed over Rs.3,300
crores to 47,000 units in the state.
 IIBI

Industrial Investment Bank Of India Kolkata

was established in the year 1985. It offers
financial products and facilities. IIBI Kolkata
engages in a varied of fund based and non-fund
based actions, adding project finance, short
length, non-project, asset-backed financing in the
form of underwriting/direct subscription,
deferred payment guarantees, and working
capital/other short-term loans to companies in
the country and globally.
FINANCIAL SYSTEM & ECONOMIC DEVELOPMENT
 The Economic Development of a country
depends, inter alia, on the financial system. The
larger the proportion of the financial assets
(money and monetary assets) to real assets
(physical goods and services), the greater the
scope for economic growth in the long run. For
growth to take place, investment is necessary
which flows from the financial system.
 Economic Development

Savings & Investment or capital formation

Surplus Spending Deficit Spending

Economic Units Economic Units

Income Minus (consu- Income Minus (consu-

mption + own Investment) mption + own Investment)

Surplus or savings Deficit or Negative Savings

Financial System
Feel free to contact :-
joshinavneet21@gmail.com

Dr.Navneet Joshi
Asst. Professor
JIMS, Rohini, Delhi