COMPONENTS OF INDIAN FINANCIAL SYSTEM

Indian Financial System

Organized

Non- Organized Money lenders Local bankers Traders Landlords Pawn brokers Chit Funds

Financial Institutions
Financial Markets Financial Instruments

Financial services

Financial Institution

Organized Sector

Unorganized Sector

Capital Market

Money Market

Money Lenders

Non-Banking Institution
Non-Banking financial Companies Development financial institutions

Mutual funds

IHFC

Banking Institutions Scheduled Commercial banks Public Sector Banks

Indigenous Bankers

RBI

Scheduled Cooperative Banks

Pawn Brokers

Public sector All India Financial Institutions Private Sector State level Institutions

Private Sector Banks

Traders

Foreign Banks in India

Other Institutions

Regional Rural banks

NOTE. Non-banking financial companies Carry out financial activities . Resources are not directly obtained from the savers as debt. Oblige public savings for rendering other financial services including investments. UTI, LIC, GIC Development Financial Institutions Established to fill the gaps between banking systems and capital market. Channeling funds to particular firms, industries, sectors, during the development process. To reduce financial constraints faced by companies. Converting themselves into universal banks. E.g.: ICICI bank

NOTE.

Mutual Funds
A fund established in the form of a trust by a sponsor ,to raise monies by the trustees through the scale of units to the public, under one or more schemes, for investing in securities in accordance with these regulations.- SEBI

Insurance & Housing Finance Companies

Filing the gap of credit supply for house building. Big mobilisers of funds. Provide finance in form of mortgage loan. HUDCO LIC GIC Commercial Banks.

NOTE. RBI : to regulate the issue of bank notes and keeping of reserves with a view to securing money stability in India and generally to operate the currency and credit system of the country to its advantage. - preamble of RBI

Scheduled Commercial Banks : Which have been included in the second schedule of RBI Act,1934.

Scheduled cooperative Banks : Organized & managed on the principle of co operation , self help, and mutual help. They function with the rule of one member, one vote function on no profit, no loss basis.

NOTE. Money lenders: Offers small personal loans at high rate of interest. Important source of credit to a particular category of borrowers. Pawn brokers: An individual or business entity offers loans in exchange for an item of value given to the pawn broker. Indigenous bankers: offer loan on short term. lent money on security of jewels and on promissory notes. They functioned both in urban and rural areas. lent money on informal conditions. Traders: offer monetary loan on some security on high interest rate

NOTE. Financial Market :

Contribute in buying and selling of financial

claims, assets, services and securities.

Funds

or savings are transferred from surplus unit to deficit unit.

Players like dealers, investors, borrowers,

depositors, etc are plays a vital role in driving demand and supply.

Financial markets help Individuals to get the

benefits of time preference, liquidity preference and portfolio management.

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NOTE.

NOTE.
Primary Market : First time sales of equity . Also called the new issue market, is the market for issuing new securities. Many companies, especially small and medium scale, enter the primary market to raise money from the public to expand their businesses. They sell their securities to the public through an initial public offering [ IPO].

Secondary Market : Financial market for trading of securities that have already been issued in an initial private or public offering. It enables quicker valuations of financial instruments for both equity and debt.
The two major secondary markets of India : 1. Bombay Stock Exchange (BSE). 2. National Stock Exchange (NSE)

NOTE. Call Money Market : Market where call funds are borrowed and lent. Deals in very short period funds. This market is being used by the central bank for conducting the open market operations. Collateral Loan Market : A place where loan, which are backed by collateral assets are facilitated. Also called as secured loan.

Bill Market : Where different types of bills or commercial bills are circulated. A commercial bill is one which arises out of a credit transactions.
Acceptance Market : Refers to the market where short-term genuine trade bills are accepted by financial institutions. Discount Market : Where short term trade bills are discounted, like commercial banks. It is a segment of bill market.

Financial Services

NOTE. Book Building : It is a mechanism where , during the period for which the book for the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. This process aims at tapping both wholesale & retail investors. E- commerce : It consists of buying and selling of products or services over electronic systems such as internet. Debt Securitization : An emerging source of funds for financial institutions. It is nothing but the package of a pool of financial assets into marketable securities. Deposit Insurance : A measure to protect deposits, in full or in part. It is being introduced by the policy makers in different countries. Lease Financing : A commercial arrangement where an owner conveys to the consumer the right to consume in return for a rental.

NOTE. Credit Rating : help investors by providing on easily recognizable, simple tool that couples a possibly unknown issuer with an informative and meaningful symbol of credit control. Hire Purchase : a type of installment credit under which the hire purchaser called the hirer , agrees to take the goods on hire at a stated rental.

Syndicated Loan : A large loan in which a group of banks provide funds for a borrower
Portfolio Management : The process of managing the assets of s mutual fund, including choosing and monitoring appropriate investments and allocating funds accordingly.

Financial Instruments
Documents which represents financial claims on assets and securities. Refers to claim periodical payments of certain amount of money by way of principle, interest or dividend. There are instruments for savers such as equities, mutual fund units, etc. There are instruments for borrowers such as loans, overdrafts, etc. Like businesses, governments too raise funds through some instruments, such as bonds, Treasury bills, etc. Instruments like PPF, KVP, etc. are available to savers who wish to lend money to the government Characteristics: Liquidity, for the quick conversion into cash. Collateral value, for pledging of instruments for obtaining loan. Price fluctuations of security. Tax status. Transferability , allows easy transfer of instruments.

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