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Indian Financial System

The Indian financial system allows the transfer of money between savers and borrowers through various institutions. It consists of the banking sector, money market, and capital market. The banking sector in India includes scheduled commercial banks like public sector banks, private sector banks, foreign banks, and regional rural banks. Public sector banks are majority owned by the government. The capital market includes the government securities market, stock market, and various financial institutions that provide long term financing like development financial institutions, merchant banks, mutual funds, and venture capital firms.

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6K views21 pages

Indian Financial System

The Indian financial system allows the transfer of money between savers and borrowers through various institutions. It consists of the banking sector, money market, and capital market. The banking sector in India includes scheduled commercial banks like public sector banks, private sector banks, foreign banks, and regional rural banks. Public sector banks are majority owned by the government. The capital market includes the government securities market, stock market, and various financial institutions that provide long term financing like development financial institutions, merchant banks, mutual funds, and venture capital firms.

Uploaded by

Rayan Brosta
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© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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INDIAN FINANCIAL SYSTEM

IFS and its Functions

• System that allows the transfer of money


between savers and borrowers
• It channels household savings to the
corporate sector

• Allows “asset - liability” transformation


• It helps in risk transformation by diversification
Capital
market
Money
IFS market
Banking
sector
Structure of Banking in India

Scheduled
bank

Commercial Co-operative
bank bank

Regional
Public sector Private sector Foreign
Rural banks
(27) (30) banks (40)
(196)

State bank of
Nationalized India & its
banks (19) associates
(8)
Commercial banks
Public sector banks are those where government
holdings are more than 50% while nationalized banks
are those banks which were nationalized on July 19,
1969. Thus all nationalized banks are public sector
banks.
so one can say public sector bank=Nationalized
bank+ SBI + SBI associates + IDBI Thus in total 27
PSB’s are there.

• As on December 31st , Public sector banks recorded


a rise of 24.1% when compare to 16.9% in the last
year.
Private sector Banks
• Private sector banks are those banks in which
majority of stake is held by private individuals and
not by government
• The first private bank in India was Induslnd Bank
• IDBI ranks the 10th largest development bank in the
world as private banks in India
• As on December 31st , Private sector banks
recorded a rise of 28% when compare to 8.4% in
the last year.
Foreign Bank
• Banks from other countries which have branches in
a country.
• Citi Bank opened its branch in India in 1902

• The foreign banks have brought forth some


innovations and changes in the banking industry of
the country. The banking industry is now more
competitive and customer friendly than before.
• As on December 31st , Foreign banks recorded a
rise of 19.8% when compared to a decline of 8% in
the last year.
Regional rural bank
• The banks provide credit to the weaker sections of
the rural areas, particularly the small and marginal
farmers and small entrepreneurs
• RRB’s was set up by the government of India on
October 2, 1975
• The total authorized capital was earlier fixed at Rs.
1 crore which is now raised to Rs. 5 crore

• The RRB’s are under control of NABARD which is


in charge of laying down policies for the RRB’s
Funds flow from commercial bank

STRONG DEMAND
CREDIT FLOW FROM SCHEDULED COMMERCIAL BANKS (RS CRORE)
Item As on March 27, As on March 26,
Outstanding as on 2009 2010
March 26, 2010
Amount Per cent Amount Per cent
Public Sector
27,93,705 3,25,608 16.9 5,41,737 24.1
Banks
Foreign Banks 1,90,766 -14,028 -8.1 31,474 19.8

Private Banks 6,89,232 41,424 8.4 1,51,618 28.2

All Scheduled 
Commercial 37,63,213 3,66,914 13.8 7,38,641 24.4
Banks*
*: Including Regional Rural
Banks                                                                                                                    
         Source:RBI
Capital market
Capital Market in
India

Government Development
Industrial security Financial
security (Gill- financial
market Intermediaries
edged market) Institution

New issues
market IFCI
and ICICI
Old issue market SFC’s
Merchant banks
IDBI
Mutual funds
IIBI
Leasing companies
UTI
Venture capitalist
Gilt Edged Market And Types
• This market refers to the market for government
securities which are “of the best quality”.
• Credible instrument used by government for
meeting its financial requirement.
• Types:-
I. Dated Securities with a fix maturity date.
II. Zero coupon bonds
III. Partly paid stock
IV. Treasury Bills
Industrial security market
• An initial public offering (IPO), referred to simply
as an "offering" or "flotation", is when a company
(called the issuer) issues common stock or shares to
the public for the first time.
• India’s largest IPO is from Coal India Ltd which
raised upto Rs.15000 crore

•  A stock exchange is an entity that provides


"trading" facilities for stock brokers and traders to
trade stocks, bonds, and other securities.
Recent changes by SEBI
• Investment limit in IPO is increased from 1 lakh to
2 lakh

• SEBI decides IPO’s should be listed with in 12


days

• SEBI introduced spot delivery system for


derivatives from April 1st 2011

• Pre open market introduced by SEBI


Development financial Institutions
• It was developed by “The Narasimham
committee”in 1991

• These institutions provide a crucial role in providing


credit in the form of higher risk loans, equity
positions and risk guarantee instruments to private
sector investments in developing countries
Merchant banks
• Merchant bankers assist corporate in raising
capital.

• They assist in issue of Shares, syndicating loans,


public issue of debentures. They do not provide
funds.

• They only assist. They also actively arrange


working capital, appraisal Projects scrutinize &
persuade merger proposals
Merchant bankers as lead managers

Sl.no Size of the issue Maximum number


of lead managers
1 Less than 50 crores 2

2 50 – 100 crores 3

3 100 – 200 crores 4

4 200 – 400 crores 5

5 Above 400 crores 5 or more as


prescribed by SEBI
Mutual Funds
• A mutual fund is a professionally managed type
of collective investment scheme that pools money
from many investors and invests typically in
investment securities. 

• Types of mutual Funds


I. Open - ended schemes
II. Close – ended schemes
Bank v/s Mutual Fund
particulars BANKS MUTUAL FUNDS

Returns Low Better

Administrative High Low


Expenses
Risk Low Moderate

Investment Options Less More

Quality of assets Not transparent Transparent

Interest calculation Minimum balance Everyday


between 10th & 30th of
every year
Lease financing and hire purchase
• Leasing is a process by which a firm can obtain the
use of a certain fixed assets for which it must pay a
series of contractual, periodic, tax deductible
payments.

• A hire-purchase contract allows the buyer to hire the


goods for a monthly rent.

• A hire purchase is termed an installment plan.


 
Venture capital Financing
• Venture capital is risk financing available in the
form of equity
• A venture capitalist also provides management
support and acts as a partner and advisor to the
entrepreneur
• Methods of venture financing
I. Equity – Contribute 49% of the total equity capital
II. Conditional loan – Amount repayable in form of
royalty, No interest charged
III. Income notes – Charges both interest and royalty
on sales
THANK YOU

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