Professional Documents
Culture Documents
1
Indian Financial System
2
Indian
Financial
System
Formal Informal
(organized (Unorganized
Financial financial
system) system)
3
Formal and Informal Financial
System
The financial systems of most developing
countries are characterized by co-existence and
co-operation between the formal and informal
financial sectors.
The formal financial sector is characterized by
the presence of an organized, institutional and
regulated system which caters to the financial
needs of the modern spheres of economy.
The informal financial sector is an
unorganized, non-institutional and non-regulated
system dealing with traditional and rural spheres
of the economy.
4
Component of Formal Financial
System
Regulators
Financial Institutions
Financial Markets
Financial Instruments
Financial Services
5
Regulators
6
Financial Institutions
Financial
Institutions
(Intermediaries)
Insurance
Banking Non-Banking and
Mutual Funds
Institutions Institutions Housing
Finance companies
7
Financial Instruments
Financial
Instruments
Primary Secondary
Securities Securities
Primary Segment
Secondary Segment
9
Indian Financial System An Overview
PHASES
* Upto 1951 Pvt. Sector
* 1951 to 1990 Public Sector
* Early Nineties Privatisation
* Present Status Globalisation
10
Indian Financial System An Overview
11
Pre 1951
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1951 to 1990
Moneylenders ruled till 1951. No worth-while Banks at
that time. Industries depended upon their own money.
1951 onwards 5 years PLAN commenced.
PVT. SECTORS TO PUBLIC SECTOR MIXED
ECONOMY
1st 5 year PLAN in 1951 Planned Economic Process.
As part of Alignment of Financial Systems Priorities
laid down by Govt. Policies.
MAIN Elements of Fin. Organisations
i. Public ownership of Financial Institution
ii. Strengthening of Institutional Structure
iii. Protection to Investors
iv. Participation in Corporate Management 13
v. Organisational Deficiencies.
1951-1990
Nationalization
RBI 1948
SBI 1956 (take-over of Imperial Bank of India)
LIC 1956 (Merges of over 250 Life Insurance Companies)
Banks 1969 (14 major banks with Deposits of over Rs. 50
Crs.nationalised)
1980 (6 more Banks)
Insurance 1972 (General Insurance Corp. GIC by New India,
Oriental, united and National.
14
1951-1990
Development
Directing the Capital in conformity with Planning priorities
Encouragement to new entrepreneurs and small set-ups
Development of Backward Region
IFCI (1948)
State Finance Corporation (1951) Purely Mortgage institution
IDBI (1964) As subsidiary of RBI to provide Project / Term Finance
ICICI (1966) Channelizing of Foreign Currency Loan from World
Bank to Pvt. Sector and underwriting of Capital issues.
SIDCs & SIIC State Level Corporations for SME sector
UTI (1964) to enable small investors to share Industrial Growth
IRCI (1971) to take care of rehabilitation of sick-mills promoted by
IDBI, Banks & LIC-Name changed to IIBI in 1997
15
POST 1990s
IMPORTANT DEVELOPMENTS
Privatisation of DFI
Reduction in Govt. holding & Public Participation e.g. IFCI Ltd., IDBI Ltd.,
ICICI Ltd.
Conversion into Banking / Merger into Banking Companies IDBI Bank &
ICICI Bank
Issuance of Bond by DFIs without Govt.s Guarantees to mobilize resources.
NBFC
NBFC under RBI governance to finance retail assets and mobilize
small/medium sized savings.
Very large NBFCs are emerging (Shri Ram Transport Finance, Birla, Tata
Finance, Sundaram Finance, Reliance Finance, DLF, Religare etc.
17
POST 1990
Commercial Bank
Mutual Funds
Capital Market
Secondary Market
Money Market
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GLOBAL FINANCIAL SYSTEMS
IBRD (World Bank) Long-Term Capital Assistance
IDA Affiliate of World Bank Soft Loan window of the Bank. Mainly for
developing & under-developed nations. Re-payment period upto 50
years Govt. & Private, both, eligible.
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Global Financial System An Overview
Functions of Financial Market
Price Discovery
Liquidity
Cost of Transactions (saver search & information costs)
Transfer of savings from one sector to other
Reflects as Barometer for economic growth
Financial Assets
Treasury Bonds
Debt
Equity
Commercial Paper/Debentures etc.
Euro Bonds.
Gold/Silver
Cross Border Bonds /instruments.
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STRUCTURE OF FINANCIAL MARKETS IN INDIA
Debt Market Forex Capital Market Insurance Banks (including Mutual Funds,
Primary / Market Primary / Life/General RRBs, co-op etc) Venture Funds,
Secondary Secondary & Investment
Depository Bonds
REGULATORY AUTHORITY
21
Financial Instruments