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Overview of IFS

The document discusses the Indian financial system, which consists of formal and informal sectors. The formal system is regulated and includes various financial institutions, markets, instruments, and services. It is overseen by regulatory bodies like RBI, SEBI, and MoF. Key aspects of the formal system include banks, non-banking institutions, capital markets, money markets, primary/secondary instruments and securities. The informal system operates outside of regulations and serves rural/traditional needs. The document traces the evolution of India's financial system from the private sector pre-1951, to increasing government control and public sector emphasis post-1951. Further reforms in the 1990s privatized institutions and saw growth of capital markets, mutual funds, NBFC

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103 views

Overview of IFS

The document discusses the Indian financial system, which consists of formal and informal sectors. The formal system is regulated and includes various financial institutions, markets, instruments, and services. It is overseen by regulatory bodies like RBI, SEBI, and MoF. Key aspects of the formal system include banks, non-banking institutions, capital markets, money markets, primary/secondary instruments and securities. The informal system operates outside of regulations and serves rural/traditional needs. The document traces the evolution of India's financial system from the private sector pre-1951, to increasing government control and public sector emphasis post-1951. Further reforms in the 1990s privatized institutions and saw growth of capital markets, mutual funds, NBFC

Uploaded by

Maiyakabeta
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Indian Financial System

Indian Financial System


Indian financial system consists of formal
and informal financial system.
Based on the financial system financial
market, financial instruments and financial
intermediation
can
be
categorized
depending upon functionality.

Indian
Financial
System

Formal
(organized
Financial
system)

Regulators;
MoF, SEBI,
RBI, IRDA

Financial
Institutions
(Intermediaries)

Financial
Markets

Informal
(Unorganized
financial
system)

Financial
Instrument

Financial
Services

Money lenders,
Local bankers,
Traders

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

Regulators
The formal financial system comes under
the regulations of the ministry of finance
(MOF), reserve Bank of India (RBI),
Securities and Exchange board of India
(SEBI) and other regulatory bodies.

Financial Institutions
Financial
Institutions
(Intermediaries)

Banking
Institutions

Non-Banking
Institutions

Mutual Funds

Public sector

Insurance
and
Housing
Finance companies

Private Sector

Financial Instruments
Financial
Instruments

Primary
Securities

Secondary
Securities

Equity,
Preference
shares, Debt

Time deposits,
MF units
Insurance policies
8

Financial Markets
Financial
Markets

Capital Market

Money Market

Treasury Bills, Call money


Market,
Commercial Bills,,
Commercial Papers
Certificates of deposit, Term
money

Primary Segment

Secondary Segment

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


Orderly mechanism & structure in economy.
Mobilises the monetary resources/capital from
surplus sectors.
Distributes resources to needy sectors.
Transformation of savings into investment &
consumption.
Financial Markets Places where the
above activities take place

11

Pre 1951
1.
2.
3.
4.
5.

6.
7.
8.
9.

Control of Money Lenders


No Laws / Total Private Sector
No Regulatory Bodies
Hardly any industrialization
Banks Traditional lenders for Trade and that too
short term
Main concentration on Traditional Agriculture
Narrow
industrial
securities
market
(i.e.
Gold/Bullion/Metal but largely linked to London Market)
Absence of intermediatary institutions in long-term
financing of industry
Industry
had
limited
access
to
outside
saving/resources.
12

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
LIC
Banks

1956 (take-over of Imperial Bank of India)


1956 (Merges of over 250 Life Insurance Companies)
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
Development Financial Institutions : (DFIs)
Started providing Working Capital also
Set up CREDIT RATING AGENCIES
CRISIL(IPO IN 1993-94; standard & poor acquires 9.68% in 1996-97 S & P
acquires shares / holding up to 58.46%)
ICRA Set up in 1991 by leading FIs/Banks/Fin. Ser. Cos. And Moodys
CARE Set-up by IFCI/Banks.
FITCH a 100% subsidiary of FITCH Group.

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.

Reduction in holding of Govt. in Banks, i.e. Public Participation / Listing

16

POST 1990
INDUSTRIES

Rise & Growth of Service Sector industries.


Reliance & Dependence on technology.
E-mail & mobile made sea-change in communication, data collection etc.
Computerization a catch phrase and inevitable need of an hour.
Dependent on Capital Market rather than only Debts dependency.
Scalability of operations through globally competitive size.
Broad basing of Board.
Professional Management.

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

18

GLOBAL FINANCIAL SYSTEMS


IBRD (World Bank) Long-Term Capital Assistance
IFCI

To finance PRIVATE enterprises in the form of loans & equity

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.

MIGA
(1988)

Multilateral Investment Guarantee Agency an affiliate of World


Bank Provides guarantee for investment in needy countries.

ECAFE

(Economic Commission for Asia & Far East)


promote investment in Asia & Far East and also finance priority
area. Also co-ordinates with U.N. agencies.

19

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.
20

STRUCTURE OF FINANCIAL MARKETS IN INDIA


Financial Markets in India

Debt Market
Primary /
Secondary

RBI

Forex
Market

RBI

Capital Market
Primary /
Secondary &
Depository

SEBI

Insurance
Life/General

IRDA

Banks (including
RRBs, co-op etc)

RBI

Mutual Funds,
Venture Funds,
Investment
Bonds

RBI/SEBI

REGULATORY AUTHORITY

21

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