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17 views

Session 1 (2)

SESSION 1

Uploaded by

vaibhav.poddar
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Banking & Financial Services

Instructor: Mohit Pathak


Finance Area

June 2024
Indian Financial System
• Plays a vital role in the economic growth of a country.
• It acts as an intermediary between those who want to save and those who want to invest
in productive activities.
• This leads to capital formation
• Complex, well-integrated set of sub-systems
• Financial Market
• Financial Institutions
• Financial Instruments
• Financial Services
• Financial Dualism
• Formal – Organised, Institutional & Regulated (MoF, RBI, SEBI)
• Informal – Unorganised, Non-Institutional, non-regulated – As a result of repression of certain
people and they being deprived from accessing fund.
Financial Institutions
• These are the intermediaries that mobilise savings and facilitate
allocation of funds.

• Banking institutions – Creators & distributor of credit.


• CASA – for rising funds
• Non Banking is only distributor
Components of Financial System (Formal)
Indian Financial
System

Formal Informal

Institutions Markets Instruments Services

Banking Inst. Capital Mkt. Terms Types Buying & Selling

Lending &
Non-Banking Inst. Money Mkt. Short Primary
Investing

Borrowing &
Mutual Funds Medium Secondary
Funding

Enabling Payment
Insurance Cos. Long
& Settlement

Risk Management
Money Market Instruments
1. Treasury Bills – Issued by RBI on behalf of the central government
(14, 91, 182, 364 days)
2. Certificate of Deposit – Issued by banks and is similar to FDs.
3. Commercial Paper - Promissory note generated by a company to
raise short-term funds.
4. Commercial Bills – Bills of Exchange
5. Call/Notice Money – Required by banks from other banks
6. Repos
Capital Market Instruments
1. Equity
2. Debt
Functions of a Financial System
• Mobilise and allocate savings
• Monitor corporate performance
• Provide payment & settlement services
• Optimum allocation of risk-bearing and reduction
• Provide price-related information
• Offer portfolio adjustment facility
Evolution of Indian Financial System
• Pre-Independence Phase
• Post-Independence Phase (1947-1991)
• Liberalization Phase (After 1991)
Pre-Independence Phase
• More than 600 banks existed
• The first bank was the Bank of Hindustan (Estd. 1770 – Calcutta), liquidated
between 1830 – 32
• Allahabad Bank (1865) & Punjab National Bank (1894)
• The Bank of Bengal, Bank of Madras and Bank of Bombay were merged as one
body which was termed as Imperial Bank of India
• Imperial Bank was later renamed to State Bank of India.
• The Bombay Stock Exchange(BSE) also established in 1875
• Hilton Young Commission in 1935 recommended the establishment of Reserve
bank of India
Post Independence
• Nationalisation of Bank - Banking Regulation Act, 1949
• RBI was nationalized in 1949
• In 1956 State Bank of India was estd by taking over the Imperial bank of India
• In 1956 245 insurance companies were nationalized and merged in to LIC
• 14 commercial banks were nationalized in July 1969 & 6 More banks were nationalized in
1980
• Narasimham committee in 1975 recommended the establishment of RRBs (Regional Rural
Banks) for the development of the rural sector and providing services to unserved ones.
• There were several other specialized banks which were constituted during this period to
support the development of the economy. These were like NABARD (National Bank for
Agriculture and Rural Development) in 1982 for supporting agricultural-related activities,
National housing bank in 1988 for the Housing sector, SIDBI in 1990 for assisting small-scale
firms.
The Liberalization Era
• Government opened up the economy the granted private player’s entry to banking industry.
• RBI granted license to 10 private sector banks out of which only Axis Bank, HDFC Bank, DCB,
ICICI and IndusInd Bank survived.
• National Stock Exchange Established in 1992 to provide fully automated electronic trading.
• Narasimham committee in 1998 recommended the entry of more private entities in banking
industry. Therefore, license was provided to Kotak Mahindra in 2001 and Yes Bank in 2004 by
RBI. Further in 2015, a license was granted to Bandhan and IDFC bank.
• There are several other measures also that were taken during this phase which were allowing the
establishment of foreign banks in India
• Allowing joint ventures of foreign banks with Indian banks, the introduction of Payments banks,
setting up small finance banks and disallowing any further nationalization of banks.

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