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Evolution and Structure of the Indian Financial System: A Comprehensive Overview, Lecture notes of Financial Market

Christ University Financial Market

A comprehensive overview of the indian financial system, tracing its evolution from pre-independence to the liberalization era. It delves into the key functions of the financial system, including liquidity provision, savings mobilization, size transformation, risk transformation, and maturity transformation. The document also explores the structure of the indian financial system, highlighting the organized and unorganized sectors, as well as the money market, capital market, and long-term loan market. It concludes with a detailed analysis of the three phases of the indian financial system: pre-independence, post-independence, and the liberalization era.

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

Unit01:FinancialSystem

Financial System

Afinancial systemplays avital role in the economic growthof acountry

It includes all institutions instruments andmarkets that intermediate the flowof

funds between those who save apartoftheirincome thosewho invest theirincome

in productive assets

By linking saversandinvestors it enables capitalformation mobilisationofsavings and

usefully allocates the scarce resourcesof acountry

Objectives Importance

Inducespeople to save byoffering attractive interestrates and investment schemes

Channelisesthesesavings bylending themto businessesinvolved in activities related toproduction

anddistribution

Enablesmonitoring of corporate performance

Bylinking saversandinvestors it leads to capital formation

Helpsthe Government inframing monetary policies

Cowerstransaction cost andincreases returns thus inducing people to save more

Functions

1Provision ofliquidity liquidityinfinancialterms refers to cash money or othermonetary

assets than can be easily converted to cashwithoutany significant loss in time andmoney

Theprimaryfunctionof the Indianfinancialsystem is the provisionof liquidity in the economy

forvariousproduction and distribution activities It thus makes sure thatthere are plentyof

fundsavailablefor productive ventures

2Mobilization ofSavings Financialinstitutions inducepeople to save by providingattractive

interestrates and investmentschemes They then mobilize thesesavingsby channelizing them

intovarious productive ventures Thusleading to capital

formation and proper allocationofthe

scarce resourcesof acountry

3SizeTran sf or mat io n Function Individuals generally depositsmall amountsthat cannot be

lent out on theirown Banks and

financialinstitutionspoolthesesmallsavingsamountsand

Partial preview of the text

Download Evolution and Structure of the Indian Financial System: A Comprehensive Overview and more Lecture notes Financial Market in PDF only on Docsity!

Financial

System

A

financial system plays

a

vital role in

the

economic

growth

of

a country

It

includes all

institutions instruments

and

markets that

intermediate

the

flow

of

funds

between those who save a

part

of

their

income those who

invest their

income

in productive

assets

By

linking

savers and

investors

it

enables

capitalformation

mobilisation

of

savings

and

usefully

allocates the

scarce resources

of

a

country

Objectives

Importance

Induces people

to save

by

offering

attractive interest rates and

investment schemes

Channelises

these savings

by

lending

them to

businesses involved

in

activities related

to

production

and

distribution

Enables

monitoring

of

corporate

performance

By

linking

savers and

investors

it

leads to capital

formation

Helps the

Government in

framing

monetary policies

Cowers transaction cost and

increases returns thus inducing people

to save

more

Functions

1

Provision

of

liquidity liquidity

in

financial

terms

refers

to cash

money

or

other

monetary

assets than can

be

easily

converted

to cashwithout

any

significant

loss in time and

money

The

primary

function

of

the

Indian financialsystem

is the provision

of liquidity

in the

economy

for

various production and

distribution activities It thus

makes sure that

there are plenty

of

funds

available

for

productive

ventures

Mobilization

of

Savings

Financial institutions induce people to save

by

providing

attractive

interest rates and

investment

schemes

They

then

mobilize these

savings

by

channelizing

them

into

various productive

ventures Thus

leading

to capitalformation and

proper

allocation

of

the

scarce

resources

of

a

country

Size

TransformationFunction Individuals

generally

depositsmall

amounts

that

cannot be

lent out on

their own

Banks

andfinancial

institutions

pool

these small savings

amounts and

provide

large

sizeable loans to

business

that require

these

funds

for

projects Thus

enabling

capital

formation

Risk

Transformation

Function individuals

generally

hesitate

to directly

invest theirfunds in

businesses or the

stockmarket due to the risk

factor

By

depositing

their funds

in

Banks Mutu

funds

andother

financial

institutions investors

can

make use

of

their

expertise andknowledge t

distribute their risk

by

diversifying

their

portfolio

Maturity

Transformation

Function Savers

park

their

funds

in financial

institutions either

for

a

short

duration

or

for

a

longer

duration

Similarly

borrowers

may

also require

shortterm loans or

long

termloans

for

various

business

projects

The

Financial

System

balances

this

time

by

efficiently

managing

loansanddeposits

Structure

of

Indian

Financial

System

Indian

Financial

System

Organised

sector

unorganised

Sector

moneylenders indegenious

Money

Market Capital

Market

banks etc

call

commercial

Treasury short

Industrial

govt Long

Term

Loans Market

Money

Bill Bills

Term Securities Securities

Market Loan

Market Market Market

Mortgages

Termloans

Financia

Primary

Market

secondary

market

Guarantees

Evolution

of

Indian

Financial

System

TheIndian financialsystem

dates back toeven before India

attained

its

independence It can

be

classified into

phases

Pre Independence before 1947

Post

independence 1947 1991

Liberalisation

Era 1991 beyond

In

1998 the

Narasimhan

again

suggested the

entry

of

certain

private

entities

in the banking

scene This

is when IDFCBank YesBank

BandhanBank and

KotakMahindraBankobtained

their

ciscences

fromRBI

Further

with the entry

of

foreign

banks both

competition as well as efficiency

increased

in

the Indian Banking

sector

Evolution and Structure of the Indian Financial System: A Comprehensive Overview, Lecture notes of Financial Market

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Partial preview of the text

Download Evolution and Structure of the Indian Financial System: A Comprehensive Overview and more Lecture notes Financial Market in PDF only on Docsity!

A

of

flow

of

part

By

of

of

by

by

of

By

of

of liquidity

for

by

of

of

for

Risk

By

of

by

for

for

for

by

of

call

of

classified into

of

of