Indian Financial System-Components Of Financial System

1. Indian Financial System, K V Bavisree, St. Mary’s College,
Thrissur
INDIAN FINANCIAL SYSTEM
K V Bavisree
Assistant Professor
Department of Management Studies
St Mary,s College,Thrissur

2. Financial System
The financial system of a country is an important tool for economic development of
the country as it helps in the creation of wealth by linking savings with investments. It
facilitates the flow of funds from the households (savers) to business firms (investors) to aid
in wealth creation and development of both the parties. The institutional arrangements
include all condition and mechanism governing the production, distribution, exchange and
holding of financial assets or instruments of all kinds
Indian Financial System, K V Bavisree, St. Mary’s College, Thrissur

3. Components Of Financial System
Financial Institution
Financial Services
Financial Assets/Instruments
Financial Markets
Financial Intermediaries
Indian Financial System, K V Bavisree, St. Mary’s College, Thrissur

4. 1. Financial Institution
It ensures smooth working of the financial system by making investors and
borrowers meet. They mobilize the savings of investors either directly or indirectly via
financial markets by making use of different financial instruments as well as in the process
using the services of numerous financial services providers.
Indian Financial System, K V Bavisree, St. Mary’s College, Thrissur

5. Indian Financial System, K V Bavisree, St. Mary’s College, Thrissur
Financial institution could be categorized into Regulatory, Intermediaries, Non-
intermediaries and Others. They offer services to organizations looking for advises on
different problems including restructuring to diversification strategies. They offer
complete series of services to the organizations who want to raise funds from the markets
and take care of financial assets, for example deposits, securities, loans, etc.

6. 2.Financial Services
Financial Services is concerned with the design and delivery of financial instruments,
advisory services to individuals and businesses within the area of banking and related
institutions, personal financial planning, leasing, investment, assets, insurance etc.
Banking Services
Foreign Exchange services
Investment Services
Insurance Services
Other Services (Advisory Services, Venture Capital, Angel Investment etc.)
Indian Financial System, K V Bavisree, St. Mary’s College, Thrissur

7. 3.Financial Assets/Instruments
Financial Instruments can be defined as a market for short-term money and financial assets
that is a substitute for money. The term short-term means generally a period of one year
substitutes for money is used to denote any financial asset which can be quickly converted
into money. Some of the important instruments are as follows:
Call /Notice-Money
Term Money
Treasury Bills
Certificate of Deposits
Commercial Paper
Indian Financial System, K V Bavisree, St. Mary’s College, Thrissur

8. 4.Financial Markets
The financial markets are classified into two groups:
1. Capital Market:
A capital market is an organised market which provides long-term finance for business.
Capital Market also refers to the facilities and institutional arrangements for borrowing
and lending long-term funds. Capital Market is divided into three groups:
Corporate Securities Market
Government Securities Market
Long-Term Loans Market
Indian Financial System, K V Bavisree, St. Mary’s College, Thrissur

9. 2. Money Market
Money market refers to institutional arrangement dealing with short term borrowing
and lending of funds. It is the market for short term funds. It deals with relatively liquid
and quickly marketable assets. The goods or commodity dealt in money is not money in
the sense of legal tender money, but the rights or money in the form of credit.
Indian Financial System, K V Bavisree, St. Mary’s College, Thrissur

10. 5. Financial Intermediaries
A financial intermediary is an institution which connects the deficit and surplus money. The
best example of an intermediary is a bank which transforms the bank deposits to bank loans.
The role of the financial intermediary is to distribute funds from people who have an extra
inflow of money to those who don’t have enough money to fulfil the needs.
Indian Financial System, K V Bavisree, St. Mary’s College, Thrissur

11. Conclusion
Indian Financial System accelerates the rate and volume of savings through the
provision of various financial instruments and efficient mobilization of savings. It aids in
increasing the national output of the country by providing funds to corporate customers to
expand their respective business. It helps economic development and raising the standard of
living of people and promotes the development of the weaker section of society through
rural development banks and co-operative societies. These are the important facts about the
Indian Financial system.
Indian Financial System, K V Bavisree, St. Mary’s College, Thrissur