a detailed version of the Components of Indian Financial System.

1. COMPONENTS
OF
INDIAN FINANCIAL
SYSTEM

2. Indian Financial System
Non- Organized
Organized
Money lenders
Financial Institutions
Local bankers
Financial Markets
Traders
Financial Instruments
Landlords
Financial services
Pawn brokers
Chit Funds

3. Financial
Institution
Organized Sector Unorganized Sector
Capital Market Money Market
Money Lenders
Non-Banking Banking
Mutual funds IHFC
Institution Institutions
Indigenous
Bankers
Non-Banking Development Scheduled
financial financial RBI Commercial
Companies institutions banks Scheduled Co-
operative Banks Pawn Brokers
Public Sector
Public sector Banks
All India
Financial
Institutions Private Sector Traders
Private Sector Banks
State level
Institutions Foreign Banks in
India
Other
Institutions Regional Rural
banks

4. NOTE….
Non-banking financial companies
• Carry out financial activities .
•Resources are not directly obtained from the savers as debt.
•Oblige public savings for rendering other financial services including
investments.
• UTI, LIC, GIC
Development Financial Institutions
• Established to fill the gaps between banking systems and capital market.
• Channeling funds to particular firms, industries, sectors, during the
development process.
• To reduce financial constraints faced by companies.
• Converting themselves into universal banks. E.g.: ICICI bank

5. NOTE….
Insurance & Housing
Mutual Funds Finance Companies
• Filing the gap of credit supply for
house building.
• “A fund established in the form of • Big mobilisers of funds.
a trust by a sponsor ,to raise • Provide finance in form of
monies by the trustees through mortgage loan.
the scale of units to the • HUDCO
public, under one or more
schemes, for investing in • LIC
securities in accordance with • GIC
these regulations.”- SEBI • Commercial Banks.

6. NOTE….
RBI : “… to regulate the issue of bank notes and keeping of reserves with a
view to securing money stability in India and generally to operate the
currency and credit system of the country to its advantage.”
- preamble of RBI
Scheduled Commercial Banks : Which have been included in the second
schedule of RBI Act,1934.
Scheduled cooperative Banks : Organized & managed on the principle of
co operation , self help, and mutual help. They function with the rule of “
one member, one vote” function on “ no profit, no loss” basis.

7. NOTE….
Money lenders:
• Offers small personal loans at high rate of interest.
• Important source of credit to a particular category of borrowers.
Pawn brokers:
An individual or business entity offers loans in exchange for an item of value
given to the pawn broker.
Indigenous bankers:
• offer loan on short term.
• lent money on security of jewels and on promissory notes.
• They functioned both in urban and rural areas.
• lent money on informal conditions.
Traders:
• offer monetary loan on some security on high interest rate

9. NOTE….
Financial Market :
• Contribute in buying and selling of financial
claims, assets, services and securities.
•Funds or savings are transferred from surplus
unit to deficit unit.
• Players like
dealers, investors, borrowers, depositors, etc are
plays a vital role in driving demand and supply.
• Financial markets help Individuals to get the
benefits of time preference, liquidity preference
and portfolio management.

10. NOTE….

11. NOTE….

12. NOTE….
Primary Market : First time sales of equity .
Also called the new issue market, is the market for issuing new securities. Many
companies, especially small and medium scale, enter the primary market to raise
money from the public to expand their businesses. They sell their securities to
the public through an initial public offering [ IPO].
Secondary Market : Financial market for trading of securities that have already
been issued in an initial private or public offering.
It enables quicker valuations of financial instruments for both equity and debt.
The two major secondary markets of India :
1. Bombay Stock Exchange (BSE).
2. National Stock Exchange (NSE)

14. NOTE….
Call Money Market : Market where call funds are borrowed and lent. Deals
in very short period funds. This market is being used by the central bank for
conducting the open market operations.
Collateral Loan Market :
A place where loan, which are backed by collateral assets are facilitated. Also
called as secured loan.
Bill Market :
Where different types of bills or commercial bills are circulated. A
commercial bill is one which arises out of a credit transactions.
Acceptance Market :
Refers to the market where short-term genuine trade bills are accepted by
financial institutions.
Discount Market : Where short term trade bills are discounted, like
commercial banks. It is a segment of bill market.

15. Financial Services…

16. NOTE….
Book Building : It is a mechanism where , during the period for which the
book for the IPO is open, bids are collected from investors at various
prices, which are above or equal to the floor price. This process aims at tapping
both wholesale & retail investors.
E- commerce : It consists of buying and selling of products or services over
electronic systems such as internet.
Debt Securitization : An emerging source of funds for financial institutions. It is
nothing but the package of a pool of financial assets into marketable securities.
Deposit Insurance : A measure to protect deposits, in full or in part. It is being
introduced by the policy makers in different countries.
Lease Financing : A commercial arrangement where an owner conveys to the
consumer the right to consume in return for a rental.

17. NOTE….
Credit Rating : “… help investors by providing on easily recognizable, simple
tool that couples a possibly unknown issuer with an informative and meaningful
symbol of credit control.”
Hire Purchase : a type of installment credit under which the hire purchaser
called the hirer , agrees to take the goods on hire at a stated rental.
Syndicated Loan : A large loan in which a group of banks provide funds for a
borrower
Portfolio Management : The process of managing the assets of s mutual
fund, including choosing and monitoring appropriate investments and
allocating funds accordingly.

18. Financial Instruments…
Documents which represents financial claims on assets and securities.
Refers to claim periodical payments of certain amount of money by way of
principle, interest or dividend.
There are instruments for savers such as equities, mutual fund units, etc.
There are instruments for borrowers such as loans, overdrafts, etc.
Like businesses, governments too raise funds through some instruments, such as
bonds, Treasury bills, etc.
Instruments like PPF, KVP, etc. are available to savers who wish to lend money to
the government
Characteristics:
Liquidity, for the quick conversion into cash.
Collateral value, for pledging of instruments for obtaining loan.
Price fluctuations of security.
Tax status.
Transferability , allows easy transfer of instruments.

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