INTRODUCTION TO INDIAN FINANCIAL SYSTEM FORMAL AND INFORMAL

INTRODUCTION TO INDIAN FINANCIAL SYSTEM

FORMAL AND INFORMAL FINANCIAL SECTOR n Formal financial sector is characterized by the presence of an organized, institutional and regulated system. n Informal financial sector is an unorganized , non- institutional, and non- regulated system dealing with the traditional and rural spheres of the economy.

Components of the Formal Financial System Financial Institutions n Financial Markets n Financial Instruments n Financial Services n

Financial Institutions n Banking Institutions: Participate in the economy's payment mechanism, deposit liabilities constitute a major part of national money supply. n Non-Banking Institutions: LIC, SIDBI, IIBI, IFCI ( All India Financial Institutions), SFCs & SIDCs

Financial Markets n Primary ( Direct) Market or New Issue Market: Dealing in the new financial claims or new securities. n Secondary Market: Dealing in the securities already issued or existing or outstanding.

Financial Markets n Money Markets: Highly liquid short term debt – instruments market including Call Money Market, Certificates of Deposits, Commercial Papers and Treasury Bills. n Capital Markets: Market for Long-Term securities and provides risky capital in the form of equity.

Financial Instruments n Primary Securities: Equity, Preference, Debt and Various combinations. n Secondary Securities: Mutual Fund Units and Insurance Policies etc.

Financial Services Depositories n Custodial n Credit Rating n Leasing n Portfolio Management n Underwriting etc. n

Functions of the Financial system To link the savers & investors. n To inspire the operators to monitor the performance of the investment. n To achieve optimum allocation of risk bearing. n It makes available price - related information. n It helps in promoting the process of financial deepening and broadening n