Explain about financial system in India.

Finance plays an important role in economic and business of a country. System and effective flow is needed for effective management used for business concern. Indian financial system has developed constantly to infuse the new blood to the economic development of the country.

If a country has to be economically strong and developed, it depends on how well its financial system is regulated. Financial systems are concerned about money, loan and finance and they are interrelated with each other.

Important components of Indian financial system in India are as follows −

Financial institutions

  • These provides various services to the economic development with the help of financial instruments. Banking and non-banking institutions are considered as financial institutions.

  • Again, banking institutions are further classified as commercial banks and co-operative banks.

  • The two major categories of Non-Banking institutions are Non-Banking financial institutions and Non-Banking Non- financial institutions.

Financial markets

  • Financial markets deal with financial instruments (shares, debentures, bonds etc.) and financial services (merchant banking etc.). Financial market is classified into capital market and money market.

  • Capital market is an organised mechanism for effective and efficient transfer of money capital from individuals/institutional savers to Industrialist. Money market is defined as the market for lending and borrowing of short term funds.

  • Money market is further divided into various categories based on instruments used in market (organised banking sector unorganised banking sector, bill market etc.)

Financial instruments

  • shares, debentures, bonds etc.

Financial services

  • These are categorised as fund base, fee base services. As the name suggests fund based financial services are related to funds transfer from one place/person to another (leasing, venture capital, insurance etc.).

  • Fee based services are not related to fund transfer (underwriting, project counselling, merchant banking etc.)

Updated on: 11-Aug-2020


Kickstart Your Career

Get certified by completing the course

Get Started