FI
NANCI
ALMARKETANDSERVICES I
II
BBM
UNI
T-1I
NTRODUCTI
ONOFI
NDI
ANFI
NANCI
ALSYSTEM
Meani
ngofI
ndi
anf
inanci
alsy
stem
Thef i
nanci
alsyst
em enablesl endersandborr
ower stoexchangef unds.
Indi
ahasaf i
nancialsyst
em thatiscontr
oll
edbyindependentregul
atorsin
thesectorsofinsurance,banking,capi
talmar
ketsandv ar
iousservices
sector
s.
Thus,af inancialsystem canbesai dto playasigni
fi
cantr
olei
nt he
economicgr owthofacount rybymobil
izi
ngthesur
plusf
undsandut
il
izi
ng
them ef
fecti
v el
yforproduct
ivepur
poses.
FEATURESOFI
NDI
ANFI
NANCI
ALSYSTEM:
• I
tpl
aysav
ital
rol
eineconomi
cdev
elopmentofacount
ry.
• I
tencour
agesbot
hsav
ingsandi
nvest
ment
.
• I
tli
nkssav
ersandi
nvest
ors.
• I
thel
psi
ncapi
tal
for
mat
ion.
• I
thel
psi
nal
l
ocat
ionofr
isk.
• I
tfaci
l
itat
esexpansi
onoff
inanci
almar
ket
s.
COMPONENTS/CONSTI
TUENTSOFI
NDI
ANFI
NANCI
ALSYSTEM
Thefol
l
owingaret
hef
ourmaj
orcomponent
sthatcompr
iset
heI
ndi
an
Fi
nanci
alSyst
em:
1.Fi
nanci
alI
nst
it
uti
ons
2.Fi
nanci
alMar
ket
s
3.Fi
nanci
alI
nst
rument
s/Asset
s/Secur
it
ies
ASHOKAHL
UCATUMKUR
TUMKURUNI
VERSI
TYPage1
, FI
NANCI
ALMARKETANDSERVICES I
II
BBM
4.Fi
nanci
alSer
vices.
COMPONENTI
SDI
SCUSSEDBELOW:
FI
NANCI
ALI
NSTI
TUTI
ONS
Financi
al i nsti
tut
ions ar e the i ntermediar
ies who f acili
tate smoot h
functi
oningoft hef inancialsy st
em bymaki nginvest
orsandbor rowers
meet .Theymobi li
zesav i
ngsoft hesur plusunitsandal locatet hem in
producti
veact ivi
ti
espr omisingabet t
errateofretur
n.Financialinsti
tut
ions
alsoprovideser vi
cest oent iti
es(i
ndi vi
dual,busi
ness,government )seeking
adviceonv ari
ousissuer angingfrom r est
ructur
ingtodiver
sificati
onplans.
Theypr ovidewhol er angeofser vicest otheent i
ti
eswhowantt oraise
fundsfrom t hemar ketsorel sewher e.
Financi
alinst
ituti
onsareal
sot er
medasf
inanci
alint
ermediar
iesbecause
theyactasmi ddlebet
ween saver
sbyaccumulati
ng Fundst hem and
borrowersbylendingt
hesefund.
Itisalsoactasi nt
ermediari
esbecauset heyacceptdeposit
sfrom asetof
customer s( sav er
sl end these f unds to another set of customers
(borrowers).Like-wiseinvest
inginstit
uti
onssuchICCIC,mutualfundsalso
accumul atesav i
ngsandl endt hesetobor r
owers,thusper
formt heroleof
financi
alintermediari
es.
TYPESOFFI
NANCI
ALI
NSTI
TUTI
ONS
Fi
nanci
ali
nst
it
uti
onscanbecl
assi
fi
edi
ntot
wocat
egor
ies:
A.Banki
ngI
nst
it
uti
ons
B.Non-Banki
ngFi
nanci
alI
nst
it
uti
ons
ASHOKAHL
UCATUMKUR
TUMKURUNI
VERSI
TYPage2
, FI
NANCI
ALMARKETANDSERVICES I
II
BBM
A.BANKI
NGI
NSTI
TUTI
ONS(
Reser
veBankofI
ndi
a)
I
ndianbankingindustryissubjecttothecontroloftheCentralBank.The
RBIas the apexi nsti
tuti
on organi
ses,runs,supervi
ses,regulat
es and
devel
opsthemonet arysystem andthefi
nancialsy
stem oft
hecount ry
.The
mainlegisl
ati
on gov erni
ng commer ci
albanks inI ndi
ai st he Banki
ng
Regul
ati
onAct,1949.
TheIndi
anbanki
ngi
nst
it
uti
onscanbebr
oadl
ycl
assi
fi
edi
ntot
wo
cat
egori
es:
1.Or
gani
sedSect
or
2.Unor
gani
sedSect
or.
1.Or
gani
sedSect
or
Theorgani
sedbanki
ngsectorconsi
stsofcommer
cialbanks,cooper
ati
ve
banksandther
egi
onalr
ural
banks.
(a)Commer ci
alBanks:Thecommer ci
albanksmaybeschedul edbanksor
non–schedul edbanks.Atpr esentonlyonebanki sanon-schedul edhank.
Allotherbanksar eschedul ebanks.Thecommer cialbanksconsistof27
publi
csect orbanks,pr i
vat
esect orbanksandf or
eignbanks.Priorto1969,
al
lmaj orbankswi t
ht heex cepti
onofSt ateBankofI ndiaint hepri
vate
sector.Animpor tantstept owar dspubli
csect orbankingwast akeninJuly
1969,when14maj orprivat ebankswi thadeposi tbaseof50cr or
esor
mor ewer enationali
sed.Lat erin1980anot her6wer enational
i
sedbr i
nging
upthet otalnumberbanksnat i
onali
sedtotwent y.
(b)Co-oper
ati
vebanks:Ani mpor t
antsegmentoft heorganizedsectorof
I
ndianbankingi
st heco-operat
ivebanking.Thesegmentisrepresentedby
agroupofsocieti
esregister
edundert heActsofthestatesrelati
ngtoco-
operat
ivesoci
eti
es.Infact,co-
operati
vesocieti
esmaybecr editsociet
ies
ASHOKAHL
UCATUMKUR
TUMKURUNI
VERSI
TYPage3
, FI
NANCI
ALMARKETANDSERVICES I
II
BBM
ornon-
credi
tsoci
eti
es.
Dif
ferenttypesofco-operat
ivecredi
tsoci et
iesareoper
ati
ng i
nI ndi
an
economy .Thesei
nst
ituti
onscanbecl assif
iedint
otwobroadcategori
es:
(a)Ruralcredi
tsoci
etieswhichareprimaryagr i
cul
tur
e,(
b)Urbancredit
soci
etieswhichar
epri
mar i
lynon-
agri
cult
ure.
Fort
hepurposeofagr
icul
tur
ecredi
tther
earedi
ff
erentco-
oper
ati
vecr
edi
t
i
nsti
tut
ionst
omeetdiffer
entki
ndsofneeds.
(c)Regi onalRur alBanks( RRBs):Regi
onalRur alBankswer esetbyt he
stategov er
nmentandsponsor ingcommer cialbankswi ththeobj ecti
veof
developing the r ur
aleconomy .Regi
onalr uralbanks pr ovide banking
servi
cesandcr edittosmallfar
mers,smallentrepreneursintheruralareas.
Ther egi
onalr uralbankswer esetupwit
hav iewt opr ov
idecreditfaci
li
ti
es
toweakersect i
ons.Theyconst i
tut
eanimpor tantpar toftheruralfi
nancial
archit
ectureinI ndia.Ther
ewer e196RRBsatt heendofJune2002,as
compar esto107i n1981and6i n1975.
(d)For eignBanks:Forei
gnbankshav ebeeninIndiafrom Brit
ishdays.
Foreignbanksasbankst hathav
ebranchesint
heothercountr
iesandmain
HeadQuar terintheHomeCount r
y.Withtheder
egulat
ion(Eli
minati
onof
Gov ernmentAut hor
it
y)in1993,anumberoff or
eignbanksar eenteri
ng
Indi
a. Forei
gnBanks
are:CitiBank.BankofCeyl
on.
2.Unor
gani
sedSect
or.
Intheunor
gani
sedbanki
ngsect
orar
etheI
ndi
genousBanker
s,Money
Lender
s.
1.I
ndi
genousBanker
s
IndigenousBanker
sar epri
vatefi
rmsorindi
vidualwhooperat
easbanks
andassuchbot hr
eceivedeposi
tsandgi
venloans.Li
kebanker
s,theyal
so
financiali
nter
medi
ari
es.Theyshouldbedi
sti
nguishedpr
ofessi
onalmoney
ASHOKAHL
UCATUMKUR
TUMKURUNI
VERSI
TYPage4
NANCI
ALMARKETANDSERVICES I
II
BBM
UNI
T-1I
NTRODUCTI
ONOFI
NDI
ANFI
NANCI
ALSYSTEM
Meani
ngofI
ndi
anf
inanci
alsy
stem
Thef i
nanci
alsyst
em enablesl endersandborr
ower stoexchangef unds.
Indi
ahasaf i
nancialsyst
em thatiscontr
oll
edbyindependentregul
atorsin
thesectorsofinsurance,banking,capi
talmar
ketsandv ar
iousservices
sector
s.
Thus,af inancialsystem canbesai dto playasigni
fi
cantr
olei
nt he
economicgr owthofacount rybymobil
izi
ngthesur
plusf
undsandut
il
izi
ng
them ef
fecti
v el
yforproduct
ivepur
poses.
FEATURESOFI
NDI
ANFI
NANCI
ALSYSTEM:
• I
tpl
aysav
ital
rol
eineconomi
cdev
elopmentofacount
ry.
• I
tencour
agesbot
hsav
ingsandi
nvest
ment
.
• I
tli
nkssav
ersandi
nvest
ors.
• I
thel
psi
ncapi
tal
for
mat
ion.
• I
thel
psi
nal
l
ocat
ionofr
isk.
• I
tfaci
l
itat
esexpansi
onoff
inanci
almar
ket
s.
COMPONENTS/CONSTI
TUENTSOFI
NDI
ANFI
NANCI
ALSYSTEM
Thefol
l
owingaret
hef
ourmaj
orcomponent
sthatcompr
iset
heI
ndi
an
Fi
nanci
alSyst
em:
1.Fi
nanci
alI
nst
it
uti
ons
2.Fi
nanci
alMar
ket
s
3.Fi
nanci
alI
nst
rument
s/Asset
s/Secur
it
ies
ASHOKAHL
UCATUMKUR
TUMKURUNI
VERSI
TYPage1
, FI
NANCI
ALMARKETANDSERVICES I
II
BBM
4.Fi
nanci
alSer
vices.
COMPONENTI
SDI
SCUSSEDBELOW:
FI
NANCI
ALI
NSTI
TUTI
ONS
Financi
al i nsti
tut
ions ar e the i ntermediar
ies who f acili
tate smoot h
functi
oningoft hef inancialsy st
em bymaki nginvest
orsandbor rowers
meet .Theymobi li
zesav i
ngsoft hesur plusunitsandal locatet hem in
producti
veact ivi
ti
espr omisingabet t
errateofretur
n.Financialinsti
tut
ions
alsoprovideser vi
cest oent iti
es(i
ndi vi
dual,busi
ness,government )seeking
adviceonv ari
ousissuer angingfrom r est
ructur
ingtodiver
sificati
onplans.
Theypr ovidewhol er angeofser vicest otheent i
ti
eswhowantt oraise
fundsfrom t hemar ketsorel sewher e.
Financi
alinst
ituti
onsareal
sot er
medasf
inanci
alint
ermediar
iesbecause
theyactasmi ddlebet
ween saver
sbyaccumulati
ng Fundst hem and
borrowersbylendingt
hesefund.
Itisalsoactasi nt
ermediari
esbecauset heyacceptdeposit
sfrom asetof
customer s( sav er
sl end these f unds to another set of customers
(borrowers).Like-wiseinvest
inginstit
uti
onssuchICCIC,mutualfundsalso
accumul atesav i
ngsandl endt hesetobor r
owers,thusper
formt heroleof
financi
alintermediari
es.
TYPESOFFI
NANCI
ALI
NSTI
TUTI
ONS
Fi
nanci
ali
nst
it
uti
onscanbecl
assi
fi
edi
ntot
wocat
egor
ies:
A.Banki
ngI
nst
it
uti
ons
B.Non-Banki
ngFi
nanci
alI
nst
it
uti
ons
ASHOKAHL
UCATUMKUR
TUMKURUNI
VERSI
TYPage2
, FI
NANCI
ALMARKETANDSERVICES I
II
BBM
A.BANKI
NGI
NSTI
TUTI
ONS(
Reser
veBankofI
ndi
a)
I
ndianbankingindustryissubjecttothecontroloftheCentralBank.The
RBIas the apexi nsti
tuti
on organi
ses,runs,supervi
ses,regulat
es and
devel
opsthemonet arysystem andthefi
nancialsy
stem oft
hecount ry
.The
mainlegisl
ati
on gov erni
ng commer ci
albanks inI ndi
ai st he Banki
ng
Regul
ati
onAct,1949.
TheIndi
anbanki
ngi
nst
it
uti
onscanbebr
oadl
ycl
assi
fi
edi
ntot
wo
cat
egori
es:
1.Or
gani
sedSect
or
2.Unor
gani
sedSect
or.
1.Or
gani
sedSect
or
Theorgani
sedbanki
ngsectorconsi
stsofcommer
cialbanks,cooper
ati
ve
banksandther
egi
onalr
ural
banks.
(a)Commer ci
alBanks:Thecommer ci
albanksmaybeschedul edbanksor
non–schedul edbanks.Atpr esentonlyonebanki sanon-schedul edhank.
Allotherbanksar eschedul ebanks.Thecommer cialbanksconsistof27
publi
csect orbanks,pr i
vat
esect orbanksandf or
eignbanks.Priorto1969,
al
lmaj orbankswi t
ht heex cepti
onofSt ateBankofI ndiaint hepri
vate
sector.Animpor tantstept owar dspubli
csect orbankingwast akeninJuly
1969,when14maj orprivat ebankswi thadeposi tbaseof50cr or
esor
mor ewer enationali
sed.Lat erin1980anot her6wer enational
i
sedbr i
nging
upthet otalnumberbanksnat i
onali
sedtotwent y.
(b)Co-oper
ati
vebanks:Ani mpor t
antsegmentoft heorganizedsectorof
I
ndianbankingi
st heco-operat
ivebanking.Thesegmentisrepresentedby
agroupofsocieti
esregister
edundert heActsofthestatesrelati
ngtoco-
operat
ivesoci
eti
es.Infact,co-
operati
vesocieti
esmaybecr editsociet
ies
ASHOKAHL
UCATUMKUR
TUMKURUNI
VERSI
TYPage3
, FI
NANCI
ALMARKETANDSERVICES I
II
BBM
ornon-
credi
tsoci
eti
es.
Dif
ferenttypesofco-operat
ivecredi
tsoci et
iesareoper
ati
ng i
nI ndi
an
economy .Thesei
nst
ituti
onscanbecl assif
iedint
otwobroadcategori
es:
(a)Ruralcredi
tsoci
etieswhichareprimaryagr i
cul
tur
e,(
b)Urbancredit
soci
etieswhichar
epri
mar i
lynon-
agri
cult
ure.
Fort
hepurposeofagr
icul
tur
ecredi
tther
earedi
ff
erentco-
oper
ati
vecr
edi
t
i
nsti
tut
ionst
omeetdiffer
entki
ndsofneeds.
(c)Regi onalRur alBanks( RRBs):Regi
onalRur alBankswer esetbyt he
stategov er
nmentandsponsor ingcommer cialbankswi ththeobj ecti
veof
developing the r ur
aleconomy .Regi
onalr uralbanks pr ovide banking
servi
cesandcr edittosmallfar
mers,smallentrepreneursintheruralareas.
Ther egi
onalr uralbankswer esetupwit
hav iewt opr ov
idecreditfaci
li
ti
es
toweakersect i
ons.Theyconst i
tut
eanimpor tantpar toftheruralfi
nancial
archit
ectureinI ndia.Ther
ewer e196RRBsatt heendofJune2002,as
compar esto107i n1981and6i n1975.
(d)For eignBanks:Forei
gnbankshav ebeeninIndiafrom Brit
ishdays.
Foreignbanksasbankst hathav
ebranchesint
heothercountr
iesandmain
HeadQuar terintheHomeCount r
y.Withtheder
egulat
ion(Eli
minati
onof
Gov ernmentAut hor
it
y)in1993,anumberoff or
eignbanksar eenteri
ng
Indi
a. Forei
gnBanks
are:CitiBank.BankofCeyl
on.
2.Unor
gani
sedSect
or.
Intheunor
gani
sedbanki
ngsect
orar
etheI
ndi
genousBanker
s,Money
Lender
s.
1.I
ndi
genousBanker
s
IndigenousBanker
sar epri
vatefi
rmsorindi
vidualwhooperat
easbanks
andassuchbot hr
eceivedeposi
tsandgi
venloans.Li
kebanker
s,theyal
so
financiali
nter
medi
ari
es.Theyshouldbedi
sti
nguishedpr
ofessi
onalmoney
ASHOKAHL
UCATUMKUR
TUMKURUNI
VERSI
TYPage4
