A SPECIALIZATION

PROJECT REPORT
ON
“STUDY ON INDIAN FINANCIAL
SYSTEM”
SUBMITTED IN PARTIAL FULFILLMENT OF
THE REQUIREMENT FOR THE AWARD
OF THE DEGREE OF

MASTER OF MANAGEMENT STUDIES

IN (SYSTEM/finance) 2020-2021

SUBMITTED BY : ANKITA SANDEEP SAWANT

ROLL NO : 19168

BATCH : 2020-2021

UNDER THE GUIDANCE OF

PROF. : PURVI GOSAR

SWAYAM SIDDHI COLLEGE OF MANAGEMENT AND RESEARCH, BHIWANDI

 DECLARATION

I hereby declare that the Final Project Report on " STUDY ON INDIAN
FINANCIAL SYSTEM " submitted in the partial fulfillment of MASTER OF
MANAGEMENT STUDIES degree course of Mumbai University at SWAYAM
SIDDHI COLLEGE OF MANAGEMENT & RESEARCH and submitted by me
under the guidance of Prof. Purvi Gosar

I also declare that the present work has not been submitted by me to any
other University for the fulfillment of any degree or diploma.

I have prepared this report independently and I have gathered all the
relevant information personally. I have prepared this project for MMS curriculum
2020-2021

Place : Mumbai Students Name : Ankita Sandeep Sawant

Date : MMS Class : 2020-2021

Roll No : 19168
 CERTIFICATE

This is to certify that the Final Project Report titled “STUDY ON

INDIAN FINANCIAL SYSTEM” is the study done by Ankita Sandeep
Sawant of MMS – finance, at SWAYAM SIDDHI COLLEGE OF
MANAGEMENT & RESEARCH, University of Mumbai, during the year 2018
-2020, in partial fulfillment of the requirements for the Degree of Master in
Management Studies is a result of bonafide research work carried out by him
under my supervision and guidance.

No part of this report has been submitted for award of any other degree,
diploma, fellowship or other similar titles or prizes. The work has also not been
published in any Journals / Magazines.

PROJECT GUIDE : PROF. Purvi Gosar

DIRECTOR : PROF. Arloph johnvieira

 ACKNOWLEDGEMENTS

I am highly indebted to my project guide Prof. Purvi Gosar

for their guidance and constant supervision as well as for providing
necessary information regarding the project & also for their support
in completing the project.

I would like to express my gratitude towards all the

faculties, Librarian of SWAYAM SIDDHI COLLEGE OF
MANAGEMENT AND RESEARCH, for their support and
guidance for their kind co-operation and encouragement which
help me in completion of this project.

My thanks and appreciations also go to my colleague in

developing the project and people who have willingly helped me
out with their abilities.

Sincerely,

ANKITA SANDEEP SAWANT

Summary or abstract
INDEX
 CHAPTER- 1

INTRODUCTION

A financial system is the system that covers financial transactions and the exchange of money

between investors, lenders, and borrowers. A financial system can be defined at the global,

regional, or company-specific level. Financial systems are made up of intricate and complex

patterns that portray the financial services, institutions, and markets that connect depositors

with investors. It is made up of financial markets, financial instruments and financial

intermediaries. Financial markets can be classified into money market and capital market.

The money market is a short-term market, a reserve of short-term funds. Generally said, it

includes instruments with a maturity term of less than one year. Treasury bills, business

cards, business deposits, etc. They are money market instruments. They provide excellent

liquidity to investors. Now coming to the equity / equity markets, they serve the medium and

long-term needs of market participants. It generally includes securities with a maturity period

of more than one year. Stocks, Preferred Stocks, and Bonds Make Up the Capital Market

tools. The liquidity of these instruments is less than that of money market instruments.

Financial instruments can be of three types: primary / direct, indirect and derivative. Primary

securities are issued by corporations, government agencies, and public institutions. These are

created for the first time. It includes stocks, preferred stocks, bonds and innovative debt

instruments (convertible bonds, warrants, etc.). Indirect instruments are those derived from

the underlying primary security and are not created for the first time. They are generally

issued by financial intermediaries. Includes mutual fund shares, guarantee receipts, and
certificates of passage. They are better suited to the needs of small investors, especially an

individual investor, and offer greater diversification benefits.

Financial intermediaries are known to be the producers of liquidity in the market. They

collect savings from deficit units and issue credits against themselves in exchange for using

those funds externally to buy property or loans. They play a very important role in

transferring the investment option from an individual saver to an institutional agent. They

can be banks, NBFC (non-bank financial companies), mutual funds, insurance organizations,

underwriters, etc. A financial system is the system that covers financial transactions and the

exchange of money between investors, lenders, and borrowers. A financial system can be

defined at the global, regional, or company-specific level. Financial systems are made up of

intricate and complex patterns that portray the financial services, institutions, and markets

that connect depositors with investors. It is made up of financial markets, financial

instruments and financial intermediaries. Financial markets can be classified into money

market and capital market. The money market is a short-term market, a reserve of short-term

funds. Generally said, it includes instruments with a maturity term of less than one year.

Treasury bills, business cards, business deposits, etc. They are money market instruments.

They provide excellent liquidity to investors. Now coming to the equity / equity markets,

they serve the medium and long-term needs of market participants. It generally includes

securities with a maturity period of more than one year. Stocks, Preferred Stocks, and Bonds

Make Up the Capital Market

tools. The liquidity of these instruments is less than that of money market instruments.

Financial instruments can be of three types: primary / direct, indirect and derivative. Primary

securities are issued by corporations, government agencies, and public institutions. These are

created for the first time. It includes stocks, preferred stocks, bonds and innovative debt
instruments (convertible bonds, warrants, etc.). Indirect instruments are those derived from

the underlying primary security and are not created for the first time. They are generally

issued by financial intermediaries. Includes mutual fund shares, guarantee receipts, and

certificates of passage. They are better suited to the needs of small investors, especially an

individual investor, and offer greater diversification benefits.

Financial intermediaries are known to be the producers of liquidity in the market. They

collect savings from deficit units and issue credits against themselves in exchange for using

those funds externally to buy property or loans. They play a very important role in

transferring the investment option from an individual saver to an institutional agent. They

can be banks, NBFC (non-bank financial companies), mutual funds, insurance organizations,

underwriters, etc.

LITERATURE REVIEW

Financial system of any country comprises of financial markets, financial instruments and

financial intermediaries. Financial system basically connects seekers of funds with suppliers

of funds. Financial markets may consist of money market, capital market, forex market and
credit market. On the other hand, financial instruments include money market instruments

and capital market instruments. Stock exchanges, investment banks, underwriters, forex

dealers etc. represent financial intermediaries. Indian financial system is dominated by banks

and its capital markets. The major focus of the research paper is on the banking and the

capital markets. It is important to note that banks act as a participant in the capital markets

and vice versa. Banking sector has undergone a tremendous change since banking reforms

were introduced in 1990s.Since then, measures like deregulation of interest rates, reduction in

Statutory

Liquidity ratio and Cash reserve ratio; norms in line with the international standards have

been implemented. An important observation about Indian banking is that it is dominated by

public sector banks. But with the passage of time, a lot of challenges have emerged in the

banking sector, major ones being Nonperforming assets, less financial inclusion and capital

adequacy norms. Reforms like privatization, merger of SBI and its associate banks,

establishment of bad banks, financial inclusion, micro financing and restructuring of stressed

assets have been recommended but success lies in the implementation and controlling of

results.

OBJECTIVE OF STUDY

1. To study the Indian financial system post liberalization in terms of its characteristics ,

factors affecting the market and trends visible in the market and future prospects.

2. Portrayal of an unbiased view of the industry for potential issue.

3. Recommendation to enter the market .

4. Strategies to enable a new entrant to capitalize the opportunity prevailing in the market ,

establish itself and gain a market share .

RESEARCH METHODOLOGY
 CHAPTER- 2

FINANCIAL SYSTEM

A financial system is a set of institutions, such as banks, insurance companies, and stock

exchanges, that allow the exchange of funds. Financial systems exist at the corporate,

regional, and global level. Borrowers, lenders and investors exchange current funds to

finance projects, for consumption or productive investments, and to obtain a return on their
financial assets. The financial system also includes a set of rules and practices that borrowers

and lenders use to decide which projects are financed, who finances the projects, and the

terms of the financial arrangements.

The financial system refers to a set of complex and interconnected components made up of

specialized and non-specialized financial institutions, organized and unorganized financial

markets, financial instruments, and financial services. The purpose of the financial system is

to facilitate the circulation of funds in an economy.

He cares about money, credit, and finances. Money refers to the medium of exchange or

method of payment. Credit refers to the amount of debt repaid along with interest. And

finances refer to monetary resources that include own funds and debts of the state, company

or person.

The efficient financial system and sustainable economic growth are corollaries. The

financial system mobilizes savings and channels them towards productive activity, thus

influencing the pace of economic development. Economic growth is hampered by the lack of

an effective financial system. In general, the financial system deals with three interrelated

and interdependent variables, namely money, credit, and finance.

Borrowers request funds for consumer durables, plants and equipment for the home or

business, and promise to repay the borrower's funds based on their expectations of higher

income in the future. These promises are financial liabilities for the borrower, that is, both a

source of funds and a claim on the future income of the borrower.

 CONCEPT OF FINANCIAL SYSTEM

A "financial system" is a system that allows the exchange of funds between financial market

participants, such as lenders, investors and borrowers. Financial systems operate nationally

and globally. Financial institutions are made up of complex and closely related services,

markets and institutions, designed to provide an efficient and regular link between investors

and depositors.

In other words, financial systems can be known whenever there is an exchange of a

financial medium (money) while there is a reallocation of funds in needy areas (financial

markets, commercial companies, banks) to use the potential of ideal money and place it . in

use to take advantage of it. The whole mechanism is known as the financial system.

Money, credit, and finance are used as a medium of exchange in financial systems. They

serve as a known medium of value by which goods and services can be exchanged as an

alternative to barter. A modern financial system can include banks (public sector or private

sector), financial markets, financial instruments, and financial services.

DEFINITION OF FINANCIAL SYSTEM

According to Amit Chaudhary,

“Financial system is the integrated form of financial institutions, financial markets, financial

securities, and financial services which aim is to circulate the funds in an economy for

economic growth.”
According to Dhanilal,

“Financial system is the set of interrelated and interconnected components consisting of

financial institutions, markets and securities.”

FUNCTIONS OF FINANCIAL SYSTEM

 Pooling of
Funds

Economic Capital
Development Formation

Finances
Facilitates
Government
Functions Payment
Needs
of
Financial
Syatem

Better Provides
Decisions Liquidity

Short & Long

Risk Functions
Term Needs

1. Pooling of Funds

In a national economy, the Savings of individuals square measure transferred from

households to business organizations. With these production will increase and higher product

square measure factory-made, that will increase the quality of living of individuals.

2. Capital Formation
Business need finance. These square measure created accessible through banks, households

and completely different money establishments. They mobilize savings that results in Capital

Formation.

3. Facilitates Payment

The national economy offers convenient modes of payment for product and services. New

strategies of payments like credit cards, debit cards, cheques, etc. facilitates fast and

straightforward transactions.

4. Provides Liquidity

In national economy, liquidity means that the power to convert into money. The money

market provides the investors the chance to liquidate their investments, that square measure

in instruments like shares, debentures, bonds, etc. worth is decided on the everyday per the

operations of the market force of demand and provide.

5. Short and future desires

The money market takes into consideration the assorted desires of various people and

organizations. This facilitates optimum use of finances for productive functions.

6. Risk operate

The money markets give protection against life, health and financial gain risks. Risk

Management is an important part of a growing economy.

7. higher selections
Financial Markets give data regarding the market and numerous money assets. This helps the

investors to match completely different investment choices and opt for the simplest one. It

helps in deciding in selecting portfolio allocations of their wealth.

8. Finances Government desires

Government desires immense quantity of cash for the event of defense infrastructure. It

additionally needs finance for welfare activities, public health, education, etc. this is often

provided to them by money markets.

9. Economic Development

India could be a economic system. the govt intervenes within the national economy to

influence macro-economic variables like rate of interest or inflation. Thus, credits may be

created accessible to company at a less expensive rate. This results in economic development

of the state.
 IMPORTANCE OF FINACIAL SYSTEM

 To realize economic development, monetary systems area unit necessary since they

induce individuals to save lots of by giving enticing rate of interest. These savings

area unit then channelized by loaning to varied business issues that area unit

concerned in production and distribution.

 It helps in monitor company performance

 It links savers and investors. This method is thought as capital formation

 It helps in lowering the group action value and increase returns which can inspire

individuals to save lots of additional

 It helps government decide financial policy

ADVANTAGES OF, FINACIAL SYSTEM

1. Provides Payment System:

The national economy provides a payment mechanism for the graceful flow of funds

among peoples in associate economy. consumers and sellers of products or services area

unit able to perform transactions with one another thanks to the presence of a national

economy.

2. Links Savers and Investors:

The national economy is a method of bridging the gap between savings and investment. It

acquires cash from those with whom it's lying idle and transfers it to people who would

like it for finance in productive ventures.

3. Minimizes Risk:

It aims at reducing the chance by diversifying it among an outsized variety of people. The

national economy distributes funds among an outsized variety of peoples thanks to that

risk is shared by several peoples.

4. Helps in Capital Formation:

The national economy has associate economical role in capital formation of the country.

It allows massive corporates and industries to amass the specified funds for activity or

increasing their operations thereby resulting in capital formation within the nation.

5. Raises commonplace of living:

It raises the quality of living of peoples by promoting regional and rural development of

the country. The national economy promotes the event of weaker sections of society

through cooperative societies and rural development banks.

6. Enhance liquidity:

Maintaining optimum liquidity in associate economy is another necessary role contend by

the national economy. It facilities free movement of funds from households (savers) to

corporates (investors) that ensures spare accessibility of funds within the economy.
7. Promotes Economic Development:

The national economy influence the pace of economic process or development of

associate economy. It aims at optimum utilization of all money resources by finance all

idle lying resources into helpful means that that ends up in the creation of wealth.

Disadvantages of Financial system

1. Lack of Co-ordination among monetary institutions:

The economic system faces a scarcity of coordination among numerous monetary

establishments. The presence of an outsized variety of economic establishments and

government roles in dominant authorities of those establishments ends up in a scarcity of

coordination.

2. Non-competitive Market Structure:

Many establishments within the Indian economic system occupy a non-competitive

position within the market. LIC and UTI area unit 2 establishments that have grabbed an

outsized a part of the life assurance business and also the open-end investment company

trade. These massive structures may lead to management or unskillfulness of funds.

3. High Rate of Interest:

There is a clear stage of the high-interest rate charged by many monetary establishments

within the economic system of our country. numerous establishments thanks to their non-

competitive structure within the market could charge high or unfair interest rates.

4. Inactive Capital Market:

Our country’s economic system faces the matter of the inactive capital market. All

corporates in Asian nation area unit largely able to acquire funds through development

banks and don't have to be compelled to attend the capital market.

5. Imprudent monetary Practice:

The economic system of Asian nation has developed imprudent monetary practices

thanks to the dominance of development banks. Development banks offer funds to

corporates within the type of term loans that makes the capital structure of borrowed

issues uneven. These banks even allow the employment of unwarranted debts that is

against the sound capital structure.

 SIX PARTS OF FINANCIAL SYSTEM

Six Parts of Financial System

Money

Financial Instruments

Financial Markets

Financial Institutions

Regulatory Agencies

Central Banks

1. Money

Money is that the begin of the economic system and therefore the suggests that for

creating purchases. Accumulating cash could be a determinant think about shaping

wealth. those that store more cash area unit wealthier than those that don't. The

consistency of cash features a tendency to morph supported changes within the economic

system and technology.

Money was once outlined by the valuable metals silver and gold till it had been replaced

with this paper and coin system. As technology evolves, cash is being outlined by

electronic transactions. within the recent past, cash was accessed by walking into a bank

and handing the teller a withdrawal slip. Today, electronic funds area unit accessed by

swiping credit and debit cards and therefore the money establishments do the remainder.

2. Money Instruments
 Financial instruments are called securities, tho' the layman's terms area unit stocks, bonds,

mortgages and insurance. At just the once, the dealing and commerce of stocks was

generally restricted to rich people UN agency may afford to pay the expensive fees

charged by stockbrokers. In recent years, this apply has become cheaper with the

introduction of mutual funds. Mutual funds pool the savings of a broad variety of

investors. By investment a high volume of consumers, additional investors should

purchase, trade and accumulate portfolios.

3. Money Markets

Financial markets area unit commerce homes that area unit dedicated to the acquisition

and sale of stocks and bonds, like the big apple securities market or the information

system. consumers and sellers gather at the market to see shopping for and commerce

costs for securities, generally with help from a agent. Markets frequently fluctuate,

leading to inherent risks within the method.

4. Money establishments

The common term for money establishments is banks. tho' once a brick and mortar

building that command cash in vaults, fashionable money establishments provide a spread

of merchandise and services together with mortgages, insurance and brokerage

accessibility. money establishments currently vie within the money market by providing

one-stop buying money transactions and recommendation.

5. Regulative Agencies

Regulatory agencies were introduced by the govt to watch the activities of monetary

establishments and markets. Through examination and social control of strict tips,

regulative agencies supervise members of the economic system to confirm the protection

of the public's cash and investments. Government examiners review the systems in situ at

money establishments and markets, and that they teach and encourage best practices.
6. Central Banks

Almost each country within the world features a financial organisation that's integral to

every country's government. The foundation of central banks was originally a way to

finance wars, however today's central banks management the supply of cash and credit.

they're integral to the steadiness of the country's economic system as they administrate

national currency and its price. The U.S. Fed is one in all the foremost vital central banks

within the present.

 FIVE CORE PRINCIPLES OF FINANCIAL SYSTEM

Time
Five Core Risk
Principles of Information
Financial System Markets
Stability

1. Time

Time has worth and inflation adversely affects worth. It affects selections on immediate

or later consumption, investment and interest earnings. Lenders can demand

compensation for parting with their cash and obtaining it back slowly over time.

Borrowers square measure can to relinquish this compensation in returns for obtaining the

required funds nowadays.

2. Risk

Risk is inescapable and needs compensation. typically higher risk opportunities have

higher interest rates (i.e., higher reward). folks square measure can to pay to avoid risk

which people who assume sure risk can demand compensation.

3. Information

Information is that the basis for selections. issues will arise once there's uneven info.

uneven info happens once one individual might have a lot of information than the

opposite in an exceedingly dealings, that create higher cognitive process inefficient.

4. Market

Primary factors of production square measure scarce resources, and that we have

unlimited needs, that the market allocation these scarce resources by setting a value

consumers square measure willing and ready to pay. A market sets a value that rations

scarce resources to those willing and ready to pay. Similarly, within the monetary sector

markets can confirm what investments get funded.

5. Stability

Economic or market stability improves welfare within the economy. Central banks work

to stay markets and economic system stable, that is best for all people.
 CHAPTER- 3

India’s Financial System

One of the main economic developments of this decade has been the recent start off of Asian

country, with growth rates averaging in far more than 8 May 1945 for the last four years, a

exchange that has up over three-fold in as a few years with a rising influx of foreign

investment. In 2006, total equity provision reached $19.2bn in Asian country, up 22%.

Merger and acquisition volume was a record $27.8bn, up 38%, driven by a 371% increase in

outward-bound acquisitions surpassing for the primary time incoming deal volumes Debt

provision reached associate incomparable high of $13.7bn, up twenty eighth from a year

earlier. Indian corporations were conjointly among the world’s most active issuers of

depositary receipts within the half of 2006, accounting for one in 3 latest problems globally,

in keeping with the Bank of recent royal house. The queries and challenges that Asian

country faces within the first decade of the newest Millenniums square measure so essentially

completely different from people who it's wrestled with for many years once independence.

relief and economic process have breathed latest life into the interchange markets whereas at
the same time besetting them with latest challenge artefact mercantilism, notably interchange

artefact futures, and have much started from scratch to realize scale and a spotlight. The

industry has enraptured from associate era of rigid controls and government interference to a

a lot of market-governed system. Latest non-public banks have created their presence felt

during a} very robust manner and several other foreign Banks have entered the country. Over

the years, microfinance has emerged as a crucial component of the Indian economic system

increasing its stretch and providing much-needed monetary services to numerous poor Indian

households.

EVOLUTION OF INDIAN FINANCIAL SYSTEM

History of Asian countryn economic system dates back even before the amount once India

got independence within the Year 1947. Evolution of Indian economic system are often

classified into three phases: –

1. Pre Independence section (Before 1947).

2. Post-Independence section (1947-1991).

3. The liberalisation era (1991 and beyond).

1. Pre- Independence section

During this section, there was an oversized variety of banks gift in Asian country that was

around 600. institution of Bank of Hindustan within the year 1770 in metropolis marks the

beginning of the Indian economic system. The bank out of print its services in 1832. there

have been varied banks that evolved post to Hindustan banks like General Bank of Asian
country (1786-1791) and Oudh banking concern (1881-1958). However, these banks weren't

ready to continue for an extended.

Few banks of the nineteenth century ar existing even these days like geographic region full

service bank fashioned in 1894 and Allahabad bank fashioned in 1865. 3 major banks of that

point like Bank of geographical region, Bank of Madras and Bank of metropolis were united

jointly body that was termed as Imperial Bank of Asian country. This Imperial bank was anon

renamed to banking company of Asian country.

During this section, The metropolis securities market (BSE) conjointly established in 1875

it's Asia’s 1st securities market. The bovine spongiform encephalitis has helped develop

India’s capital markets, together with the retail debt market, and has helped grow the Indian

company sector.

Hilton Young Commission in year 1935 counseled the institution of Federal Reserve Bank of

Asian country.

This was a introduce that majority of small-sized banks did not perform properly and were

unable to realize people’s confidence. individuals were a lot of involved cash lenders and

unregulated players.

2. Post-Independence section

Post-independence amount is characterised by the nationalization of banks. Majority of banks

in Asian country were in camera in hand at the time of independence and were serving solely

the large corporates. Rural population, small-scale industries and agriculture sector were still

enthusiastic about native cash lenders. the govt so as to beat this case set to nationalize the

banks below the Banking regulation act, 1949. tally was nationalized in 1949 and anon,

fourteen business banks were nationalized in July 1969 throughout the tenure of statesman.
Narasimham committee in 1975 counseled the institution of RRBs (Regional Rural Banks)

for development of rural sector and providing services to unserved ones.

There were many alternative specialised banks that were grooved throughout this era to

support the event of the economy. These were like NABARB in 1982 for supporting

agricultural-related activities, National housing bank in 1988 for the Housing sector, SIDBI

in 1990 for helping small-scale companies.

Nationalization was an interesting step within the trade|banking system|industry} of industry

that boost the country growth. it absolutely was successful in gaining people’s confidence in

banking services and conjointly smaller cluster were simply ready to access capital from

money establishments post nationalization.

3. The liberalisation Era

This was a section that saw exceptional changes within the industry. Government of Asian

country for control the activities and stabilising the profits of the industry created a

committee below the billet of Shri M. Narasimham for transportation varied reforms.

During this era, government detached the economy the granted non-public player’s entry to

industry. tally granted license to ten non-public sector banks out of that solely few notables

survived like Axis Bank, HDFC Bank, DCB, ICICI and IndusInd Bank. In 1992 National

securities market Established to produce absolutely machine-controlled electronic

commercialism.

Narasimham committee {again|once a lot of} in 1998 counseled the entry of more non-public

entities in industry. Therefore, license was provided to Kotak Mahindra in 2001 and

affirmative Bank in 2004 by tally. more in 2013-2014, a license was granted to Bandhan and

IDFC bank.
There ar many alternative measures conjointly that were taken throughout this section that

were permitting the institution of foreign banks in Asian country, equal treatment of each

public and personal sector bank by government and tally, permitting joint ventures of foreign

banks with Indian banks, the introduction of Payments banks, putting in tiny finance banks

and disallowing from now on nationalization of banks.

CHAPTER-4

COMPONENTS OF INDIAN FINANCIAL SYSTEM

There are five components of Indian financial system. The components can also called as

structure.
 Components of Indian Financial
System

Financial Financial Financial Financial

Institutions Markets Instruments Services

The financial set-up plays a big role within the economic development of a rustic particularly

within the case of developing countries like Asian country. The financial set-up of Asian

country facilitates the mobilisation of funds for the economic process and development of the

country and its residents.

The Indian financial set-up establishes the bridge between individuals having surplus funds

and folks with deficit funds in order that the funds offered may be higher utilized by the

people or businesses or companies World Health Organization savvy to multiply it.

Let’s perceive the complete structure or parts of Indian financial set-up,

Financial Institutions

Financial establishments ar intermediaries money|of monetary|of economic} markets that

facilitates money transactions between people and financial customers.

The main functions of the money establishments ar as follows:

 A short term liability may be born-again into a protracted term investment

 It helps in conversion of a risky investment into a riskless investment

 Also acts as a medium of convenience denomination, which implies, it will match little|

alittle|atiny low} deposit with giant loans and an oversized deposit with small loans

A national economy could be a system that enables the exchange of funds between lenders,

investors, and borrowers. money systems operate at national, global, and firm-specific levels.

They contains advanced, closely connected services, markets, associate degreed

establishments meant to produce an economical and regular linkage between investors and

depositors.

The best example of a institution could be a Bank. folks with surplus amounts of cash create

savings in their accounts, and folks in dire would like of cash take loans. The bank acts as

associate degree intermediate between the 2.

Types of money institutions:

There ar 2 forms of money establishments.

1. Banking establishments

2. Non- banking establishments.

1. Banking establishments or deposit Institutions:

This includes banks and alternative credit unions that collect cash from the general public

against interest provided on the deposits created and lend that cash to those in would like.
The banking establishments ar those that settle for deposits yet as distribute loans to the

people and businesses.

There ar primarily four forms of banking establishments

(I) Commercials banks

(II) Co-operative banks

(III) Regional rural banks

(IV) Foreign banks

(I) Commercial banks:

Commercial banks settle for deposits and supply security and convenience to their customers.

a part of the initial purpose of banks was to supply customers safe keeping for his or her cash.

Commercial banks additionally create loans that people and businesses use to shop for

product or expand business operations, that successively results in additional deposited funds

that create their thanks to banks. If banks will lend cash at the next rate of interest than they

need to get funds and operational prices, they create cash.

Commercial banks ar of 2 sorts

(a) non-public banks

(b) Public banks

a) Private banks:

The term non-public banking refers to a customised line of banking & money services offered

to non-public individual banking shoppers that earn high levels of financial gain and/ or

owning sizable investment assets, like 'High internet price Individuals' (HNWIs).
b) Public banks:

Public Sector Banks (PSBs) ar banks wherever a majority stake (i.e. quite 50%) is control by

a government. The shares of those banks ar listed on stock exchanges. There ar a complete of

22PSBs in Asian country.

(II) Cooperative banks:

Cooperative banks ar closely-held by their customers and follow the cooperative principle of

1 person, one vote. Co-operative banks ar typically regulated below each banking and

cooperative legislation. they supply services like savings and loans to non-members yet on

members, and a few participate within the wholesale markets for bonds, cash and even

equities.

(III) Regional rural banks:

Regional Rural Banks (RRBs) ar regular business banks (Government banks) operational at

regional level in several States of Asian country. they need been created with a read to serve

primarily the agricultural areas of Asian country with basic banking and money services.

However, RRBs might have branches found out for urban operations and their space of

operation might embody urban areas too.

The area of operation of RRBs is restricted to the world as notified by Government of Asian

country covering one or additional districts within the State.

 RRBs perform varied functions in following heads:

 Providing banking facilities to rural and semi-urban areas.

 Carrying out government operations like disbursement of wages of MGNREGA

employees, distribution of pensions etc.

 Providing Para-Banking facilities like locker facilities, debit and credit cards.
 Small money banks.

(IV) Foreign banks:

A foreign bank could be a bank that's obliged to follow the laws of each the house and host

countries. as a result of the foreign ranch banks loan limits ar supported the parent bank’s

capital, foreign banks will offer additional loans than subsidiary banks.

2. Non-Banking establishments or Non-Depository Institutions:

facilitate money services like investment and risk pooling, and market brokering. they often

don't have full banking licenses or aren't supervised by a bank regulation agency.

 Finance and loan firms

 Insurance firms

 Mutual funds

 Commodity traders

Financial Markets
The financial market may be a broad term describing any marketplace wherever

commercialism of securities together with equities, bonds, currencies and derivatives

occur. Some financial markets area unit tiny with very little activity, whereas some

financial markets just like the the big apple stock market (NYSE) trade trillions of

greenbacks of securities daily.

Functions of monetary markets

• To facilitate creation and allocation of credit and liquidity

• To function intermediaries for mobilisation of savings.

• To assist the method of balanced economic process.

• To give financial convenience.

• To cater to the assorted credit wants of the business homes

Types of financial markets. There area unit 2 kinds of financial markets.

1. Unorganized market

2. Organized market

1. Unorganized sector:

 In the case of Indian banking industry, autochthonous bankers area unit enclosed

within the unorganized sector

 Indigenous bankers embrace those people and banks United Nations agency settle for

deposits or rely on credit to run their business

 They modify short credit instruments specifically lingerie for the aim of providing

financial facilitate for merchandise and services

 The rate of interest charged by them fluctuates directly with the necessity and period

of time of the borrowers and should typically be as high as three hundred p.c
 They area unit the foremost sources of funds for tiny borrowers on account of

straightforward documentation and funds area unit created out there to the borrowers

at any time throughout daily.

2. Organized market:

The establishments that area unit controlled by the financial organization of the country

specifically tally, SEBI, IRDA area unit known as as institutional or organized.

Types of organized markets

(I) Capital market

(II) Money market

(I) Capital market:

A capital market may be a financial market within which semipermanent debt (over a

year) or equity-backed securities area unit bought and sold-out. Capital markets

channel the wealth of savers to people who will place it to semipermanent productive

use, like corporations or governments creating long run investments.

FUNCTIONS OF CAPITAL MARKET

 Helps in capital formation:

The capital market plays a crucial role in mobilisation of savings and channel them

into productive investments for the event of commerce and business. As such, the

capital market helps in capital formation and economic process of the country.

 Act as link between savers and investors:

The capital market acts as a crucial link between savers and investors. The savers

area unit lenders of funds whereas investors area unit borrowers of funds. The savers

United Nations agency don't pay all their financial gain area unit known as "Surplus
 units" and therefore the borrowers area unit referred to as " deficit units. The capital

market is that the mechanism between surplus units and deficit units. it's a passage

through that surplus unity lend their surplus funds to deficit units.

 Helps in increasing national income:

Funds inherit the capital market from people and financial intermediaries and area

unit utilized by commerce, business and government. It so facilitates the transfer of

funds to be used additional profitably and profitableness to will increase the value.

 Facilitates shopping for and selling:

Surplus units get securities with their surplus funds and deficit wits ells securities to

lift the funds they have. Funds be due lenders to borrowers either directly or

indirectly through financial establishments like banks, unit trusts, mutual funds, etc.

The borrowers issue primary securities that area unit purchased by lenders either

directly or indirectly through financial establishments.

 Channelizes funds from unproductive to productive resources:

The capital market provides a market mechanism for people who have savings and to

people who would like funds for productive investments. It different resources from

wasteful and unproductive channels like gold, jewellery, land, use of goods and

services, etc, to productive investments

 Minimises speculative activities:

It will therefore by providing capital to the necessitous al cheap interest rates and

helps in minimising speculative activities.

 Brings stability in price of stocks:

A well - developed capital market comprising professional banking and non -

banking intermediaries brings stability within the price of stocks and securities..
 Promotes economic growth:

The capital market encourages economic process. the assorted establishments that

operate within the capital market provide quantities and qualitative direction to the

flow of funds and convey rational allocation of resources. they are doing therefore by

changing financial assets into productive physical assets. This results in the event of

commerce and business through the personal and public sector, thereby causing

economic process.

There area unit 2 kinds of capital market

(1) Primary Market :-

Primary market may be a marketplace for new problems or new financial claims. Hence,

it's additionally known as New Issue market. the first market deals with those securities

that area unit issued to the general public for the primary time. within the primary market,

borrowers exchange new financial securities for long run funds. Thus, primary market

facilitates capital formation. There area unit 3 ways by that a corporation might raise

capital during a primary market. They are:

(i) Public issue

(ii) Rights issue

(iii) Private placement

The most common methodology of raising capital by new corporations is thru sale of

securities to the general public. it's known as public issue. once associate existing

company needs to lift further capital, securities area unit initial offered to the present

shareholders on a pre-emptive basis. it's known as rights offering. personal placement

may be a approach of marketing securities in camera to alittle cluster of investors.

(2) Secondary Market:-

Secondary market may be a marketplace for secondary sale of securities. In different

words, securities that have already more responsible the new issue market area unit listed

during this market. Generally, such securities area unit quoted the stock market and it

provides a continual and regular market to purchasing and marketing of securities. This

market consists of all stock exchanges recognised by the govt. of Asian nation. The stock

exchanges in Asian nation area unit regulated underneath the Securities Contracts

(Regulation) Act 1956. The metropolis stock market is that the principal stock market in

Asian nation that sets the tone of the opposite stock markets.

(II) Money market:

Financial market comes underneath the preview of tally. It will be outlined as a

marketplace for short term cash and financial assets that area unit close to substitute for

cash.

Financial market may be a marketplace for handling financial assets and securities that

have a maturity amount of upto one year. In different words, it's a marketplace for strictly

short term funds.

The importance/functions of the financial Market:

1. Economic development:

The financial market provides short term funds to each public and personal

establishments. These establishments would like cash to finance their capital wants. In

different words, the financial market assures provide of funds; the funding is finished

through discounting of the trade bills, industrial banks, acceptance homes, discount

homes and brokers. during this approach, the financial market facilitates within the
economic development by providing financial help to trade, commerce and business. The

businessmen cash in by investment their profit extremely assets to earn financial gain and

additionally to get pleasure from liquidity as a result of these assets will be reborn into

financial while not abundant issue.

2. Profitable investment:

The industrial banks modify the deposits of their customers. The banks area unit needed

to place their assets into financial kind to fulfill the directions of the financial

organization on the one hand, whereas on the opposite, they need to place their excess

reserves into productive channels to earn financial gain on them. The aim of the industrial

banks is to maximise profits. the surplus reserves of the banks area unit invested with in

close to cash assets.

3. Borrowings by the government:

The financial market helps the govt. in borrowing short term funds at terribly low interest

rates. The borrowing is finished on the idea of treasury bills. however just in case the

govt. resorts to deficit funding or to print additional currency or to short term funds at the

financial provide over and higher than the borrow from the financial organization, can|

it'll} simply raise so it's clear that the wants of the economy and thus the worth level will

intensify. market is extremely helpful for the govt. since it meets its financial wants.

4. Importance for central bank:

If the financial market is well - developed, the financial organization implements the

financial policy with success. it's solely through the financial market that the financial

organization will management the banking industry and so contribute to the event of trade

and commerce. the financial market is extremely sensitive a modification in one sub –

market affects the opposite sub - markets straightaway. It suggests that the financial
organization will have an effect on the complete market by dynamical only 1 sub -

market.

5. Mobilisation of funds:

The financial market helps in transferring funds from one sector to a different. the event

of any economy depends on accessibility of finance. No country will develop its trade,

commerce and business till and unless the financial resources area unit mobilized.

6. Savings and investment

The financial market is that it helps in promoting liquidity and safety of monetary assets.

By doing therefore it will facilitate in encouraging savings and investment. The saving

and investment equilibrium of demand and provide of loanable funds helps the allocation

of resources.

The Money market is also divided into four. They are:

(i) Call market

(ii) Commercial bills market

(iii) Treasury bills market

(iv)Short term loan market.

(i) Call cash Market:

The call market may be a marketplace for extraordinarily short amount loans say

someday to 14 days. So, it's extremely liquid. The loans area unit owed on demand at the

choice of either the loaner or the receiver. In India, decision cash markets area unit related

to the presence of stock exchanges and thus, they're situated in major industrial cities like
metropolis, Calcutta, Madras, Delhi, Ahmedabad etc. The special feature of this market is

that the charge per unit varies from day to day and even from hour to hour and Centre to

Centre. it's terribly sensitive to changes in demand and provide of decision loans.

(ii) Commercial Bills Market:

It is a marketplace for Bills of Exchange arising out of real trade transactions. within the

case of credit sale, the vendor might draw a bill of exchange on the customer. the

customer accepts such a bill promising to pay at a later date laid out in the bill. the vendor

needn't wait till the maturity date of the bill. Instead, he will get payment by discounting

the bill.

(iii) Treasury Bills Market:

It is a marketplace for treasury bills that have ' short - term ' maturity. A T-bill may be a

debt instrument or a finance bill issued by the govt..It is extremely liquid as a result of its

reimbursement is bonded by the govt.. it's a crucial instrument for brief term borrowing of

the govt.

There area unit 2 kinds of treasury bills specifically

 normal or regular and

 circumstantial treasury bills popularly referred to as ' ad hocs’.

Ordinary treasury bills area unit issued to the general public, banks and different financial

establishments with a read to raising resources for the Central Government to fulfill its

short term financial wants. circumstantial treasury bills area unit issued in favour of the

tally solely. they're not sold-out through tender or auction. they'll be purchased by the

tally solely. Ad hocs aren't marketable in Asian nation however holders of those bills will

sell them back to tally.

(iv) Short - Term Loan Market:

 It is a market wherever short - term loans area unit given to company customers for

meeting their assets necessities. industrial banks play a big role during this market.

industrial banks give short term loans within the type of financial credit and bill of

exchange Over draft facility is principally given to business individuals whereas financial

credit is given to industrialists.

Financial Instruments

Financial instruments visit those documents that represents money claims on assets. As

mentioned earlier, money plus refers to a claim to a claim to the reimbursement of a precise

add of economic at the tip of a mere amount at the side of interest or dividend. Examples: Bill

of exchange, debt instrument, T-bill.

Financial instruments area unit assets which will be listed. they will even be seen as packages

of capital which will be listed. Most kinds of money instruments offer AN economical flow

and transfer of capital all throughout the world's investors. These assets may be money, a

written agreement right to deliver or receive money or another style of money instrument, or

proof of one's possession of AN entity.

Types of money instrument:

There area unit 2 kinds of money instruments

(1) Primary or direct securities.

(2) Secondary or indirect securities.

(1) Primary Securities:

These area unit securities directly issued by the last word investors to the last word savers.

Eg. shares and debentures issued on to the general public.

(2) Secondary Securities:

These area unit securities issued by some intermediaries referred to as money intermediaries

to the last word savers. Eg. investment firm of Asian country and mutual funds issue

securities within the style of units to the general public and therefore the money pooled is

invested with in corporations.

Again these securities could also be classified on the idea of period as follows:

 Short - term securities:

Short - term securities area unit those that mature at intervals a amount of 1 year. Eg,

Bill of Exchange, T-bill, etc.

 Medium term securities:

Medium term securities area unit those that have a maturity amount move between

one and 5 years. Eg. Debentures maturing at intervals a amount of five years,

 Long - term securities:

Long - term securities area unit those that have a maturity amount of over 5 years. Eg,

Government Bonds maturing once ten years.

Financial Services

Financial services square measure the economic services provided by the finance business,

that encompasses a broad vary of companies that manage money, as well as credit unions,

banks, credit cards corporations, insurances corporations, business corporations, consumer-

finance corporations, stock brokerages, assets, individual managers and a few government-

sponsored enterprises.

Efficiency of rising economic system mostly depends upon the standard and form of money

services provided by money intermediaries. The term money services will be outlined as

“activities, benefits, and satisfactions, connected with the sale of monetary, that provide to

users and customers, money connected worth. inside the money services business the most

sectors square measure banks, money establishments, and non-banking money corporations.

Types of financial services:

Financial services provided by various financial institutions, commercial banks and merchant bankers

can be broadly classified into two categories.

1. Fund based/ Asset based services

2. Fee based/ advisory services

1. Fund based/ Asset based services:

The asset/ fund based services provided by banking and non - banking financial

institutions as discussed below briefly.

(a) Equipment Leasing/ Lease Financing :

Leasing could be a arrangement that has a firm with the utilization and

management over assets while not shopping for and owning a similar. it's a kind

of dealing assets. However, in creating associate investment, the firm needn't own

the quality. it's essentially fascinated by deed the utilization of the quality. Thus,

the firm might think about leasing of the quality instead of shopping for it. In

scrutiny leasing with shopping for, the value of leasing the quality ought to be

compared with the value of finance the quality through traditional sources of
 finance, i. e. debt and equity. Since payment of lease rentals is analogous to

payment of interest on borrowings and lease finance is comparable to debt.

(b) Hire Purchase and Consumer Credit:

Hire purchase means that a dealing wherever merchandise ar purchased and

oversubscribed on the terms that

• payment are created it installments,

• the possession of the products is given to the customer instantly,

• the property ownership) within the merchandise remains with the seller until

the last installment is paid,

• the merchandiser will repossess the products just in case of default in payment

of any instalment, and

• each instalment is treated as rent charges until the last instalment is paid.

(c) Venture Capital:

In the real sense, working capital funding is one in every of the foremost recent

entrants within the national capital market. there's a major scope for working

capital firms in our country due to increasing emergence of technocrat

entrepreneurs UN agency lack capital to be risked. These working capital firms

give the required capital to the entrepreneurs therefore on meet the promoters

contribution pro re nata by the money establishments. additionally to providing

capital, these VCFS (venture capital companies) take an energetic interest in

guiding the power-assisted firms.

(d) Insurance Services:

Insurance could be a contract wherever by the nondepository financial institution

e. nondepository financial institution agrees/ undertakes, in thought of a total of

monetary (premium) to create smart the loss suffered by the insured (policy
 holder) against a mere risk like hearth or compensate the beneficiaries (insured)

on the happening of a mere event like accident or death. The document containing

the terms of contract, in black and white, between the nondepository financial

institution and also the insured is termed policy. The property that is insured is

that the subject material of insurance. The interest that the insured has within the

subject material of insurance is thought as stake. relying upon the topic matter,

insurance services square measure divided into (i) life (ii) general.

(e) Factoring :

Factoring, as a fund based mostly money service provides resources to finance

assets furthermore because it facilitates the gathering of assets. it's another

methodology of raising short - term finance through account owed credit offered

by industrial banks and factors. an advertisement bank could offer finance by

discounting the bills or invoices of its customers. Thus, a firm gets cash for sales

created on credit. an element could be a institution that offers services concerning

management and finance of debts arising out of credit sales.

2. Fee based/ advisory services:

When financial institutions operate in specialized fields to earn income in form of fee,

commission, brokerage or dividends it is called fee based service. They include –

(i) Merchant Banking :

Fee primarily based consultive services includes of these monetary services

rendered by merchandiser Bankers. merchandiser bankers play a very important

role within the monetary services Sector. the commercial Credit and Investment

Corporation of Asian country (ICICI) was the primary development finance

establishment to initiate such service in 1974. when middle - seventies,

 tremendous growth within the range of merchandiser banking organisations les

taken place. These embrace banks monetary establishments, non - banking

monetary corporations (NBFCS), brokers and then on. monetary Services

provided by these organisations embrace loan syndication portfolio management,

company message project message debenture territorial dominion, mergers

acquisitions.

(ii) Credit Rating:

Credit rating is that the opinion of the rating agency on the relative ability and

temperament of the institution of certificate of indebtedness to satisfy the debt

service obligations as and once they arise. As a fee based mostly money

consulting service, credit rating helpful to investors, corporates (borrowers), banks

and money establishments. For the investors, it's Associate in Nursing indicator

expressing the underlying credit quality of a (debt) issue programme. The

capitalist is totally shaped regarding the corporate as any impact of changes in

business/ economic conditions on the agency company is evaluated and revealed

often by the rating agency.

(iii) Stock- Broking :

Prior to the putting in place of SEBI, stock exchanges were being supervised by

the Ministry of Finance below the Securities Contracts Regulation Act (SCRA)

and were in operation additional or less self-regulatory organisations.

The need to reform stock exchanges was felt, once malpractices crept into

commercialism and so as to shield investor's interests, SEBI was discovered to

confirm that securities market perform their self - regulative role properly. Since
 then, stock broking has emerged as knowledgeable consulting service agent may

be a member of a recognised securities market World Health Organization buys,

sells or deals in shares/ securities. it's obligatory for every agent to induce him/

herself registered with SEBI order to act as a broker. SEBI is sceptred to impose

conditions whereas granting the certificate of registration.

CHAPTER-5

FINANCIAL REGULATORY BODIES IN INDIA

The financial system in India is regulated by independent regulators in the field of banking,

insurance, capital market, commodities market, and pension funds.   However, Government

of India plays a significant role in controlling the financial system in India and influences the

roles of such regulators at least to some extent

The following are five major financial regulatory bodies in India:

1. Reserve Bank of India (RBI)

2. Securities and Exchange Board of India (SEBI)

3. Insurance Regulatory and Development Authority (IRDA)

4. Forward Market Commission (FMC)

5. Pension Fund Regulatory and Development Authority (PFRDA)

 PFRD
RBI SEBI IRDA FMC
A

Reserve Bank of India (RBI)

The banking concern of Reserve Bank of India (RBI) is India’s financial institution,

conjointly called the banker’s bank. The RBI controls monetary and other banking policies of

the Indian government. The banking concern of Reserve Bank of India (RBI) was established

on April 1, 1935, in accordance with the banking concern of Reserve Bank of India Act,

1934. The banking concern is for good set in metropolis since 1937.

Establishment of banking concern of Reserve Bank of India

The Reserve Bank is fully owned and operated by the Government of India.

The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank

as:

 Regulating the difficulty of Banknotes

 Securing financial stability in Republic of India

 Modernising the financial policy framework to satisfy economic challenges.

The Reserve Bank’s operations are governed by a central board of directors, RBI is on the

whole operated with a 21-member central board of directors appointed by the Government of

India in accordance with the Reserve Bank of India Act.

The Central board of directors comprise of:

 Official Directors – The governor UN agency is appointed/nominated for a amount of 4

years together with four Deputy Governors

 Non-Official Directors – 10 administrators from numerous fields and 2 government

Official

Organisational Structure of RBI:

Central Board of Directors

 Governor

Deputy Governers

Executive Directors

Principal Chief General Managers

Chief General Managers

General Managers

Deputy General Managers

Asstt. General Managers

Managers

Astt. Managers

Support Staff

Objectives of RBI:

 To manage the financial and credit system of the country.

 To stabilizes internal and external price of rupee.

 For balanced and systematic development of banking within the country.

 For the event of organized monetary market in the country.

 For correct arrangement of agriculture finance.

 For correct arrangement of business finance.

 For correct management of public debts

 To establish financial relations with alternative countries of the global and international

monetary establishments.

 For centralization of money reserves of business banks.

 To maintain balance between the demand and provide of currency.

Functions of RBI:

According to the RBI Act 1934, it performs 3 kinds of functions as that of some other central

bank. So, here we will read in detail about these three types of functions. 

1. Banking Functions

 Bank of Issue- 

The Reserve Bank has a totally different Issue Department that is sceptred with the

difficulty of currency notes. Underneath section 22 of the RBI Act, it has the right to

issue currency notes of various teams except one rupee note because it is issued by the

Ministry of Finance. The assets and liabilities of the difficulty Department sequare

measure unbroken cut loose those alternative Banking Department.

 Banker to Government- 

Now, returning towards the second significant function of the Reserve Bank of India

which is to figure as a Government banker, agent, and consultant. It fulfils all the
 banking processes of the State and Central Government. It also tenders valuable

suggestions to the govt on topics associated with economic and monetary policy and

even governs the general public debt of the government.

 Bankers’ Bank- 

The Reserve Bank of India acts as the banker's bank and it lends financial to all the

commercial banks of the country. As indicated by the outlay of the Banking

corporations Act of 1949, every scheduled bank was required to stay up with the

Reserve Bank a financial balance adequate to 5 % of its demand liabilities and 2 % of

its time liabilities in India. In simple words, we can say that RBI fulfils the same

functions for the other commercial banks as the other banks fulfil their clients.

 Controller of Credit- 

We can say that the RBI is the controller of credit as it can impact the volume of credit

made by banks in India. It can do as such by changing the Bank rate or through open

market tasks. RBI uses two techniques to prevent the extra flow of wealth in the

economy that is quantitative and qualitative techniques.

 Custodian of Foreign Reserve- 

The Reserve bank must balance out the outer estimation of the public cash. The

Reserve Bank keeps gold and foreign currencies as reserves against note issues and

also meets the unfavourable offset of instalments with different regions. Also, it

oversees foreign currencies by the controls forced by the administration.

2. Supervisory Functions:

The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the

RBI vast powers of supervision and command over the business and co-operative
 banks, connecting to licensing and foundations, liquidity of their assets, recreation,

and liquidation. The supervisory functions of the RBI have assisted a lot in expanding

the standard of banking in India.

3. Promotional Functions: 

With monetary development accepting a new urgency since freedom, the scope of the

Reserve Bank's functions has consistently broadened. The Bank now plays out an

assortment of improvement and promotional functions, which, at once, were regarded

as out of the typical scope of central banking.

Securities and Exchange Board of India (SEBI)

The Securities and Exchange Board of India (SEBI) was officially appointed as the authority

for regulating the financial markets in India on 12 th April 1988. It was initially established as

a non-statutory body, i.e. it had no control over anything but later in 1992, it was declared an

autonomous body with statutory powers. SEBI plays an important role in regulating the

securities market of India. Thereby it is important to know the purpose and objective of

SEBI.

Establishment of SEBI:

At the end of the 1970s and during 1980s, capital markets were emerging as the new

sensation among the individuals of India. Many malpractices started taking place such as

unofficial self- styled merchant bankers, unofficial private placements, rigging of prices, non-
 adherence of provisions of the Companies Act, violation of rules and regulations of stock

exchanges, delay in delivery of shares, price rigging, etc.

Due to these malpractices, people started losing confidence in the stock market. The

government felt a sudden need to set up an authority to regulate the working and reduce these

malpractices. As a result, the Government came up with the establishment of SEBI.

Organizational Structure of SEBI:

The SEBI Board consist of nine members-

1. One Chairman appointed by the Government of India

2. Two members who are officers from Union Finance Ministry

3. One member from Reserve Bank of India

4. Five members appointed by the Union Government of India

Objectives of SEBI:

SEBI has following objectives-

1. Protection to the investors

The primary objective of SEBI is to protect the interest of people in the stock market and

provide a healthy environment for them.

2. Prevention of malpractices

This was the reason why SEBI was formed. Among the main objectives, preventing

malpractices is one of them.

3. Fair and proper functioning

SEBI is responsible for the orderly functioning of the capital markets and keeps a close check

over the activities of the financial intermediaries such as brokers, sub-brokers, etc.

Functions of SEBI:

SEBI primarily has three functions-

1. Protective Function

2. Regulatory Function

3. Development Function

1. Protective Functions

As the name suggests, these functions are performed by SEBI to protect the interest of

investors and other financial participants.

It includes-

 Checking price rigging

 Prevent insider trading

 Promote fair practices

 Create awareness among investors

 Prohibit fraudulent and unfair trade practices

2. Regulatory Functions:

These functions are basically performed to keep a check on the functioning of the

business in the financial markets.

These functions include-

 Designing guidelines and code of conduct for the proper functioning of financial

intermediaries and corporate.

 Regulation of takeover of companies

 Conducting inquiries and audit of exchanges

 Registration of brokers, sub-brokers, merchant bankers etc.

 Levying of fees

 Performing and exercising powers

 Register and regulate credit rating agency

3. Development Functions:

SEBI performs certain development functions also that include but they are not limited

to-

 Imparting training to intermediaries

 Promotion of fair trading and reduction of malpractices

 Carry out research work

  Encouraging self-regulating organizations

 Buy-sell mutual funds directly from AMC through a broker

Insurance Regulatory and Development Authority (IRDA)

The Insurance Regulatory and Development Authority is the main organization or

supervisory body that regulates the insurance sector in the country. It sets rules and

regulations for the functioning of the insurance industry. Its sole purpose is to protect the

interest of policyholders and to develop the industry on the whole. 

The IRDA or IRDAI regularly issues advisories to insurance companies in case of changes to

the rules and regulations. The regulator guides the insurance industry in promoting the

efficiency in the conduct of insurance business all the while controlling the rates and other

charges related to insurance. This article dwells on the functioning of the IRDA, features and

benefits as well as answers to frequently asked questions at the end of this reading.

Establishment of IRDA:

The Government of India was the regulator for the insurance industry until 2000. However, to

institute a stand-alone apex body, the IRDA was established in 2000 following the

recommendation of the Malhotra Committee report in 1999. In August 2000, the IRDA began

accepting applications for registrations through invites and allowed companies from other

countries to invest up to 26% in the market. 

The IRDA has outlined several rules and regulations under Section 114A of the Insurance

Act, 1938. Regulations range from registration of insurance companies for operating in the
country to protecting policyholder’s interests. As of September 2020, there are 31 General

Insurance companies and 24 Life Insurance companies who are registered with the IRDA.

Organisational Structure of IRDA:

IRDA is a ten-member body that consists of:

 One Chairman (for five years and maximum age of 60 years)

 Five whole-time members (for five years and maximum age of 62 years)

 Four part-time members (not more than five years)

The chairman and the members of IRDA are appointed by the Government of India. Current

Chairman of IRDA is Mr Subhash Chandra Khuntia.

Objectives of IRDA:

The main objective of the Insurance Regulatory and Development Authority of India is to

enforce the provisions under the Insurance Act. The mission statement of the IRDA is:

 To protect the interest and fair treatment of the policy holder.

 To regulate the insurance industry in fairness and ensure the financial soundness of

the industry.

 To regularly frame regulations to ensure the industry operates without any ambiguity.

Functions of IRDA:
The functions of IRDA includes:

 To protect the interest of and secure fair treatment to policyholders;

 To bring about speedy and orderly growth of the insurance industry (including annuity

and superannuation payments), for the benefit of the common man, and to provide long

term funds for accelerating growth of the economy;

 To set, promote, monitor and enforce high standards of integrity, financial soundness,

fair dealing and competence of those it regulates;

 To ensure speedy settlement of genuine claims, to prevent insurance frauds and other

malpractices and put in place effective grievance redressal machinery;

 To promote fairness, transparency and orderly conduct in financial markets dealing with

insurance and build a reliable management information system to enforce high standards

of financial soundness amongst market players;

 To take action where such standards are inadequate or ineffectively enforced;

 To bring about optimum amount of self-regulation in day-to-day working of the industry

consistent with the requirements of prudential regulation.

 To register the companies who runs the insurance business.

Forward Market Commission (FMC)

Forwards Market Commission is an entity monitoring and regulating the operations and

activities of commodities futures market in India. The institution with headquarters in

Mumbai was set-up as a statutory body in the year 1953 as per the Forward Contracts

(Regulation) Act, 1952. The affairs of the commission are in turn overseen by the Ministry of

Consumer Affairs, Food and Public Distribution, Govt. of India.

Establishment of FMC:

Established in 1953 under the provisions of the Forward Contracts (Regulation) Act, 1952, it

consists of not less than two but not exceeding four members appointed by the central

government, out of them one being nominated by the central government to be the chairman

of the commission.

Since futures traded in India are traditionally on food commodities, the agency was originally

overseen by Ministry of Consumer Affairs, Food and Public Distribution (India).

The commission appeared in the news in March 2012 for their ban on guar gum futures

trading after it said the price quadrupled due to its use in fracking causing food inflation.

In September 2013, the commission responsibility was moved to the Ministry of Finance to

reflect that futures trading was becoming more and more a financial activity.

Objectives of FMC:

The Forward Markets Commission (FMC), is the chief regulator of the Forwards and Futures

market in the country. The Commission gives regulatory insights to ensure financial integrity,

and  market integrity. It works towards protecting and promoting the interest of consumers or

non-participants.

The FMC assesses the market situation and takes into account the recommendations made by

the Commodity exchanges for prescribing the rules and regulations of the Exchange. The
Commission accords permission for conducting trade in distict contracts, while monitoring

the market conditions continuously. It takes remedial measures wherever necessary to impose

regulatory measures.

Functions of FMC:

Forward Market Commission functions as a sole institution governing the commodities

market in India. It executes a variety of roles.

 It counsels the Central Government for matters regarding recognition or withdrawal

of the previously accorded recognition from any of the registered association.

 It also provides advice on any other matters that arise as a result of the administration

of the Forward Contracts (Regulation) Act 1952.

 FMC provides suggestions to uplift and improve the functioning of the Commission

as well as the Futures  markets.

 The Commission can cross-check and inspect the accounts as well as any other

documents of the registered associations and their members.

 It keeps a vigil on the Future commodities market and also exercises its discretionary

powers in the interest and growth of the markets and consumers.

 FMC is mandated to source, collect and publish the information about trading

conditions for various  commodities covered under the purview of the governing act.

These details are generally about the demand, supply and prices.
 Pension Fund Regulatory and Development Authority (PFRDA)

The Government of India has started the national project, Old Age Social and Income

Security (OASIS) to examine policies to secure old age pension in the country. In order to

secure all the new entrants of State/Central Government excepting armed forces, the

government has replaced the above pension plan with the contribution pension plan. 

Establishment of PFRDA:

PFRDA have set up a Trust under the Indian Trusts Act, 1882 to oversee the functions of the

Pension Fund Managers (PFMs). The NPS Trust is composed of members representing

diverse fields and brings wide range of talent to the regulatory framework. The Union

Parliament passed the IPRDA [Interim Pension Fund Regulatory & Development Authority]

Bill in February 2003 as a Budget Announcement, approved by the then President of

India, Dr. APJ Abdul Kalam. It was meant to be in place till the final and fool-proof system

was prepared, re-approved, and implemented in a way acceptable to all political parties in

India, including the opposition. Tamil Nadu became the first state to implement NPS for its

newly appointed employees from the financial year 2003–04, under the Chief Ministership

of Jayalalitha

On 19 September 2013, the President, Pranab Mukherjee, gave his assent to Pension Fund

Regulatory and Development Authority Bill of 2013, which was passed in the Monsoon

Session of Parliament on 4 September 2013 in the Lok Sabha and 6 September 2013 in

the Rajya Sabha, to make it a Permanent Act. This improved, foolproof and re-approved Bill,

with the acceptance of all political parties in India, has replaced the old and imperfect IPRDA

Bill of 2003. The President of India is the guardian of the PFRDA, subject to his Financial
Emergency Powers, as per the Articles of Indian Constitution. PFRDA now has Full

Autonomy & functioning Independently from F.Y. 2014–15.

Functions of PFRDA:

 Regulating National Pension System and other schemes applicable under PFRDA

Act.

 Protecting the interest of pension fund users. 

 Developing and regulating pension funds.

 Regulating and registering intermediaries

 Establishing grievance redressal 

 Approving terms, schemes and norms for corpus management in pension funds

 Settlement of disputes in intermediaries and subscribers

 Promoting a regulatory organization with pension mechanism

 Regulating the assets which have been regulated 

 Making subscribers and the general public aware and training intermediaries

regarding retirement savings, pension and other issues. 

 Conducting investigation, inquiries, and audit and calling for information about

intermediaries and other pension bodies. 

 CHAPTER- 6

INDIAN FINANCIAL SECTOR IN THE GLOBAL CONTEXT

Reflecting the growing credit needs and increasing levels of monetisation in the economy, the

ratio of money and quasi money to GDP in India increased continuously from 35.0 per cent

in 1981-85 to 57.9 per cent in 2001-03 . From a cross-country perspective India’s rank in

terms of the ratio of money and quasi money to GDP remained broadly unchanged at around

55th within a sample of around 180 countries. However, at the current level, the ratio

remained substantially lower than the global average and also those for China, Korea and

major industrialised countries.

Over the last two decades, the growth in money supply in India remained remarkably stable

at around 17 per cent. Money supply growth rate in the country contrasts with the experience

of the Latin American and East european emerging market economies (EMEs). The stability

in money supply growth played an important role in the price stability of the country.

It has been generally observed that due to structural constraints including relatively lower

levels of development of financial intermediaries and markets, there exists substantial excess

demand for credit in the developing countries. In line with this, over the last two decades, the

net domestic credit to GDP ratio in India remained substantially lower than those in the

industrialized countries. The ratio also remained lower than that in China and Korea.

However, at the aggregate level, in terms of net domestic credit to GDP ratio, India ranked
63rd among 175 countries, which indicate that the level of excess credit demand in the

country is relatively modest.

Moreover, over time, there has been substantial improvement in the credit-GDP ratio in the

country from 44.5 per cent in 1981-85 to 56.8 per cent in 2001-03. This reflects deepening of

the Indian financial sector. With the introduction of the financial sector reforms in India,

there has been substantial reduction in the role of administered policies in deciding the

distribution of credit across sectors. Moreover, the level of pre-emption of credit by the

government sector has also been reduced substantially. Reflecting this, flow of credit to the

private sector as a proportion of GDP increased considerably from 24.1 per cent in 1991-95

to 31.2 per cent in 2001-03. In the post-liberalisation period, the ratio of domestic credit

provided by the banks to GDP increased from 49 per cent in 1991-95 to 57 per cent in 2001-

03. Consequently, during this period, India’s relative ranking in the world improved from

91st to 80th. However, as in the case of net domestic credit, credit from banking sector as a

proportion of GDP in India remains much less than the global average and the levels in China

and most East Asian EMEs According to the Indian Banks’ Association Report on Banking

Industry Vision 2010, the presence of global players in the Indian financial system is likely to

increase and simultaneously some of the Indian banks would become global players in the

coming years. As the process of mergers and acquisition gathers momentum in the Indian

banking sector, some of the Indian banks may emerge as world-class banks with operations at

the global scale.

Presently, there are twenty Indian banks including a private sector banks which appear among

the “Top 1000 World Banks” as listed by the London based magazine “The Banker”. Among

the top 100 global banks, India has only one bank, i.e., State Bank of India (SBI) which ranks

82nd, whereas China has 4 banks in the top 100. In terms of size, Indian banks including SBI

are far behind the top banks in the world. However, the financial strength of the Indian banks
is among the highest in Asia. Other segments of financial market, particularly, Indian stock

market is comparable to the international stock markets in terms of turnover ration. Presently,

India has third largest investor base in the world. Indian Stock market trading and settlement

system are of world class. India has one of the world's lowest transaction costs based on

screen-based transactions, paperless trading and a T+2 settlements cycle. At the end of 2003,

Standard and Poor’s (S&P) ranked India 17th in terms of market capitalization (19 th in

2002), 16th in terms of total value traded in stock exchanges (17th in

2002) and 6th in terms of turnover ratio which is a measure of liquidity (7 th in 2002). India

has the number two ranking in terms of listed securities on the exchanges second only to the

USA. Despite having a large number of listed companies on its stock exchanges, India

accounted for a meagre 0.96 per cent in total world turnover as compared to that of the US at

52.4 per cent of worldwide turnover in 2003. In terms of market capitalization, Indian

companies accounted for 0.87 per cent of the worldwide market capitalization while US

accounted for 44.7 per cent in 2003. These data, though quite impressive, do not reflect the

full Indian market, as S&P (even other international publications) does not cover the whole

market. For example, India has more than 9000 listed companies at the end of March 2004,

while S&P considers only 5,644 companies. If whole market were taken into consideration,

India’s position vis-à-vis other countries would be much better.

 CHAPTER- 7

CORPORATE GOVERNANCE

Corporate governance problems in India, as in the other country, are multidimensional. for

example, the intricacies and opacity of conglomerates have been damn for economic crises

just like the Asian crisis. a look at India’s five hundred largest (by market-cap) corporations,

that along account for over ninetieth of the capitalization of the country’s leading Mumbai

Stock Exchange, reveals that regarding hour of those corporations (65% in terms of market

capitalization), square measure a part of conglomerates, or what are referred to as “business

groups” . Clearly family-run business teams still play a crucial role within the Indian

company sector. Even in 2002, the typical shareholding of promoters altogether Indian

corporations was as high as forty eight.1% . Recent studies have documented the presence of

“tunneling” of funds among business teams in India19. the particular possession in these

corporations square measure so much from clear with widespread cheat, cross-holding and

also the use of non-public trusts and personal corporations for owning shares in cluster

companies.
 OBJECTIVES OF CORPORATE GOVERNACE

Good governance is integral to the terribly existence of a corporation. because it conjures up

and strengthens the investor's confidence by guaranteeing company's commitment to the

upper level of growth and profits. It seeks to realize following objectives:

 A properly structured Board capable of taking freelance and objective choices is in situ at

the helm of affairs;

 The Board adopts clear procedures and practices and arrives at choices on the strength of

adequate information;

 The Board effectively and frequently monitors the functioning of the management team;

and

 The Board has an efficient machinery to serve the issues of stakeholders;

 The Board is balanced as regards the illustration of adequate range of non-executive and

freelance administrators United Nations agency can pay attention of the interests and

well-being of all the stakeholders;

 The Board keeps the shareholders well-read of relevant developments impacting the

company;

 The Board remains in effective management of the affairs of the corporate in the slightest

degree times.

KEY COMPONENTS OF GOOD CORPORATE GOVERNANCE

Good governance is once and for all the indicator of non-public beliefs and valuesthat

assemble the organizational beliefs, values and actions of its Board. The Board, that could be

a main skilled worker is primary accountable to make sure the worth creation for its

stakeholders. within the absence of clarity on designated role and powers of the Board, it

weakens the answerability mechanism that subsequently, threatens the accomplishment of

structure goals. Therefore, the key demand of good governance is theclarity on a part of

identification of powers, responsibilities, roles and accountability of high position holders, as

well as the Board, the Chairman of the Board and therefore the CEO. In such cases, role of

the Board ought to be clearly documented during a Board Charter, which can be followed

throughout.To elaborate the on top of discussion, following ar the essential elements of fine

company governance:

 A well-structured Audit Committee setup is needed to figure as liaison with the

management, internal and statutory auditors. Importance of such is to review the

 adequacy of control and compliance with vital policies and procedures, reporting to the

Board on the key problems.

 Answerability towards the stakeholders with associate degree objective to serve the

stakeholders through robust and sustained communication processesat a daily interval.

 Clear documentation of company‟s objectives as a district of long-run company strategy

including associate degree annual business arrange beside possible and measurable

performance targets.

 Effective whistle blower policy is another component, whereby the workers might report

back To the top management concerning any suspected frauds, unethical behavior or

violation of company‟s code of conduct. acceptable mechanism ought to be in situ for

adequate safeguard to such workers.

 stress on healthy management setting, which has acceptable moral framework, clear

objectives, establishing due processes, clear diction of responsibility and answerability,

sound business designing, establishing performance evaluation measures.

 Honest and unambiguous legislation and rules.

 Fairness to any or all stakeholders.

 target social, regulative and environmental issues

 Identification and analyzing risk is a vital component of company functioning and

governance, that ought to be fittingly taken into thought as remedial measures. this will be

settled by formulating a mechanism of periodic reviews of internal and external risks.

 To be specific on norms of moral practices and code of conduct that's needed to be

communicated to any or all the stakeholders.

 Transparency and independence within the functioning of the Board, wherever Board

ought to provide effective leadership for achieving sustained prosperity for all
 stakeholders, which can be doable by providing freelance judgment in achieving the

company's objectives.

IMPORTANCE OF CORPORATE GOVERNANCE

• It shapes growth and way forward for capital markets of the economy.

• It helps in raising adequate funds from capital markets.

• It links company’s management system with its money reportage system.

• It allows management to require innovative choices for effective functioning of AN

enterprise inside the legal framework of responsibleness.

• It supports investors by creating company accounting practices clear. company

enterprises have to be compelled to disclose money reportage structures.

• It provides adequate and timely revelation, reportage needs, code of conduct etc.

corporations gift material worth sensitive info to outsiders and make sure that until the
 time this info is formed public, insiders abstain from dealing in company securities. It,

thus, avoids trading.

• It improves potency ANd effectiveness of an enterprise and adds to material wealth of

the economy.

• It improves international image of the company sector and allows home corporations

to boost world capital.

THEORY OF CORPORATE GOVERNANCE

1. The Agency Theory:

According to this theory there exists agency relationship between the shareholders and

management of a corporation. below a contract of agency, one party (the principal) appoints

another party (the agent) to perform some functions on its behalf. Shareholders of an

organization delegate the choice creating authority to the board of administrators. As AN

agent, the board of administrators is anticipated to exercise its authority on behalf of and

within the best interests of the shareholders (the principal).

In reality, however, board of administrators and chief executives could promote their own

interests instead of the interests of shareholders. In different words, there may be a

divergence of interests between shareholders and managers. Effective governance system is

required, therefore, to safeguard the interests of shareholders.

Agency theory presents a slim read of company governance because it suggests that a

corporation is accountable solely to its shareholders. It doesn't think about the interests and

rights of different stakeholders like staff, customers, suppliers, creditors, distributors,

government, media, and therefore the community.

2. The billet Theory:

This theory relies on the belief that the highest managers of a corporation can act on their

own as accountable stewards of the assets below their management. They work diligently to

attain high levels of profits that yield smart returns to shareholders.

The interests of the corporate and its homeowners area unit aligned with those of managers

once they work towards collective goals. The interests of shareholders area unit mechanically

served once the company’s performance is maximised. Therefore, board of administrators,

and chief executives ought to lean adequate authority, and discretion to act nearly as good

stewards. a correct governance structure is needed for this purpose.

Stewardship theory relies on the belief that board of administrators can perpetually work for

company performance and can use such performance within the interests of shareholders. this

might not perpetually hold true. Moreover, the speculation overlooks the interests of

stakeholders apart from shareholders.

3. The neutral Theory:

This theory counsel that a corporation should be run within the interests of all the

stakeholders. The interests of stakeholders area unit varied and will typically be

contradictory. Therefore, a harmony or compromise is needed between them. A board of

administrators consisting of the representatives of varied neutral teams can be entrusted with

this task.
The billet theory recognises the rights of shareholders furthermore as different stakeholders.

however in observe, board of administrators might not perpetually be ready to maintain

equity. it's seemingly to overstate the interests of some stakeholders and underemphasize

those of different stakeholders. it's a awfully tough tight rope walk and a awfully effective

system of governance is required for this challenge.

ISSUES THAT ARISE IN CORPORATE GOVERNANCE

1) Conflicts of interest:

Avoiding conflicts of interest is significant. A conflict of interest among the framework of

company governance happens once a politician or alternative dominant member of an

organization has alternative monetary interests that directly conflict with the objectives of the

corporation. For instance, a member of a star company world health organization owns a big

quantity of stock in associate degree company contains a conflict of interest as a result of,

whereas the board he or she serves on represents the event of unpolluted energy, they need a

private monetary stake within the success of the industry. Once conflicts of interest square
measure gift, they deteriorate the trust of shareholders and also the public whereas creating

the corporation susceptible to proceeding.

2) Oversight problems:

Effective company governance needs the board of administrators to own substantial oversight

of the company’s procedures and practices. Oversight could be a broad term that

encompasses the manager workers reportage to the board and also the board’s awareness of

the daily operations of the corporate and also the manner within which its objectives square

measure being achieved. The board protects the interests of the shareholders, acting as a

check and balance against the manager workers. While not this oversight, company workers

may violate state or federal law, facing substantial fines from restrictive agencies, and

suffering reputational harm with the general public.

3) Responsibility problems:

Accountability is critical for effective company governance. From the commanding

executives to lower-tier staff, every level and division of the corporation ought to report and

be responsible to a different as a system of checks and balances. Particularly else, the actions

of every level of the corporation is responsible to the shareholders and also the public. While

not responsibility, one division of the corporation may endanger the success of the complete

company or cause stockholders to lose the will to continue their investment.

4) Transparency:

To be clear, an organization should accurately report their profits and losses and build those

figures out there to people who invest in their company. Overinflating profits or minimizing

losses will seriously harm the company’s relationship with stockholders therein they're

enticed to speculate below false pretenses. An absence of transparency can even expose the

corporate to fines from restrictive agencies.

5) Ethics violations:
Members of the manager board have associate degree moral duty to form choices supported

the most effective interests of the stockholders. Further, an organization has associate degree

moral duty to guard the welfare of others, as well as the bigger community within which they

operate. Minimizing pollution and eschewing producing in countries that don’t adhere to

similar labor standards because the u.s. square measure each samples of how within which

company governance, ethics, and welfare intertwine.

CHAPTER- 8

SWOT ANALYSIS OF INDIAN FINANCIAL SYSTEM

India is the ninth largest economy in the world in terms of GDP. The Indian Economy due to

its peculiar trends has been a subject of interest for the world. After independence, the Indian

economy was more like a socialist economy: democratic, large public sectors and heavy

regulations on private sectors. Around the 1990s the economy reached a point of stagnation.

Then, in 1991, India saw the largest economic reforms pioneered by Dr Manmohan Singh,

the then finance minister. These changes improve the rate of economic growth and social
development. Economists predict that the Indian economy will be the third largest by 2025,

after the USA and China.

STRENGTHS:

The strength of the Indian economy lies in its robust nature, which is evident from its

constant growth even during times of recession (2008-09). The banking and credit system has

been able to survive the downturn due to heavy regulations imposed by the RBI. This brought

more transparency to the system. Another important factor that forms the spine of the Indian

economy is agriculture, because it employs nearly 50% of the total population. Although

agriculture shares only 18.5% of GDP, it makes India self-reliant in terms of food supply.

Today, India is a leading producer of a number of agricultural products that give a boost to
the export value. The youth of India, which makes a large part of the population is an

advantage as it constitutes a huge work force.

WEAKNESS:

Primary weakness of the Indian economy is its excessive dependence on agriculture. Since

agriculture is monsoon dependent trade, production can vary by large margins and cause

turbulence in the economy. India also lags behind in social development. A large part of the

population is still living below the poverty line. Another weakness is the literacy rate.

Although we have achieved high progress rates in terms of GDP, more than a third of the

population remains illiterate, thus, easily exploitable.

OPPORTUNITIES:

India has ample opportunities for growth. The agriculture sector and SMEs need to be

encouraged and assisted as they have high potential. Indian government should focus on

defining and properly implementing the policies for rural development, as most of the

population resides in rural India. Also, there is a scope for large-scale infrastructure

development and a need to properly carry out the MNREGA, JNNURM and other schemes,

so that the benefits penetrate to the lower level of the population. Tourism is a thriving

industry in India and we need to harness its potential. It will help raise our foreign reserves

and create employment opportunities.

THREATS:

Terrorism and corruption are the greatest threats that India faces. It is because both hamper

the growth of people and trade, which is a must for overall economic growth. The rising

inflation, hording and black-marketing, also pose a threat to economic development.

Economic growth, mainly the exports, has seen a downward trend due to the worldwide
economic downturn and has become a cause of concern. The Indian government needs to

redefine its policies and bring more stringent reforms to steer out of this turbulence.

CHAPTER- 9

DATA ANALYSIS AND INTERPRETATION

 CHAPTER- 10

CONLUSION

Indian financial finacial system accelerates the speed and volume of savings through the

availability of varied money instruments and economical mobilization of savings. It aids in

increasing the national output of the country by providing funds to company customers to

expand their several business. It helps economic development and raising the quality of living
of individuals and promotes the event of the weaker section of society through rural

development banks and co-operative societies. These square measure the necessary facts

concerning the Indian financial finacial system.

One of the foremost necessary areas of economic reform lies within the financial finacial

system .On one hand , finance is that the ‘brain’ of the economy , and also the talent of the

financial financial system shapes the potency of translation of gross capital formation into

GDP growth. economic process and development of a nation depends upon the potency of a

developed financial finacial system. There square measure 2 completely different viewpoints

concerning the connection between money development and economic process. in line with

initial read purpose, associate degree economical financial finacial system effectively

mobilises the money resources and then invest them within the very best manner with the

assistance of market mechanism that results in economic development.

According to different read purpose, economic development and money development square

measure complimentary to every different. At present, the Indian money sector has been able

to expand its stretch to remote and distant areas through bank branches, ATMs, money

intermediaries and unbranching banking solutions. so as to create financial finacial system

simpler and economical, there's a desire of effective management and management among

the various parts of the Indian financial finacial system. additionally there's a desire for

correct governance and regulation for the economical operating of the financial finacial

system. At last, it may be over that a developed financial finacial system leads the economic

process and development of the country. Hence, there's a positive and correlation between the

expansion in financial finacial system and economic development.

After the reform the Indian financial finacial system is fairly integrated, stable and

economical. There square measure weakness within the system which require to be self-
addressed. These embrace high level of non-performing assets in some banks and money

establishments, disciplinary problems with reference to non-banking money firms,

government’s high domestic debt and borrowings, volatility in money markets, absence of

yield curve and co-operative bank scams.

CHAPTER- 11

RECOMMENDATION

 Communication infrastructure and usage of INFINET:

  The approach that might be thought of for up the effectiveness of VSAT network aim

at enhancing the electrical device capability to the extent possible and therefore the

variety of out routes because the demand grows.

 For each inter-bank and intra-bank applications, it's necessary to own associate degree

application design keeping in mind that the INFINET backbone network are VSAT

primarily based.

 Standardisation and Security:

 There ought to be associate degree acceptable institutional arrangement for key

management and authentication by manner of a certification agency. tally could

contemplate appointing IDRBT because the certification agency for security

management.

 Banks ought to adopt wide used commonplace of cryptography procedures to stop

knowledge tamper throughout transmission.

 The technology ought to be allowed to evolve into standard-based solutions for multi-

vendor heterogeneous surroundings operating co-operatively and jointly for EFTPOS,

together with the debit, credit and good cards primarily based operations.

 Computerisation of state Transactions:

 There could be a ought to computerise all branches of banks coping with government

transactions.

 The computerisation of state departments ought to be synchronic with the

computerisation of bank branches coping with government transactions.

 Data deposition, data processing and Management info System:

 A strong MIS supported on knowledge deposition and data processing at individual

bank level is crucial for implementing numerous restrictive tips together with the

newest one on ALM.

  A Task Force is also created by IBA to explore possible methodology for figuring out

a singular identification system for individual client knowledge bases at banks.

 Issues with reference to Human Resource Development:

Education of employees on that ought to lean due importance. The coaching institutions of

the banks ought to be strong with adequate personnel and alternative infrastructure facilities,

to impart necessary IT coaching to any or all to any or all employees.

 Sharing of Experiences on Technology Implementation:

The conferences of CPPD Chiefs ought to be sufficiently frequent enough to be effective.

conferences by the IBA for this purpose, once in 2 months would be helpful.

CHAPTER- 12

BIBLIOGRAPHY
 Berlin M and Mester j 2004 , “ Indian financial system post liberalization”,review of

financial economics vol.13,pp.179-198

 calem mp s and measter L J (1995), “ the failure of competition in the financial markets

”American economic review ,vol . 81 .no .1 pp . 50 – 81

JOURNALS:

 Indian journal of april 2015

 ICFAI journal of financial marketing .vol 4 2008

 ICFAI journal of service marketing .vol 6 2008

 Indian journal of financial marketing system vol 4 2015

WEBSITES:

 www.googel.com

 www.mns.com

 www.yahoo.com

CHAPTER- 13

ANNEXURES
1. Name:

2. Age:

o 15-25

o 25-30

o 30 & above

3. Gender:

o Male

o Female

4. Do you have any bank account?

o Yes

o No

5. Which type of bank account do you have?

o Saving bank a/c

o Current a/c

o Recurring Deposit a/c

o Fixed Deposit a/c

6. Are you using any other form of financial service or product?

o Yes

o No

7. If yes, then which form of financial service or product you are using?

o Debit card

o Credit card

o Online Transaction
 o Insurance

8. Have you ever borrowed or taken a loan?

o Yes

o No

9. If yes, then from wher you borrowed or taken a loan?

o Banks

o Relative

o Friends

o Money Lenders

10. What was the type of loan?

o Housing loan

o Business loan

o Education loan

o Vehicle loan

o Personal loan

11. Have you ever invested into stock market?

o Yes

o No

12. In which sector you invest most?

o IT

o Pharmacy

o Telecom
 o Banking

o Petroleum

o Other

13. What do you think about our current financial system?

o Very good

o Good

o Poor