PRESENTED BY –
GROUP 4 – Pratikshya Sahoo,
Shaivi Kharbikar, Sekhar
Choudhury, Ipshita Shukla,
Manal Verma, Keshav Tyagi
Financial system –
A system that allows the
exchange of funds between
lenders, investors, and
systems operate at
national, global, and firm-
Financial System of any
country consists of
financial markets, financial
financial instruments or
ABOUT THE CASE
India’s financial system is underdeveloped yet India’s economy has
made progress. When it comes to allocating capital, India is much
more effective than China. Bad debts are under control and the
market share of private and foreign banks are going up. India has to
mobilize its funds as Indians are largest purchasers of gold, equal to
nearly country’s bank deposits. Steps like reducing fiscal deficit,
encouraging consumers to use banks, cutting the cost of bank
intermediation and developing the capital markets should be taken.
Fiscal deficit is when a government's total expenditures exceed the
revenue that it generates (excluding money from borrowings). Deficit
differs from debt, which is an accumulation of yearly deficits.
Private investment, from a macroeconomic standpoint, is the
purchase of a capital asset that is expected to produce income,
appreciate in value, or both generate income and appreciate in value.
A capital asset is simply property that is not easily sold and is
generally purchased to help an investor to generate a profit.
Examples of capital assets include land, buildings, machinery, and
Household saving is defined as the difference between a
household’s disposable income (wages, income of the self-employed
and net property income) and its consumption (expenditures on
goods and services.)
No of companies listed in BSE- 5000 roughly till 2005, 5788 and NSE- 1659 as of
GDP growth @ 2015 China- $10 trillion and India- $ 2 trillion
Total Stock value China- $9.29 trillion and India- $1.61 trillion
21% - loans for health care
10% - education
Indian households have amassed up to 20,000 tonnes for a historic high of $1.16
INDIA HOUSEHOLDS SAVINGS -
Personal Savings in India increased to 22124.14 INR Billion in 2013
from 20547.37 INR Billion in 2012. Personal Savings in India averaged
2819.47 INR Billion from 1951 until 2013, reaching an all time high
of 22124.14 INR Billion in 2013 and a record low of 6.34 INR Billion in
1952. Personal Savings in India is reported by the Ministry of
Statistics and Programme Implementation (MOSPI).
FLASHBACK 2014-15: FINANCIAL
SECTOR MILESTONESFLASHBACK 2014-15: FINANCIAL SECTOR MILESTONES
After a gap for more than a decade, new bank licences were awarded by the Reserve Bank
of India (RBI) to two applicants, IDFC & Bandhan Financial Services
A new monetary framework kicks in, with 6 reviews per year as compared to 8 earlier
JULY To boost infra financing CRR/SLR exemption announced for banks for funds raised
via infra bonds
RBI issues draft norms for payments and small banks; for the first time a process to issue
differentiated licences initiated
AUGUSTCBI arrests Syndicate Bank Chairman and Managing Director (CMD) S K Jain over
alleged bribery charges. Jain later sacked by the government, which, in an unprecedented
move, cancels all CMD appointment decisions taken by the previous government
Prime Minister Narendra Modi launches Pradhan mantri Jan Dhan Yojana – a scheme for
opening bank accounts to foster financial inclusion. More than 130 million accounts
opened in a matter of five months
NOVEMBERKotak Mahindra Bank accounces it will acquire ING Vysya Bank to become the
fourth largest private bank in the country
DECEMBERGoverment splits chairman and managing director’s post in public
sector banks, signalling its intention to initiate long-pending reforms in the
Government issues ordinance to allow foreign firms to have 49 per cent stake in
insurance companies, a decision that was stuck for several years
JANUARYIn a first, government calls bankers for a brainstorming session,
christened as Gyan Sangam, to chart the road ahead for the banking sector
RBI brings out final guidelines on banks becoming insurance brokers
FEBRUARYRBI gets 41 applications for payments bank licence, 72 for small
finance bank licence
Government allocates capital to public sector banks based on their efficiency,
clearly indicating its stance — perform or perish
CEO position in government banks opened for private sector players with
Union budget starts implementing proposals of the Financial Sector Legislative
Reforms Commission, which takes away some important functions of the central
bank like government debt management
MARCHInsurance Bill passed by both Houses of the Parliament
SBI, the country’s largest lender, says it will dilute its stake in its general
How Indian financial
system must mobilize
savings more effectively?
PRIVATE BANK –
Axis Bank, Development Credit Bank (DCB Bank Ltd), HDFC Bank, ICICI Bank,
IndusInd Bank, Kotak Mahindra Bank, Yes Bank,
IDFC and Bandhan Bank of Bandhan Financial Services.
April ’14, RBI awarded universal bank license.
FOREIGN BANK -
DOHA, HSBC, UNITED OVERSEAS, Deutsche Bank, Barclays Bank, Standard
Chartered Bank, BNP PARIBAS, etc.
ROLE OF BANK
Banks act as delegated monitors and ensure that firms use the
resources allocated to them effectively. They also play an important
role in sharing risk in the economy by diversifying and smoothing
fluctuations over time. These are positive aspects of the roles banks
play. However, the fixed nature of the claims they issue can cause
fragility in the financial system. Banks are often at the center of
financial crises as in the crisis that started in August 2007. They can
help spread crises if there is contagion and small shocks can have a
large effect on the financial system and the economy. Banks play an
important role in providing funds for firms and helping them and the
economy to grow. They are also important for corporate governance,
particularly in countries like Germany where bankers sit on boards
and control a significant number of proxy votes. Finally, banks can
help overcome asymmetric information problems by forming long-
lived relationships with firms.
ROLE OF STOCK MARKETS
Stock markets are, first and foremost, financial institutions
established to help businesses and entrepreneurs come together to
buy, sell and trade shares for the purpose of capitalizing enterprises
in need of cash infusions. Were it not for stock exchanges,
entrepreneurs would be left to their own devices to find investors,
and consumers could wind up at the mercy of unlicensed and
unregulated financial products with no oversight.
INCREASE BANK PENETRATION
Bank a/c penetration increased from 35% to 53% in India and 64% to 79% in
170 million in India became a/c holder in 2014
India has 43% dormancy rate i.e. 195 million of the $60 million dormant a/c
around the world.
Aug 2014, Government launched Jan Dhan Yojana with the goal of opening
bank a/c for every household.
Under this the schemes offered where zero balance, over draft facilities, free
97% of new a/c are at public sector and 72% of it show zero balance.
39% of all a/c holders own a debit card or ATM card.
REDUCE THE COST OF BANK
Improvements in the institutional environment (encompassing
better property rights, stronger contract enforcement, and a higher
level judicial efficiency) increase the value of collateral for bank loans
and therefore reduce the cost of financial intermediation for existing
REDUCE THE FISCAL DEFICIT
CUT GOVT SPENDING
The government can cut its public spending to reduce its fiscal deficit.
Higher taxes increase revenue and help to reduce the budget deficit. Like
spending cuts, they could cause lower spending and lead to a fall in economic
growth. Again it depends on the timing of tax increases. In a recession, tax
increases could cause a big drop in spending. During high growth, tax increases
won’t harm spending as much. It also depends on the type of tax you increase.
The best way to reduce the budget deficit is to aim for positive economic
growth, but in the long-term evaluate government spending commitments and
reduce spending to sustainable levels.
DEVELOP THE CAPITAL MARKETS
1. Investor education and regulation of mutual fund distributors
2. Allowing AMCs to the flexibility to charge fees
3. Innovative products across different asset classes
Increased focus on accountability and oversight of seed capital programs has
caused continued formalization of policies and procedures governing strategy
4. Amending tax regime to encourage domestic AMCs to manage foreign
funds from India
5. Although higher investment by domestic institutional investors such as
insurance companies , pension funds to make investment in capital markets
6. Allowing institutional investors to participate in commodity markets
India being an emerging economy needs innovations and reforms in the financial market.
Innovation and reforms not only add value in the existing technology and system.
Emerging economies like India depends heavily on the banking system for financing its
capital needs. But banks which are highly protected in India hardly fulfil its funding
requirements. Thus, there is the need to develop its capital market.
Capture more savings.
Privatisation - transfer enterprise or industry from the public sector to the private
Disinvestment - selling or liquidating assets or subsidiary.
Reduction in Subsidies -
Additional tax collection
Organised or regulated business environment
Suitability and feasibility of investment of micro finance project.
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