1. P R E S E N T E D B Y
S I M R A N P A T R E
Role of Indian financial system In
economic development and weakness
of Indian financial system
2. Introduction
The Indian Financial System is one of the most important
aspects of the economic development of our country. This system
manages the flow of funds between the people (household
savings) of the country and the ones who may invest it wisely
(investors/businessmen) for the betterment of both the parties.
The financial system enables lenders and borrowers to exchange
funds. India has a financial system that is controlled by
independent regulators in the sectors of insurance, banking,
capital markets and various services sectors.
3. Life spam of Indian financial system
Phase I
From 1786 to 1969 only private bank. The banking system has
stared from imperial bank of India before independence,
general public has less confidence on the bank. As a result,
deposit mobilization is slow.
Phase II
In 1955 the imperial bank was nationalized and other 14 banks
were nationalize. The government of India can brought the
80% of share the banking segment in India under government
ownership. Other acts are passed by Mrs. Indira Gandhi (PM).
Phase III
In 1991 under the chairmanship of M Narasimham. The
liberalization of banking practices. Flooding of foreign bank.
Introduction many more product and facilities.
5. Financial Institutions
A financial intermediary is typically an institution that facilitates the
channeling of funds between lenders and borrowers indirectly. That
is, savers (lenders) give funds to an intermediary institution (such as
banks), and then that institution in turn gives those funds to spenders
(borrowers).
6. Advantage of financial Institutions
Financial institutions provide long-term finance, which is not
provided by commercial banks
Along with finance, a company can obtain specialist guidance and
direction for the successful planning and management of projects.
The funds are made available even during periods of depression
when other sources of finance are not available.
Loans and guarantees in foreign currency and deferred payment
facilities are obtainable for the import of required technology and
equipment.
Obtaining a loan from financial institutions increases the goodwill
of the borrowing company in the capital market. Consequently, such
a company can raise funds easily from other sources as well
The rate of interest and repayment measures is convenient and
economical. Facilities for repayment in simple installments are
made obtainable to the deserving concerns.
7. Drawback of financial Institutions
Financial institutions follow rigid criteria for grant of loans.
Too many formalities make the procedure time consuming
and expensive;
Certain restrictions such as restriction on dividend payment
are imposed on the powers of the borrowing company by the
financial institutions;
Financial institutions may have their nominees on the Board
of Directors of the borrowing company thereby restricting the
powers of the company.
Many deserving concerns may fail to get assistance for want of
security and other conditions laid down by these institutions.
Financial institutions may have their nominees on the Board
of Directors of the borrowing company thereby restricting the
powers of the company.
9. Financial market
Financial markets are markets which cater to the financial needs
of individuals, firms and institutions required for short as well
as for long period. Hence, financial market is a mechanism
that allows people to easily buy and sell (trade) financial
securities (such as stocks and bonds), commodities (such as or
agricultural goods) precious metals
10. Advantage of Financial market
It gives a platform to buyers and sellers to meet in order to
trade in the assets. The prices for trading are determined by
the market forces, i.e., demand and supply in the market. So It
helps in the determination of the prices of securities.
It helps in the mobilization of the savings of the investors as
the investor can put his money in the most productive uses.
For the traders, the financial market platform provides the
potential buyer and seller of their securities, which help them
in saving their time and money in finding the potential buyer
and seller.
In the financial market, investors can sell their securities
readily and convert them into cash, thereby providing
liquidity to the tradable assets.
11. Drawback of Financial market
Prices in the financial market may not indicate a
stock’s true intrinsic value because of some
macroeconomic forces like taxes etc.
There are certain factors that change the prices of the
securities suddenly. So there is a risk involved when
trading in the financial market. Like if any negative
news about the company comes, then its price may
decrease to a great extent causing loss to the person
holding its shares.
13. Financial Instrument
Financial instruments are assets that can be traded,
or they can also be seen as packages of capital that
may be traded. Most types of financial
instruments provide efficient flow and transfer of
capital all throughout the world's investors.
14. Advantage of Financial Instrument
According to the risk-bearing capacity of
counterparties, financial instruments allocate risks.
Companies can use financial instruments to hedge
currencies for future uncertainties.
Equity-based instruments are a permanent source of
funds for businesses because equity shares allow
businesses to have a good option of borrowing and
enjoy retained earnings.
15. Drawback of Financial Instrument
Liquid assets like cash deposits and money market
accounts will not allow to withdraw funds for a
specified time mentioned in the agreement.
If a company wants to withdraw before maturity
period, they may get lower returns. Swaps is a
financial instrument which carries higher level of
risks.
It can be stated at the end that proper management
of financial instruments can help organizations in
cutting down costs and maximizing their revenue
model.
17. Financial Services
To encourage people to put their money into investment and
which provides the facilities for doing so is called the “Financial
Services Sector”. Simply put, all types of activities involved in
the transformation of surplus in to investments and transfer of
financial resources called financial services.
The scope of the financial services is very wide, unlimited and
dynamic.
19. Components of Financial
Financial
Services
Fund based
Non-Fund
/ Fee based
Leasing
Mutual Fund
Venture Capital
Housing Finance
Portfolio Management
Corporate Counseling
Merchant Banking
Credit Rating
Debt – Capital
restructuring
Stock Broking
20. Role of Indian financial system In economic
development
Savings-Investment relationship
Growth of capital market
Foreign exchange market
Government securities
Infrastructure and growth
Trade development
Employment growth
Venture capital
Balance economic growth
21. Weakness of Indian financial system
Lack of co-ordination among financial institution
Dominance of development bank in industrial
finance
Inactive and erratic capital market
Unhealthy financial practices
Monopolistic market structure