IFS Module 1.pptx

Features of Indian Financial System
 Payment system
 Pooling of funds
 Transfer resources
 Risk management
 Price information for decentralised decision making
 Dealing with incentive problem
 Reformatory function

Financial Institutions/Intermediaries
 Financial institutions are the participants in a financial
market.
 They are business organizations dealing in financial
resources.
 They collect resources by accepting deposits from individuals
and institutions and lend them to trade, industry and
others.
On the basis of the nature of activities, financial institutions may
be classified as:
 Regulatory and promotional institutions,
 Banking institutions, and
 Non-banking institutions
https://rbi.org.in/scripts/banklinks.aspx

Regulatory or Promotional Institutions
 Financial institutions, financial markets, financial instruments and
financial services are all regulated by regulators like Ministry of
Finance, the Company Law Board, RBI, SEBI, IRDA, Dept. of
Economic Affairs, Department of Company Affairs etc.
Banking Institutions:
Banking institutions mobilise the savings of the people. They provide a
mechanism for the smooth exchange of goods and services. They
extend credit while lending money. They not only supply credit but
also create credit. There are three basic categories of banking
institutions. They are :
 commercial banks,
 co-operative banks and
 developmental banks.
Non-banking Institutions:
 The non-banking financial institutions also mobilize financial
resources directly or indirectly from the people. Companies like LIC,
GIC, UTI, Development Financial Institutions, Organisation of
Pension and Provident Funds etc. fall in this category. Non-banking
financial institutions can be categorized as investment companies,
housing companies, leasing companies, hire purchase companies,
specialized financial institutions.

Classification of Financial Markets
Classification on the basis of the type of financial claim
 Debt market
 Equity market
Classification on the basis of maturity of claims
 Money market
 Capital market
Classification on the basis of seasoning of claim
 Primary market
 Secondary market

Classification on the basis of structure or arrangements
 Organised markets
 Unorganised markets
Classification on the basis of timing of delivery
 Cash / Spot market
 Forward/Future market
Other types of financial market
 Foreign exchange market
 Derivatives market

Financial Instruments
Financial instruments are the financial assets, securities and
claims. They may be viewed as financial assets and
financial liabilities.
 Financial assets represent claims for the payment of a sum
of money sometime in the future (repayment of
principal) and/or a periodic payment in the form of
interest or dividend.
 Financial assets like deposits with banks, companies and
post offices, insurance policies, NSCs, provident funds and
pension funds are not tradable.
 Securities (included in financial assets) like equity shares
and debentures, or government securities and bonds are
tradable. Hence they are transferable.

 The financial instruments may be capital market
instruments or money market instruments or hybrid
instruments.
 The financial instruments that are used for raising
capital through the capital market are known as
capital market instruments.
 The financial instruments that are used for raising
and supplying money in a short period not exceeding
one year through money market are called money
market instruments.
 Hybrid instruments are those instruments which have
both the features of equity and debenture. Examples
are convertible debentures, warrants etc.

Characteristics of Financial Instruments
a. Liquidity
b. Marketing
c. Collateral value
d. Transferability
e. Maturity period.
f. Transaction costs.
g. Risk
h. Future trading

Financial Services
 Its objective is to intermediate and facilitate financial
transactions of individuals and institutional investors
 The financial services include all activities connected
with the transformation of savings into investment.
 Important financial services include lease financing,
hire purchase, instalment payment systems, merchant
banking, Factoring, Forfaiting etc.

Types of Financial Services
1. Hire Purchase Services
Hire purchase the legal term for a conditional sale
contract with an intention to finance consumers
towards vehicles, white goods etc. If a buyer cannot
afford to pay the price as a lump sum but can afford
to pay a percentage as a deposit, the contract allows
the buyer to hirethe goods for a monthlyrent.
2. Leasing Services
A lease or tenancy is a contract that transfers the
right to possess specific property. Leasing service
includes the leasing of assets to other companies
either on operating lease or finance lease.

3. Housing Finance Services
Housing Finance Services means financial services related to
development and construction of residential and commercial
properties. An Housing Finance Company approved by the
National Housing Bank may undertake the services /activities
such as Providing long term finance for the purpose of
constructing, purchasing or renovating any property etc.
4. Asset Management Company
Asset Management Company is managing and investing the
pooled funds of retail investors in securities in line with the
stated investment objectives and provides more
diversification, liquidity, and professional management
service to the individual investors. Mutual Funds are comes
under this category.
5. Venture Capital Companies
Venture capital Finance is a unique form of financing activity
that is undertaken on the belief of high-risk-high-return.
Venture capitalists invest in those risky projects or companies
(ventures) that have success potential and could promise
sufficient return to justify such gamble.

Overview of Global Financial System
 The global financial system (GFS) is the financial
system consisting of institutions and regulators that
act on the international level, as opposed to those that
act on a national or regional level. The main players
are the global institutions, such as International
Monetary Fund and Bank for International
Settlements, national agencies and government
departments, e.g., central banks and finance
ministries, private institutions acting on the global
scale, e.g., banks and hedge funds, and regional
institutions, e.g., the Euro zone.

INTERNATIONAL
FINANCIAL INSTITUTIONS
 International financial institutions (IFIs) are
financial institutions that have been established by
more than one country, and hence are subjects of
international laws. Their owners or shareholders are
generally national governments, although other
international institutions and other organizations
occasionally figure as shareholders. The most
prominent IFIs are creations of multiple nations,
although some bilateral financial institutions exist
and are technically IFIs. Many of these are
multilateral development banks (MDB).

WHAT ARE INTERNATIONAL
FINANCIAL INSTITUTIONS (IFI’S)
World Bank Group (WBG):
 International Bank for Reconstruction and Development
(IBRD)
 International Development Association (IDA)
 International Finance Corporation (IFC)
 Multilateral Investment Guarantee Agency (MIGA)
 International Centre for Settlement of Investment Disputes
(ICSID)
 International Monetary Fund (IMF)
 Regional development banks, such as:
 African Development Bank (AFDB)
 Asian Development Bank (ADB)

 Inter-American Development Bank (IADB)
 Bank of the South
 European Bank for Reconstruction and Development
(EBRD)
Other regional financial institutions e.g. European
Investment Bank (EIB)
Export Credit Agencies of individual country
governments, such as:
 US Export Import Bank (EXIM)
 Japan External Trade Organization
 Hermes Kreditversicherungs (Germany)

INTERNATIONAL
FINANCIAL INSTITUTIONS
The Common Goal……..
 to reduce global poverty and improve people's living
conditions and standards;
 to support sustainable economic, social and
institutional development; and
 to promote regional cooperation and integration.

WORLD BANK
GROUP:
The term "World Bank" generally refersto
just the IBRD and IDA
The World Bank's activities are focused on
developing countries, in fields such as
human development, agriculture and rural
development, environmental protection,
infrastructure, and governance.
It isconcernedwith assistingits member
countriesto achieve sustainedeconomic
growth. It functionsasan intermediary for
the transfer of financial resourcesfrom the
more developed to the lessdeveloped
countries.
WORLD BANK
Formation- 27 December 1945
Type- International organization
Legal status- Treaty
Purpose/focus-
Economic development,
poverty elimination
Membership- 189countries
President- Robert Zoellick
Jim Yong Kim (Elect)
Main organ- Board ofDirectors
Website- worldbank.org

INTERNATIONAL
MONETARY FUND (IMF):
The International Monetary Fund was created
in 1944, with a goal to stabilize exchange rates and
supervise the reconstruction of the world’s
international payment system.
1. Promote international monetary cooperation.
2. Shorten the duration and lessen the degree
of disequilibrium in the international
balances of payments of members.
3. Facilitate the expansion and balanced growth
of international trade.
4. Promote Exchange stability and maintain
orderly exchange arrangements among
members.
5. Assist in establishing a multilateral system
of payments.
The IMF provides financial assistanceto members
to help them to correct balance of payments
problems in a manner that promotes sustained
growth.
INTERNATIONAL
MONETARY FUND
Formation- Adopted: July 22, 1944
(67 years ago) Entered intoforce:
December 27, 1945
Type- International Economic
Organization
Headquarters- Washington, D.C.
Membership- 1nation (founding);188
nations (to date)
Official languages- English, French,and
Spanish
Managing Director- Christine Lagarde
Main organ- Board ofGovernors
Website- www.imf.org

ROLE OF INTERNATIONAL
MONETARY FUND:

BENEFITS TO INDIA BY
IMF:
• Freedom to Rupee
• Membership of the World bank
• Importance of India in international
field
• Technical advice and training

EUROPEAN BANK FOR
RECONSTRUCTION AND DEVELOPMENT
(EBRD):
EBRD provide project financing for banks, industries and businesses, both new ventures and
investments in existing companies. We also work with publicly owned companies.
Founded in 1991
1 Financial institution investing in public and private sectors
2 Multinational shareholding: 60 countries, EIB and EU
3 Operates in 27 countries of Central and Eastern Europe and the former Soviet Union)
4 Institution with broader mandate: foster transition to market economy

ROLE OF EUROPEAN BANKS FOR
RECONSTRUCTION AND DEVELOPMENT:
Structuring the financing of municipal infrastructure, equipment and services
Promote commercialization and corporatization of services
Development of regulatory structures
Promotion of appropriate private sectorinvolvement
Environmental improvement
Facilitate EU grant andcommercial loan co-financing
EBRD assists in developing municipal creditworthiness and improving budgetary
and fiscal practice
EBRD mobilizes financing for municipal advisory services
Support in project appraisal and transaction structuring
Provide most appropriate financing structure from a wide array of financial instruments
Mobilization of co-financing and syndication

ASIAN DEVELOPMENT
BANK (ADB):
The Asian Development Bank (ADB) is a
regional development bank established to facilitate
economic development of countries inAsia.
ITS STATED GOALS:
1-Promoting economic growth
2.Reducing poverty 3.Developing
human resources
4.Improving the status ofwomen
5.Protecting the environment
The Bank's operations cover a wide spectrum of
activities and have been classified according to the
following sectors:
1.Agriculture and natural resources
2.Transport and communications
3.Energy
4.Industry and non-fuelminerals
5.Finance
6.Social Infrastructure
Asian Development Bank
 Motto- Fighting poverty inAsia
and the Pacific
 Formation- 22 August 1966
Type- Regional organization
Legal status- Treaty
Purpose/focus- Crediting
 Headquarters- Mandaluyong
City, Metro Manila, Philippines
 Region served- Asia-Pacific
Membership- 67 countries
President- Haruhiko Kuroda
Main organ- Board ofDirectors
Staff- 2,500+
 Website- http://www.adb.org

ROLE OF ASIAN DEVELOPMENT
BANK:
1 Provides loans and equity investments to its developing
member countries
2 Provides technical assistance for the planning and
execution of development projects and programs and for
advisory services
3 Promotes and facilitates investment of public and private
capital for development
4 Assists in coordinating development policies and plans of
its DMCs

AFRICAN
DEVELOPMENT BANK
(AFDB):
Established in 1964 with a mandate to
promote economic and social
development in Africa, the African
Development Bank is a regional
multilateral development finance
institution comprising the African
Development Bank, the African
Development Fund, and the Nigeria Trust
Fund. The opacity of its operations andits
emphasis on major regionalinfrastructure
projects have generated concern among
African and international civilsociety.
AFRICAN DEVELOPMENT
BANK
Formation August 4, 1963
Type International
organization
Legal status Treaty
Purpose/focus Regional
development
Membership 78 countries
President Donald Kaberuk
Main organ Board of
Executive
Directors
Website http://www.afdb

ROLE OF AFRICAN
DEVELOPMENT BANK:
The main role of the African Development Bank is to help the
development of countries in Africa by making loans and equity
investments in various projects and programs.
African Development Bank also provides technical assistance on
development projects.
African Development Bank helps in coordinating the development
projects of the various countries involved.

ROLE OF INTER-AMERICAN
DEVELOPMENT BANK:
Using its lending operations, regional initiatives, research and knowledge
dissemination activities, institutes, and programs, the IDB helps to
foster sustainable economic and social development in Latin America
and the Caribbean.
Through its financing, the Bank prioritizes poverty reduction and social
equity, environmentally sustainable growth, modernization of the
state, and regional integration.
IDB has the following main areas of action:
 Reducing poverty and social inequalities;
 Addressing the needs of small and
vulnerable countries; Fostering development
through the private sector;
 Addressing climate change, renewable energy and environmental
sustainability; and Promoting regional cooperation and
integration.

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