Financial Institutes and Intermediaries

1. Raju Indukoori

2. Financial Intermediation
• The role of a financial system is more of a
financial intermediation in a country.
• It bridges the gap between the deficit borrowers
and surplus savers.
• It operates on active financial centers with
financial regulation.
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3. Capital providers (savers)
and
capital users (borrowers)
• Households : Net savers
• Non-financial corporations: Net borrowers
• Governments: Net borrowers
• Financial corporations: Slightly net
borrowers, but almost breakeven
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4. How the intermediation is done
• Financial intermediaries bridges the gap
between net borrowers and net savers
• Intermediaries act as an intermediary with
full participation (Banks and Exchanges)
or with mere representation (Brokers and
Agents).
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5. Financial Intermediation
Capital Transfers from savers to borrowers
• Direct Transfer
Ex: Corporation issues commercial paper to insurance company).
• Indirect Transfer
– Through an merchant bank/investment banking house:
Ex: IPO, seasoned equity offering, or debt placement).
– Through a financial intermediary:
Ex: individual deposits money in bank, bank makes commercial
loan to a company).
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6. Financial Intermediation Functions
1. Maturity transformation
2. Risk transformation
3. Payment and settlement mechanism
4. Liquidity Provision
5. Reduce cost of transaction and information
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7. How does financial intermediation happen?
1. Liabilities and assets
2. Investments
3. Lending and borrowing
4. Payment and settlement
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8. Financial Liabilities or Instruments or claims
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Liability Size Timing Example
Class I Known Known Fixed rate deposits, debentures
Class II Known Unknown Life Insurance
Class III Unknown Known Floating rate deposits, bonds
Class IV Unknown Unknown General Insurance

9. Financial Intermediation and Economy
• Financial intermediation has become a major
industry contributing to the GDP.
• Financial market platforms, banking and Non
Banking Financial Services (NBFCs) are the
major contributors.
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10. Financial Centers
1. Financial Institutions
2. Financial Markets
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11. 1.Financial Institutions
A. Banks
• Development Banks
• Commercial Banks
• Co operative Banks
B. Non Banking Financial Corporations (NBFCs)
C. Institutional Investors
• Domestic : Mutual funds, Insurance Companies, Trusts
• Foreign Portfolio Investors (FPIs)
D. Exchanges
• Equity Exchanges
• Debt securities exchanges
• Derivatives Exchanges
E. Depository Participants (DPs)
F. Clearing Corporations (CCs)
G. Credit rating agencies
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12. 1.Financial Institutions
It comes under the Second schedule of RBI Act with
following verticals.
 Corporate banking
 Retail banking
 Rural banking
 Offshore banking
 Cross Selling
 Lead Banking
 Merchant banking
Commercial Banking

13. 2. Financial Markets
• Market for Physical and financial assets
• Spot and future markets
• Money and capital markets
• Primary and secondary markets
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14. Types of Financial Markets
1. Capital Market
2. Money Market
3. Derivatives Market
4. Commodities Market
5. Forex Market
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15. Types of Financial Markets
1. Capital Market
2. Money Market
3. Derivatives Market
4. Commodities Market
5. Forex Market
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16. FINANCIAL REGULATORS
Financial Intermediation in a Financial system
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Financial
Institutes
Capital
Deficit
Capital
SurplusFinancial Intermediation
Financial
Markets
Financial Instruments
Banking and financial services

17. Dr Raju Indukoori
Thank You
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18. Dr Raju Indukoori
Any Questions
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