Page 17 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Indian Financial System

Notes  The public sector banks comprise the 'State Bank of India' and its seven associate banks
and nineteen other banks owned by the government and account for almost three fourth
of the banking sector.
 India has a two-tier structure of financial institutions with thirteen all India financial
institutions and forty-six institutions at the state level.

 All India financial institutions comprise term-lending institutions, specialized institutions
and investment institutions, including in insurance.
 State level institutions comprise of State Financial Institutions and State Industrial
Development Corporations providing project finance, equipment leasing, corporate loans,
short-term loans and bill discounting facilities to corporate.

 Non-banking Financial Institutions provide loans and hire-purchase finance, mostly for
retail assets and are regulated by RBI.

 RBI also regulates foreign exchange under the Foreign Exchange Management Act (FEMA).
 SEBI) established under the Securities and Exchange aboard of India Act, 1992 is the
regulatory authority for capital markets in India.

 Insurance sector in India has been traditionally dominated by state owned Life Insurance
Corporation and General Insurance Corporation and its four subsidiaries.
 Insurance Development and Regulatory Authority (IRDA) is the regulatory authority in
the insurance sector under the Insurance Development and Regulatory Authority Act,
1999.

1.6 Keywords

Commercial Paper: Are the unsecured promissory notes with a fixed maturity, usually, between
seven days and three months, issued in bearer form and on a discount basis.
Deposits: Are sums of money placed with a financial institution, for credit to a customer's
account.
Intangible Asset: By contrast, represents legal claims to some future benefit.
Loan: Loan is a specified sum of money provided by a lender, usually a financial institution, to
a borrower on condition that it is repaid, either in instalments or all at once, on agreed dates and
at an agreed rate of interest.
Tangible Asset: Is one whose value depends on particular physical properties, such as buildings,
land, machinery, etc.
Treasury Bills: Are government securities that have a maturity period of up to one year.

1.7 Review Questions

1. What is financial system? Discuss its salient functions.
2. Discuss, in brief, the structure of financial system.
3. Write a short note on the role of financial instruments in the Indian financial system.
4. "A financial system facilitates transfer of funds from Surplus Spending Units (SSUs) to
deficit spending units (DSUs) by providing means and mechanism to link the two groups."
Comment.

12 LOVELY PROFESSIONAL UNIVERSITY