Page 9 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services

Notes The financial system consists of the Central Bank, as the apex financial institution, other regulatory
authorities, financial institutions, markets, instruments, a payment and settlement system, a
legal framework and regulations. The financial system carries out the vital financial
intermediation function of borrowing from surplus units and lending to deficit units. The legal
framework and regulators are needed to monitor and regulate the financial system. The payment
and settlement system is the mechanism through which transactions in the financial system are
cleared and settled.
1. Regulatory Authorities
2. Financial Institutions
3. Financial Markets

4. Financial Instruments
5. Payment and Settlement Infrastructure.
Let us get introduced to them one by one.

Regulatory Authorities

The main component of any financial system is the regulatory system it has. In any economy,
the financial system is regulated by the central banking authority of that country. In India, the
central banking bank is named as the Reserve Bank of India.

Reserve Bank of India (RBI)

The regulation and supervision of banking institutions is mainly governed by the Companies
Act, 1956, Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980, Bankers'
Books Evidence Act, Banking Secrecy Act and Negotiable Instruments Act, 1881.
The regulation and supervision of finance companies is done by the Banking Regulation Act,
1949 which governs the financial sector.
Individual Institutions are regulated by Acts like:
1. State Bank of India Act, 1954
2. The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003
3. The Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993
4. National Bank for Agriculture and Rural Development Act

5. National Housing Bank Act
6. Deposit Insurance and Credit Guarantee Corporation Act.

Securities and Exchange Board of India (SEBI)

The Securities and Exchange Board of India was made a statutory body on April 12, 1992 in
accordance with the provisions of the Securities and Exchange Board of India Act, 1992 to protect
the interests of investors in securities and to promote the development of, and to regulate the
securities market and for matters connected therewith or incidental thereto.

Insurance Regulatory and Development Authority (IRDA)

Insurance Regulatory and Development Authority regulates and supervises the insurance
industry-insurance companies and their agents and insurance brokers to protect the interests of

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