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Indian Banking
Financial System
Module A
K Chockalingam
IIBF
Financial System
An institutional framework existing in a
country to enable financial transactions
Three main parts
Financial assets (loans, deposits, bonds, equities,
etc.)
Financial institutions (banks, mutual funds, insurance
companies, etc.)
Financial markets (money market, capital market,
forex market, etc.)
Regulation is another aspect of the
financial system (RBI, SEBI, IRDA, FMC)
Financial assets/instruments
Enable channelising funds from surplus units to
deficit units
There are instruments for savers such as
deposits, equities, mutual fund units, etc.
There are instruments for borrowers such as
loans, overdrafts, etc.
Like businesses, governments too raise funds
through issue of bonds, Treasury bills, etc.
Instruments like PPF, KVP, etc. are available to
savers who wish to lend money to the
government
Money Market Instruments
Call money- money borrowed/lent for a day.
No collateral is required.
Inter-bank term money- Borrowings among
banks for a period of more than 7 days
Treasury Bills- short term instruments issued
by the Union Govt. to raise money. Issued at
a discount to the face value
Certificates of Deposit- Issued by banks to
raise money. Minimum value is Rs. 1 lakh,
tradable in the market
CDs can be issued by banks/FIs
Money Market Instruments
(2)
Commercial Paper (CPs) are issued by
corporates to raise short term money
Issued in multiple of Rs.25 lakhs, can be
issued by companies with a net worth of
at least Rs. 5 crores
CP is an unsecured promissory note
privately placed with investors at a
discount rate to face value. The maturity
of CP is between 3 and 6 months
Financial Institutions
Includes institutions and mechanisms
which
Affect generation of savings by the community
Mobilisation of savings
Effective distribution of savings
Institutions are banks, insurance
companies, mutual funds-
promote/mobilise savings
Individual investors, industrial and trading
companies- borrowers
Financial Markets
Money Market- for short-term funds
(less than a year)
Organized (Banks)
Unorganized (money lenders, chit funds, etc.)
Financial Intermediaries
Merchant Banks
Mutual Funds
Leasing Companies
Venture Capital Companies
Industrial Securities Market
TEL : 9322295394
e.mail: chockalingam_2000@yahoo.com
chockalingam@iibf.org.in