The Financial System : An Introduction (Part-

1st)

By - Priyanka Singh

(singhparmarjhs@gmail.com)

• A Financial system plays a vital role in the economic growth of a country .

• It is a complex ,well-integrated set of subsystems of financial institutions,

markets , instruments and services which facilitates the transfer and allocation of funds

efficiently and effectively.

The formal financial is the organised , institutional and regulated system which caters to financial needs of the modern spheres of the economy .

The informal financial sector is an unorganised , non-institutional and non-regulated system dealing traditional and rural spheres of the economy.

The informal system is characterised by flexibility of operations and interface relationships between the creditor and debtor .

Formal and Informal Financial Sectors

Components of the formal financial system

FINANCIAL INSTITUTIONS

FINANCIAL MARKETS

FINANCIAL INSTRUMENTS

FINANCIAL SERVICES

FINANCIAL INSTITUTIONS These are intermediaries who mobilise

savings and facilitate the allocation of funds in an efficient manner .

CLASSIFICATION OF FINANCIAL

INSTITUTION

BANKING (creators and purveyors of

credit)NON-BANKING

(Purveyors of credit )

In India , Non Banking Financial Institutions are :

The Development Financial Institutions (DFI’s)

Non Banking Financial Companies (NBFCs)

Housing Finance companies (HFCs)

Financial Institutions can also be classified as term finance Institutions:

Industrial Development Bank of India (IDBI)

The Industrial Credit and Investment Corporation of India (ICICI)

The Industrial Financial Corporation of India (IFCI)

The Small Industries Development Bank of India (SIDBI)

The Industrial Investment Bank of India (IIBI)

Financial Institutions can be specialised Finance Institutions :

The Export Bank of India (EXIM)

The tourism Finance Corporation of India (TFCI)

ICICI Venture

The Infrastructure Development Finance Company (IDFC)

Sectoral Financial Institutions National Bank for Agriculture and Rural

development (NABARD) National Highway Bank (NHB)

Others:

Unit Trust of India (UTI) Life Insurance Corporation (LIC) General Insurance Corporation (GIC) and its

subsidiaries