Financial System
The financial system in a country refers to the institutional framework
existing to enable financial transactions to be carried out in a
smooth manner
Any Financial System has three main segments
1)
Financial institutions -banks, mutual
companies etc
funds,
insurance
2) Financial markets -money market, debt market, capital market, forex
market, derivative markets
3) Financial products -loans, deposits, bonds, equities , different types
of financial derivatives etc
FINANCIAL SERVICES
MARKETS & REGULATORS
CAPITAL MARKET
MONEY MARKET
MUTUAL FUNDS
INSURANCE
SEBI
RBI
AMFI
IRDA
Reserve Bank of India - 1
• Reserve Bank of India was established on 1st April
1935, after the enactment of the Reserve Bank of
India Act 1934 (RBI Act).
• The RBI was initially privately owned but was
nationalized in 1949 by the enactment of the
Banking Regulation Act.
• Banking Regulation Act,1949 (BR Act)gave wide
powers to RBI as regards to establishment of new
banks/mergers and amalgamation of banks,opening
of new branches,etc
• BR Act,1949 gave RBI powers to regulate,supervise
and develop the banking system in India
RBI’s Major Functions
• Supervisory & Regulatory
• Promotional & Developmental
• Refinance Activities
RBI’s Major Functions
• Supervisory & Regulatory
• Promotional & Developmental
• Refinance Activities
RBI’s Major Functions
SUPERVISORY & REGULATORY
ISSUANCE
OF
CURRENCY
NOTES
CREDIT
CONTROL
EXCHANGE
CONTROL
TRANSFER
OF FUNDS
RBI’s Major Functions
• Supervisory & Regulatory
• Promotional & Developmental
• Refinance Activities
RBI’s Major Functions
PROMOTIONAL & DEVELOPMENTAL
Banker to
Government
Banker to
Bankers
Finance
Agriculture
Industry
Exports
Training
RBI’s Major Functions
• Supervisory & Regulatory
• Promotional & Developmental
• Refinance Activities
RBI’s Major Functions
REFINANCE ACTIVITIES
LENDER OF LAST RESORT
REFINANCE OPERATIONS
Securities & Exchange Board of India (SEBI)
• SEBI was constituted on April 12/1988, and obtained
the statutory powers in March,1992
SEBI’s functions:
• To protect the interests of investors
• To recognize the business in stock exchanges and
other security markets
• To supervise and regulate work of intermediaries,
such as stock brokers merchant bankers/custodians
depositories/bankers to the issues
Association of Mutual Funds in India (AMFI)
• AMFI is an association as a non profit
organization.
• AMFI represents mutual funds in India and
working for healthy growth of the Mutual
Funds.
• AMFI conduct examinations for MF executives
as part of their training activities
Insurance Regulatory & Development Authority
(IRDA)
• The regulator for insurance business in India is
IRDA.
• IRDA was established in 2000
IRDA’s functions:
• To regulate, promote and ensure orderly
growth of the insurance business and
reinsurance business in India
• To protect the interests of policy holders
Banks in India
Legal frame work
of
Banks
Banking Regulation
Act,1949
Reserve Bank of India
Act,1934
Banking Regulation Act,1949 (BR Act)-1
- BR Act covers banking companies and
cooperative banks, with certain modifications.
- BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
- BR Act allows RBI (Sec 22) to issue
licence for banks
BANKING -Definition
• Section 5 (b) of Banking Regulation Act 1949 defines
banking as “ acceptance of deposits of money from
the public for the purpose of lending or
investment”
• Under Section 49A of the Act , no person other than
a Bank is authorised to accept deposits which can
be withdrawn by cheques except SB Schemes run
by government or a firm notified by the
government.
• Section 6 (1) gives the list of permissible business
• Section 8 gives details of activities that are
prohibited
Reserve Bank of India Act,1934(RBI Act)-1
- RBI Act was enacted to constitute the
Reserve Bank of India
- RBI Act has been amended from time to
time
- RBI Act deals with the constitution,
powers and functions of RBI
Reserve Bank of India Act,1934(RBI Act)-2
- RBI Act deals with:
- incorporation, capital management and
business of banks
- central banking functions
- financial supervision of banks and
financial institutions
- management of forex/reserves
- control functions : bank rate,audit,accounts
- penalties for violation
Classification of Banks-1
Central
Bank
RBI
Regional
Rural
Banks
Public Sector
Banks
Co-operative
Banks
New Private
Sector
Banks
Foreign Banks
Old
Private
Sector
Classification of Banks-2
PUBLIC SECTOR
BANKS
STATE BANK OF
INDIA
SBI
SBI ASSOCIATE
BANKS
NATIONALISED
BANKS
WHOLESALE BANKING
Provision of services by banks to the like of large
corporate clients, mid-sized companies, real estate
developers and investors, international trade finance
businesses, institutional customers (such as pension
funds and government entities/agencies), and
services offered to other banks or other financial
institutions.
. Wholesale banking is different from retail
banking, in that the former focuses more on
corporate style entities and high value transactions,
while the latter is focused on providing financial
services to individual consumers.