Indian Financial System

Indian financial system is a system in which people, financial institutions, banks, Industrial companies, and the government demand funds, and the same are supplied to them. There are two parts of the Indian Financial System-first the demand-side and the second supply-side. The representative of the demand side can be an Individual investor. Industrial and Business Companies, governments, etc., and the representative of the supply-side will be Banks, Insurance Companies, Mutual Fund and other Financial Institutions.

The Indian financial system refers to the borrowing and lending of funds or to the demand. for and supply of funds of all individuals, institutions, companies, and of the Government consists of two parts- the Indian money market and the Indian capital market.
The Indian money market is the market in which short-term funds are borrowed and lent, however, the capital market in India is the market for medium-term and long-term funds. The Indian financial system performs a
crucial role in the economic development of India through the saving-investment process also known as capital formation.
The financial system is Commonly classified into (a) Industrial finance (b) Agricultural finance (c) Development
finance and (d) Government finance.
Devaluation means lowering the official value of the local money in terms of foreign currency or gold.

Balance of Payments (BOP):

It is a systematic record of all the economic transactions between one country and the rest of the world in a given period.

Balance of Trade (BOT):

It is the difference between the value of goods exported and classified the value of goods imported per annum.
Services are not included in B0T. BOP is divided into the current account and capital account. EXIM Policy 2000-01 introduced Special Economic Zones Scheme (SEZ).
In1994-95, Indian Rupee was made fully convertible on the current account Fiscal Policy is the policy relating to public revenue and public expenditure, and allied matters. Usually, the Indian money market is classified into the organized sector and the unorganized sector. The unorganized sector consists of indigenous bankers including the non-banking financial companies (NBFCs) ‘Besides these two, there are many sub-markets in the Indian money market.
The organized banking system in India can be broadly divided into three categories-the central banks of the country( The Reserve Bank of India), the commercial banks, and the co-operative banks which includes
private sector and public sector banks and also foreign banks.

The Indian Capital Market

The capital market in India can be classified into:

• Gilt-edged market or market for Government and semi-government securities.

1. Industrial securities market.
2. Development financial institutions.
3. Non-banking financial companies.

• The gilt-edged securities market is the market for Government and semi-government securities which carry fixed interest rates.
• The industrial securities market is the market for equities and debentures of companies of the corporate sector. This market is further classified into:

1. new issue markets for raising fresh capital in the form of shares and debentures (commonly referred to as primary market and
2. old issues market for secondary marked for Buying or selling shares and debentures of existing companies this the market is commonly referred to as the stock market or stock exchange.

• If shares or debentures of private corporations, primary sureties of government companies or new sureties, and issue of bonds of the public sector are sold or purchased in the capital market, then the market is called Primary Capital Market.
• Secondary Market includes transactions in the stock exchange and will-edged market.
•  Merchant Bunk, Mutual Fund, Leasing ROLEX Companies, Risk Capital Companies etc Collect and invest public money into the Capital market.
• Unit Trust of India (UTI) is the biggest Mutual Fund Institution in India.

Stock Exchange

 

The Stock exchange in the market for buying and selling of stocks, share Securities, bonds, and debentures, etc. It increases the marketability of existing securities by Providing simple methods for the public and others to buy and sell securities. The first organized stock exchange in India was started in Bombay (now Mumbai) when the “Native Share Brokers’ Association” known as the Bombay Stock Exchange (BSE) was formed by the brokers in Bombay.BSE was Asia’s oldest stock exchange.
In 1894, the Ahmedabad Stock Exchange started to facilitate dealings in the shares of textile mills there. The Calcutta Stock Exchange was started in 1908 to provide a market for shares of plantations and jute mills. The number of stock exchanges in 1939 to 21 in 1945.
Under the securities contract (Regulation) Act of 1956, the Government of India has so far recognized 23 stock exchanges. Bombay
is the premier exchange in the country. With the setting up of the National Stock Exchange, all regional stock exchanges have lost relevance. The BSE transformed itself into a corporate entity from being a brokers association, from the middle of August 2005.
As a public limited company, BSE Bombay Stock Exchange) is obliged to dilute stock brokers’ stake to 49%.To prevent excessive speculation and volatility in the stock market SEBI has introduced rolling settlements from July 2, 2001, under which settlement has to be made every day.
Some Important Share Price Index of India

•  BSE SENSEX: This is the most sensitive share index of the Mumbai Stock Exchange. This is the representative index of 30 main shares. It’s base years 1978-79. BSE is the oldest stock exchange of India, founded in 1875.
• BSE 200 This represents 200 shares of the Mumbai Stock Exchange. Its base year is 1989.90.
• DOLLEX:  Index of 200 BSE DollarValue Index is called DOLLEX. Its base year is 1989-90.
• NSE-50: National Stock Exchange has launched a new share Price Index, NSE 50 in place of NSE-100 in April 1996. NSE-50 includes 50 companies shares. This stock exchange was founded on Ferwani Committee’s recommendation in 1994.