The financial system or the financial sector of any country consists of specialised and non-specialised financial institutions, organised and unorganised financial markets, financial instruments and services which facilitate the transfer of funds. The economic development of any country depends upon the existence of a well-organised financial system.
Meaning of Indian Financial System:
The word “System” in the term “Financial System” implies a set of complex and closely connected or interlinked institutions, agents, practices, markets, transactions, claims and liabilities in the economy. The Financial System is concerned about the money, credits and finance. The responsibility of the financial system is to mobilise the savings in the form of money and monetary assets and invest them in productive ventures.
Financial system plays a very important role in our economy; in fact, it is the heart of our economic structure. The Reserve Bank of India (RBI), the apex institution, is the major constituent of Indian financial system.
“Finance” is the nerve system of an economy. It is rightly termed as the ‘science of money’. We need finance for the production of goods and services as well as their distribution. Finance function assumes an important role in the business system. The efficiency of production and marketing operations is directly influenced by the manner in which the finance function of the enterprise is performed by the finance personnel.
‘Finance’ is the lifeblood of any business organisation. Just as circulation of blood is necessary in human body to maintain life, so also is finance very essential to the business organisation for smooth running of the business.
A company’s ability to generate new resource, from day-to-day operations, over a given period of time.
Functions of the financial system:
Provision of liquidity