Indian Financial System

THE FINANCIAL SYSTEM – NATURE, EVOLUTION AND STRUCTURE A financial system is an integral part of a modern economy. An effective system of payment for goods and services enables huge production and the specialization of labor in the economy. The word „system‟ means an ordered, organized and comprehensive assemblage of facts, principles or components relating to a particular field and working for a specified purpose. But the word system in the term „financial system‟ represents a set of closely held financial institutions, financial services and financial instruments or claims. Capital formation in any country is carried out through the various components of the economy. These components are different in their nature, role and functions but finally work as interrelated sub-parts of a structure for the development of the economy. This arrangement of financial institutions, markets and the instruments is called the financial system of a country. Hence, the financial system of a country can be defined as a set of organizations, instruments, markets, services and methods of operations, procedures that are closely interrelated with each other. The financial system can also be explained as a methodical arrangement in the economy that helps to pool the resources from the surplus sectors and redistributes them to the deficit sectors. Some analysts say that the financial system is a group of various units that are continuously engaged in gathering the monetary resources in the economy to allocate them to the needful areas. Each and every entity in the system will address some specific issues and functions meeting the prescribed regulations. A well-developed financial system indicates a strong economy. If the financial system is efficient the mobilization of savings and the allocation of collected resources is also efficient. Money, finance and the credit function are the main concerns of the financial system of any country. Money is a medium of exchange in the financial