Indian Financial System

CHAPTER 1.INTRODUCTION OF FINANCIAL SYSTEM: The economic development of any country depends upon the existence of a well organized financial system. It is the financial system which supplies the necessary financial inputs for the production of goods and services which in turn promote the well being and standard of living of the people of a country. Thus, the ‘financial system’ is a broader term which brings under its fold the financial markets and the financial institutions which support the system. The major assets traded in the financial system are money and monetary assets. The responsibility of the financial system is to mobilize the savings in the form of money and monetary assets and invest them to productive ventures. An efficient functioning of the financial system facilitates the free flow of funds to more productive activities and thus promotes investment. Thus, the financial system provides the intermediation between savers and investors and promotes faster economic development.

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Financial institutions in countries like India are classified into banking and non-banking financial intermediaries wherein the commercial banks are considered as general or non-specialized financial institutions and the non-banking financial intermediaries like investment banks, insurance companies, term lending financial institutions and development banks are known as specialized financial institutions. Country like India also has dichotomy in the financial market. This dichotomy can be explained in terms of the existence of organized and unorganized financial markets. While all of the above will constitute the organized sector of the financial market, the unorganized financial market in India consists of traditional bankers like the Gujarati shroffs, Multani or Shikarpuri shroffs, Chettiars and Marwari Kayas. The Gujarati shroffs operate in Bombay, Calcutta and the industrial trading centers of Gujarat. The Marwari shroffs operate in Calcutta, Bombay,