Preview

Indian Financial System

Powerful Essays
Open Document
Open Document
3413 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Indian Financial System
Indian Financial System
Introduction
Financial system plays a very important role in the development of the country. It is through the financial system that funds get transferred from funds surplus to funds deficient sectors of the country. The fund surplus parts of the economy essentially include households while fund deficient parts of the economy include businesses and government. The financial system acts as an intermediary through which funds are channelized from one part of the economy to another.
Indian Financial System
The financial system in India has progressed from nascence post independence. But, it was only the banking sector which was the sole representative of the financial system in the country. The other components viz. Capital markets, Insurance etc were visibly absent in the early years. Also, the banking sector was strongly controlled by the government. The control became even stronger after the nationalisation of banks in 1969. Infact the successive Governments looked upon the financial system as an easily available mechanism for raising money (Hanson& Kathuria). It’s only in the 80s and the 90s that we saw a flourish in the other segments of the system. There were strict regulations on the interest rates on both the deposit as well as the lending side of the business.
However, even with the tight restrictions imposed on the interest rates, the depth of the Indian financial system was comparable with other countries of the world which were considerably higher on the growth curve in terms of the maturity of the markets as well as GDP. The Broad money to GDP ratio in 1980 was as high as 36% comparable to some of the middle income countries (World Bank, 1989). Similar was the case in equity markets as well. The Market capitalisation to GDP ratio in 1985 was almost the same as economy like Korea which had a much higher GDP at that point of time (World Bank, 1989).
The Financial system has progressed substantially post the reforms in



References: Hanson, J. A., & Kathuria, S. (1999). India: a financial sector for the twenty-first century. Oxford University Press Joseph, M., R World Bank, World Development Report, Oxford University Press, 1989 Allen, F., Chakrabarti, R., & De, S Reports Futures Industry Annual Volume Survey, 2011 2. Top 20 countries Worldwide Traded and Market Capitalisation, 2011 Source: S&P Global Stock Markets Factbook 2012 3. Global Exchange-traded Derivatives Volume by Category Source: Futures Industry Annual Volume Survey, 2011

You May Also Find These Documents Helpful

  • Good Essays

    Economic growth and development of any country depends upon a well-knit financial system. Financial system comprises, a set of sub-systems of financial institutions financial markets, financial instruments and services which help in the formation of capital. Thus a financial system provides a mechanism by which savings are transformed into investments and it can be said that financial system play an significant role in economic growth of the country by mobilizing surplus funds and utilizing them effectively for productive purpose.…

    • 1534 Words
    • 7 Pages
    Good Essays
  • Powerful Essays

    Indian Financial System

    • 10852 Words
    • 44 Pages

    There are areas or people with surplus funds and there are those with a deficit. A financial system or financial sector functions as an intermediary and facilitates the flow of funds from the areas of surplus to the areas of deficit. A Financial System is a composition of various institutions, markets, regulations and laws, practices, money manager, analysts, transactions and claims and liabilities.…

    • 10852 Words
    • 44 Pages
    Powerful Essays
  • Powerful Essays

    Pest Analysis for Bank

    • 1636 Words
    • 7 Pages

    * 2. The banking system remains, as always, the most dominant segment of thefinancial sector. Indian banks continue to build on their strengths under theregulators watchful eye and hence, have emerged stronger. The banking sector in India has made significant progress in the last five years –the growth is well reflected through parameters including profitability, annual creditgrowth, and decline in non-performing assets (NPAs) Growth in the sector has been favoured by factors including low defaulterratio, strong economic growth, central bank’s regular intervention and pre-emptiveadjustment of monetary policy. The policy makers for the banking sector, which comprise the Reserve Bank ofIndia (RBI), Ministry of Finance and related government and financial sectorregulatory entities, have made several notable efforts to improve regulation in thesector…

    • 1636 Words
    • 7 Pages
    Powerful Essays
  • Satisfactory Essays

    Indian Financial System

    • 429 Words
    • 2 Pages

    They are business organisations serving as a link between savers and investors and help in credit allocation process. They provide three transformational services…

    • 429 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    The economy of India is the eleventh largest in the world by nominal GDP and the third largest by purchasing power parity (PPP).The country is one of the G-20 major economies and a member of BRICS. After the independence-era Indian economy (before and a little after 1947) was inspired by the Soviet model of economic development, with a large public sector, high import duties combined with interventionist policies, leading to massive inefficiencies and widespread corruption. However, later on India adopted free market principles and liberalized its economy to international trade under the guidance of Manmohan Singh, who then was the Finance Minister of India under the leadership of P.V.Narasimha Rao the then Prime Minister who eliminated License Raj a pre- and post-British Era mechanism of strict government control on setting up new industry. Following these strong economic reforms and a strong focus on developing national infrastructure such as the Golden Quadrilateral project by Atal Bihari Vajpayee the then Prime Minister the country's economic growth progressed at a rapid pace with very high rates of growth and large increases in the incomes of people. It’s one of the fastest-growing economies in the world.…

    • 5155 Words
    • 21 Pages
    Powerful Essays
  • Powerful Essays

    The financial sector constitutes the vital aspect of Indian economy in terms of employee potential and its contribution to national income. The financial service space is characterized by revolutionary innovations and exponential growth and development in every possible field.…

    • 3058 Words
    • 18 Pages
    Powerful Essays
  • Powerful Essays

    marketing tools

    • 1286 Words
    • 6 Pages

    Banking in India was typically mature in terms of supply, product and reach, even though reach in rural India and to the poor still remains a threats. The government took initiatives to address this through the State bank of India expanding its branch network and through the National Bank for Agriculture and Rural Development with things like microfinance.…

    • 1286 Words
    • 6 Pages
    Powerful Essays
  • Powerful Essays

    sarfaesi act

    • 10327 Words
    • 164 Pages

    century-huge ones having more than $1 trillion in assets. The banking (or credit) sector is…

    • 10327 Words
    • 164 Pages
    Powerful Essays
  • Good Essays

    In the pre-reform era, the financial market in India was highly segmented and regulated. The money market lacked depth, with only the overnight interbank market in place. The interest rates in the government…

    • 1044 Words
    • 5 Pages
    Good Essays
  • Powerful Essays

    Financial System

    • 2788 Words
    • 12 Pages

    A well-developed financial system promotes investment by identifying and financing lucrative business opportunities, mobilizing savings, efficiently allocating resources, helping diversify risks and facilitating the exchange of goods and services. The existence of banks and other non-bank financial institutions in a formal and organized way is collectively known as the financial system of a country.…

    • 2788 Words
    • 12 Pages
    Powerful Essays
  • Better Essays

    Merchant Banking by Imran

    • 9155 Words
    • 37 Pages

    Financial services are an important component of financial system. The smooth functioning of financial system depends upon the range of financial services extended by the providers. Financial services in India have witnessed remarkable changes in the recent past after the implementation of “Liberalization, privatization and globalization”.…

    • 9155 Words
    • 37 Pages
    Better Essays
  • Powerful Essays

    Indian Financial System

    • 8443 Words
    • 34 Pages

    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.…

    • 8443 Words
    • 34 Pages
    Powerful Essays
  • Better Essays

    Indian Financial System

    • 958 Words
    • 4 Pages

    • The financial system of India refers to the system of borrowing and lending of funds or the demand for and the supply of funds of all individuals, business houses and the Government.…

    • 958 Words
    • 4 Pages
    Better Essays
  • Powerful Essays

    The period after 1970’s saw rapid expansion of the banks in India under the control of the Government. It was the direct impact of the nationalization of the banking sector. This enabled each and every individual to steal the opportunity to have easy access to funds. This banking sector not only proved to be a source of funds but also new avenues of employment. It became a source of earning bread and butter for many people. In the mid 1990’s, the liberalization of the economy led to the emergence of the private players in the existing scenario. This provided much better and easier accessibility of funds…

    • 27235 Words
    • 109 Pages
    Powerful Essays
  • Best Essays

    The effects of the global financial crisis have been more severe than initially forecast. By virtue of globalization, the moment of financial crisis hit the real economy and became a global economic crisis; it was rapidly transmitted to many developing countries. India too is weathering the negative impact of the crisis. There is, however, an important difference between the crisis in the advanced countries and the developments in India. While in the advanced countries the contagion traversed from the financial to the real sector, in India the slowdown in the real sector is affecting the financial sector, which in turn, has a second-order impact on the real sector. The global financial crisis has started in August 2007 when the ‘sub-prime mortgage’ crisis first surfaced in the US. In fact, the RBI was raising interest rates until July 2008 with the view to cooling the growth rate and control inflationary pressures. But as the financial meltdown, morphed in to a global economic downturn with the collapse of Lehman Brothers on 23 September 2008, the impact on the Indian economy was almost immediate. Credit flows suddenly dried-up and, overnight, money market interest rate spiked to above 20 percent and remained high for the next month. It is, perhaps judicious to assume that the impacts of the global economic downturn, the first in the center of global capitalism since the Great Depression, on the Indian economy are still unfolding. The crisis confronted India with discouraging macroeconomic challenges like a contraction in trade, a net outflow of foreign capital, fall in stock market, a large reduction in foreign reserves, slowdown in domestic demand, slowdown in exports, sudden fall in growth rate and rise in unemployment.…

    • 4474 Words
    • 18 Pages
    Best Essays