India has a financial system that is regulated by independent regulators in the sectors of banking, competition, insurance, capital markets, and different services sectors. In finance, the financial system is the system that allows the transfer of money between savers and borrowers. It comprises a set of complex and closely interconnected financial institutions, services, markets, instruments, practices, and transactions.
Structure of Financial System in India
Financial structure refers to the mix of financial institutions, instruments and markets that channel savings and other funds to businesses and other borrowers. In a bank-based system, banks play the major role in channeling funds to businesses. In a market-based system, capital markets - including the stock and bond markets - are the more important source of funds.
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Components of Financial System in India
The financial system consists four components. These are financial markets, financial services, financial instruments and financial institutions.
- Financial Institution: - Financial Institution can be classified as banking and non banking institutions. Banking Institutions are creators and purveyors of credit while non banking financial institutions are purveyors of credit.
- Financial Markets: - Financial Markets can be classified as primary and secondary markets. A Primary Market deals with new issues and secondary markets is meant for trading in existing securities.
- Financial Instruments: - A financial instrument is a claim against an institution or a person for payment at a future date of a sum of money in the form of dividend.
- Financial Services: - Financial services are those , which help with borrowing and funding, buying and selling securities, lending and investing, making and enabling payments and settlements and managing risk exposures in financial markets.
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