Indian Financial System

What do you mean by Finance?

Finance is a term associated with the management and study of money, and its use. At the financial level, money is known as capital. It deals with how a person or government utilizes or invests that money. The way an individual, company, or government utilizes the money depicts how much it is financially stable. The use of capital is invested in the fields like security trading and stockbroking, investment banking, financial engineering, and risk management. 

What is meant by a Financial System?

The financial system mainly consists of the transfer of capital from an individual to the government, and from the government to several businesses. It is a collection of various institutions which allow the exchange of funds and stock exchanges. 

What is an Indian Financial System?

The Indian financial system comprises the institutes and services that manage and invest the capital of the country to gain profit and work for the welfare of the public. It constitutes a group of services working together to achieve a particular goal. It carries out the trade and businesses in a safe and secure manner. India has the independent pillars of the financial system.

Importance of Indian Financial System

Indian financial system plays a vital role in the development of the country. The following important functions  of it are listed below:

• Collecting funds
• Furnish with the loan
• Taking care of the financial transactions
• Uplifting the growth of stock markets
• Laying down legal rules and regulations for the safe functioning of the transactions
• Supplying with consultants
• Allotment of chances and risks
• It establishes a connection between the borrower and the lender
• It is the one in charge of the capital control
• To monitor the payment structure
• To take care of the economic stability of the country

Components of the Indian Financial System

The Indian financial system comprises four major components. They are as follows:

Financial Institution

• The main function of the financial institution is to make the contact between the lender and the borrower.
• The savings of the lenders are collected via numerous commercial markets.
• These can result in risky chances to safeguard savings.
• These maintain the balance between the loan maker and depositor.
• Financial Institutions are further classified into banking or depository institutions and non-banking or non-depository institutions.

Financial Assets

• These refer to the goods or products that are sold in the markets.
• The main function of the financial assets is to provide the securities in the market.
• Some Financial Asset is call money, notice money, term money, treasure bills, certificate of deposit, and commercial paper.

Financial Markets

• Financial markets are the place where all the transactions related to banking, investment, loan, and shares takes place. 
• Financial markets are of the following types: capital market, money market, foreign market exchange, and credit market.

Money 

• It is a means through which we can purchase goods from the financial markets.

What is Banking?

Banking is defined as the activity of depositing money of an individual in a bank in order to carry out the economic activities like gaining profit or covering expenses. A bank is a financial institution where we deposit money and can make loans. Banks are classified into commercial banks and investment banks.

Banking Sector in India

As per the Reserve Bank of India (RBI), India’s banking is sufficiently capitalized and regulated. The financial conditions are far better than the foreign countries. The banking sector of India has 12 public sector banks and 22 private sector banks, 46 foreign banks, and 56 regional rural banks.

Conclusion

Through this article, we have known about the Indian financial system, its components, and its working. By going through this article, one can understand the basics of the Indian financial system. One can make proper investments in the financial market and make loans. Now, one is well aware of it and the economic functioning of the country.