Overview of the Financial System, Types and Structure

Overview of the Financial System: Every country needs an efficient financial system. This ensures economic stability. Citizens can live there only if the Financial System works properly. If this system fails, living conditions are unstable. In addition, it contributes to development and offers better opportunities. Thanks to economic stability, people find better jobs and living standards. It gives opportunities to citizens to grow and invest. Inflation is moderate and people earn enough. All these things are possible with a stable financial system. Here we have explained the structure of the Indian financial system. It is the basis on which the whole country operates.

Overview of the Financial System

• The Indian financial system channels money between savers and investors. All the services of banks, funds, insurance, pensions etc. are covered by the financial system. These services are useful for Indian citizens.
• India's financial system diverts money away from people who want to save and invest. It goes to people who need money. This money goes to expenses. A person can use it in his business. They can also use it for personal financial expenses.
• Either way, the financial system ensures that both parties benefit Economic development helps explain the structure of the Indian financial system. This system drives the economy. Users use investors' money. This money is used to develop the economy. Increased demand also raises production levels.
• The financial system also offers better financial services. This makes expansion easier. For example, a stable system helps to provide companies with better banking and credit management.
• Various units help explain the structure of the Indian financial system. It has banks, NBFCs, stock exchanges, insurance companies etc.
• All these actors drive the growth of the financial system. However, their smooth operation depends on a stable financial system. Must understand how to explain the structure of the Indian financial system. It is an integral part of the country. The standard of living and happiness largely depend on it.

What is Indian Financial Structure?

1. Organized Sector: This sector includes banks, financial institutions, NBFCs, insurance companies, etc. This organized sector is also regulated. Official bodies such as the Reserve Bank of India or the Securities and Exchange Commission monitor their activities.
2. Unorganized Sector: This sector is not regulated. There are moneylenders, foundations, and other illegal entities. They offer money to people who do not have a bank account or sufficient collateral.

Types of Financial Systems

1. Banking or Depository Institutions: This type has banks or credit unions. These organizations mobilize money from those who have a surplus. People who need a loan take this money. Investors earn interest on deposits. Borrowers pay the same amount.
2. Non-bank or Non-Depository institutions: This type includes bankers, insurance companies, or mutual fund organizations. These organizations cannot accept cash deposits. However, they sell financial products.

Classification of Financial System

• Regulatory : These institutions regulate the market, like RBI and SEBI.
• Intermediaries : Commercial banks with loans and financial assistance like SBI and PNB
• Non-intermediaries : Institutions with financial aid for corporate customers like NABARD (National Bank for Agriculture and Rural Development).

Financial System Assets

• Call money : This money or loan is only for one day. The person has to pay it back the next day. It doesn't require any security or collateral. Thus, it becomes easy to get this loan.
• Notice money : It is the loan or money lent for less than 14 days. This loan term has to be more than a day. The borrower doesn't need collateral in this either.
• Term money : A deposit with more than 14 days maturity period.
• Treasury bills: These are government securities or bonds. The government sells them to raise money. The maturity term is less than a year.
• Certificate of deposits : A person gets this dematerialized certificate. It acknowledges funds deposited in the bank for a specific period.
• Commercial paper : It is a short-term debt product by companies and this debt is unsecured.

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