Physics Wallah is an Indian edtech platform that provides accessible & comprehensive learning experiences to students from Class 6th to postgraduate level. We also provide extensive NCERT solutions, sample paper, NEET, JEE Mains, BITSAT previous year papers & more such resources to students. Physics Wallah also caters to over 3.5 million registered students and over 78 lakh+ Youtube subscribers with 4.8 rating on its app.
We Stand Out because
We provide students with intensive courses with India’s qualified & experienced faculties & mentors. PW strives to make the learning experience comprehensive and accessible for students of all sections of society. We believe in empowering every single student who couldn't dream of a good career in engineering and medical field earlier.
Our Key Focus Areas
Physics Wallah's main focus is to make the learning experience as economical as possible for all students. With our affordable courses like Lakshya, Udaan and Arjuna and many others, we have been able to provide a platform for lakhs of aspirants. From providing Chemistry, Maths, Physics formula to giving e-books of eminent authors like RD Sharma, RS Aggarwal and Lakhmir Singh, PW focuses on every single student's need for preparation.
What Makes Us Different
Physics Wallah strives to develop a comprehensive pedagogical structure for students, where they get a state-of-the-art learning experience with study material and resources. Apart from catering students preparing for JEE Mains and NEET, PW also provides study material for each state board like Uttar Pradesh, Bihar, and others
It is a framework of institutions, markets, instruments, and services that facilitate financial transactions in the economy.
What are the 4 main parts of the Indian Financial System?
Financial Institutions, Financial Markets, Financial Instruments, and Financial Services.
What is the role of the RBI in the financial system?
RBI regulates banks, controls money supply, and maintains financial stability.
How do NBFCs differ from banks?
NBFCs provide loans and financial services but cannot accept demand deposits like banks.
Why is the financial system important?
It ensures efficient fund allocation, promotes savings, manages risks, and supports economic development.
Structure of Financial System in India
Structure of financial system in India refers to a network of institutions, markets, instruments, and services that facilitate financial transactions. Read on to understand the structure of financial system in India.
Deeksha Dixit7 May, 2025
Share
The structure of financial system in India forms the backbone of the Indian economy. It supports the flow of money between individuals, businesses, and government institutions. From savings accounts to stock markets, every financial activity functions under this well-structured system. It plays a major role in economic growth by encouraging investments, regulating credit, and ensuring financial stability.
Indian Financial System
The Indian Financial System refers to the group of institutions, markets, instruments, and services that help in the smooth flow of money. This system manages the movement of funds between people who have surplus money and those who need it for productive purposes.
It ensures that capital is allocated efficiently and that the economy runs smoothly. With increasing financial literacy, more people are becoming part of this system, which helps boost national development. Key features of the Indian Financial System are as follows:
Dual Structure: Comprises both an organized (regulated) sector and an unorganized (informal) sector.
Efficient Resource Allocation: Mobilizes household and corporate savings and channels them into productive investments.
Robust Regulatory Framework: Governed by multiple regulatory bodies, including RBI, SEBI, IRDAI, and PFRDA.
Efficient Payment and Settlement Systems: Facilitates smooth transaction processing, fund transfers, and digital payments, ensuring trust and efficiency in financial operations.
Risk Management and Financial Stability: Provides mechanisms for managing financial risk while promoting financial inclusion and economic growth.
Structure of Indian Financial System
The Indian financial system is divided into four major parts:
Financial Institutions
Financial Markets
Financial Instruments
Financial Services
These parts work together to support the economy by ensuring the smooth flow of funds from savers to investors.
1. Financial Institutions
They are the backbone of the financial system. They include:
Banking Institutions: RBI, public and private sector banks, cooperative banks.
Non-Banking Financial Institutions (NBFIs): LIC, NABARD, mutual funds, development banks.
These institutions accept deposits, offer credit, and invest funds to promote economic activities.
2. Financial Markets
These are platforms where financial assets are bought and sold. Two major types are:
Money Market: Deals with short-term funds and instruments (e.g., treasury bills, commercial paper)
Capital Market: Deals with long-term securities like stocks and bonds
These markets help companies raise capital and offer investment avenues for the public.
3. Financial Instruments
These are contracts representing a financial claim. Examples include:
Equity shares
Bonds
Treasury bills
Debentures
They help in fund mobilisation and risk management.
4. Financial Services
These include two key services:
Fund-based services such as leasing, hire purchase, factoring, forfeiting, mutual funds, credit financing, and housing finance.
Fee-based services, including cash management services, letter of credit, bank guarantees, bill discounting, forex services, etc.
All four elements together form a complete structure of financial system in India, enabling the economy to grow efficiently.
Components of Financial System in India
The components of financial system in India help us understand how various players and elements function together. Each component plays a distinct role in ensuring financial balance and inclusivity.
Regulatory Bodies
These organisations maintain financial discipline:
RBI: Regulates banks and monetary policy
SEBI: Regulates capital markets
IRDAI: Regulates the insurance sector
PFRDA: Regulates pension funds
They ensure transparency, prevent fraud, and protect investor interests.
Banking Institutions
These are key for deposit mobilisation and credit distribution:
Public Sector Banks
Private Banks
Regional Rural Banks (RRBs)
Cooperative Banks
They form the core of India’s financial structure.
Non-Banking Financial Companies (NBFCs)
NBFCs offer services similar to banks but cannot accept demand deposits. They play a major role in:
Housing finance
Vehicle loans
Microfinance in rural areas
Financial Markets
Markets help in liquidity creation and asset trading. These include:
Primary Market: Where new securities are issued.
Secondary Market: Where existing securities are traded (e.g., NSE, BSE).
Financial Intermediaries
They include:
Stockbrokers
Merchant bankers
Credit rating agencies
They connect investors and firms, guiding investment decisions.
Financial Instruments
They act as a medium to raise or invest funds. These include:
Share
Bonds
Derivatives
Mutual fund units
All these components of Indian financial system work in harmony to keep the economy stable, liquid, and growth-oriented.
Functions of Financial System in India
The functions of the Indian financial system cover a broad range of activities. These functions are crucial for financial health, economic development, and public welfare.
Mobilisation of Savings: It encourages people to save and directs those savings towards productive investments. Banks, mutual funds, and insurance companies play a major role here.
Allocation of Capital: Funds are distributed efficiently to the most promising sectors, promoting entrepreneurship and development.
Risk Management: The system offers ways to manage financial risks through insurance, hedging, and diversification. This encourages more participation in economic activities.
Facilitating Payments: The system allows smooth financial transactions via banking, UPI, NEFT, RTGS, and online payments, enhancing the ease of business and life.
Price Discovery: Markets help in determining the fair price of securities, based on demand and supply.
Liquidity Provision: Financial institutions and markets provide liquidity so that individuals and firms can meet their short-term needs.
Regulation and Supervision: Regulatory bodies oversee compliance, reduce financial crime, and build investor confidence.
Through these functions Indian financial system supports national goals like employment generation, industrial growth, and social welfare.
Want to master Indian Economy for UPSC? Explore PW’s UPSC Courses and get regular classes, study materials, and practice tests today!
Talk to a counsellorHave doubts? Our support team will be happy to assist you!
