A financial system means – structure that Mobilizes capital from surplus sectors and Allocates the same to needy sectors.
Savings are transformed into investments by Intermediaries
•Commercial Banks: –includes PSBs, foreign banks, old and new private sector banks. –Acceptance of deposits from the public for the purpose of lending or investment is the main area of activity.
•NBFCs: –allowed to raise deposits from the public & lend through various instruments including leasing, hire purchasing & bill discounting etc. –Licensed and supervised by RBI.
•Primary Dealers (PDs): –deals in govt. securities both primary and secondary market. –Basic responsibility is to provide markets for govt. securities and strengthen the govt. security market.
•Financial Institutions: – provide long term funds for industry and agriculture. –Under control of Reserve Bank. –Raise resources through long term bonds from financial system and borrowings from international financial institutions.
•Cooperative Banks: –set up to replace money lenders of rural credit, – serve the needs of agriculture and allied activities, rural industries, trade and industry in urban area. •
•Payment and Settlement System: –Maintenance of clearing houses at various centers, –creation of currency chests in different geographical areas and –creation of the mechanism for electronic transfer of funds. •
•Management of Govt. debt: –Central Bank manages the issue and servicing of govt. debt. –This involves decision reg., price , volume to be raised, tenure of debt .
