Banking Awareness for IBPS POs and Clerks : Financial System in India

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The Indian Financial system performs a crucial role in economic development of India. Financial system is some times called as financial market. The purpose of the financial market is to mobilize savings effectively and allocate the same efficiently among the ultimate users of funds, i.e., investors. The importance of banking and financial institutions in the capital formation process arise because those who save and those who invest in India are generally not the same persons and institutions. The Indian financial institutions and the banks act as intermediaries to bring the savers and investors together. The Indian financial system, which refers to the demand for and supply of funds for borrowing and lending of funds, consists of two parts viz., the Indian money market and the Indian capital market. The Indian Money market is the market in which short-term funds are borrowed and lent. The capital market in India on the other hand is the market for medium term and long term funds.

The Indian money market is divided into two categories of financial agencies. Those are 1) organized and 2) unorganized with a divergence in the structure of rates of interest.

The Organized Sector

The organized sector consists well-established, scientifically managed financial institutions. The organized sector primarily contains the RBI, which is the central bank and monetary authority in the country, is the leader of the Indian money market. The RBI controls the flow of money and credit in the country. In recent years, RBI has made several changes in the instruments and the

institutions in the Indian money market. The organized sector consists of other financial institutions like State Bank of India and it's subsidiaries banks, Nationalized banks, foreign banks, cooperative banks, post office savings banks, Indian joint stock banks, LIC, GIC, UTI, IFC, IDBI, SFC etc and large joint stock companies also participate in the operations of the money market in the capacity of lenders. The money lent by them being usually termed "HOUSE MONEY". Besides these institutions there are also financial intermediaries, such as call loan brokers, general finance, and stock brokers and underwriters. The Indian money market is comparatively well developed in terms of organized relationship and specialization.

Unorganized Sector

The unorganized sector consists of indigenous bankers, money lenders & chitfunds. These Agencies have diverse policies, lack of uniformity & consistency in the lending business. In India indigenous bankers are known as Chettiars, Sharoffs, Multanis, Marwadies, Jains etc. In India 50% of rural fiance is provided by money lenders & Indigenous bankers. There are thousands of chit funds operating in big or small scale in many villages and cities. The unorganized sector of the money market lacks homogeneity from with in. There is no clear demarcation in this sector between the short term and long term finance or even between the purpose of fiances. Because usually there is nothing on a Hundi the Indigenous bill of exchange to indicate whether it is for financing genuine trade or for providing financial accommodation. On account of the wide coverage of moneylenders and indigenous bankers in the countryside in catering to the credit needs of the rural economy, the use of bank credit has been minimized. The unorganized sector of the money market is responsible for restricting the volume of monetary transactions and perpetuating non-monetised transactions, which hinder the progress of monetisaiton in the rural economy.

On account of unorganized condition of the money market, the RBI is not able to enforce its monetary measures effectively in order to realize the objectives of a uniform monetary policy and its influence influence over credit control The RBI and the central government, as such are keen on removing the deficiencies of the Indian monetary market. From time to time, various measures and steps have been taken in this direction.  

Read Complete Banking Awareness Study Material and Online Tests for IBPS PO and Clerks IV online Exams from here 

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