Financial System is a set of inner related activities or services that work together to achieve some pre-determined goals and it includes different markets, the institutions, instruments services and mechanisms which influence the generation of savings, investment, capital formation and growth.
Financial Assets currency, bank deposits, life insurance policies, unit shares and other kinds of deposits, etc.
Financial Market such as money market and capital markets and financial Intermediates or Financial Institutions such as banks and non-banking financial institutions.
- The first bank in India was set up - 1770 by an agency house.
- Central bank- 1773
- The Bombay stock exchange - 1870
- The first life insurance company - "Oriental Life Insurance Company"
- The first General (non-life) Insurance Company - 1850
- In 1951, there were 566 private commercial banks in India.
- RBI established in which year - 1 April 1935
- After independence, the RBI became a state-owned institution from January 1st, 1949.
- Indian Financial system was characterised by a lack of organised credit institutions in rural India at the time of Independence.
- Unit Trust of India came into existence in 1964 to provide a channel for retail investors to participate in the capital market.
Nationalisation of Banks (1969)
1. Central Bank of India
2. Bank of Maharashtra
3. Dena bank
4. Punjab National Bank
5. Syndicate Bank
6. Canara Bank
7. Indian Bank
8. Indian Overseas Bank
9. Bank of Baroda
10. Union Bank
11. Allahabad Bank
12. United Bank of India
13. UCO Bank
14. Bank of India
- In 1980, six more private sector banks were nationalised.
- Regional Rural Banks were set up in 1975 to provide agriculture credit.
- National Bank for Agriculture and Rural Development (NABARD) established in which year - 1982
According to Reserve Bank Act 1934, amended in 1994, main functions of the Intermediaries in India are:
- To accept deposits and advance loans to financial institutions, to invest in securities, hire purchase finance or equipment leasing.
- Development Banks (Industrial Finance Corporation of India Limited, Industrial development Bank of India, Small Industries Development Bank of India, Industrial Investment Bank of India, Industrial Credit and Investment Corporation of India, State Finance Corporation and State Industrial Development Banks)
- Specialised Banks (National Agriculture and Rural Development Bank, Export-Import Bank, etc)
- Others (Life Insurance Corporation of India, General Insurance Corporation, United Trust of India, Investment Companies, Hire purchase Finance Companies, Equipment leasing Company, Loans Company, Housing Finance Company, Residuary Non-Banking Company, Mutual Benefit Company, Nidhi Company, Chit Fund Company, Venture Capital Funds/Companies, etc).
Indigenous Bankers are included in the unorganised sector of Indian Banking System. It is called unorganised sector because Reserve Bank has no control over it.
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