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    CBM Assignment

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    Pranav Patki
    India has a diversified financial system dominated by banks that play a leading role in mobilizing savings and allocating capital. The system includes commercial banks, insurance companies, pension funds, non-banking financial institutions, and mutual funds. While the banking system dates to the late 18th century, securities markets like the BSE and NSE were established more recently in 1875 and 1994. The government and Reserve Bank of India have implemented reforms to facilitate efficient resource allocation. Banks are expanding through new technologies, diversification, and maintaining close customer relationships to remain competitive in India's growing financial sector.

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    CBM Assignment

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    Pranav Patki
    33 views2 pages
    India has a diversified financial system dominated by banks that play a leading role in mobilizing savings and allocating capital. The system includes commercial banks, insurance companies, pension funds, non-banking financial institutions, and mutual funds. While the banking system dates to the late 18th century, securities markets like the BSE and NSE were established more recently in 1875 and 1994. The government and Reserve Bank of India have implemented reforms to facilitate efficient resource allocation. Banks are expanding through new technologies, diversification, and maintaining close customer relationships to remain competitive in India's growing financial sector.

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    Indian Financial System

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    India has a diversified financial system dominated by banks that play a leading role in mobilizing savings and allocating capital. The system includes commercial banks, insurance companies, pension funds, non-banking financial institutions, and mutual funds. While the banking system dates to the late 18th century, securities markets like the BSE and NSE were established more recently in 1875 and 1994. The government and Reserve Bank of India have implemented reforms to facilitate efficient resource allocation. Banks are expanding through new technologies, diversification, and maintaining close customer relationships to remain competitive in India's growing financial sector.

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    33 views2 pages

    CBM Assignment

    Uploaded by

    Pranav Patki
    India has a diversified financial system dominated by banks that play a leading role in mobilizing savings and allocating capital. The system includes commercial banks, insurance companies, pension funds, non-banking financial institutions, and mutual funds. While the banking system dates to the late 18th century, securities markets like the BSE and NSE were established more recently in 1875 and 1994. The government and Reserve Bank of India have implemented reforms to facilitate efficient resource allocation. Banks are expanding through new technologies, diversification, and maintaining close customer relationships to remain competitive in India's growing financial sector.

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    Financial design of India

    Financial system mainly aims at managing and supervising production, distribution,


    exchange and holding of all types of financial assets or instruments. It plays an important
    role in ensuring economic growth by efficient resource allocation. Financial institution plays
    the role of saving mobilizer from investors to borrowers. There are to major financial
    designs as explained below:
    a) Bank based financial system: in this bank plays a leading role in mobilizing savings,
    allocating capital, overseeing the investment decisions of corporate managers, and
    providing risk management vehicles
    b) Market based financial system: In market-based systems securities markets and
    banks go hand in hand in getting society's savings to firms, exerting corporate
    control, and easing risk management.
    India has a well-diversified financial sector comprising of commercial banks, insurance
    companies, pension funds, non-banking financial companies, mutual funds co-operatives,
    and other smaller financial entities. With addition of new financial entities, and growth of
    existing financial entities, this sector has evolved continuously and is still growing at a faster
    pace.
    In India banking system has its roots from last decade of 18 th century whereas security
    market comprising mainly BSE and NSE were established in 1875 and 1994 respectively.
    However, Indian financial sector is undoubtedly dominated by banking sector wherein
    commercial banks holds more than 64% of the total assets of Indian financial system.
    Government of India and Reserve bank if India has undertaken multiple initiatives and
    reforms to facilitate efficient mobilisation of saving and easy access to finance.
    With the help of strong government and RBI support banks are continuously evolving and
    growing its business in order to remain competitive. The recent mergers of public banks
    (wherein the weak one was merged with the strong one) clearly signals the need of strong
    regulatory measures ensuring safety of public interest and smooth functioning of financial
    system. Without the same the whole economic system could collapse upon the collapse of
    financial system.

    1) Investment in new technologies: Banks are moving away from brick and motor store
    to online platform in form of digital payments, digital investments, mobile banking,
    internet banking etc. India's mobile wallet industry is estimated to grow at a CAGR of
    150% and would ultimately reach US$ 4.4 billion by 2022. Also, mobile wallet
    transactions would also touch Rs 32 trillion by 2022.
    2) Diversification: Indian banking companies are going into various other segments like
    insurance, Asset management company (Mutual Fund), securities lending, financial
    advising etc. e.g. SBI, the largest public bank, has already started insurance and
    mutual fund business. Various other bank like axis bank, HDFC bank, ICICI bank has
    started equity research services, investment banking services etc.
    3) There is a healthy mix of public and private banks in India. Currently there are total
    34 banks in India in which 12 are public banks and remaining are private bank. This
    ensure that there is enough competition in market. Moreover, the securities market
    of India is continuously growing wherein
    4) Reduced exposure to market risk: Even today ~40% of the saving are still invested in
    saving and deposit account with banks.
    5) Establishing and maintaining close relationship with its customers: Along with
    lending and saving banks undertake various other dealing like future, forwards,
    swaps, foreign exchange etc. This keeps them in maintaining close contact with
    customer.
    As far as the other financial institutions are concerned - NSE and BSE formed and working
    under the regulatory guidance of SEBI is ensuring high mobilisation of savings from
    individuals to corporates. In case of insurance sector as well, there has been much growth.
    After the ease of foreign investment regulations in insurance sector, there is high
    expectation of strong growth. In case of asset management industry as well there has been
    significant growth with a CAGR of ~32%. All this indicates that the emerging economy of
    India is dependant on each of financial institution, which are ensuring stability. The biggest
    among them is banks. Therefore, it can be said that bank financial design is serving the
    expected growth and strength to Indian financial system and is thus the right choice.

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