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Indian Financial System SUMMARY India has a financial system that is regulated by independent regulators in the sectors of banking, insurance, capital markets, competition and various services sectors. In a number of sectors Government plays the role of regulator. Ministry of Finance, Government of India looks after financial sector in India. Finance Ministry every year presents annual budget on February 28 in the Parliament. The annual budget proposes changes in taxes, changes in government po
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  Indian Financial System SUMMARY India has a financial system that is regulated by independent regulators in the sectors of  banking, insurance, capital markets, competition and various services sectors. In anumber of sectors Government plays the role of regulator. Ministry of Finance, Government of India looks after financial sector in India. FinanceMinistry every year presents annual budget on February 28 in the arliament. !he annual budget proposes changes in ta es, changes in government policy in almost all the sectorsand budgetary and other allocations for all the Ministries of Government of India. !heannual budget is passed by the arliament after debate and takes the shape of la#.$eserve bank of India %$&I' established in ()*+ is the entral bank. $&I is regulator for financial and banking system, formulates monetary policy and prescribes e changecontrol norms. !he &anking $egulation -ct, ()) and the $eserve &ank of India -ct,()* authori/e the $&I to regulate the banking sector in India. India has commercial banks, co0operative banks and regional rural banks. !hecommercial banking sector comprises of public sector banks, private banks and foreign banks. !he public sector banks comprise the 1State &ank of India and its seven associate banks and nineteen other banks o#ned by the government and account for almost threefourth of the banking sector. !he Government of India has ma3ority shares in these publicsector banks. India has a t#o0tier structure of financial institutions #ith thirteen all India financialinstitutions and forty0si institutions at the state level. -ll India financial institutionscomprise term0lending institutions, speciali/ed institutions and investment institutions,including in insurance. State level institutions comprise of State Financial Institutions andState Industrial 4evelopment orporations providing pro3ect finance, e5uipment leasing,corporate loans, short0term loans and bill discounting facilities to corporate. Governmentholds ma3ority shares in these financial institutions.  6on0banking Financial Institutions provide loans and hire0purchase finance, mostly for retail assets and are regulated by $&I. Insurance sector in India has been traditionally dominated by state o#ned 7ife Insuranceorporation and General Insurance orporation and its four subsidiaries. Government of India has no# allo#ed F4I in insurance sector up to 29. Since then, a number of ne# 3oint venture private companies have entered into life and general insurance sectors andtheir share in the insurance market in rising. Insurance 4evelopment and $egulatory-uthority %I$4-' is the regulatory authority in the insurance sector under the Insurance4evelopment and $egulatory -uthority -ct, ())). (  Indian Financial System$&I also regulates foreign e change under the Foreign : change Management -ct %F:$-'. India has liberali/ed its foreign e change controls. $upee is freely convertible on current account. $upee is also almost fully convertible on capital account for non0residents. rofits earned, dividends and proceeds out of the sale of investments are fully repatriable for F4I. !here are restrictions on capital account for resident Indians for incomes earned in India.Securities and : change &oard of India %S:&I' established under the Securities and : change aboard of India -ct, ())2 is the regulatory authority for capital markets in India. India has 2* recogni/ed stock e changes that operate under government approved rules, byla#s and regulations. !hese e changes constitute an organi/ed market for securities issued by the central and state governments, public sector companies and  public limited companies. !he Stock : change, Mumbai and 6ational Stock : change are the premier stock e changes. ;nder the process of de0mutuali/ation, these stock e changes have been converted into companies no#, in #hich brokers only hold minorityshare holding. In addition to the S:&I -ct, the Securities ontracts %$egulation' -ct, ()+ and the ompanies -ct, ()+ regulates the stock markets. 2  Indian Financial System INDIAN FINANCIAL SYSTEM Financial System of any country consists of financial markets, financial intermediation and financial instruments or financial products. !his paper discusses the meaning of finance and Indian Financial System and focus on the financial markets, financial intermediaries and financial instruments. !he brief revie# on various money market instruments are also covered in this study. !he term <finance< in our simple understanding it is perceived as e5uivalent to =Money=. >e read about Money and banking in :conomics, about Monetary !heory and ractice and about <ublic Finance<. &ut finance e actly is not money, it is the source of  providing funds for a particular activity. !hus public finance does not mean the money #ith the Government, but it refers to sources of raising revenue for the activities and functions of a Government. ?ere some of the definitions of the #ord =finance=, both as a source and as an activity i.e. as a noun and a verb.!he -merican ?eritage@ 4ictionary of the :nglish 7anguage, Fourth :dition defines the term as under0(A<!he science of the management of money and other assets.<B2A <!he management of money, banking, investments, and credit. <B*A <finances Monetary resourcesB funds, especially those of a government or corporate  body<A <!he supplying of funds or capital.< Finance as a function %i.e. verb' is defined by the same dictionary as under0(A<!o provide or raise the funds or capital for<A financed a ne# car 2A <!o supply funds to<A financing a daughter through la# school.*A <!o furnish credit to<.-nother :nglish 4ictionary, <>ord6et @ (., C ())Drinceton ;niversity < defines the term as under0(A<the commercial activity of providing funds and capital<2A <the branch of economics that studies the management of money and other assets<*A <the management of money and credit and banking and investments<*  Indian Financial System!he same dictionary also defines the term as a function in similar #ords as under0(A <obtain or provide money forB< < an #e finance the addition to our homeE<2A<sell or provide on credit <-ll definitions listed above refer to finance as a source of funding an activity. In this respect providing or securing finance by itself is a distinct activity or function, #hich results in Financial Management, Financial Services and Financial Institutions. Finance therefore represents the resources by #ay funds needed for a particular activity. >e thus speak of =finance= only in relation to a proposed activity. Finance goes #ith commerce,  business, banking etc. Finance is also referred to as <Funds< or <apital<, #hen referring to the financial needs of a corporate body. >hen #e study finance as a sub3ect for generalising its profile and attributes, #e distinguish bet#een =personal finance< and <corporate finance< i.e. resources needed personally by an individual for his family and individual needs and resources needed by a business organi/ation to carry on its functionsintended for the achievement of its corporate goals
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