FINANCIAL SYSTEM AND ITS TECHNOLOGY

 

 The system of well integrated, organised and regulated financial markets and financial institutions that meet the financial needs of household and corporate sector is known as financial system. The financial institutions and markets play a vital role in the financial system by providing various financial services through financial assets to the community. The economic development of the country depends upon a well-developed financial system. It offers a mechanism through which savings are transformed into investments. The financial system is related with three terms ie. money, credit and finance.

The financial system is featured by the presence of an integrated, organised and regulated financial markets and institutions. Financial system meets the short term and long term financial requirements of individual and corporate sector. A significant role is played by both financial markets and financial institutions by providing different services to the society.

Financial system promotes the process of capital formation and economic development. The term financial system is the combination of two words ie. finance and system. The term finance includes monetary resources which refers to equity and debt sources of individual, business corporation and government. On the other hand system explains a set of interconnected institutions markets, dealers, agents, financial transactions, claims and liabilities of a country. Hence, financial may be defined as a system, practice & activity of borrowing and lending of money, capital or funds to business firms, institutions, entrepreneurs and government.

A financial system can be explained at the global, regional or firm specific level. The financial system of firm is the set of implemented procedures that track the financial activities of the company. On a regional scale, the financial system is the system that enables lenders and borrowers to exchange funds. The global financial system is basically a broader regional system that encompasses all financial institutions, borrowers and lenders within the global economy. At firm level, the financial system includes accounting, measures, revenue and expense schedules and balance sheet verification; at regional level financial systems would study banks and other financial institutions, financial markets, financial services, at global level, financial system involves International Monetary Fund (IMF), World Bank, Central Banks etc.

"Financial system is comprising as a set of complex and closely interconnected financial institutions, markets, instruments, services, practices and transactions."

Functions :-

1. Link between savers and investors: The financial system serves as a link between savery and investors. It basically channelizes the flow of savings into productive investments

2. Provide assistance for projects: The financial system also assists in the execution of novel projects. The system finances such projects and also reviews their performance.

3. Payment mechanism: The financial system provides payment mechanism which facilitates the exchange of goods and services.

4. Resource allocation: It also provides a mechanism for the transfer resources within and across geographic boundaries.

5.Risk management: It also provides a mechanism for managing the risks that are involved in mobilizing savings and allocating credit to savers and lenders respectively.

6. Capital formation: It endorses the process of capital formation with the help of its financial institutions, markets, assets and services. It brings the supply of saving and the demand for investible funds together.

7. Reduces cost and enhances returns: It helps in reducing the cost of transaction in financial market that increase returns to investors.

8. Provide detailed information: It provides detailed information to the players in the market that helps in bringing more transparency and accountability in the system.

Role of Financial System in the Economic Development of India

The financial system in India is largely made up of banks, financial institutions and non- banking financial institutions. The development of an economy and its financial system go hand in hand. The increase in the level of skilled diverse work forces, innovation, leadership. social environment, technological environment, economic environment and labour market environment are prime reasons for the development of Indian financial system. The Indian financial system following roles in the economic of India:

1. Transfer of Resources: Financial system facilitate the transfer of real economic resources from lenders to ultimate borrowers. It helps in matching the terms, fund requirements and expectations of different entities. It facilitates pooling of resources. Investors on one hand have small amounts of money to invest and the business on other hand need large amount of money. The financial system can pool in resources of many such investors in order to make it available to businesses or the Government in such cases. It also matches the returns expectations in terms of their timings, quantum and surety.

2. Development of Industries: The financial system through its institutions, assets, markets and services play a vital role in the industrial growth of developing nations like India. The financial system facilitates industries by providing medium and long- term capital, generally to the private sector, although public sector is not excluded. Its operations also include conducting of market surveys, preparation of project report, provision of technical advice and management services.

3. Providing Rural Credit: Regional Rural Banks have been in existence for around three decades in the Indian financial scene. Inception of regional rural banks (RRBs) can be seen as a unique experiment as well as experience in improving the efficacy of rural credit delivery mechanism in India. With joint shareholding by Central Government, the concerned State Government and the sponsoring bank, an effort was made to integrate commercial banking within the broad policy thrust towards social banking keeping in view the local peculiarities.

4.Up Savings: The financial system mops up small savings of masses at reasonable rates with several options. The common man has options to park her/his savings under the alternatives which are made available in the financial system.

5. Balanced Development: The financial system focuses its efforts on less developed and backward regions of the country for its balanced economic development. It mobilises resources of the country into profitable channels taking in view the goal of balanced development of the country. It provides several social sector for the betterment of deprived class of the country.

6. Promoting International Trade: The financial system also fosters trade between as it provides various facilities through its innovative product and institutions to bring together local and foreign entrepreneurs.

7. Promoting Inclusive Growth: The financial system helps the Indian economy in its inclusive growth by creating economic opportunities along with ensuring equal access to them. Financial inclusion is the driver for inclusive growth.