Indian Economy · Financial Markets · Regulators · Market Structure · Participants
The Indian economy has evolved from agriculture-based to one dominated by services and manufacturing (about three-fourths of GDP). Economic growth depends on a robust financial system. Financial markets keep the wheels of the economy running:
Financial markets channel surplus funds from lenders/investors to borrowers/businesses through intermediaries (banks, mutual funds, insurance companies). They aggregate funds, provide liquidity and enable informed decisions through information dissemination.
Regulation safeguards investor interests and ensures informed decision-making. The Central Government exercises oversight over all regulators. FSDC (Financial Stability and Development Council) monitors financial stability, sector development and financial inclusion.
| Regulator | Regulates | Key Points |
|---|---|---|
| RBI | Banking system, monetary policy, forex, currency issuance, payment systems | Central bank; banker to government and to banks; supervised via Board for Financial Supervision (BFS) |
| SEBI | Securities markets & commodity markets | Statutory body under SEBI Act, 1992; protects investors, regulates intermediaries, prohibits fraud/insider trading |
| IRDAI | Insurance sector | Under IRDA Act, 1999; licensing authority, defines capital/net-worth norms, protects policyholders |
| PFRDA | Pension sector incl. NPS | Under PFRDA Act, 2013; registers fund managers/custodians/CRA/trustee banks |
| Ministry of Finance | Overall oversight via 5 departments | Dept. of Economic Affairs (capital markets/macro policy), Expenditure, Revenue, Financial Services (banks, insurance, pension), Investment & Public Asset Management (disinvestment) |
| Ministry of Corporate Affairs | Companies Act 2013/1956, LLP Act, Competition Act | Supervises ICAI, ICSI, ICoAI |
| Registrar of Companies (RoC) | Company registration & compliance | Authority under Companies Act |
The banking system is at the core of the financial structure — it accumulates savings and makes credit available for productive activity. RBI regulates it as monetary authority, supervising via the Board for Financial Supervision (BFS) covering Scheduled Commercial & Co-operative Banks, AIFIs, Local Area Banks, Small Finance Banks, Payments Banks, CICs, NBFCs and Primary Dealers.
| Entity | Description |
|---|---|
| Commercial Banks | Scheduled (public sector, private sector, foreign, regional rural banks) or Non-scheduled (local area banks) |
| Co-operative Credit Institutions | Urban co-operative banks; state & district level co-operative banks (rural focus) |
| Payment Banks | Promote financial inclusion; accept deposits up to Rs.1,00,000; issue ATM/debit (not credit) cards; provide payment/remittance; cannot lend |
| Small Finance Banks | Savings vehicle & credit to small businesses, marginal farmers, micro/small industries, unorganised sector |
| NBFCs | Loans/advances, leasing, hire purchase, insurance/chit business; cannot accept demand deposits or issue cheques; no DICGC deposit insurance; fill lending gaps where banks can't reach |
| Housing Finance Companies | Primarily lend for purchase of property/real estate; now regulated by RBI (earlier National Housing Bank) |
| P2P Lending Platforms | Unsecured lending between individuals via online platforms; regulated by RBI; must conduct due diligence on participants |
Trades instruments with short-term maturities (< 1 year): call/short-notice money, Commercial Paper (CP), Certificates of Deposit (CDs), commercial bills, Treasury Bills. Call/short-notice money and T-Bills form the most significant segments. Major players: banks, financial institutions, Primary Dealers. Highly liquid; RBI intervenes to meet policy objectives; effectively a wholesale market.
Forex = relative value of one currency vs. another (currency pair, e.g. USD/INR — first currency is base, second is quoting currency). India has a spot market (interbank + merchant segments), forward market, and exchange-traded currency derivatives. FBIL (Financial Benchmark India Pvt. Ltd.) publishes daily reference rates for USD/INR, EUR/INR, GBP/INR, JPY/INR.
E.g., TransUnion CIBIL, Experian, Equifax, CRIF High Mark — governed by CIC (Regulation) Act, 2005. Provide Credit Information Reports (CIR) and credit scores. RBI mandates CICs furnish a Free Full Credit Report (FFCR) to individuals once a calendar year.
RBI-licensed entities that consolidate customer financial information and share it with third parties only with explicit customer consent (revocable anytime) — easing digital lending and formal credit access.
Includes: shares/scrips/stocks/bonds/debentures of companies; derivatives; units of collective investment schemes; security receipts; mutual fund units (excludes ULIPs); certificates from special purpose entities re: debt/receivables; government securities; other instruments declared by Central Government (e.g., onshore rupee bonds by ADB/IFC, electronic gold receipts, zero coupon zero principal instruments); and rights/interest in securities.
The securities market = primary market (capital raising, new issuance) + secondary market (liquidity, price discovery). Exchanges (NSE, BSE) enable electronic anonymous order matching and oversee clearing & settlement.
| Market Infrastructure / Intermediary | Role |
|---|---|
| Clearing Corporations | Confirm, settle and ensure delivery of exchange transactions; set up risk-management systems |
| Depositories (NSDL, CDSL) | Single point for electronic (dematerialised) holding of financial assets — equities, bonds, G-secs, MF units, etc. |
| Depository Participants (DPs) | Agents of depositories; open investor demat accounts; enable receipt/delivery of securities (brokers/banks act as DPs) |
| Custodians | Work with institutional investors; hold securities, manage accounts, settle trades, collect benefits/rights, maintain records (usually large banks) |
| Stock Brokers | Registered trading members who execute buy/sell orders on exchanges; provide research; earn commission |
| Bond Market | Segment where debt securities (bonds, debentures, G-secs) are listed/traded |
| Derivatives Market | Trading of futures & options deriving value from underlying equity/debt/commodity; enables leverage, hedging, but also speculation |
| Mutual Funds | Collect money from many investors and deploy per fund mandate; channel small-investor funds into securities markets |
| Investment Advisers | Guide clients to build portfolios aligned to goals and risk appetite (SEBI-registered, fee-based) |
| Alternative Investment Funds (AIFs) | Privately pooled funds for sophisticated/HNI investors per a defined investment policy |
| KYC Registration Agencies | Maintain centralized investor verification records — CKYC Registry (individuals), KRA (non-individuals: CVL, CAMS, NDML) |
| Credit Rating Agencies | Assess issuer's financial position and assign standardized ratings reflecting default risk (esp. for debt) |
| Investment Banks | Advise on capital raising, M&A, project financing, valuation |
| AMCs & Portfolio Managers | AMCs offer "units" representing pooled investment (mutual funds); portfolio managers manage individual portfolios but cannot pool money or offer securities; both charge fees |
| Registrar & Transfer Agents (RTAs) | Maintain investor records; process dividends, e-voting, address/contact updates, MF transactions |
The Indian insurance market = life insurance + general (non-life) insurance segments. Life insurance was opened to private players in 2001.
Other entities: Insurance brokers (offer policies of any insurer, paid brokerage), individual agents (licensed, can represent one life insurer + one general insurer + one standalone health insurer), corporate agents (e.g., banks), surveyors/loss assessors (assess claims for general insurers), third-party administrators (process health claims).
Driven by a growing elderly population and large unorganised employment. The government's pension structure has shifted from defined benefit (fixed pension regardless of contribution) to defined contribution (pension depends on accumulated corpus). Private sector retirement benefits are mainly via the Employee Provident Fund (EPF), administered by EPFO, with employee + employer contributions; part of the employer's share funds the Employee Pension Scheme. Some firms offer Superannuation plans.
National Pension System (NPS): a voluntary, defined-contribution retirement savings scheme open to government employees and the general public, offering a menu of fund managers and investment choices, enabling systematic savings for a retirement corpus.
1. Which regulator is the primary regulator of the securities markets in India?
2. Which of the following CANNOT be done by a Payment Bank?
3. The two depositories operating in India are:
4. Which body monitors and addresses overall financial stability, sector development and financial inclusion in India?
5. The National Pension System (NPS) is regulated by: