Financial system is the basic concept for the industrial development of the nation. Financial
system provides adequate and smooth flow of finance to the needed parts. Indian financial
system consists of the four important components such as:
• Financial Institutions
• Financial Markets
• Financial Instruments
• Financial Services.
Financial system implies a set of complex and closely connected or intermixed
institutions, agent practices, markets, transactions, claims and liabilities in the economy.
The financial system is concerned about the money, loan and finance. These three
parts are very closely interrelated with each other and depend on each parts.

Financial Institutions
Financial institutions are the major part of the Indian financial system. Hence, it is more
importance than other component of the 1FS because all the components of IFS are directly
or indirectly related with the financial institutions. Financial institutions are providing
various services to the economic development with the help of issuing of the financial
Financial institutions can be classified into banking and non-banking institutions. Now
in India, all the financial institutions are systematically regulated and controlled by respective

Banking Institutions
Banking institutions are the key part of the economic development of the nation. Any
country’s financial transaction should be properly arranged from investors to the needed
industrialist. Banking institutions play a major role in the field of savings and investments
of money from public and lending loans to the business concern.
Indian Banking institutions may be classified into two board categories :
(1) Commercial Banks (2) Cooperative Banks
Commercial Banks
Commercial Banks are the most important deposits mobilisation and disbursers of finance.
Indian commercial banks are the oldest, biggest and fastest growing financial institutions.
The main function of the commercial banks are accepting deposits and rendering loans to
the public. Indian commercial banks can be classified into the following categories:
Scheduled Commercial Banks
Scheduled banks are those which are included in the second scheduled of Banking Regulation
Financial System 227
Act 1965 and others are non scheduled banks. To be included in the second scheduled of
the Banking regulation act the bank full fill the following conditions:
• Must have paid up capital and reserves of not less than Rs. five lakh.
• It must also satisfy the RBI that its affairs are conducted in a manner.
• It is required to maintain a certain amount of reserves with the RBI.

Nationalised Banks
To use financial institutions as the instrument of promoting economic and social
development in a more purposeful manner and to overcome the monopoly over financial
resources, the government of India nationalised 20 commercial banks during the tenure of
Prime Minister of Indira Gandhi.