Indian Financial System

The Indian Financial System (IFS) is a well-structured network of institutions, markets, instruments, and services that facilitate the flow of funds within the economy. It plays a vital role in mobilizing savings from households and channeling them towards productive investments, thereby supporting economic growth and development. The system ensures an efficient allocation of financial resources by bridging the gap between surplus and deficit units in the economy. The IFS is broadly divided into two components: the formal sector and the informal sector. The formal sector comprises organized financial institutions such as commercial banks, cooperative banks, non-banking financial companies (NBFCs), insurance companies, mutual funds, and regulatory bodies like the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). The informal sector includes moneylenders, indigenous bankers, and other unregulated entities. Key financial markets, including the money market, capital market, and foreign exchange market, operate within this system to provide liquidity and investment opportunities. Financial instruments such as shares, debentures, bonds, and derivatives further support these operations.