Cheat Sheet: Indian Financial Market | Indian Economy for UPSC CSE PDF Download

Introduction

The Indian financial market is broadly divided into Money Market and Capital Market. It facilitates the mobilization of savings, allocation of capital, and management of risk, playing a key role in economic growth.

Money Market in India

Market for short-term funds and financial instruments with maturity ≤ 1 year.

Key Instruments:

• Treasury Bills (T-Bills) – Issued by GoI for 91/182/364 days.
• Commercial Paper (CP) – Issued by corporates, short-term unsecured.
• Certificates of Deposit (CD) – Issued by banks, negotiable time deposits.
• Call Money Market – Very short-term borrowing (overnight to 14 days) between banks.

Key Institutions:

• RBI – Regulator.
• DFHI (Discount and Finance House of India) – Established in 1988 to develop the secondary market in money market instruments.

Capital Market in India

Deals with long-term funding via debt and equity instruments.

Segments:

• Primary Market – New securities issued via IPOs, FPOs.
• Secondary Market – Existing securities traded (e.g., NSE, BSE).
• Instruments: Equity shares, debentures, bonds, mutual funds, derivatives.

Financial Intermediaries

• Banks – Channelize savings to investments.
• NBFCs – Provide loans, leasing, hire purchase etc.
• Insurance Companies – Mobilize long-term funds via premiums.
• Mutual Funds – Pool funds from investors, invest in capital markets.
• Pension Funds – Long-term savings for retirement, e.g., NPS.

Mutual Funds

Regulated by SEBI.

Types:

• Equity Funds, Debt Funds, Hybrid Funds, Index Funds.
• Help in financial inclusion and retail investor participation.

Project Financing in India

Sources:

• Financial Institutions (NABARD, SIDBI, EXIM Bank)
• Commercial Banks
• NBFCs

Modes:

• Debt Financing, Equity Financing, PPP Models.

Financial Institutions

Development Financial Institutions (DFIs):

• SIDBI – For MSMEs.
• NABARD – For agriculture and rural development.
• NHB – For housing finance.
• EXIM Bank – For international trade.

IFSC (GIFT City) – India's global financial services hub.

Banking Industry

Structure: Public Sector Banks, Private Banks, Foreign Banks, RRBs, Cooperative Banks.

Recent Developments:

• Digital Banking Units (DBUs) launched.
• Merger of PSBs for efficiency.
• Focus on financial inclusion through PMJDY.

Insurance Industry

• Regulated by IRDAI.
• Life Insurance: LIC + private players.
• General Insurance: Covers health, vehicle, property etc.
• Recent Reforms:
  • FDI limit increased to 74%.
  • Digital policies promoted.

Securities Market

• Regulated by SEBI.
• Stock Exchanges: NSE, BSE.
• Instruments: Equity, Derivatives, ETFs, Bonds.
• Investor protection through Investor Education and Protection Fund (IEPF).

Financial Regulation in India

Regulators:

• RBI – Banks, NBFCs, Money Market.
• SEBI – Capital Market.
• IRDAI – Insurance.
• PFRDA – Pension Funds.

FSDC (Financial Stability and Development Council):

• Set up in 2010.
• Headed by Finance Minister.
• Ensures coordination among regulators.
• Focuses on systemic risk management, financial inclusion, financial literacy.

Recent Initiatives and Reforms (as of 2025)

• Unified Regulatory Framework for fintechs being debated.
• Digital Rupee (CBDC) pilot expanded.
• GIFT City developments accelerating financial globalization.
• SEBI’s tightening of disclosure norms to enhance transparency.
• Retail Participation in government securities via RBI Retail Direct.
• Indian Bond Market reforms to deepen corporate debt market.

Quick Comparison: Money Market vs Capital Market