Introduction to financial system - Introduction to Indian financial system, Interdisciplinary issues Video Lecture | Interdisciplinary Issues in Indian Commerce - B Com

hello everyone welcome back to project
Drona and we are back we add the channel
or so glad that you guys admired these
videos asked for many more by Emile's
and comments so here we are once again
this time we promise to upload at least
one video every week on banking finance
economics today we are going to revisit
an old classic the Indian financial
system sorry a the shrew cathay a with
the components of an economy
last time we refer to these components
as players this time we are calling them
the elements same thing the first one is
the individual app man and everybody
else then there are the households every
collective entity that represents itself
as one economic unit the firm's
up or maha would kurosu become Canada
they're the places we go to work every
day then there is a thing that makes the
world go round money aka wealth
let's see K in elements Mickey Soraka
interactions who then let's look at the
interactions within these elements in
closer detail between the households and
the forms the first interaction is that
the household supply labor to the firm's
you mean we all go to some place to
deliver work be it physical or mental
whatever kind and in return of this the
firm's provide households with money it
is human nature that we tend to save for
the rainy days agar up Adi Manav early
man for those who don't have such good
hindi the augur up a demon everytime
Kobi study curry so he used to
accumulate food and fruit in summers so
that he could consume them in the
winters
now that we have one common unit of
purchase called currency or money the
households tend to accumulate this money
over time now the important question
arises what to do with this accumulated
wealth one reason is that this wealth
sitting at home is not doing us much
good except maybe that we'll be able to
use it on a future date if needed
another huge disadvantage of letting
money sit there is that over the time
its value will decrease let me explain
this with time a thing that costs
hundred rupees today may cost 110 rupees
two years from now
such is the effect of inflation so if
you left hundred rupees at your home for
two years they depreciated in value
because that vide you could buy for
rupees 100 today we'll come for peas 110
two years from now
but you will still have rupees hundred
which means you will need more money to
buy the same amount of wheat by weed I
mean Atta hence money must be allowed to
grow this is where a bank comes in banks
are very crucial elements of an economy
and represent its prosperity stability
and complexity so these households hand
their money over to the bank one because
it provides interest on the money
deposited which allows the money to grow
and two because it is safer in the bank
let us have a look at the firm's
simultaneously these firms have needs to
grow and expand to increase their market
share and sales to increase their
revenues why to survive and because
things raw materials are going to get
costly for them as well to meet these
needs they also need cash and where are
they going to get this cash from exactly
they approach the bank and obtain this
cash in the form of a loan let us have a
look at this model from a bank's
perspective so households approach them
for depositing their savings with them
in return for keeping their cash the
bank's promised them an interest let's
say at the rate of 4% this cash is then
given to the industries in the form of
loans which is then repaid back by the
industries with interest say at the rate
of 10% so let's say that a bank gave
hundred rupees to the industries at 10%
per annum with simple interest and
received rupees 110 at the end of a year
simultaneously they had taken rupees
hundred from the depositors and paid
them rupees one hundred and four at the
end of one year which includes the
interest at four percent per annum so we
see that the bank made rupees six for
every hundred rupees it lent to the
borrowers
Bank nests or by borrowers le a or when
he saw pay industry school and Cal da
when a does Rebecca interest Miller
industries say or is may say oh no
Natura Becca interest depositor covetous
Katya and their own earning was six
rupees and ideally this difference of
interest that the bank receives from the
industries and the one paid to the
depositors is what we call interest
income of a bank this concept come again
silca Torah or exploring it in other
videos so it's model Co HSA so much
lazier because as we go deeper we will
be adding more elements to this model to
understand how an economy works but now
you must have understood that in any
economy banks act as agents connecting
people who have surplus funds with the
people who have a deficit of funds there
are times when you have a deficit of
funds like you want to buy a seven lakh
rupee car and have savings of rupees two
lakhs only this is when you tap into the
banks for availing their excess funds
Shelley a so of Indian financial system
parathion the Indian financial system is
broadly regulated by three statutory
bodies they are one the Reserve Bank of
India it looks after the banking sector
and the money markets it has many other
functions in an economy which we shall
discuss in detail in other videos then
there is say be the Securities and
Exchange Board of India this is the
capital markets watchdog in India and
third irda the Insurance Regulatory and
Development Authority which looks after
the insurance business in India now
let's have a look at the functions of
the Reserve Bank of India
Reserve Bank of India is the issuer of
currency in India the notes and coins
are issued by RBI technically notes are
issued by RBI and the coins are minted
by the Government of India an RBI acts
as an agent of coin distribution on
behalf of the government RBI is the
maker of monetary policy in India it
decides how to control the flow of money
so as to stimulate growth and curb
inflation for details please watch the
video explaining monetary and fiscal
policy then RBI is the manager of
government's debt government makes
borrowings to cover its expenses as most
of the time its expenses exceed its
revenue so the Reserve Bank acts as a
banker to the government and also
manages its debt RBI is also in charge
of the financial stability of the
country it has been given sufficient
power and tools to intervene and
maintain the financial stability of the
country through policies through money
markets etc it maintains different
databases and create different models
and simulations to assess the impact of
any future financial shocks and ensure
that the system can sustain them and not
go into any recession
RBI is also in charge of the financial
stability and development Council of
which the Reserve Bank governor is the
ex officio chairman this body looks
extensively after the financial
stability initiative RBI also generates
half yearly financial stability reports
FSR RBI acts as a facilitator of various
interbank lending transactions banks are
allowed to borrow from one another to
maintain their statutory reserve
requirements and for dealing with their
other interbank hearing and dealing
obligations also if banks are unable to
raise enough funds RBI provides them
with cash as a lender of last resort so
as to provide liquidity to the banks and
maintain the stability of the financial
system obviously key Jonte hunger if you
are in banking banks offers my friend
settle gotta hand through RTGS neft
check clearings and then there are
treasury dealing interactions and also
banks need to maintain their statutory
reserves so in money markets and other
places banks have been allowed to lend
to each other and borrow from each other
this helps them to maintain their
requirements if at all the need arises
and trust me it arises pretty frequently
it is the Reserve Banks prerogative to
oversee the payment and settlement
systems within the country the payment
and settlement systems act 2007 gives it
this authority payment and settlement
systems currently established in our
country are the point-of-sales machines
Jinpa repop nakatsu i perkins shopping
delta then there are prepaid instruments
like top-up cards
Genma cash load Kia jaws active and you
must have heard of evil its mobile
wallets mobile banking net banking
another thing to know is that the
currency chests
they are also looked after by the
Reserve Bank in fact cash held at the
currency chest belongs to the Reserve
Bank RBI also looks after the most well
established payment and settlement
system in the country the clearing
houses including the new ECS that is the
electronic clearing system real-time
payment systems like RTGS and NEFT
are also overseen by RBI then there are
debit and credit cards their service
providers like MasterCard Visa MX
discover etc their oversight is done by
the Reserve Bank of India and nowadays
these payment gateways on e-commerce
sites like CC Avenue also fall under the
regulatory authority of RBI
now let us have a quick look at the
functions and responsibilities of CB say
me as I said is the capital markets
watchdog of the country hence all
entities related to capital markets the
investment banks asset management
companies stock exchanges mutual funds
brokers dealers etc are looked after by
CB all the processes are regulated by se
be like IPOs sale and purchase of
securities etc the regulatory guidelines
offenses like insider trading etc are
looked into by CB or uptake they had IR
dak function scope I know that it was
left out the last time I a DA looks
after the insurance business in the
country basically insurance business
regulation the restrictions in the
design of insurance policies by the
insurers
being out for the best interests of the
customers the Commission structures and
their genuineness and the agents and
their practices all of this is looked
after by irda we shall be coming at
these topics in even greater detail as
we progress along since the model that
is presented in the first half of this
video is very crucial for many other
lessons to come I shall be separating it
and creating another video on it for the
purpose of modularity in the meanwhile
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