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Presentation Prepared By Chintan G Patel Course:-PAFM Roll No:-05

Presentation Prepared By Chintan G Patel Course:-PAFM Roll No:-05. Indian financial systems:-. Savings and Financial Intermediation. Factors Determining Savings :-. Saving is determined by National income and its Distribution.

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Presentation Prepared By Chintan G Patel Course:-PAFM Roll No:-05

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  1. Presentation Prepared By Chintan G Patel Course:-PAFM Roll No:-05

  2. Indian financial systems:- Savings and Financial Intermediation

  3. Factors Determining Savings:- • Saving is determined by National income and its Distribution. • Saving are the rewards for saving as reflected in the rate of profit earn on direct investment. • Interest rates associated with the diverse instruments in which savings is held. • Since the saving habit is strong, the past level of saving also has a bearing.

  4. Saving Ratio:- • The saving ratio in India has double in 46 years (up to 1997) since commencement of the first plan in 1951. • In 1951 The ratio of the net domestic saving to net domestic product was about 6.8%, it reached 9.1% at the end of the first plan. • The second plan ending in 1960-61 the ratio would be decline at the rate of 7.4% • The rising trend was sustained although there was variation from year to year.

  5. Saving ratio:- • Over the 45 years period the net saving ratio is more than double . However in 1996-97 it decline to 13.6%.

  6. Gross Domestic savings:- • The Saving on a gross Basis Include:- • Depriciation at book value in the case of the private corporate sector. • In the case of the house hold sector , Saving in the form of financial assets. • In the case of physical assets of the house hold sector . • The value of physical assets in terms of gross saving and net saving which was much at as 43.2% in 1994-95. the gross domestic saving ratio was 23.4% in 1998-99

  7. Composition of saving:- • Saving contribution by three sector into which economy is divided three sectors are as below:- • The house hold sector. • The public sector. • The domestic sector. • The largest contribution of house hold sector of 77% in 1994-95,the public sector -6.8%,and the domestic private corporate sector-16.2% • Of the saving of house hold sector, saving in the form of physical assets accounted for 36.1% in 1998-99.

  8. The Gross saving of house hold sector:-

  9. Savings of household sector in the form of Gold:- • For long Gold has been kept out of the financial system. • It has been left out of our savings estimated and purchase of gold is treated as consumption. • Gold hoards which are estimated at $100 billion have to be brought into the mainstream of the financial system. • “Gold is surrogate for foreign exchange and because of its special features it is a hybrid between a commodity and a financial assets”

  10. Cont: • Bank should be permitted to freely both in the domestic and international gold markets, sale of gold by banks and financial institution (FIS) should be freely to allowed to all residents. • Estimates of household savings in the national income statistics would be go up by 10-20% and overall gross saving and net saving ratios by 1.5 to 1.2%. • Interest rate on gold deposits should be based on time or locked period. • Foreign exchange flows in the form of NRI deposits and FII investment accounting for two third of our forex reserves of $33 billion

  11. Saving of the Household Sector in Financial Assets:- • The financial Assets are bank deposits , provident fund , pension fund, non-bank deposit, currency, life insurance fund, shares and debentures. • The composition of household sector’s savings has been generally in favour of financial assets as compared to physical assets on account of the higher rates of returns on financial savings and growing financial intermediation.

  12. Financial Assets:- • Bank Deposits:-Its shares in Financial Assets (gross) of household was 36.9% of in 1998-99. • Non-bank Deposits:-Total financial assets (gross) was 7.4% in 1998-99 • Currency:- constituted 10.6% of the financial assets (gross) in 1998-99 • Investment in share & debenture:-investment in share & debenture was 2.7% of household’s financial assets (gross) in 1998-99. • Claim on Government:-The claim on Gov. in the household sector’s total financial assets (gross) was 13.0% in 1998-99.

  13. Financial intermediation:- • Undertake the important process of financial intermediation whereby fund or savings of surplus sector are channeled to deficit sectors. • Wanting to spend on real capital investment. • It was estimated by the prime directory that in 1996-97 there were 20.158 financial intermediaries. • Can enhance growth by pooling funds of the small and scattered savers.

  14. Brokerage and Assets Transformation:- • Represent by the activities of brokers and market operators. • Bring together lenders and borrowers • Reduces market imperfection such as search information and transaction costs. • The assets transformation activity is provided by institutions issuing claims against themselves which differ from the assts acquired. • Financial institution provide three trans. Services:- • Liability ,assets and size transformation. • Maturity transformation. • Risk transformation.

  15. Advantages of financial institutions:- • Reduction of information and transaction costs, grant long term loans, provide liquid claim and pool risks.

  16. Thank You.

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