REPORT ON

Comparative analysis of Indian Financial system

with that of Australia

Submitted by
Hiteishi A ( 1920265)
Vaddi jahnavitha (1920274)

Manaswini C (1920275)

Under the Guidance of

Associate Prof. Issac P Elias

In Partial Fulfillment of the Requirements for the Award of the Degree of

BACHELOR OF BUSINESS ADMINISTRATION

SCHOOL OF BUSINESS MANAGEMENT

BENGALURU, INDIA

FEBRUARY 2021
Introduction to Indian and Australian Financial System (elements):

India:-
The Indian financial system enables leaders and borrowers to exchange funds.India has a
financial system that is controlled by independent regulators in the sectors of insurance, banking,
capital markets and various services sectors. Thus, the financial system plays a significant role
in the economic growth of the country by mobilizing the surplus funds and utilizing them
effectively for productive purposes. Financial system encourages both savings and investment, as
it links savers and investors. It also helps in capital formation and allocation of risk and helps for
expansion of financial markets. RBI, SEBI and Ministry of Finance, Government of India play a
significant role in regulating and influencing the Indian financial system.
COMPONENTS OF INDIAN FINANCIAL SYSTEM: -
Financial Institutions: -Financial Institutions provide a whole range of services to the entities
who want to raise funds from the markets or elsewhere. These institutions include Banking and
non-banking financial institutions which future classified into organised and unorganised sectors.
Financial Markets: - Financial markets refer to the institutional arrangements for dealing in
financial assets and credit instruments of different types such as currency, cheques, bank
deposits, bills, bonds etc. These markets are further classified into capital markets and money
markets.
Financial Instruments:- Financial instruments refer to those documents which represent
financial claims on assets. Financial asset refers to a claim to the repayment of a certain sum of
money at the end of a specified period together with interest or dividend. Examples: Bill of
exchange, Promissory Note, Treasury Bill.
Financial Services: - The term financial services can be defined as “activities, benefits, and
satisfactions, connected with the sale of money, that offer to users and customers, financial
related value. within the financial services industry the main sectors are banks, financial
institutions, and non-banking financial companies.The kinds of financial services are Asset
based/fund based services and Fee based/advisory services.
Informal Sector: -The informal Financial sector provides savings and credit facilities for small
farmers in rural areas, and for lower income households and small scale enterprises in urban
areas.This sector comprises moneylenders, indigenous bankers, lending pawn brokers, landlords,
traders etc.
MONETARY POLICY: -
The monetary policy states the use of financial instruments under the control of the Reserve
Bank of India to standardise magnitudes such as availability of credit, interest rates, and money
supply to achieve the ultimate objective of economic policy mentioned in the Reserve Bank of
India Act, 1934

FISCAL POLICY: -Fiscal policy in India is the guiding force that helps the government decide
how much money it should spend to support the economic activity, and how much revenue it
must earn from the system, to keep the wheels of the economy running smoothly

Australia: -
The Reserve Bank is responsible for maintaining the stability of the financial system of
Australia. In a healthy and stable financial system, financial institutions, financial markets and
the payment system work smoothly.The Reserve Bank promotes the stability of the financial
system through managing and providing liquidity to the system, monitoring risks, and chairing
the Council of Financial Regulators .The Reserve Bank is also the regulator of the payments
system. The Payments System Board has a mandate to promote efficiency and competition in the
payments system, and contribute to the overall stability of the financial system.

COMPONENTS OF AUSTRALIAN FINANCIAL SYSTEM : -

Market Participants: - Participants in the financial system consists of commercial banks,
investment banks, finance companies,building or cooperative societies, credit unions,friendly
societies,superannuation and approved deposit funds, public unit trusts, cash management
trust,mortgage originators, insurance companies,institutional funds investing in and financial
institutes
Financial Institutions: - The banking sector of Australia consists of banks licensed to carry on
banking business under the Banking Act 1959,Foriegn banks license to operate through a branch
in Australia and australian incorporated foreign bank subsidiaries. The banking system is
liquid,competitive and well developed.
Insurance: - The insurance market of Australia is divided into 3 parts which are life
insurance,general insurance and health insurance and in recent several of their companies
broaden their scope into more generic financial services and have faced competition from banks
and subsidiaries of forign financial conglomerates.
Superannuation: - In 1992 the keating labor government introduced a superannuation
Guarantee.
As part of a major reform package addressing Australia’s retirement income policies.
● A safety net consisting of a mean tested government age pension system
● Private saving generated through compulsory contributions to superannuation
● Voluntary savings through superannuation and investments
Financial Market: - Financial market consists of
Under Australians securities exchange there are various exchanges operating for different kinds
of instruments.
● Payment system: - Most foreign exchange transactions are free from regulations, and the
Reserve bank of Australia has largely delegated its control to authorised money market
dealers and foriegn exchange dealers ,this includes cash, cheques,EFTPOS and high
value payments.

MONETARY POLICY:- The Reserve Bank of Australia is responsible for formulating and
implementing monetary policy. The Reserve Bank sets the target ‘cash rate’, which is the market
interest rate on overnight funds. The focus is on improving macroeconomic indicators.
FISCAL POLICY: -Fiscal policy of Australia represents government spending policies that
influence macroeconomic conditions. Through fiscal policy, regulators attempt to improve
unemployment rates, control inflation, stabilize business cycles and influence interest rates in an
effort to control the economy.

● Comparison: Both of them are bank based financial systems, the difference lies in the
way they approach their components. India has 4 well defined components with an
informal sector operating mostly in rural areas. On the other hand Australian system has
the market participants wherein major banks, cooperative societies, credit unions etc are
part of it.
● In the financial service sector Insurance is given more importance in Australia when
compared to India, where it comes under the umbrella of financial services.
● Australia also has a strong and well defined retirement income policy; Superannuation,
which is a significant factor in the system. India has a lot of scope to develop better
policies on this aspect.
● When it comes to regulation of the system; particularly the money market and various
policies the central banks have more or less the same roles in both the nations. When it
 comes to capital markets; in India SEBI is only a regulator but ASX is like an umbrella
stock exchange and regulator.
● Monetary policies are formulated and executed by the central banks by regulating various
interest rates and fiscal policies comes under the government’s purview in both
countries,

Comments: The introduction and brief comparison below signifies the similarity of both the
financial systems in terms of regulation. However the structures and importance of components
is different. Australia is among the top 10 countries with the best financial system as per the
2008 survey of the World Economic Survey and even today is leading by example as
development and living standards are high in the nation. As far as India is concerned there is
scope of improvement, especially with new policies regarding bad bank loans, disinvestment in
the sector and the setting up of a Development Finance Institution.
The Superannuation policy of Australia is one area where India can plan to create more strong
policies. This will contribute in improving the standard of living of the retired population, some
steps have already been taken with, like the Prime Minister Shram Yogi Mandhan Pension
Yojana (PM-SYM) for the workers of the unorganised sector or the recent proposal under the
budget that senior citizens (above 75) earning only pension and interest income from deposits
would not be required to file Income Tax Return. The government has proposed to allow tax
exemption on maturity of ULIP having annual premium up to Rs 2.5 lakh.

Comparison of the Systems based on criterias:

Sl.N Criterias Indian Financial System Australian Financial System

o

1 Type of financial The IFS is bank centric, the It is also a bank based system,
system performance of the banking where the majority of financial
sector is crucial in the system assets are held by the
development of the economy. banks.

2 Regulatory bodies India has two primary financial Australia's financial system
system regulators - the Reserve and capital markets are
 Bank of India (RBI) regulating governed and overseen by 3
India’s banking industry and the separate regulatory
Securities & Exchange Board agencies, and a central
of India (SEBI) regulating the government agency: The
capital markets industry. Other Australian Securities and
regulators are Insurance Investments Commission
Regulatory and Development (ASIC), The Reserve Bank
Authority of India (IRDAI), of Australia (RBA),The
Pension Fund Regulatory and Australian Prudential
Development Authority Regulatory Authority
(PFRDA), Forward Markets (APRA) and The Australian
Commission, Foreign Treasury (Treasury). The
Investment Promotion Board coordinator body for these
and National Stock agencies is the Council of
Exchange(NSE). Financial Regulators.

3 Objectives of The main objectives are: to The Reserve Bank Board sets
monetary policies maintain price stability by interest rates so as to achieve
controlling money supply the objectives set out in the
through interest rates, Reserve Bank Act 1959, which
Controlled expansion of bank are: the stability of the currency
credit, Promotion of fixed of Australia; the maintenance
investment, Restriction of of full employment in
inventories and stocks, Australia; and the economic
promoting efficiency in the IFS prosperity and welfare of the
and reducing rigidity in financial people of Australia.
operations.

4 Stock Exchanges The SEBI approved permanent The Australian Securities

stock exchanges are Bombay Exchange (ASX) operates the
Stock Exchange Ltd, National Australian Stock Exchange and
Stock Exchange Ltd, Calcutta the Sydney Futures Exchange
Stock Exchange Ltd, Indian and facilitates trading in
Commodity Exchange Ltd. securities and derivatives
Multi Commodity Exchange of including shares, futures,
India Limited, and National options and warrants. ASX also
Commodity & Derivatives provides market data, for
Exchange Ltd The Metropolitan example share prices, and
Stock Exchange of India Ltd is related information including
valid upto Sep 15, 2021 and the stock market announcements
NSE IFSC Ltd is valid upto May and market education.
28, 2021. Thus there are 8 National Stock Exchange of
SEBI approved stock Australia (NSX) is a stock
exchanges currently. exchange set up and managed
specifically to cater for the
listing of small to medium
enterprises. The exchange is
owned by NSX Limited which
is listed on ASX. NSX also
operates SIM Venture
Securities Exchange Limited.
Chi-X is the latest Stock
Exchange to be licensed in
Australia. Chi-X Australia
offers an alternative to trading
on ASX providing new order
types and potential for lower
costs. Newcastle stock
exchange and Bendigo stock
exchange also come under the
umbrella of ASX.
Thus there are around 6
exchanges under ASX
currently.
5 Financial reforms Reform of the financial sector Australia's weight in the global
was recognized, from the very economy was smaller, and its
beginning, as an integral part of financial reforms occurred in
the economic reforms initiated the context of a much smaller
in 1991. and less integrated global
The major delineations of the financial system. While its
financial sector reforms in India capital account in the 1970s
were found as under: and early 1980s was more
tightly restricted than other
● Removal of the erstwhile
similar economies, Australia
existing financial
was somewhat more open to
repression.
foreign portfolio investment
● Creation of an efficient,
than China is currently.
productive and profitable
the Australian example serves
financial sector.
to underscore both the potential
● Enabling the process of
importance of sequencing and
price discovery by the
the powerful catalytic effects of
market determination of
a decision to liberalise. The
interest rates that improves
floating exchange rate is now
allocate efficiency of
widely recognised as having
resources.
played a crucial role in helping
● Providing operational and
to steer the economy through
functional autonomy to
challenging periods
institutions.
● Preparing the financial
system for increasing
international competition.
● Opening the external sector
in a calibrated manner.
● Promoting financial
stability in the wake of
domestic and external
shocks.
 Financial ● Commercial banks In addition to banks, building
6 intermediaries ● Regional rural banks societies and credit unions, all
(RRB) of which are subject to
● Cooperative banks/ prudential regulation by APRA,
societies there are two other types of
● Development banks and financial institutions that
All India finance intermediate between lenders
institutions (IDBI, and borrowers in the Australian
NABARD, SIDBI, NHB financial system, but are not
etc.) authorised to accept deposits –
● Pension/provident funds finance companies and money
(NPS, EPFO etc.) market corporations (also
● Mutual funds (UTI and known as merchant banks).
private sector mutual These institutions are also
funds) collectively known as
● Insurance companies (LIC, ‘registered financial
GIC etc.) corporations’. They are not
● Non banking financial supervised by APRA, but are
companies (NBFC) subject to the same conduct and
disclosure regulations that the
Australian Securities and
Investments
Commission(ASIC) applies to
the non-financial corporate
sector.

7 Development In India, the first DFI was It is proposed that Australia

Finance operationalised in 1948 with the creates a sovereign
Institutions setting up of the Industrial Development Finance
Finance Corporation (IFCI). Institution (DFI) to engage in
Subsequently, the Industrial the growing market for
Credit and Investment “impact” or “social” investing
 Corporation of India (ICICI) that is revolutionising overseas
was set up with the backing of aid. Funding for development
the World Bank in 1955. assistance globally has grown
The government plans to set up significantly in the last two
a Development Finance decades.
Institution (DFI) in the next
three to four months with a view
to mobilise Rs 111 lakh crore
required for funding of the
ambitious national infrastructure
pipeline,

8 Role of ministry They Determine The Fiscal The Minister For Finance Has
of Policies Which Should Be Used Overall Responsibility For The
By Government In Solving Any Finance Portfolio, And
Economic Problem In The Particular Responsibility For
Country. Problems Like The Following: ... Government
Unemployment, Deflation, Financial Accountability,
Inflation And Many More Are Governance And Financial
Set To Be Solved By The Use Management Frameworks,
Of Fiscal Policies Determined Including Grants And
By The Ministry Of Finance. Procurement Policy And
Services.

9 Banking There Are Two Broad Australia And New Zealand

Categories Under Which Banks Banking Group (ANZ)
Are Classified In India- Commonwealth Bank Of
Scheduled And Non-scheduled Australia (CBA)
Banks.
National Australia Bank (NAB)

Westpac Banking Corporation.

The Scheduled Banks Include
Commercial Banks And
Cooperative Banks. The
Commercial Banks Include
 Regional Rural Banks, Small
Finance Bank, Foreign Banks,
Private Sector Banks, And
Public Sector Banks. Payments
Bank Is A New Introduction To
The Category.Cooperative
Banks Include Urban And Rural
Banks.

10 Credit Channel The credit channel plays a The transmission process of

critical role in transmitting monetary policy is a
monetary policy impulses to the longstanding macroeconomic
credit market and from thereon issue. The lending view is that
to the real economy in a country a monetary tightening affects
like India. The stressed asset aggregate demand by shifting
ratio impacts credit growth the supply schedule of bank
negatively, suggesting that loans left. The contraction of
banks with higher stressed assets bank loans does not necessarily
are forced to curtail their credit mean a shift of the supply
growth. schedule. Therefore, testing the
lending view requires the
identification of the shifts of
the demand and supply
schedules in the bank loan
market.
References:
https://www.cclcompliance.in/services/authorisation/#:~:text=India%20has%20two%20pri
mary%20financial,regulating%20the%20capital%20markets%20industry.
https://www.cfr.gov.au/#:~:text=The%20CFR%20is%20the%20coordinating,Australia%2
C%20which%20chairs%20the%20Council.
https://www.investogain.com.au/companies/stock-exchanges/
https://www.sebi.gov.in/stock-exchanges.html
https://www.intelligenteconomist.com/financial-system/
https://www.rba.gov.au/publications/fsr/2006/mar/struct-aus-fin-sys.html
http://tumkuruniversity.ac.in/oc_ug/comm/IFS%20FINAL.pdf
https://www.financialexpress.com/budget/income-tax-slab-rate-change-budget-2021-live-up
dates-tax-calculator-covid-cess-80c-latest-news/2183259/#:~:text=The%20Finance%20Mini
ster%20proposed%20that,up%20to%20Rs%202.5%20lakh.