The financial system or the financial sector of any country is a complex matrix of Institutions, markets and financial instruments. It consists of specialised and non-specialised financial institutions, of organised and unorganised financial markets, of financial instruments and services. All of these items have one thing in common. They facilitate transfer of funds. These parts are not always mutually exclusive; Inter-relationships between these are a part of the system e.g.. Financial Institutions operate in financial markets and are, therefore, a part of such markets.
The word system, in the term financial system, implies a set of complex and closely connected or inter-linked Institutions, agents, practices, markets, transactions, claims, and liabilities in the economy. The financial system is concerned about money, credit and finance--the three terms are intimately related yet are somewhat different from each other. Money refers to the current medium of exchange or means of payment. Credit or loans is a sum of money to be returned, normally with interest; it refers to a debt of economic unit. Finance is monetary resources comprising debt and ownership funds of the state, company or person.
Indian Financial sector, with Ministry of Finance at the helm as policy making body, with two regulators RBI and SEBI consists of three principal segments i.e.