FINANCIAL INSTITUTIONS Meaning & Definition : •Meaning: Financial Institutions: an Institution which collects funds from the public and places them in financial assets, such as deposits, loans, bonds other than tangible property are called financial institutions. Meaning & Definition : •Definition: It is an establishment that focus on dealing with financial transactions such as Investments, loans and deposits. Features of Financial Institution • It is an Institution as well as Intermediary. • It channelizes savings fund into investment fund. • It creates financial assets such as deposits, loans, securities etc. • It includes banking and non banking institutions. • And also includes both organized and unorganized institutions. Established with a clear operating function. • Regulated by the government and regulating authority Importance of Financial Institutions • Provide funds: Financial institutions provide funds for the investment and industrial activities. Active sources which offer appropriate source of funds to the requirement of institutions and individuals. • Infrastructural facilities: Financial institutions also offer basic infrastructural facilities needed for the development and promotion of lucrative ventures. Infrastructural facilities involve development of industrial estates, tech parks, road and water etc. Importance of Financial Institutions • Promotional activities: To mobilize the funds, reduce the risk of selling financial securities, arrangement of working and long term capital of the business. • Development of Backward areas: Financial institutions also take social responsibilities of developing the backward areas at free cost by offering credit facilities, free education, employment creation etc. Importance of Financial Institutions • Planned development: Financial institutions initiate all planned developments in the view of economic growth of the state and are coordinated with the government plan and social welfare. • Accelerating industrialization: as the financial institutions are established to earn the profit and safeguard interest of its members, they accelerate the industrialization to contribute industrial growth. They support the industries by granting finance, project development and consultancy. Importance of Financial Institutions •Employment generation: Channelizing the funds for investment, building of industrial facilities and acceleration of industries generates the employment to the educated and qualified people of the state. Functions of Financial Institution: •Primary functions : • Accepting deposits: Financial institutions accept deposits from the public. They offer different schemes to mop up public deposits from the customers. (Give in return in the form of interest on deposit tenure basis). • Providing commercial loans: Accepted deposits are used for commercial lending operations in the form of loans, advances, cash credits, bills discounting etc. (Fetch good returns). Functions of Financial Institution: •Primary functions : • Providing real estate loans: The financial institutions also provide loans and advances for real estate industries to purchase site, build premises, construction industrial and residential parks. • Providing mortgage loans: The financial institutions also provide loans to the needy group on mortgage of properties and collateral securities.( Gold loans, property loan etc.). • Issuing share certificates: Financial institutions also constitutes accepting shares investment money from the investors and issuing them certificates on behalf of the companies. Functions of Financial Institution: •Secondary Functions: •Act as an intermediary: Between the savings community and industrialists. Receives the deposits at a lower rate of interest and lend the same fund to the needy group at a higher interest.(Difference amount is profit for their intermediary work). Functions of Financial Institution: •Secondary Functions: •Facilitate the flow of money: They also facilitate the flow/channelize the money to the investment activities. Financial institutions are the interlinked path stones to make smooth flow of fund from small savers to giant business ventures. Types of financial institutions •Banking Institutions •Non Banking Financial Institutions •Banking Institutions: They are governed by RBI, and come under Banking Regulations Act 1949. •A) Commercial Banks: are established with a objective to create saving habit among the people , provide banking services like accepting deposits and lending money. Types of financial institutions a) Scheduled bank- Banks which are registered in the second schedule of RBI. • Features of scheduled bank • The scheduled bank must be in business of banking in India . • It is either a company under companies act or an institution notifies by the central government. • It must have paid up capital and reserve of an aggregate of 5 lakhs rupees. • It must be working as per RBI rules and regulation. Types of financial institutions • Public sector banks- Include all banks in which government has major share holdings. SBI & it s & subsidiaries and all nationalized banks belongs to this category e.g. SBI , Indian bank, Bank Of India, Canara Bank. • Private sector-banks in which owned by shareholders. At present there are 30 private sector banking south Indian bank. • Foreign banks-banks belong to foreign country and started their branches in india.eg; standard chartered bank, Citi bank. Types of financial institutions • c) Non scheduled bank-banks which are not under the scheduled of RBI. At present in India there are no non scheduled bank. • 2. RRBs: Regional Rural Banks are to be set-up mainly with a view to develop rural economy by providing credit facilities for the purpose of development of agriculture, trade, commerce, industry and other productive activities in the rural areas. Such facility is provided particularly to the small and marginal farmers, agricultural labourers, artisans, and small entrepreneurs and for other related matters. • 3. Co-operative banks: are registered under Cooperative societies Act in 1912, give credit facilities to small farmers, SSI etc. Types of financial institutions •Unorganized Financial Institutions: These are comprised with private money lenders, pawn brokers, indigenous bankers, traders etc. they lend money to the public from their own fund.(Operations and activities are not regulated by RBI). Types of financial institutions • 2. Non Banking Financial Institutions: These are institutions which do not have full license or is not supervised by a National or International Banking Regulatory Agency. • They facilitate bank related financial services such as Provident and Pension Fund Small Saving Organization Life Insurance Corporation (LIC) General Insurance Corporation(GIC)Unit Trust of India(UTI) Mutual Funds Investment Trust etc. INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI) • IFCI was established as a statutory corporation on 1st July 1948 by special Act of Parliament, IFCI Act, It was converted into a public limited company on July 1, 1993. • Its main object is to provide medium and long term credit to eligible industrial concerns in corporate sectors of the economy, particularly to those industries to which banking facilities are not available. INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI) • OBJECTIVES: • To provide long and medium-term credit to industrial concerns engaged in manufacturing, mining, shipping and electricity generation and distribution. • The period of credit can be as long as 25 years and should not exceed that period. • To grant credit to a single concern up to a maximum amount of rupees one crore. This limit can be exceeded with the permission of the government under certain circumstances. INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI) • OBJECTIVES: • Underwrite and directly subscribe to shares and debentures issued by companies. • Assist in setting up new projects as well as in modernization of existing industrial concerns in medium and large scale sector. • To deal, transact buy and sell foreign currencies. • Acts as trustee, executor, administrator, treasurer and trust. INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI) • Functions Of IFCI • 1. Granting of loans both in Rs and foreign currencies. • 2. Raised by industrial concern in the capital market. • 3. Underwriting of shares debentures and bonds. • 4. Direct subscription to the shares and debentures of public Ltd companies. INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI) • SUBSIDARIES AND ASSOCIATES OF IFCI • • • • • • • • • • IFCI Infrastructure Development Ltd. IFCI Factors limited, financial services Ltd. IFCI Venture Capital Funds ltd MPCON (Madhya Pradesh Consultancy Organisation) Assets care and reconstruction Enterprise ltd Tourism finance corporation of India ltd Management development institution Institute of leadership development Rashtriya Gramin Vikas Nidhi Technical Consultancy organisations IDBI: Industrial Development bank of India • IDBI: Industrial Development bank of India (IDBI) was constituted under Industrial Development bank of India Act, 1964 as a Development Financial Institution (DFI) and came into being as on July 01, 1964 wide government of India notification dated June 22, 1964.Its headquarters in Mumbai, India. RBI categorized IDBI as on “other public sector bank”. IDBI: Industrial Development bank of India • Objectives The main objectives of IDBI is to serve as the apex institution (second tier or wholesale organisations that channels funding to multiple micro finance institutions) for term finance for industry in India. • Its objectives include: • Co-ordination, regulation and supervision of the working of other financial institutions such as IFCI , ICICI, UTI, LIC, Commercial Banks and SFCs. • Supplementing the resources of other financial institutions and there by widening the scope of their assistance. • Planning, promotion and development of key industries and diversification of industrial growth. • Devising and enforcing a system of industrial growth that conforms to national priorities. IDBI: Industrial Development bank of India • Functions • To grant loans and advances to IFCI, SFCs or any other financial institution by way of refinancing of loans granted by such institutions which are repayable within 25 year. • To grant loans and advances to scheduled banks or state co-operative banks by way of refinancing of loans granted by such institutions which are repayable in 15 years. • To grant loans and advances to IFCI, SFCs, other institutions, scheduled banks, state co-operative banks by way of refinancing of loans granted by such institution to industrial concerns for exports. IDBI: Industrial Development bank of India • Functions • To discount or re-discount bills of industrial concerns. • To underwrite or to subscribe to shares or debentures of industrial concerns. • To subscribe to or purchase stock, shares, bonds and debentures of other financial institutions. • To grant line of credit or loans and advances to other financial institutions such as IFCI, SFCs, etc. • To grant loans to any industrial concern.To guarantee loans raised by industrial concerns in the market or from institutions. IDBI: Industrial Development bank of India • Functions • To provide consultancy and merchant banking services in or outside India. • To provide technical, legal, marketing and administrative assistance to any industrial concern or person for promotion, management or expansion of any industry. • Planning, promoting and developing industries to fill up gaps in the industrial structure in India. • To act as trustee for the holders of debentures or other securities. IDBI: Industrial Development bank of India • Subsidiaries of IDBI • Small Industrial Development Bank of India(SIDBI) • IDBI bank ltd • IDBI Capital market services • IDBI Investment Management Company INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA (ICICI) • Industrial Credit and Investment Corporation of India or ICICI was established on 5th January, 1955 to assist industrial units in the private sector. It was sponsored by the World Bank. • Objects • To assist in the creation, expansion and modernization at industrial units in the private sector. • To encourage the inflow and participation of foreign capital in the private sector industrial units. • To expand the investment market in India. INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA (ICICI) • Functions • The main functions of ICICI are as follows: • To sponsor and underwrite new issues. • To provide medium and long-term loans to industrial units in the private sector. • To guarantee loans taken from other private sources. • To furnish managerial, technical and administrative advice to industrial units by the private sector. • To make funds available for reinvestment. • To advance loans in foreign currency towards the cost of imported capital equipment. • To extend guarantee for deferred payments. • To purchase the shares and debentures of new companies. INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA (ICICI) • The important features of the functioning of the ICICI arc as given below: • (i) The financial assistance as provided by the ICICI includes rupee loans, foreign currency loans, guarantees, underwriting of shares and debentures, and direct subscription to shares and debentures. • (ii) Originally, the ICICI was established to provide financial assistance to industrial concerns in the private sector. But, recently, its scope has been widened by including industrial concerns in the public, joint and cooperative sectors. INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA (ICICI) • The important features of the functioning of the ICICI arc as given below: • (iii) ICICI has been providing special attention to financing riskier and non-traditional industries, such as chemicals, petrochemicals, heavy engineering and metal products. These four categories of industries have accounted for more than half of the total assistance. • (iv) Of late, the ICICI has also been providing assistance to the small scale industries and the projects in backward areas. • (v) Along with other financial institutions, the ICICI has actively participated in conducting surveys to examine industrial potential in various states. INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA (ICICI) • The important features of the functioning of the ICICI arc as given below: • (vi) In 1977, the ICICI promoted the Housing Development Finance Corporation Ltd. to grant term loans for the construction and purchase of residential houses. • (vii) Since 1983, the ICICI has been providing leasing assistance for computerisation, modernisation and replacement schemes; for energy conservation; for export orientation; for pollution controller balancing and expansion: etc. EXPORT AND IMPORT BANK (EXIM BANK) • EXIM Bank is the premier finance institution of the country, established in 1982 under the exportimport bank of India Act,1981. • The head quarters of the bank is located in Mumbai. It is established to finance and support export and import activities. EXPORT AND IMPORT BANK (EXIM BANK) • Objectives • To provide financial assistance to exporters and importers. • To function as the principal financial institution for coordinating the working institutions engaged in financing export and import of goods and services with a view to promoting the country’s international trade. • To act on business principles with due regard to public interest. EXPORT AND IMPORT BANK (EXIM BANK) • Functions of EXIM Bank • Corporate Banking Group: which handles a variety of financing programs for Export Oriented Units (EOUs), Importers, overseas investment by Indian companies. • Project Finance/Trade Finance Group: handles the entire range of export credit services such as supplier’s credit, pre-shipment Agri Business group etc. The project also handles project and export transactions in the agricultural sector for financing. • Small and Medium Enterprise: The group handles credit proposals from SMEs under various lending programmers' of the bank