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
•
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•
•
•
•
•
•
•
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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