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Unit - V Financial Institutions
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Page 1: Unit - V Financial Institutions

Unit - V

Financial Institutions

Page 2: Unit - V Financial Institutions

Reserve Bank of India(RBI)

Reserve Bank of India (RBI)

Headquarters Bombay, Maharashtra, India

Coordinates 18.932679°N 72.836933°ECoordinates: 18.932679°N 72.836933°E

Established 1 April 1935; 85 years ago

Ownership 100% state ownership

Governor Shaktikanta Das

Central bank of India

Currency Indian rupee( ₹ )

Reserves ₹3,830,997 crore (US$540 billion)

Bank rate 4.00%

Interest on reserves 3.35% (market determined)

Website rbi.org

Page 3: Unit - V Financial Institutions

Reserve Bank of India(RBI)

The Reserve Bank of India (RBI) is India's central bank.

It controls the issue and supply of the Indian rupee.

RBI is the regulator of the entire Banking in India.

RBI plays an important part in the Development Strategy of the Government of India.

RBI regulates commercial banks and non-banking finance companies working in India.

It serves as the leader of the banking system and the money market.

Until the Monetary Policy Committee was established in 2016,it also controlled monetary

policy in India.

Following India's independence on 15 August 1947, the RBI was nationalised on 1 January

1949.

It is a member bank of the Asian Clearing Union.

Reference: Foreign Trade by Khushpat Jain

Page 4: Unit - V Financial Institutions

Reserve Bank of India(RBI)- Structure

Organisational

Structure

Not more than 4 deputy

governors

4 Directors to represent

regional boards

Economic Affairs secretary

Financial service secretary

10 other directors from various fields.

Governor

Page 5: Unit - V Financial Institutions

Reserve Bank of India(RBI)- Functions

Functions of RBI

Financial supervision

Regulator and supervisor of the financial system

Regulator and supervisor of the

payment and settlement systems

Managing foreign

exchange

Banker and debt manager to government

Issue of currency Banker's bank

Developmental role

Custodian to foreign

exchange

Detection of fake currency

Regulator of the Banking System

Page 6: Unit - V Financial Institutions

Foreign Exchange Deparment

Vision

To evolve appropriate environment in discharging the basic objective

of the Foreign Exchange Management Act (FEMA), 1999;

To facilitate external trade and payments and to promote orderly

development and maintenance of foreign exchange market in India;

To frame prompt and pro-active policy responses, as part of active

capital account management, within the evolving macroeconomic

conditions.

Reference: Foreign Trade by Khushpat Jain

Page 7: Unit - V Financial Institutions

Foreign Exchange Deparment

Mission

Evolving and disseminating rules and regulations in a user friendly language;

Having regular interface with the users to assess their needs with greater focus on

the requirements of resident individuals /entities;

Rendering effective and efficient customer service with greater transparency;

Empowering authorised persons and enlarging their role as a conduit to create

awareness about the developments;

Facilitating hassle-free cross-border transactions;

Capturing data on a real time basis to dynamically induce policy changes and

disseminating data in a transparent manner.

Reference: Foreign Trade by Khushpat Jain

Page 8: Unit - V Financial Institutions

Foreign Exchange Department- Structure

The Department's endeavor is to render efficient customer service through its;

Central Office at Mumbai

17 Regional Offices and

two Cells, one each at Nagpur and Srinagar.

Reference: Foreign Trade by Khushpat Jain

Page 9: Unit - V Financial Institutions

Foreign Exchange Department- Functions

Conduct of Foreign Exchange Transactions

Compounding Authority for FEMA Contraventions

This department is responsible for maintaining the exchange rate and

controlling the foreign exchange. Also, they try to stabilize the exchange rate.

Reference: Foreign Trade by Khushpat Jain

Page 10: Unit - V Financial Institutions

Department for Industrial Credit

This department as the name suggests is related to the credit-related activities of the

industries. Their primary task is to provide various credit guarantee schemes for the

small-scale industries and looking after their administration.

Thus, they work in tandem with the government of India, SFCs, and industrial

development bank of India (IDBI).

Because their task is to collect data about the finances of the small-scale businesses

and other related problems.

Reference: Foreign Trade by Khushpat Jain

Page 11: Unit - V Financial Institutions

Export – import bank

• Export import bank of India is the premier export finance institution

in India, established in 1982 under Export- Import Bank of India Act

1981.

• Since its inception, Exim Bank of India has been both a catalyst and

a key player in the promotion of cross border trade and investment.

• Exim bank of India, over the period, evolved into an institution that

plays an important role in partnering Indian industries, particularly

the Small and Medium Enterprises

• Headquarters :- Mumbai, India

Reference: Foreign Trade by Khushpat Jain

Page 12: Unit - V Financial Institutions

Origin of EXIM Bank

• Post WTO era resulted in dismantling of protective barriers to

trade and investment.

• Increase in trade opportunities in global markets

• Need for the country to enhance their domestic

competitiveness

• Absence of any specialised institution to enhance foreign trade

in country.

Reference: Foreign Trade by Khushpat Jain

Page 13: Unit - V Financial Institutions

Objectives of Export import bank

• Financing of exports and imports of goods and services not only

of India but also of third world countries.

• Financing of joint ventures in foreign countries.

• Financing of Indian manufactured goods, consultancy and

technological services on deferred payment terms.

• Financing R & D and techno economic studies.

• Co-financing global and regional development agencies.

Reference: Foreign Trade by Khushpat Jain

Page 14: Unit - V Financial Institutions

Functions of Export import bank

Page 15: Unit - V Financial Institutions

EXIM Bank

The Export and Import Bank of India, popularly known as the EXIM Bank was set up in 1982.

It is the principal financial institution in India for foreign and international trade.

It was previously a branch of the IDBI, but as the foreign trade sector grew, it was made into an independent body.

The ultimate aim is to promote foreign trade activities in the country.

Page 16: Unit - V Financial Institutions

EXIM Bank

Objective providing financial assistance to

exporters and importers, and ... functioning as the principal financial institution for coordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the country's international trade...

... act on business principles with due regard to public interest.

(Export-Import Bank of India Act, 1981)

Page 17: Unit - V Financial Institutions

EXIM Bank- Evolving Vision

Product centric approach

Customer centric approach

Page 18: Unit - V Financial Institutions

EXIM Bank- Role

Page 19: Unit - V Financial Institutions

EXIM Bank- Range of Operation

Page 20: Unit - V Financial Institutions

EXIM Bank- Range of Products and Services

Page 21: Unit - V Financial Institutions

EXIM Bank- Range of Financing Programmes

Page 22: Unit - V Financial Institutions

EXIM Bank- Organization

Board of Directors

Directors(17)

Managing Director

2 deputy managing directors

1 director each nominated by the RBI; IDBI Bank Ltd. and ECGC Ltd.

5 directors are Central Government officials

not more than 3 directors are from commercial banks

up to 4 directors are professionals with experience in export / import or financing.

Chairman

Page 23: Unit - V Financial Institutions

Functions of the EXIM Bank

Finances import and export of goods and services from India

It also finances the import and export of goods and services

from countries other than India.

It finances the import or export of machines and machinery on

lease or hires purchase basis as well.

Provides refinancing services to banks and other financial

institutes for their financing of foreign trade

EXIM bank will also provide financial assistance to businesses

joining a joint venture in a foreign country.

Reference: Foreign Trade by Khushpat Jain

Page 24: Unit - V Financial Institutions

Functions of the EXIM Bank

The bank also provides technical and other assistance to importers and exporters.

The EXIM bank will provide guidance and assistance in administrative matters as

well.

Undertakes functions of a merchant bank for the importer or exporter in transactions

of foreign trade.

Will also underwrite shares/debentures/stocks/bonds of companies engaged in

foreign trade.

Will offer short-term loans or lines of credit to foreign banks and governments.

EXIM bank can also provide business advisory services and expert knowledge to

Indian exporters in respect of multi-funded projects in foreign countries,

Reference: Foreign Trade by Khushpat Jain

Page 25: Unit - V Financial Institutions

Commercial Banks

Commercial banks are the most important components of the whole banking system.

A commercial bank is a profit-based financial institution that grants loans accepts deposits, and

offers other financial services, such as overdraft facilities and electronic transfer of funds.

Page 26: Unit - V Financial Institutions

Role and Importance of Commercial Banks

Accelerating the Rate of

Capital Formation

Provision of Finance and

Credit

Developing Entrepreneurs

hip

Promoting Balanced Regional

Development

Help to Consumers

Page 27: Unit - V Financial Institutions

Structure of Commercial Banks in India

Page 28: Unit - V Financial Institutions

Structure of Commercial Banks in India

Page 29: Unit - V Financial Institutions

Functions of Commercial Banks in India

Page 30: Unit - V Financial Institutions

Export credit guarantee corporation

Government owned enterprise

Provides credit insurance facilities to exporters and banks in India

Works under administrative control of Ministry of Commerce & Industry

Managed by a Board of Directors comprising representatives of the Government,

Reserve Bank of India, banking , insurance and exporting community.

It has evolved various export credit risk insurance products to suit the requirements

of Indian exporters and commercial banks

The seventh largest credit insurer of the world Essentially an export promotion

organization

Seeking to improve the competitive capacity of Indian exporters by giving them

credit insurance covers comparable to those available to their competitors from most

other countries

It keeps its premium rates at the lowest level possible.

Reference: Foreign Trade by Khushpat Jain

Page 31: Unit - V Financial Institutions

Export Credit and Guarantee Corporation(ECGC)

ECGC Ltd. (Formerly Export Credit Guarantee Corporation of India Ltd.), wholly owned by Government of India, was set up in 1957 with the objective of promoting exports from the

country by providing Credit Risk Insurance and related services for exports.

It functions under the administrative control of Ministry of Commerce & Industry, and is managed by a Board of Directors comprising representatives of the Government, Reserve

Bank of India, banking, and insurance and exporting community.

Over the years it has designed different export credit risk insurance products to suit the requirements of Indian exporters and commercial banks extending export credit.

ECGC is essentially an export promotion organization, seeking to improve the competitiveness of the Indian exporters by providing them with credit insurance covers.

ECGC keeps its premium rates at the optimal level.

Page 32: Unit - V Financial Institutions

Export Credit and Guarantee Corporation(ECGC)

Page 33: Unit - V Financial Institutions

Risk Associated with Exports

Page 34: Unit - V Financial Institutions

Export Insurance

Export Insurance

Receivables

Exchange risk Payment risk

Goods

Loss or Damage

Hedging by Authorized Dealer

Credit Insurance Marine Insurance

Page 35: Unit - V Financial Institutions

What does ECGC do?

Provides a range of credit risk insurance covers to exporters

against loss in export of goods and services

Offers Export Credit Insurance covers to banks and financial

institutions to enable exporters to obtain better facilities

from them

Provides Overseas Investment Insurance to Indian

companies investing in joint ventures abroad in the form of

equity or loan

Reference: Foreign Trade by Khushpat Jain

Page 36: Unit - V Financial Institutions

How does ECGC help exporters?

ECGC Offers insurance protection to exporters against payment

risks.

Provides guidance in export-related activities.

Makes available information on different countries with it’s own

credit ratings.

Makes it easy to obtain export finance from banks/financial

institutions.

Assists exporters in recovering bad debts.

Provides information on credit-worthiness of overseas buyers.

Reference: Foreign Trade by Khushpat Jain

Page 37: Unit - V Financial Institutions

Need for export credit insurance

Page 38: Unit - V Financial Institutions

Objectives of ECGC

To encourage and facilitate globalization of India’s trade.

To assist Indian exporters in managing their credit risks

To protect the Indian exporters against unforeseen losses

To facilitate availability of adequate bank finance to the Indian exporters by providing

surety insurance covers for bankers at competitive rates.

To achieve improved performance in terms of profitability, financial and operational

efficiency indicators and achieve optimum return on investment.

To develop world class expertise in credit insurance among employees and ensure

continuous innovation and achieve the highest customer satisfaction by delivering top

quality service.

To educate the customers by continuous publicity and effective marketing.

Reference: Foreign Trade by Khushpat Jain

Page 39: Unit - V Financial Institutions

Role of ECGC Its primary role is to provide a variety of risk insurance products.

The ECGC also offers export credit insurance cover to banks and financial

institutions .

The Corporation also offers overseas investment insurance to Indian companies

that are entering into international joint ventures, in the form of equity or loans.

The ECGC also provides guidance on export-related activities to exporters,

including credit rating-based information on different countries.

The ECGC can also help exporters arrange for export finance from and financial

institutions.

Finally, it assists exporters with debt recovery and checking the creditworthiness

of overseas customers.

Also, there is no GST payable in insurance premium.

Reference: Foreign Trade by Khushpat Jain

Page 40: Unit - V Financial Institutions

Procedures with ECGC to cover insurance:

A purchase order is issued to the seller by the buyer.

The purchase order contains complete details about the buyer who has to

make payment.

The seller (exporter) approaches ECGC to get approval on the buyer and

the amount which can be shipped.

The ECGC with the help of overseas network provides details regarding

the creditworthiness of the buyer.

ECGC collects some amount on the export and issues insurance policy.

Reference: Foreign Trade by Khushpat Jain

Page 41: Unit - V Financial Institutions

ECGC Policies

Page 42: Unit - V Financial Institutions

Functions of ECGC

• Provides a range of credit risk insurance covers to exporters

against loss in export of goods and services

• Offers Export Credit Insurance covers to banks and financial

institutions to enable exporters to obtain better facilities from

them

• Provides Overseas Investment Insurance to Indian companies

investing in joint ventures abroad in the form of equity or loan

Reference: Foreign Trade by Khushpat Jain

Page 43: Unit - V Financial Institutions

How does ECGC helps Exporters

Offers insurance protection to exporters against payment

risks

Provides guidance in export-related activities Makes

available information on different countries with it's own

credit ratings

Makes it easy to obtain export finance from

banks/financial institutions

Assists exporters in recovering bad debts Provides

information on credit-worthiness of overseas buyers

Reference: Foreign Trade by Khushpat Jain

Page 44: Unit - V Financial Institutions

Objectives of ECGC

• To encourage and facilitate globalization of India’s trade

• To assist Indian exporters in managing their credit risks by

providing timely information on worthiness of the buyers,

bankers and the countries.

• To protect the Indian exporters against unforeseen losses

which may arise due to failure of the buyer, bank or problems

face by the country of the buyer by providing cost effecting

credit insurance covers.

Reference: Foreign Trade by Khushpat Jain

Page 45: Unit - V Financial Institutions

Objectives of ECGC

• To facilitate availability of adequate bank finance to the Indian

exporters by providing surety insurance covers for bankers at

competitive rates

• To develop world class expertise in credit insurance among

employees and ensure continuous innovation and achieve the

highest customer satisfaction by delivering top quality services.

• To educate the customers by continuous publicity and effective

marketing

Reference: Foreign Trade by Khushpat Jain

Page 46: Unit - V Financial Institutions

Risk covered under ECGC

Page 47: Unit - V Financial Institutions

Risks not Covered

Risks of loss due to commercial or quality disputes

Insolvency or default of any agent of the exporter or of

the collecting bank

Loss or damage to the goods which can be covered by

general insurers

Exchange Rate Fluctuation

Failure of the exporter to fulfil the terms of the contract

or negligence on his part

Reference: Foreign Trade by Khushpat Jain

Page 48: Unit - V Financial Institutions

ECGC Policies

Page 49: Unit - V Financial Institutions

Export credit insurance for Exporters

Page 50: Unit - V Financial Institutions

Export credit insurance to banks

Page 51: Unit - V Financial Institutions

Special scheme

Page 52: Unit - V Financial Institutions

Main policies of ECGC

• Contract Policy

• Shipment Policy

• Constructions Work Policy

• Services Policy

• Overseas Investment Insurance

Reference: Foreign Trade by Khushpat Jain

Page 53: Unit - V Financial Institutions

Industrial Development Bank of India(IDBI)

Industrial Development Bank of India (IDBI Bank Limited or IDBI Bank or IDBI) was established in 1964 by an Act to provide credit and other financial facilities for the development of the fledgling Indian industry.

Many national institutes finds their roots in IDBI like SIDBI, Exim Bank, NSE and NSDL.

LIC completed acquisition of 51% controlling stake on January 21, 2019 making it the majority shareholder of the IDBI Bank.

Reserve Bank of India has clarified that IDBI Bank stands re-categorized as a Private Sector Bank for regulatory purposes with effect from January 21, 2019.

Page 54: Unit - V Financial Institutions

Overview of development banking in India

Development Banking emerged after the Second World War and the Great

Depression in the 1930s. The demand for reconstruction funds for the affected

nations compelled in setting up of national institutions for reconstruction.

At the time of Independence in 1947, India had a fairly developed banking system.

The adoption of bank dominated financial development strategy was aimed at

meeting the sectoral credit needs, particularly of agriculture and industry.

Towards this end, the Reserve Bank concentrated on regulating and developing

mechanisms for institution building.

The commercial banking network for general banking

Meeting the short-term working capital requirements of industry and agriculture.

Specialised Development Financial Institutions (DFIs) such as the

IDBI, NABARD, NHB and SIDBI were set up to meet the long-term financing

requirements of industry and agriculture.

Reference: Foreign Trade by Khushpat Jain

Page 55: Unit - V Financial Institutions

Formation of Industrial Development Bank of India (IDBI)

• The Industrial Development Bank of India (IDBI) was established in 1964 under an Act of Parliamentas a wholly owned subsidiary of the Reserve Bank of India.

• In 1976, the ownership of IDBI was transferred to the Government of India and it was made the principal financial institution for coordinating the activities of institutions engaged in financing, promoting and developing industry in India.

•IDBI provided financial assistance, both in rupee and foreign currencies, for green-field projects and also for expansion, modernisation and diversification purposes.

•Some of the institutions built with the support of IDBI are SEBI, NSE, NSDL, SHCIL, Credit Analysis & Research Ltd, Exim Bank (India), the SIDBI and the Entrepreneurship Development Institute of India.

Page 56: Unit - V Financial Institutions

Objectives of IDBI

To provide financial assistance to industrial enterprises.

To promote institutions engaged in industrial development.

To provide technical and administrative assistance for promotion management or expansion of industry.

To undertake market and investment research and surveys in connection with development of industry.

Page 57: Unit - V Financial Institutions

Organisation and Management:

IDBI consist of a Board of Directors, consisting of a chairman and

Managing Director appointed by the Government of India, a Deputy

Governor of the RBI nominated by that bank and 20 other Directors are

nominated by the Central Government.

The board had constituted an Executive Committee consisting of 10

Directors, including the Chairman and Managing Director. The executive

committee is empowered to sanction financial assistance.

The Head office of IDBI is located in Mumbai. The bank has five regional

offices, one each in Kolkata, Guwahati, New Delhi, Chennai and Mumbai.

Besides the bank have 21 branch offices.

Reference: Foreign Trade by Khushpat Jain

Page 58: Unit - V Financial Institutions

Functions of IDBI

Page 59: Unit - V Financial Institutions

Role of IDBI in Foreign Trade

It manages various financial institutions working under IDBI bank

Provides financial assistance to various industrial units in terms of

developments

It also offers refinancing options including term loans to the suitable financial

institutions

It provides funding to the industrial units that are involved in manufacture or

processing of goods, mining, transport generation and distribution of power

both in private and public sectors

It also provides finance to various projects, expansion of any project,

diversifications, or even developing the projects which will exceed ` 30 million

and it also provides funding to those projects which cost less than ` 30 million

through indirect means as it offers refinancing to the main financial institutions

such as SFC/SIDC/Commercial Banks etc

Reference: Foreign Trade by Khushpat Jain

Page 60: Unit - V Financial Institutions

Industrial Credit and Investment corporation of India(ICICI)

Industrial Credit and Investment Corporation of India (ICICI) was established in 1955 as public limited company under Indian Company Act, for developing medium and small industries of private sector.

Initially its equity capital was owned by companies, institutions and individuals but at present its equity capital has been owned by public sector institutions like—Banks, LIC, CIC and its associate companies.

In March 2002, the ICICI was merger with the ICICI Bank and created a first universal bank in India. With this merger, ICICI does not exist any more as a development financial institution.

Page 61: Unit - V Financial Institutions

Objectives

To provide loans to industrial projects in private sector.

To stimulate the promotion of new industries.

To assist the expansion and modernization of existing industries.

To provide Technical and managerial aid to increase production.

Reference: Foreign Trade by Khushpat Jain

Page 62: Unit - V Financial Institutions

Financial Assistance of ICICI:

To achieve its objectives, ICICI provides financial assistance in various forms such as:

Long term and medium term loans both in terms of rupee and foreign currency.

Participating in equity capital and in debentures.

Underwriting new issues of shares and debentures.

Guarantee to suppliers of equipment and foreign loaners.

Reference: Foreign Trade by Khushpat Jain

Page 63: Unit - V Financial Institutions

Activities of ICICI:

The activities of ICICI are discussed below: Project Finance:

Leasing:

Project Advisory Services:

Facilities for Non-resident Indians:

Provision of Foreign Currency Loans:

Other Institutions Promoted:

Housing Development Finance Corporation (HDFC)

Credit Rating Information Services of India Ltd. (CRISIL)(with UTI)

Technology Development and Information Company of India Ltd. (TDICI)

Programme for the Advancement of Commercial Technology (PACT)

Programme for Acceleration of Commercial Energy Research (PACER)

Reference: Foreign Trade by Khushpat Jain

Page 64: Unit - V Financial Institutions

Industrial Finance corporation of India

Government of India set up the Industrial

Finance Corporation of India (IFCI) in July 1948 under a special Act.

This is the first financial institution set up in India with the main object of making medium and long term credit to industrial needs.

The Industrial Development Bank of India, Scheduled banks, insurance companies, investment trusts and co-operative banks are the shareholders of IFCI. The Union Government has guaranteed the repayment of capital and the payment of a minimum annual dividend.

The corporation is authorised to issue bonds and debentures in the open market, to borrow foreign currency from the World Bank and other organisations, accept deposits from the public and also borrow from the Reserve Bank.

Page 65: Unit - V Financial Institutions

Functions

The corporation grants loans and advances to industrial concerns.

Granting of loans both in rupees and foreign currencies.

The corporation underwrites the issue of stocks, bonds, shares etc.

The corporation can grant loans only to public limited companies and co-operatives

but not to private limited companies or partnership firms.

Reference: Foreign Trade by Khushpat Jain

Page 66: Unit - V Financial Institutions

Organisation and Management:

The Head Office of the IFCI is in New Delhi. It has also established its

Regional offices in Bombay, Chennai, Kolkata, Chandigarh, Hyderabad,

Kanpur and Guwahati. The branch office of IFCI is located in Bhopal, Pune,

Jaipur, Cochin, Bhubaneswar, Patna, Ahmedabad and Bangalore.

The IFCI is managed by a Board of Directors, headed by a Chairman, who is

appointed by the Government of India, in consultation with RBI. The

chairman holds his position for a period of 3 years, subject to extension.

Of the 12 directors, 4 are nominated by the IDBI, three of whom are experts

in the fields of industry, labour and economics and the fourth is the General

Manager of the IDBI. The remaining 8 directors are nominated. Two directors

are nominated for a term of 4 years by each of the following-scheduled banks, co-

operative banks, insurance companies and investment companies making up eight

directors.

Reference: Foreign Trade by Khushpat Jain

Page 67: Unit - V Financial Institutions

Activities of the IFCI:

Soft Loan Assistance

Entrepreneur Development

Industrial Development in Backward Areas

Subsidised Consultancy

Management Development

Reference: Foreign Trade by Khushpat Jain


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