FinancialInstitutions
Indian Financial System
Financial Institutions
A financial institution is an institution which collects funds from the public and places them in financial assets, such as deposits, loans, and bonds, rather than tangible property.
Functions of Financial Institutions
Liability-Asset transformation: They issue claims to their customers that have characteristics different from those of their own assets.
Size- transformation: They provide large volumes of finance on the basis of small deposits or unit capital.
Risk transformation: They distribute risk through diversification and thereby reduce it for savers as in the case of mutual funds.
Maturity transformation :They offer savers alternate forms of deposits according to their liquidity preferences, and provide borrowers with loans of requisite maturities
Classification of FIs
Banking and Non banking.
Regulatory institutions * RBI * SEBI
Banking institutions
A bank is an institution that accepts deposits of money from the public, which are repayable on demand and withdraw able by cheques.Their deposit constitute a major part of the national money supply.
Non Banking Financial Institutions(NBFC)
NBFCs help to bridge the credit gaps in several sectors which traditional institution are unable to fulfill. NBFCs are more flexible in their operations and quick in decision-making.
Activities of NBFCs
1.Equipment leasing 1. Issue Management 2. Hire Purchase 2. Portfolio Management 3.Bill discounting 3.Corporate Counseling4.Loan and Investment 4. Project
Counseling 5.Venture Capital 5. Arranging Foreign
Collaboration 6. House Finance 6. Advising on acquisitions
& mergers
Role of Financial Institute in growth of Economy
From 1991 to 2010 the foreign direct investment brought in India is US$136,855 million. In terms of Indian Rs is Rs 59,75,o97 crore.
IN April 2010 the FDI was US$2214 million Remittance in India contributes 3% of total
GDP which is highest in world.RBI contributes around 4.94% in GDP of
India.
Role of FIs in Economic Development
FIs play an important role in efficient allocation of funds from savings surplus to savings deficit units through various financial innovations and developments in technology
FIs act as a link between savers and investors.
Role of FIs in Foreign Investment of India
The main role of the financial institutions in India in respect to foreign investments is to aid foreign investors in investment activities in India.
The funds from overseas countries come in two forms: Foreign Direct Investments (FDI) and Joint Ventures (JV) of the foreign companies with Indian companies.
Some of the leading financial institutions in India that play an important role in foreign investments in India are RBI, IDBI Bank, ICICI Limited and EXIM Bank.
Role of RBI in Foreign Investment
RBI works through automatic route and government route in allocating funds in various sectors of the Indian industry.
Its mandatory for all the foreign investors to get approvals from RBI in order to carry out investment activities in the industrial units in India.
FDI is allotted up to 100 percent under automatic route .
Life Insurance Corporation of India
Life insurance business. LIC is one of the two largest
institutional investors in the country .By law it is required to invest 25 percent of its funds in government securities and a further 25 percent in ‘approved securities´.
Financial institution which provides substantial support to industry.
Focus on rural area. It extends assistance for
development of infrastructure facilities.
Unit Trust of India
Mobilizing public savings and channeling them into productive corporate investments.
Primary objective is to stimulate and pool the savings of the middle and low income groups and enable them to share the benefits of the rapidly growing industrialization in the country.
IDBI-Getting Familiar Established in 1964 . Largest Financial institution in India, with assets at the end
of 1999 approximating to Rs.600 billion. During the Financial Year 2009-10, achieved a Net Profit of
Rs.1,031 crore and also crossed business of Rs.3,00,000 crore.
The 10th largest development bank in the world. The National Stock Exchange (NSE), The
National Securities Depository Services Ltd. (NSDL), Stock Holding Corporation of India (SHCIL) are some of the institutions which has been built by IDBI.
Now, it has been categorized under “Other Public sector Banks”
Resources of IDBI
Role of IDBI
Planning, promoting and developing industries .Co-coordinating the working of Institutions. IDBI’s role as a CATALYST.Development Activities of IDBI
• PROMOTIONAL ACTIVITIES• TECHNICAL CONSULTANCY ORGANIZATION. • ENTREPRENEURSHIP DEVELOPMENT INSTITUTE
IDBI -Operations
IDBI initially provided long-term assistance to industries such as textiles, fertilizers, chemicals products and machinery.
In 1964, IDBI also began a role in assisting the State Finance
Corporations (SFCs) of various states. By 1965, IDBI entered into rediscounting of -machinery bills. Subsequently, IDBI entered into financing exports on a different
payment basis, till the time Export- Import (Exim) Bank of India was formed in 1982.
In 1986, IDBI created a Small Industries Development Fund (SIDF) Played a major role in setting up of the Stock Holding
Corporation of India Limited (SHCIL)
EXPORT-IMPORT BANK OF INDIA
Exim bank
SET UP BY AN ACT OF PARLIAMENT , 1981
WHOLLY OWNED BY GOVERNMENT OF INDIA
COMMENCED OPERATIONS IN MARCH 1982
APEX FINANCIAL INSTITUTION
OBJECTIVES:
“… for providing financial assistance to exporters and importers, and for 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…”
“… shall act on business principles with due regard to public interest”
ROLE OF EXIM BANK TOWARDS INDIAN
COMPANIES & FOREIGN COMPANIES
FINANCIAL ASSISTANCE TO INDIAN COMPANIES
Delayed Payment ExportsPre-Shipment CreditTerm Loans for Export ProductionForeign Investment FinanceFinancing Export Marketing.
FINANCIAL ASSISTANCE TO OVERSEAS COMPANIES
Foreign Buyer’s Credit.
Lines of Credit.
Export Marketing Finance
Administered an Export Marketing Fund from World Bank SMEs extended export marketing finance to implement strategic
export marketing plans Exim Bank’s assistance resulted in generation of significant exports
to developed country markets. Successes achieved in this Programme .
Over 300 Companies supported in variety sectors : Knitting Needles Polyester Ropes Home Appliances
SIDBI
SIDBI
Established in 1990 under an Act of Indian Parliament.
Objective Ownership Structural Linkage Nodal Agency
FINANCIAL POSITION OF SIDBI Parameter 31-03-06 31-03-07 31-03-08 Paid-up capital 450 450 450 Reserve and Funds 4516 4691 4396 Total Income 974 1198 1650 Net Profit 276 303 204 Outstanding Portfolio 13890 16031 20279 Sanction 11975 11102 16151 Disbursement 9100 10225 15072 Standard Assets as % NP 98.1 99.86 99.75 CRAR (%) 43.2 37.5 41.7
SPHERE OF ACTIVITIES
DIRECT FINANCE
OPERATIONS
INDIRECT FINANCE
MICRO CREDIT
OPERATIONS
ASSOCIATE INSTITUTION
S
NODAL AGENY
Focus Segments
Manufacturing-Micro -Small
-Medium
Service Sector
Infrastructure Sector
DIRECT SCHEME FOR MSME
A. Term Loans for MSME units and Service sector entities
Existing customers having good track record• Privileged Customer Scheme• Top up loan scheme• Equity assistance for major expansion / diversification• Adhoc assistance
B. Main Benefits under Govt. sponsored schemes :• Credit Linked Capital Subsidy Scheme (CLCSS)• Technology Upgradation Fund Scheme (TUFS)• Integrated Development of Leather Sector Scheme• Food Processing Industries
C. Receivable finance scheme (RFS)
Eligibility -• Purchasers wise limit• Sellers wise limit / Invoice discounting facility also available
D. Equity Assistance Scheme
USP FOR MSMEs
Competitive rate of InterestFlexible approachSimple Business processesFast Track Schemes for existing regular accountsQuick Decision makingQualified & professional
NATIONAL BANK FOR AGRICULTURAL AND RURAL DEVELOPMENT
INTRODUCTION
Established by an Act of Parliament on 12th July 1982 to implement the National Bank for Agriculture and Rural Development Act, 1981.
NABARD was established in terms of the Preamble to the Act,
“For providing credit for the promotion of agriculture, small scale industries, cottage and village industries, handicrafts
ROLE OF NABARD
Provide refinance Acts as a coordinator Assistance to government Training and research facilities Acts as a regulator