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Financial Institutions

Indian Financial System

Financial Institutionsy 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 Institutionsy Liability-Asset transformation: They issue claims to

their customers that have characteristics different from those of their own assets. y Size- transformation: They provide large volumes of finance on the basis of small deposits or unit capital. y Risk transformation: They distribute risk through diversification and thereby reduce it for savers as in the case of mutual funds. y Maturity transformation :They offer savers alternate forms of deposits according to their liquidity preferences, and provide borrowers with loans of requisite maturities

Classification of FIsy Banking and Non banking. y Regulatory institutions

* RBI * SEBI

Banking institutionsy A bank is an institution that

accepts deposits of money from the public, which are repayable on demand and withdraw able by cheques. y Their deposit constitute a major part of the national money supply.

Non Banking Financial Institutions(NBFC)y NBFCs help to bridge the

credit gaps in several sectors which traditional institution are unable to fulfill. y NBFCs are more flexible in their operations and quick in decision-making.

Activities of NBFCs1.Equipment leasing 2. Hire Purchase 3.Bill discounting 4.Loan and Investment 5.Venture Capital 6. House Finance 1. Issue Management 2. Portfolio Management 3.Corporate Counseling 4. Project Counseling 5. Arranging Foreign Collaboration 6. Advising on acquisitions & mergers

Role of Financial Institute in growth of Economyy 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. y IN April 2010 the FDI was US$2214 million y Remittance in India contributes 3% of total GDP which is highest in world. y RBI contributes around 4.94% in GDP of India.

Role of FIs in Economic Developmenty 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 y FIs act as a link between savers and investors.

Role of FIs in Foreign Investment of Indiay The main role of the financial institutions in India in

respect to foreign investments is to aid foreign investors in investment activities in India. y The funds from overseas countries come in two forms: Foreign Direct Investments (FDI) and Joint Ventures (JV) of the foreign companies with Indian companies. y 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 Investmenty RBI works through automatic route and government

route in allocating funds in various sectors of the Indian industry. y 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. y FDI is allotted up to 100 percent under automatic route .

Life Insurance Corporation of Indiay Life insurance business. y 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. y Financial institution which provides substantial support to industry. y Focus on rural area. y It extends assistance for development of infrastructure facilities.

Unit Trust of Indiay Mobilizing public savings and

channeling them into productive corporate investments. y 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 Familiary Established in 1964 . y Largest Financial institution in India, with assets at the end of 1999 y y y

y y

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 IDBIy Planning, promoting and developing industries . y Co-coordinating the working of Institutions. y IDBIs role as a CATALYST. y Development Activities of IDBI PROMOTIONAL ACTIVITIES TECHNICAL CONSULTANCY ORGANIZATION. ENTREPRENEURSHIP DEVELOPMENT INSTITUTE

IDBI -Operationsy IDBI initially provided long-term assistance to industries such as textiles,

fertilizers, chemicals products and machinery.y In 1964, IDBI also began a role in assisting the State Finance Corporations

(SFCs) of various states.y By 1965, IDBI entered into rediscounting of -machinery bills. y Subsequently, IDBI entered into financing exports on a different payment

basis, till the time Export- Import (Exim) Bank of India was formed in 1982. y In 1986, IDBI created a Small Industries Development Fund (SIDF)y Played a major role in setting up of the Stock Holding Corporation of

India Limited (SHCIL)

Exim banky y y y y

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 countrys 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 COMPANIESy Delayed Payment Exports y Pre-Shipment Credit y Term Loans for Export Production y Foreign Investment Finance y Financing Export Marketing.

FINANCIAL ASSISTANCE TO OVERSEAS COMPANIESForeign Buyers Credit. Lines of Credit.

Export Marketing Financey y

Administered an Export Marketing Fund from World Bank SMEs extended export marketing finance to implement strategic export marketing plans Exim Banks assistance resulted in generation of significant exports to developed country markets. Successes achieved in this Programme . Over 300 Companies supported in variety sectors :

y

y y

Knitting Needles Polyester Ropes Home Appliances

SIDBI

SIDBIy y y y y

Established in 1990 under an Act of Indian Parliament. Objective Ownership Structural Linkage Nodal Agency

FINANCIAL POSITION OF SIDBIy Parameter y y y y y y y y y

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 ACTIVITIESDIRECT FINANCE OPERATIONS

NODAL AGENY

INDIRECT FINANCE

ASSOCIATE INSTITUTIONS

MICRO CREDIT OPERATIONS

Focus Segments

nuf cturing- icro -Sm ll - e ium

Service Sector

Infr structure Sector

DIRECT SCHEME FOR MSMEy A. Term Loans for MSME units and Service sector entities Existing customers having good track recordPrivileged Customer Scheme Top up loan scheme Equity assistance for major expansion / diversification Adhoc assistance

y 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

y C. Receivable finance scheme (RFS) y Eligibility Purchasers wise limit Sellers wise limit / Invoice discounting facility also available

y D. Equity Assistance Scheme

USP FOR MSMEsy Competitive rate of Interest y Flexible approach y Simple Business processes y Fast Track Schemes for existing regular accounts y Quick Decision making y Qualified & professional

NATIONAL BANK FOR AGRICULTURAL AND RURAL DEVELOPMENT

INTRODUCTIONy Established by an Act of Parliament on 12th July

1982 to implement the National Bank for Agriculture and Rural Development Act, 1981. y NABARD was established in terms of the Preamble to the Act, y 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