FINANCIAL INSTITUTIONS AND CREDIT

RATING AGENCIES

Financial Institutions They are the participants in the financial market. They are business

org’s dealing in financial resources. They collect resources by accepting deposits from individuals and institutions and lend them to trade, industry& others. They buy & sell financial instruments and deals in financial assets. They accept deposits, grant loans and invest securities.

On the basis of nature of activities financial institutions may be classified as:

Regulatory and promotional institutions: Financial institutions, financial markets, financial services are all regulated by regulators like IRDA, The Company Law Board, ministry of finance etc. The two major regulatory institutes in India are RBI & SEBI they administer legislate supervise monitor & control the entire financial system.

Banking Institutions: They mobilize the savings of people. They provide mechanism for smooth exchange of goods & services. There are 3 basic

categories of banking institutions namely commercial banks, co-operative banks and development banks. Non-Banking Institutions: They also mobilizes financial resources

directly or indirectly from the people. They lend funds but do not create credit. Companies like LIC, GIC, UTI, Provident funds falls in this category.

FUNCTIONS OF FINANCIAL INSTITUTIONS

1. To facilitate creation & allocation of credit & liquidity.

2. To help in process of balanced economic growth.

3. To provide financial convenience.

4. To serve as intermediaries for mobilization of savings

5. To provide information and facilitate transactions at lower cost.

MERCHANT BANKS

SERVIES OFFERED BY MERCHANT BANKERS:• Management of debt and equity offerings .• Placement and distribution.• Advisory services.• Project advisory services.• Loan syndication .

Unit trust of India (UTI)

Life insurance corporation of

India (LIC)

General insurance corporation of

India (GIC)

INVESTMENT COMPANIES

Objectives of unit trust of India (UTI)• To encourage and pool the savings of the

middle and low income groups.• To enable them to share the benefits and

prosperity of the industrial development in the country.

• To pay dividend to the unit holders.• To sell units among as many investor as

possible.

Objectives of life insurance corporation of India (LIC)

• Maximization of mobilization of people’s savings foe nation building activities.

• Provide complete security and promote efficient service to the policy holders at economic premium rates.

• Act as trustees of the insured public in their individual and collective capacities.

• Meet the various life insurance needs of the community that would arise in the changing social and economic environment. 

General insurance corporation of India (GIC)

• General insurance industry in India was nationalized and a government company known as general insurance corporation of India was formed by the central government in November 1972.

• General insurance companies have willingly catered to these increasing demands and have offered a plethora of insurance covers that almost cover anything under the sun.

MANAGEMENT INVESTMENT COMPANIES:• A management investment company is one of the three fundamental

types of investment companies.• It allows investors to pool their capital with that of other investors in

order to purchase professionally-managed groups of diversified securities.

• A management investment company is headed by a CEO, a team of officers and a board of directors.

• These company leaders choose the types of investment products the company will offer.

•  Management investment companies are subject to rules set forth in the Investment Company Act of 1940.

MANAGEMENT INVESTMENT COMPANIES:

NON-BANKING FINCANCIA COMPANIES (NBFC’S)

• Non-banking financial companies, or NBFCs, are financial institutions that provide banking services, but do not hold a banking license.

• They attract deposits of huge amounts by attractive rates of interest.

• They run chit funds, provide hire purchase, lease financing etc.• Also renew short period loans from time to time.• Some of the other services offered by NBFC’S include

loans without securities, retirement planning, money markets, underwriting, and merger activities.

Development Banks in India• In the field of industrial finance, the concept of development bank is

of recent origin. In a country like India, the emergence of development banking is a post -independence phenomenon.

• In India, the first development bank called the Industrial Finance Corporation of India was established in 1948.

• Development bank is essentially a multi-purpose financial institution with a broad development outlook. A development bank may, thus, be defined as a financial institution concerned with providing all types of financial assistance (medium as well as long term) to business units, in the form of loans, underwriting, investment and guarantee operations, and promotional activities — economic development in general, and industrial development, in particular.

Features•  Specialised financial institution.• Provides medium and long term finance to business units.• Unlike commercial banks, it does not accept deposits from the public.• Not just a term-lending institution. It is a multi-purpose financial

institution.• It encourages new and small entrepreneurs and seeks balanced regional

growth.• Provides financial assistance not only to the private sector but also to the

public sector undertakings.• Aims at promoting the saving and investment habit in the community.• Its major role is of a gap-filler, i. e., to fill up the deficiencies of the

existing financial facilities.• Motive is to serve public interest rather than to make profits. It works in

the general interest of the nation.

MUTUAL FUNDS

• A mutual fund is a type of professionally managed investment fund that pools money from many investors to purchase securities.

CONCEPT

FACTS • Mutual Funds are there in India since 1964.

• Mutual Funds market has evolved in USA & is there for the last 60 years

• Mutual funds are the best solution for people who wants to manage risks and get good returns.

• Some of the top ranked mutual funds are Birla sun life,sbi blue chip fund,tata equity.

TYPES • OPEN ENDED FUND - Fund manager

continuously allows investors to join or leave the fund.

• CLOSE ENDED FUND- Similar to a listed company with respect to its share capital. These shares are not redeemable and are traded in the stock exchange like any other listed securities.

Credit Rating Agencies, India• Crisil Limited

Corporate office – Mumbai, Maharashtra | Establishment – 1987

• Credit Information Bureau India Limited -(CIBIL)Corporate office – Mumbai, Maharashtra | Establishment – 2000

• Fitch Ratings India Private Ltd.Corporate office – New York, USA | Establishment – 1913

• Equifax Corporate office – Atlanta, United States | Establishment – 1899

• Credit Analysis & Research Ltd. (CARE)Corporate office – Mumbai, Maharashtra | Establishment – 1993

• ICRA LimitedCorporate office – Gurgaon, Haryana | Establishment – 1991

What is a credit rating agency?

A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratings, which rate a debtor's ability to pay back debt by making timely interest payments and the likelihood of default. 

What is credit rating?

A credit rating is an evaluation of the credit worthiness of a debtor, especially a business (company) or a government, but not individual consumers.

• Bonds/debentures• Commercial paper• Bank loans• Fixed deposits and bank certificate of deposits• Mutual fund debt schemes• Initial public offers

Credit rating services

Role of credit rating agencies• Provide superior information• Low cot information• Basis for a proper risk and return• Healthy discipline on corporate borrowings• Greater credence to financial and other representation• Formation of public policy