2. WHAT ARE FINANCING INSTITUTES
• A financial institution (FI) is a company engaged in the business of dealing with financial and
monetary transactions such as deposits, loans , currency exchange and investments.
• Financial institutions include a broad range of business operations within the financial services
sector, including banks, insurance companies, brokerage firms, and investment dealers.
• Financial institutions carry a broad range of business operations within the financial services
sector including banks, insurance companies, brokerage firms, and investment dealers.
• Financial institutions vary by size, scope, and geography.
3. Advantages
Credit Creation: The existence of a financial institution is a kind of security that ensures that less
money is left unused in an economy. This means that financial institutions are intermediaries
between the savers and the borrowers.
Provide Funds: Financial institution is a good source of medium and long-term finance. They
provide both owned and borrowed capital to the organization.
Economic Development: Financial institution promotes economic development in an economy by
way of funding all the development plans of government and private organizations.
Infrastructural Development: The establishment of financial institutions builds a strong banking
base in an economy. Besides this, it offers all the financial services needed for the development and
promotion of other infrastructures, like industries, roads, hospitals, educational institutions, etc.
Promotes Regional Balances: Financial institution takes up their social responsibility to establish
their units in backward areas to uplift these areas by educating and providing basic monetary
services to people.
Employment Generation: Financial institution provides all necessary funding to build and develop
industries and infrastructure in a country. This creates new employment opportunities for the
available manpower.
4. Disadvantages
Complex Process: The process of granting loans by Financial Institutions is rigid and involves
lots of paperwork. This makes the process time-consuming and expensive.
Restriction on the Borrower: The financial institutions have a right to have their nominee on
the Board of Directors of the borrowing company, which restricts the power of the company.
Besides this, they may directly interfere with the dividend distribution decision of the
borrowing company.
System of Collateral Securities: Financial institutions are governed under strict rules of the
Government, which requires them to grant loans only against some security. Due to this,
sometimes deserving organisations fail to get financial assistance due to a lack of security.
5. Housing and Urban Development
Corporation (HUDCO)
1. HUDCO is a public sector owned by Govt. of India for
financing of housing and urban infrastructure activities
in India.
2. It was incorporated on April 25, 1970 under the
Companies Act 1956.
3. Objective of HUDCO is to undertake housing and urban
infrastructure development programmes in the country
4. Provide long-term finance for construction of houses for
residential purposes in urban & rural areas and finance.
5. Setting up of the new or satellite towns and industrial
enterprise for building material.
6. It mobilizes financial resources from institutional
agencies like LIC, GIC, UTI, commercial banks,
international assistance as well as through public
deposits.
SOURCE - https://www.hudco.org.in/
Sabarmati Riverfront in Ahemdabad
Cochin International Airport
6. Housing Development Finance
Corporation
HDFC is a unique example which has the viability of market-oriented housing finance in a
developing country.
It is an innovative institution and a market leader in the housing finance sector in India.
HDFC is a model private sector housing finance company in developing countries and a
provider of technical assistance for new and existing institutions
The HDFC advances housing loans to individuals for
(a) buying or constructing houses
(b) extension or improvement of existing houses
(c) acquiring self-contained flat in an existing or proposed cooperative society
(d) independent bungalow / row house.
Loan can be availed of up to a maximum of 85% of the cost of the property including the cost
of land.
The maximum loan to an individual can be Rs. 25 Lakh.
Although the equated monthly installment of repayment is over 15 year’s period, the
repayment does not ordinarily extend beyond the age of retirement or 65 years of age of the
borrower.
7. Specialized Housing Finance Institutions
1. Certain institutions like ‘Specialized HFI’, cater only
to the needs of the housing sector.
2. They can further be classified as housing finance
companies promoted in the public / private / joint
sectors and cooperative housing finance societies.
3. A lead player in Housing Finance Company (HFC)
category is the HDFC Ltd.
4. Besides the HDFC, a number of HFCs have been
sponsored by banks such as SBI Home Finance Ltd,
Canfin Homes Ltd, IndBank Housing Finance Ltd,
Citihomes, Vijaya Home Loans etc.
8. NATIONAL HOUSING BANK
The National Housing Bank (NHB) is a state owned bank and regulation authority in India,
created on July 8, 1988. It is owned by the Reserve Bank of India, was established to promote
private real estate acquisition.
NHB has been established with an objective to operate as a principal agency to promote
housing finance institutions both at local and regional levels and to provide financial and other
support incidental to such institutions and for matters connected therewith.
Apart from the premier institutions like Housing Development Finance Corporation Ltd (HDFC)
and LIC Housing Finance Ltd, it extends support to other housing finance institutions like Can-
Fin Homes Ltd, GIC Grih Vitta Ltd., SBI Home Finance Ltd., etc. who extends housing loans to
individuals and group housing schemes.
Reserve Bank of India gives directives to different private sector banks as well as public
housing finance companies for Home Loans.
COOPERATIVE BANK
• The cooperative banking sector consists of State Cooperative Banks, district central
cooperative banks and primary urban cooperative banks.
• Cooperative banks finance individuals, cooperative group housing societies, housing
boards and others who undertake housing projects for Economically Weaker Sections
(EWS), Lower Income Group (LIG) and Middle Income Group (MIG).
9. INSURANCE ORGANIZATION/CORPORATION
The Life Insurance Corporation (LIC) and Group Insurance
Corporation (GIC) support housing activity both directly and
indirectly.
The LIC promoted a subsidiary for the purpose, namely the LIC
Home Finance Ltd.
The GIC supports housing almost exclusively indirectly by
subscribing to bonds/debentures floated by the HUDCO and state
housing boards.
A housing finance subsidiary called the GIC Housing Finance Ltd.,
in July1990 to enable it to lend directly to individuals.
