3. Definition
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
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4. 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 4
5. Classifications of Financial Institutions
Financial Institutions in India
are divided in two categories.
1.Regulatory institutions
Reserve Bank of India (RBI)
Securities and Exchange Board of India (SEBI)
Central Board of Direct Taxes (CBDT)
Central Board of Excise & Customs
2.Intermediaries.
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6. Classifications of Financial Institutions
Intermediaries.
Unit Trust of India (UTI)
Securities Trading Corporation of India Ltd. (STCI)
Industrial Development Bank of India (IDBI)
Industrial Reconstruction Bank of India (IRBI), now (Industrial
Investment Bank of India)
Export - Import Bank of India (EXIM Bank)
Small Industries Development Bank of India (SIDBI)
National Bank for Agriculture and Rural Development
(NABARD)
Life Insurance Corporation of India (LIC)
General Insurance Corporation of India (GIC)
Shipping Credit and Investment Company of India Ltd. (SCICI)
Housing and Urban Development Corporation Ltd. (HUDCO)
National Housing Bank (NHB) 6
7. Classifications of Financial Institutions
Banking Institutions and Non Banking
Institutions
All India Institutions
State level institutions
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8. 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.
The banking institutions of India play a major role in
the economy of the country. The banking institutions
are the providers of depository and transaction
services. These activities are the major sources of
creating money. The banking institutions are the
major sources of providing loans and other credit
facilities to the clients.
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9. Non Banking Financial Institutions(NBFC)
.
An Institution which carried on as its business or part of its
business the following activities:
- financing
- acquisition of securities
- hire purchase
- insurance
- chit fund
- mutual benefit company
But does not include Institutions which carries on as its
principal business:
- agricultural operations,
- industrial activities
- Sale and purchase of goods
- providing of services
- purchase, sale and construction of
immovable property 9
10. All India Institutions
Industrial Finance Corporation of India (IFCI)
First all India term- lending institution
Set-up in 1948
provide institutional credit to medium and large
industries.
Head Quarters - New Delhi
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11. Industrial Finance Corporation of India (IFCI)
Project financing
Medium/Long term credit for setting up new project
Expansion schemes
Financial assistance by way of rupee loans
Loans in foreign currencies
Underwriting of direct subscription of
shares/debentures.
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12. Industrial Finance Corporation of India (IFCI)
Sources of Funds are
• Paid up capital
• Reserves
• re payment of loans
• market borrowing, loans from government of India
• advances form Industrial Development Bank of India
• foreign lines of credit from KFW (west Germany) FFCE
( France) ODA (UK)
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13. Functions of IFCI
For setting up a new industrial undertaking.
For expansion and diversification of existing
industrial undertaking.
For renovation and modernisation of existing
concerns.
For meeting the working capital requirements of
industrial concerns in some exceptional cases.
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14. Industrial Credit and Investment Corporation of India
(ICICI)
India's largest bank in the private sector
second largest Indian bank including all public and
private enterprises
incorporated in 1994.
first Indian company to raise funds from
international markets
network of 1308 branches
3950 ATMs
subsidiaries in uk, russia, canada, singapore etc
launched private banking in 2002.
Head Quarters - Mumbai
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15. Industrial Development Bank of India (IDBI)
Established in 1964 as a subsidary of RBI
Appex term financial lending institutions in India
Direct finance to industry
Supports State financial corporations , SIDC,
commercial banks
Head Quarters - Mumbai
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16. Industrial Development Bank of India (IDBI)
Assistance from IDBI
Direct:
1. By subscription to share capital and debentures
2. Rupee loans and foreign currency loans
3. Underwriting of issues.
Indirect:
1. Refinance facilities to state level institutions and
commercial banks
2. Bill re-discounting facility
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17. Industrial Development Bank of India (IDBI)
Resources of IDBI are:-
Paid up capital
Reserves
Repayments of loans
Market borrowings
Temporary credit from RBI
Foreign lines of credit from world bank, ADBI and
others
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18. Small Industries Development Bank of India
(SIDBI)
The Small Industries Development Bank of India
(SIDBI) is a wholly owned subsidiary of IDBI.
SIDBI has been set up to provide services to the
small scale industrial units (SSIs).
Services of SIDBI are similar to the IDBI, but is
meant for SSIs whereas IDBI is intended for medium
and large scale sector
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19. Life Insurance corporation of India (LIC)
Founded in 1956
Largest insurance co. in India Owned by
Government
8 zonal offices
100 Divisional offices
2048 Branch offices
100,21,449 Agents
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21. State Financial Corporations
In order to meet the financial requirements of
small scale and medium-sized industries, there
was a need of special financial institutions. With
this view, the Central Government passed the
State Financial Corporation Act of 28th
September, 1951 which empowered the state
government to establish financial corporation to
operate within the state
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22. State Financial Corporations
Objectives
To establish uniformity in regional industries,
To provide incentive to new industries,
To bring efficiency in regional industrial units,
To provide finance to small-scale, medium sized
and cottage industries in the state,
To develop regional financial resources.
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23. State Financial Corporations
Functions
To provide loans for a period not exceeding 20 years to
industrial units.
To underwrite the issue of shares, debentures and
bonds for a period not exceeding 20 years of industrial
units.
To give guarantee to loans taken by industrial units for
a period not exceeding 20 years.
To make payment of capital goods purchased in India
by these industrial units.
To subscribe to the share capital of the industrial units,
in case they wish to raise additional capital.
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24. Kerala State Industrial Development Corporation
• Industrial and investment promotion agency of the
Government of Kerala
• promotion and development of medium and large
scale units in the State of Kerala
• Nodal Agency for foreign and domestic investments
in Kerala
• provides support for investors, besides processing
various incentive schemes and facilitating
interaction between the government and the
industrial sector.
• Established in 1961, KSIDC is led by a group of
professionals from various fields including
Engineering, Management, Finance and Law. 24
25. Kerala State Industrial Development Corporation
Areas of focus
Identification of Investment Ideas
Translating ideas into concrete proposals
Feasibility Study, Project Evaluation
Financial Structuring, Loan Syndication
Assisting in Central and State Govt. Clearances
Development and Administration of Growth Centers
Industrial and Infrastructure development
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27. specialized financial institutions
The special purpose finance institutions, IRBI
provides finance for rehabilitation of sick units,
which show signs of recovery.
EXIM Bank provides finance and other related
services for import and export of goods and for
export project. It functions as a coordinating agency
in export finance.
ECGC provides the credit insurance cover against
the commercial and other risks inherent in the
exports
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28. Forms of Assistance
Direct financial Assistance
Fund based assistance
Rupee term loans
Foreign currency term loans
Subscription to equity shares
Seed capital
Indirect Financial Assistance
Deferred payment guarantee
Guarantee for foreign currency loans
underwriting
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29. Direct financial Assistance
Fund based assistance
provided in both rupees and in foreign currency.
Apart from this, funds are provided by subscription to
the equity shares of the company.
Rupee term loans
extended for site, construction, factory and other
buildings
purchase of plant and machinery, as well as, for technical
know how, preliminary and pre-operative expenses,
and margin money for working capital.
Generally, the repayment period is five to fifteen years
with an initial moratorium of six months
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30. Direct financial Assistance
Foreign currency term loans
fund the acquisition of fixed assets like plant and
machinery, as well as to acquire technical know how
from foreign suppliers
Subscription to equity shares
This form of assistance is available to the project only
when institutions are sure that the project is not able
to take any more debt, although the proposed venture
is worthwhile. It is often a very small part of the
project cost
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31. Direct financial Assistance
Seed capital
All borrowers have to submit their proposals, through
their respective SFCs and SIDCs. This assistance
carries interest as low as one percent, and can be
payable on easy terms, subject to the applicability of
certain conditions.
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32. Indirect Financial Assistance
Deferred payment guarantee
Financial institutions provide this deferred credit facility
to the equipment suppliers on behalf of their clients and
charge guarantee commission to the client. Guarantee is
provided for the purchase of both indigenous and
imported equipment. Most scheduled banks and co-
operative banks provide this facility
Guarantee for foreign currency loans
This kind of guarantee is provided to the client as raised
term loans from overseas market, directly.
Underwriting
The process by which investment bankers raise
investment capital from investors on behalf of
corporations and governments that are issuing
securities (both equity and debt). 32
34. Term Loan procedure
Submission of loan application
Initial processing of loan application
Appraisal of the proposed project
Issue of the letter of sanction
Acceptance of the terms and conditions by the
borrowing unit
Execution of the loan agreement
Disbursement of loans
Creation of security
Monitoring
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35. Project appraisal
Systematic and comprehensive review of the
economic, environmental, c financial, social,
technical and other such aspects of a project to
determine if it will meet its objectives.
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