This article is all about the need of financial institutions in the country and what is it's role in the economy.

1. NEED OF FINANCIAL INSTITUTIONS
Presented by:
V..R.Vasavi
MBA(B&F)
Erollment no:A70050219011
Amity Business school.

2. •During the 1990s, the average level of bad loans
reported by Indian banks rise to nine per cent
because of Companies that had borrowed at high
rates to build plants were hit after a post-1997
slowdown and the impact of the East Asian crisis
around the same time.
Former Governer RBI C.Rangarajan have a long argued that closing down term finance
institution was a mistake and that we need to revise these in order to facilitate long
term financing
•RBI says the recommendations of the Narasimham-II committee could be taken
forward. Besides banks, development finance institutions or DFIs, as they were
called then, such as ICICI, IDBI and IFCI too had a huge pile of bad loans. So The
Narasimham Committee-II had suggested that these institutions should either
convert themselves into banks or non-banking financial companies (NBFCs).

3. •Bank depends on deposits and they use that deposited amount to give loan for corporate and
earn profits from it by charging an interest rate.
•Financial institution depends on long term profits. They will invest in company’s equity and
gets the profits as a company profit. It gets the gains from additional income.
•Long - term finance can be defined as a financial instrument with a maturity exceeding one
year public and private equity instrument.
•Long – term finance contributes to faster growth, greater welfare. Shared prosperity and
enduring stability in two important ways: the first one is by reducing rollover risk for
borrowers and second is by increasing by the availability of long –term financial instrument it
helps the households and firm to address their life-cycle challenges
•The term of the financing reflects the risk-sharing contract between providers and users of
finance. Long-term finance shifts risk to the providers because they have to bear the
fluctuations in the probability of default and other changing conditions in the financial market
such as interest rate risk.

4. •The prevalent view is that financial markets in developing economies are imperfect, resulting
in a considerable scarcity of long term finance, which impedes investment and growth
•At the same time, research shows that weak institutions, poor contract enforcement, and
macroeconomic instability naturally lead to shorter maturities on financial instruments.
Indeed, these shorter maturities are an optimal response to poorly functioning institutions
and property rights systems as well as to instability.
•The policy focus should be on fixing these fundamentals, not on directly boosting the term-
structure of credit. Indeed, some argue that attempts to promote long- term credit in
developing economies without addressing the fundamental institutional and policy problems
have often turned out to be costly for development.
•Conclusion:
•The financial institution provides enough time for the institutions to recover their loan
because they mostly depend on the long term debt. In any scenario of the market, the
company will be able to recover to pay those loans. It will be helpful for both company
development and economic development it creates ease of getting loans to the companies
development. Due to reducing the financial institutions in the economy, it created more
stress on the companies for repayment of loans within a short period.

5. THANK YOU