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Important Financial Institutions
28 Apr 2022
Development Finance Institutions
The Need of DFIs
Classification of DFIs
| All India DFIs |
Special DFIs |
Investment Institutions |
Refinance Institutions |
State Level DFIs |
| Industrial Finance Corporation of India
Industrial Development Bank of India
Small Industries Development Bank of India (SIDBI)
ICICI
ICICI ceased to be a DFI and converted into a Bank on 30 March 2002.
IDBI was converted into a Bank on 11 October 2004. |
EXIM Bank
IFCI Venture Capitalist Fund
Tourism Finance Corporation of India.
IDFC. |
LIC
Union Trust of India.
General Insurance Corporation. |
National Housing Board.
NABARD. |
State Financial Corporation.
State Industrial Development Corporations. |
All India Development Finance Institutions
| IFCI |
ICICI |
IDBI |
SIDBI |
| IFCI was the first DFI to be setup in 1948. |
It was setup in January 1995. |
The IDBI was initially set up as a Subsidiary of the RBI. In February 1976, IDBI was made fully autonomous. |
SIDBI was setup as a subsidiary of IDBI in 1989. |
| With Effect from 1 July 1993, IFCI has been converted into Public Limited Company. |
With effect from April 2002, ICICI has been converted into a Bank. |
The IDBI was designated as apex organisation in the field of Development Financing. However, it was converted in a bank wef Oct 2004. |
The SIDBI was designated as apex organisation in the field of Small Scale Finance.The Union Budget of 1998-99 proposed the delinking of SIDBI from IDBI. |
| The key function of IFCI was; granting long-term loans(25 years and above); Guaranteeing rupee loans floated in open markets by industries; Underwriting of shares and debentures; Providing guarantees for industries. |
The key functions of ICICI were; to provide long term or medium term loans or equity participation; Guaranteeing loans from other private sources; providing consultancy services to industry. |
The key functions of IDBI were; it provides refinance against loans granted to industries; it subscribed to the share capital and bond issues of other DFIs; it also acted as the coordinator of DFIs at all India level. |
The key function of SIDBI was; to provide assistance to small scale units; initiating steps for technological up gradation and modernization of SSIs; expanding the marketing channel for the Small Scale Industries product; promotion of employment creating SSIs. |
| IFCI was a public sector DFI. |
The ICICI differed from IFCI and IDBI with respect to ownership, management and lending operation. ICICI was a Private sector DFI. |
It was a Public sector DFI. |
|
Investment Institutions
| Union Trust of India |
Life Insurance Company |
General Insurance Corporation |
| The UTI was setup on Nov 1963 after Parliament passed the UTI Act. |
LIC was set up in 1956 after the insurance business was nationalised. |
The GIC was formed by the central government in 1971. |
| The objective of UTI was to channel the savings of people into equities and corporate debts. The flagship scheme of the UTI was called Unit Scheme 64. |
The objective of LIC is to provide assistance in the form of term loans; subscription of shares and debentures;resource support to financial institutions and Life insurance coverages. |
The GIC had four subsidiaries; National Insurance Co; New India Assurance; Oriental Insurance; and United India Insurance. |
| In 2002, the Union Cabinet had decided to split UTI into UTI 1 and UTI 2 as a result of the prolonged crisis in UTI. |
|
The General Insurance Nationalisation Amendment Act, 2002, has delinked the GIC from its four subsidiaries. |
Commercial Banks
- Organised under the Banking Companies Act, 1956
- They operate on a commercial basis and its main objective is profit.
- They have a unified structure and are owned by the government, state, or any private entity.
- They tend to all sectors ranging from rural to urban
- These banks do not charge concessional interest rates unless instructed by the RBI
- Public deposits are the main source of funds for these banks
What are cooperative banks?
- Cooperative banks are financial entities set up on a co-operative basis and belonging to their members.
- This means that the customers of a cooperative bank are also its owners. They are registered under the States Cooperative Societies Act and they come under the RBI regulation under two laws:
- Banking Regulations Act, 1949
- Banking Laws (Cooperative Societies) Act, 1955
- They aim to promote savings and investment habits among people, especially in rural areas.
- These banks are broadly classified under two categories – Rural and Urban.
- The rural cooperative credit institutions can be further classified into:
- Short-term cooperative credit institutions
- Long-credit institutions
The short-term credit institutions can further be sub-divided into:
- State cooperative banks
- District Central Cooperative banks
- Primary Agricultural Credit Societies
Long-term institutions can either be:
- State Cooperative Agricultural and Rural Development Banks (SCARDBs), or
- Primary Cooperative Agriculture and Rural Development Banks (PCARDBs)
- Urban Cooperative Banks (UCBs) can be further classified into scheduled and non-scheduled.
- The scheduled and unscheduled can either be operating in a single state or multi-state
Regional Rural Banks (RRBs)
- RRBs have Scheduled Commercial Banks operating at the regional level in different states of India. They are recognized under the Regional Rural Banks Act, 1976 Act.
- They have been created with a view of serving primarily the rural areas of India with basic banking and financial services.
- However, RRBs may have branches set up for urban operations and their area of operation may include urban areas too.
- The area of operation of RRBs is limited to the area covering one or more districts in the State.
Their functions
RRBs also perform a variety of different functions. RRBs perform various functions in the following heads:
- Providing banking facilities to rural and semi-urban areas
- Carrying out government operations like disbursement of wages of MGNREGA workers, distribution of pensions etc.
- Providing Para-Banking facilities like locker facilities, debit and credit cards, mobile banking, internet banking, UPI etc.
- Small financial banks etc.
About NABARD
- NABARD is an apex development financial institution in India, headquartered at Mumbai with regional offices all over India.
- It is India’s specialised bank in providing credit for Agriculture and Rural Development in India.
- The Bank has been entrusted with “matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas in India”.
- It was established on the recommendations of B.Sivaraman Committee on 12 July 1982 to implement the NABARD Act 1981.
- NABARD supervises State Cooperative Banks (StCBs), District Cooperative Central Banks (DCCBs), and Regional Rural Banks (RRBs) and conducts statutory inspections of these banks.
About National Housing Bank
- NHB is an All India Financial Institution (AIFl), set up in 1988, under the National Housing Bank Act, 1987.
- The National Housing Policy, 1988 has envisaged the setting up of NHB as the Apex level institution for housing.
- It is an apex agency established to operate as a principal agency to promote housing finance institutions both at local and regional levels.
- It aims to provide financial and other support incidental to such institutions and for matters connected therewith.
EXIM Bank
- EXIM stands for Export-Import
- Export-Import Bank of India is a wholly-owned Govt. of India entity
- Established in 1982
- HQ : New Delhi
- Aim : financing, facilitating and promoting foreign trade of India.
- The EXIM bank extends Line of Credit (loC) to overseas financial institutions, regional development banks, sovereign governments and other entities abroad.
- Thus the EXIM Banks enables buyers in those countries to import developmental and infrastructure, equipment’s, goods and services from India on deferred credit terms.
- The bank also facilitates investment by Indian companies abroad for setting up joint ventures, subsidiaries or overseas acquisitions.
International Financial Services Centres
- IFSCs are intended to provide Indian corporates with easier access to global financial markets, and to complement and promote further development of financial markets in India.
- An IFSC enables bringing back the financial services and transactions that are currently carried out in offshore financial centres by Indian corporate entities and overseas branches/subsidiaries of financial institutions (FIs) to India.
- This is done by offering business and regulatory environment that is comparable to other leading international financial centres in the world like London and Singapore.
- The first IFSC in India has been set up at the Gujarat International Finance Tec-City (GIFT City) in Gandhinagar.
Banks Board Bureau
- Banks Board Bureau is an autonomous body of Union Government of India
It is tasked to improve the governance of Public Sector Banks, recommend the selection of chiefs of government-owned banks and financial institutions and to help banks in developing strategies and capital raising plans
- It will have three ex-officio members and three expert members in addition to Chairman
- Financial services secretary, deputy governor of the Reserve Bank of India and secretary- public enterprises are BBB’s ex-officio members
Non-Banking Financial Companies
- A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.
- A non-banking institution which is a company and has a principal business of receiving deposits under any scheme or arrangement in one lump sum or in instalments by way of contributions or in any other manner is also a non-banking financial company (Residuary non-banking company).
NBFCs are doing functions similar to banks. What is the difference between banks & NBFCs?
NBFCs lend and make investments, and hence their activities are akin to that of banks; however, there are a few differences as given below:
- NBFC cannot accept demand deposits;
- NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself.
- Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
- Unlike Banks which are regulated by the RBI, the NBFCs are regulated by multiple regulators; Insurance Companies- IRDA, Merchant Banks- SEBI, Micro Finance Institutions- State Government, RBI and NABARD.
- The norm of Public Sector Lending does not apply to NBFCs.
- The Cash Reserve Requirement also does not apply to NBFCs.
Classification and Categorization of NBFCs
| Asset Finance Company |
AN AFC is a company which is a financial institution whose principle business is the financing of physical assets such as automobiles, tractors, machines etc. |
| Investment Company |
AN IC is any company which is a financial institution carrying on its principle business of acquisitions of securities. |
| Loan Company |
LC is a financial institution whose primary business is of providing finance by making loans and advances. |
| Infrastructure Finance Company |
IFC is an NBFC which deploys 75% of its total assets in infrastructure loans and has a minimum net owned fund of Re 300 Crore. |
| Systematically Important Core Investment Company |
CIC is an NBFC carrying on the business of acquisition of shares and securities. CIC must satisfy the following conditions:It holds not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, debt or loans in group companies;
Its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its Total Assets;
(c) it does not trade in its investments in shares, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;
(d) it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI Act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies.
(e) Its asset size is ₹ 100 crore or above and
(f) It accepts public funds |
| Infrastructure Debt Fund NBFC |
IDF NBFC primary role is to facilitate long term flow of debt into infrastructure projects. Only Infrastructure Finance Companies can sponsor IDF. |
| Micro Finance NBFC |
MFI NBFC is a non-deposit taking NBFC having not less than 85% of its assets in the nature of qualifying assets which satisfy the following criteria:a) loan disbursed by a NBFC-MFI to a borrower with a rural household annual income not exceeding ₹ 1,00,000 or urban and semi-urban household income not exceeding ₹ 1,60,000;
b. loan amount does not exceed 50,000 in the first cycle and 1,00,000 in subsequent cycles;
c. total indebtedness of the borrower does not exceed 1,00,000;
d. tenure of the loan not to be less than 24 months for the loan amount in excess of 15,000 with prepayment without penalty;
e. loan to be extended without collateral;
f. aggregate amount of loans, given for income generation, is not less than 50 per cent of the total loans given by the MFIs;
g. loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower |
