Banking and Non-Banking Financial Institutions

Finance refers to funds needed to carry out production activities.

Funds are needed for meeting current requirements or day to day expenses and for buying capital goods. A business unit, factory or a workshop needs funds for paying wages and salaries for buying raw materials.

Institution that meet all such requirements of finance are called financial institutions.

Financial institutions in India

Non-Banking financial Institutions.Non-banking Financial Institutions carry out financing activities but their resources are not directly obtained from the savers as debt. Instead, these Institutions mobilize the public savings for rendering other financial services including investment. All such Institutions are financial intermediaries and when they lend, they are known as Non-Banking Financial Intermediaries (NBFIs) or Investment Institutions. Eg:UNIT TRUST OF INDIA LIFE INSURANCE CORPORATION (LIC) GENERAL INSURANCE CORPORATION

(GIC)

Commercial Banks

Commercial banks offer a wide range of corporate financial services that address the specific needs of private enterprise.

They provide deposit, loan and trading facilities but will not service investment activities in financial markets.

The term commercial bank is used to differentiate these banks from investment banks, which are primarily engaged in the

financial markets. Commercial banks are also

differentiated from retail banks that cater to individual clients only.

For eg: Citigroup HSBC Bank

FUNCTIONS OF A COMMERCIAL BANK:

Primary Functions:

I- ACCEPTING DEPOSITS:

a) Saving Account Deposits.b) Fixed Deposits.3) Call Deposits.

II- PROVIDING LOADS AND ADVANCES:

a) Call loans.b) Short Term loans.c) Medium Term loans.d) Long Term loans.

Secondary Functions:

I- AGENCY SERVICES.II- GENERAL UTILITY SERVICES.

CENTRAL BANKS:

A central bank is a public institution that usually issues the currency, regulates the money supply and controls the interest rates in a country.

Central Banks also often oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on printing the national currency, which usually serves as the nation's legal tender. 

EG: RBI

The Reserve Bank of India was established in 1935 as a private shareholder's bank. It is the apex bank in the banking structure and leader of the money market.

The functions of RBI are as follows: Monopoly of note issue: The RBI has the sole right of note issue. All

currency notes except 1 rupee note and coins are issued by the Issue Department of the Central Bank.

Banker to the Government: The RBI is the banker agent and advisor to

the Government. It accepts deposits and makes payment on behalf of the Government.

Banker's Bank: RBI acts as a banker for all commercial

banks. All scheduled banks come under the direct control of RBI.

Credit control: The central bank uses both quantitative and

qualitative weapons to control credit. Credit control is said to be one of the principal functions of the RBI as it helps the bank to ensure exchange rate stability and price stability.

MUTUAL FUNDS SECTOR:

It is defined as an intermediary which performs the function of buying and selling securities on behalf of its unit holders. They are also known as thematic funds.

Mutual funds have been a significant source of investment in both government and corporate securities.

Thus, mutual fund collects money from investors and invest the funds on behalf of the unit holders.

SEBI regulates the functioning of mutual funds, and it requires that all MFs should be established as trusts under the Indian Trusts Act.

Mutual Funds offer a variety of schemes:

Open ended funds Under this, the units are sold and redeemed on a continuous basis. The price is determined on the basis of the Net asset value of the fund. Close ended funds Here, fixed number of units are sold at the time of offering the issue of the public. They have a lock-in period and offer assured dividend. Venture capital funds

Specialized funds

Fund of funds

Association of Mutual Funds in India (AMFI) has got its new chairman.

This position at AMFI was vacant since departure of U K Sinha from the association to become the chief at market regulatory body Security and Exchange Commission of India (SEBI).

The new chairman at the AMFI is Milind Barve.

Milind Barve is serving as Managing Director of HDFC Asset Management Company.

INSURANCE SECTOR:

The insurance sector is another major component of the non-banking financial sector.

It provides security by reducing risk and promotes the welfare of the people.

The funds collected by it in the form of premium are invested productivity.

They provide long term capital to the industrial sector thereby help in industrialization of the economy.

The first insurance company by name the oriental life insurance company was established in India in 1818.

LIC came into existence in 1956 due to the nationalization of private and foreign insurers. The General Insurance Corporation was established in 1972.

Insurance Sector provides many insurance like health, general and life insurance etc.

The first insurance company by name the Oriental Life Insurance Company was established in India in 1818. Life Insurance Corporation Of India came into existence in 1956 due to the Nationalization of private and foreign Insurers. The insurance sector in India has gone through many changes and at present, is one of the emerging sectors of the economy promising faster growth.

Facts about LIC:

Presented by:170.Shraddha Singh174. Rehman Khan175. Rudolph Pereira 176. Pradeep Sode178. Sanah Suvarna M.V.L.U College of Arts, Science and Commerce.

Thank you !!!