Financial Banking Institution in India

Finance

It is the procurement ( to get, obtain ) of funds and effective utilisation of funds. It is the science that describes the management, creation and study of money, banking, credit, investments, assets and liabilities. Finance consist of financial system which include the public, private and government space and the study of finance and financial instruments, which can relate to countless assets and liabilities.

Categorisation of Finance

Finance can be categorized into three types according to their objectivity –

1. Short – Term Finance : It is often referred to as bridging finance, usually refers to loans mostly offered on terms of up to 12 months.

2. Mid -Term Finance : This type of finance is given for longer period. It is for period saying from 12 month to 5 years Prominently is given for machines, land separation etc.

3. Long Term –  Finance : These are given for term extendind more than 5 years. It is given four creating permanent structures.

Financial Institutions

Financial institutions of indian money market are divided into organise sector and unorganised sector

Organised Sector: 

Organised sector of india money market is that sector whose part and activities are systematically co-ordinate by the monetary authority.

It comprises of the following institutions

• Reserve Bank of India – At the apex of India, money market is the Reserve Bank of India. It is the Central Bank of the country.

• Commercial Bank – The Commercial Bank dominate the organised sector It includes Public Sector Banks ( State Bank of India +its Associate Banks + Nationalised Banks + Regional Rural Banks Private Sector Banks ( Scheduled Banks + Banks + Non – Scheduled Bank + Foreign Banks ).

• Co – operative Bank – They are a part of co – operative credit institution that have a three- tier structure. At the top, there are State Co – operative Banks. At the district level, there are Central Co – operative Banks. At local level, there are Rural Primary Co – operative Banks and Urban Co – operative Banks.

Unorganised Sector

The unorganised market is that market whose activities are not systematically coordinated by the monetary authority. It is largely made up of indigenous banking, moneylenders, Chit funds, Nidhis etc.

Financial Instrument

Financial instruments provides short – term credit. These include Bills, Treasury Bills, Promissory Notes, Hundis, Certificate of Deposit (CD) and Commercial Papers.

Source of Finances

There are two types of sources

1. Institutional sources

2. Non – institutional sources

Institutional Sources

The organisation and institutes which are established to provide loan are called institutional sources of finance. The main purpose of these institution are to arrange the finance. Insurance companies, banks, co – operative societies UTI are the some example of financial institutions.

Non – Institutional sources

Loan take from friends, relatives, money lenders, mahajans are called non-institutional sources of finance.

Financial Institution for Agriculture

For the purpose of giving loans to agricultural sector, many financial institutions have been created jointly by government of india and RBI. Few of these institutions are co – operative bank like RRBs, NABARD etc.

Commercial Bank

From 1st February 1969 , the government imposed social control on banks by introducing certain provisions in the Banking Regulation Act, 1949. It impose servers restriction on the composition of the Board of Directors and internal management and administration of banking companies.

These were intended to ensure that the bank advance were not confined to large scale industries and big business houses, but were also directed, in due proportion to other important sectors like agriculture, small scale industries and exports.

Co-operative Credit Societies

In India, Co – operative Banking are registered under the Co – operative Societies  Act, 1912. They generally give credit facilities to small scale industries etc. Co – operative Banks are in rural as well as in urban areas. The function of these banks are just similar to that of commercial Banks.

Land Development Bank

Space type of credit societies called Land Development Bank have been formed to meet the long – term credit requirement of farmers. These banks are now called state co – operative Agricultural and Rural Development Bank (DB).These bank were first established in the Jhang area of undivided Punjab and were called land mortgage bank. But it real start corresponding to the year 1929 , when one central land development bank was opened in Madras. The bank size long term loan against mortgage of land.

Lead Bank Scheme

The lead bank role is to act as a consortium leader for co – coordinating the efforts of all credit institutions in each of the allotted districts for expansion of branch banking facilities and for meeting the credit needs of the rural economy.

For the preparation of District Credit Plans and monitoring their important action a Lead Bank office ( LBO) now designated as Land District Manager was appointed in 1979.

Regional Rural Bank (RRB)

In 1976, the parliament enacted the Regional Rural Banks Act, 1976 to provide for the incorporation, regulation and winding up of Regional Rural Banks. The Act has been made effective from the 26th September, 1975.

At present there are 82 Regional Rural Banks in 27 State and UTS. The state and UTS, where there is no presence of RRBs are Goa, Sikkims, Delhi, Chandigarh, Andaman and Nicobar Islands, Lakshadweep , Dadra and Nagr Haweli, Daman and Diu. The equity of the RRBs is contributed by the Central Government, concerned State Government and the sponsor bank in the proportion of 50:15:35.

First Five RRBs

• Moradabad ( UP)

• Gorakhpur ( UP)

• Bhiwani ( Haryana )

• Jaipur ( Rajasthan )

• Malde ( Paschim Banga )

Important committees of Regional Rural Bank

Committee on Rural Bank ( Dantwala Committee, 1978 ) Commercial Banks functioning in the area of operations of RRBs should progressively entrust the credit business of their rural branches to RRBs keeping in view the capacity of RRBs to shoulder responsibility.

Committee to Review Arrangement for Institutional Credit for Agriculture and Rural Development ( CRAFICARD , 1981 ) The losses incurred by a RRB should be made good annually by the shareholders in the same proportion of their shareholdings.

Agricultural Credit Review Committee ( ACR, 1989 ) The committee noted that major factor which contributed to the erosion of RRBs’ margins and high operating costs involved in handling of small loans.

Advisory committee on Flow of Credit to Agriculture and Related Activities ( Dr Vyad committee, 2004 )

The main recommendations of this committee are

All RRBs in the North Eastern state be merged into a Zonal bank on stand alone basis, the equity of which is to be provided by NABARD, SBI and UBI in the ratio of 26:37:37 through a holding company.

• Rural Infrastructure Development Fund was set -up in 1995 – 93, under NABARD for holistic rural development.

• At present there are 82 RRBs in 27 states and UTS except Goa, Sikkim, Delgi, Chandigarh, Andaman and Nicobar Island, Dadar Nagar Haweli, Daman and Diu.

National Bank for Agricultural and Rural Development ( NABARD )

It is one of the subsidiaries where the majority stake is held by the Reserve Bank. NABARD is an apex development bank which a mandate for faciliting credit flow for poromotion and development of agriculture, small scale industries, cottage and village industries, handicrafts and other rural crafts. It also has the mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas.

Kisan Credit Card Yojana

It was started by hol RBI and NABARD in August, 1998 to help the farmers across timely and adequately credit. Since, 1998 about 10.78 crore KCCS has been issued upto outline, 2011.

Development Banks RIFD

( Rural infrastructure  Development Fund )Deficient, Rural infrastructure hinders both social and economic development. Economist have explicitly emphasised on the directs correlation between the index of infrastructure development and rural development. NABARD’s support to State Goverments through RIDF since, 1995 – 96 has brought about a sea changes in the shape of upgraded infrastructure in rural areas. Rural roads and bridges undet RIDF have improved market access to farmers check dams and irrigation structures have augmented their water resources.

Priority sectors Lending policy ( PSLP )

RBI introduced the system of priority sector lending to ensure that bank increase their involvement in the financing of priority sectors like agriculture, small industries etc.

Presently, all domestic Commercial Bank and Foreign Banks with more than 20 branches are to lend 40 ℅ of their adjusted Net Bank Credit to priority sector. Banks who fail to achieve priority sector target have to contribute funds to financial institutions like SIDBI / RIDF etc as specified by RBI.

Financial Institution for Industries

Public Issues – Capital market constitutes primary ( new issue market ) and secondary ( stock ) market. The primary market helps the public and private sectors companies in raising finance mainly for their new projects, expansion, modernisation and acquisitions.

Secondary market provides liquidity for the financial instrument ( equity, preference share, debenture/land ) through adequate market ability and price continuity. The array of financial sector. As per new guidelines issued by SEBI Companies are required to list share within 21 day of the closure of IPD.

Public Deposits

Public deposits are an important source of financing the medium – term and long – term requirement of company through deposit of loan collected from public, employees and shareholder of company, but excludes the money received in the form of shares and debentures.

Commercial Banks

Banks are the dominant financial intermediaries in developing countries like India. It is an important source of industrial finance. The dependence on bank finance could vary according to the size of the companies. The small scale industries unit have increased their dependence on banks for loans because they have virtually no access to capital market.

Industrial Bank

Small Industrial Development Banks of India ( SIDBI ), set – up on 2nd April 1990 under an Act of Indian Parliament.

Function presently acts as the Principal Financial Institution for the Promotion, Financial Institution for the Promotion, Financing and Development of the Micro, small and Medium Enterprise ( MSME ) sector and also co – ordinates the functions of the institutions engaged in similar activities. SIDBI also extends financial assistance in the form of loans, grants, equity and quasi – equity to Non Government Organisation/ Micro finance Institutions (MFIs) for on – lending to micro enterprise and economically weaker sections of the society enabling them to take up income generating activities on a sustainable basis.

Financial Institution for Specific Areas

Export – Import Bank of India ( EXIM) Exim Bank of India is the premier export finance institution in India, established in 1982 under the Export – Import Bank of India Act 1981.

Function : Exim Bank of India has been both a catalyst and a key player in the promotion of cross border trade and investment. Commencing Operations as a purveyor of export credit, Exim Bank of India has , over the period, evolved into an institution that plays a major role in partnering Indian industries, particularly the small and medium enterprises, in their globalization efforts, through a wide range of products and services offered at all stage of the business cycle, starting from import of technology and export product development to export production, export marketing, pre – shipment and post – shipment and overseas investment.

Unit Trust of India (UTI)

Unit Trust of india is a financial organization in India, which was created by the UTI Act passed by the parliament in 1963 ( 30th December, 1963).

UTI Banks changed its name to Axis Bank effective 1st August, 2007.

Function : It offers financial services to customer segment covering large and mid – Corporates, MSME, agriculture and retail businesses.

Indian Industrial Development Bank of India ( IDBI )

It was established in 1964 by an Act of Parliament.

Function : To  provide credit and other facilities for the development of the fledgling India industry. IDBI Bank is one a par with nationalised banks and the SBI Group as far as government ownership is concerned.

Industrial Credit and Investment Corporation of India ( ICICI )

ICICI Banks was established by the Industrial Credit and Investment Corporation of India , an Indian financial institution, as a wholly owned subsidiary in 1955.

Function : It offers a wide range of banking product and financial service to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries in the areas of investment banking, life, non-life insurance, venture capital and asset management.

National Housing Bank ( NHB )

It was set -up on 9th July, 1988 under the National Housing Bank Act, 1987 as a wholly – owned subsidiary of the Reserve Bank to act as an apex level institution for housing.

NHB has been established to achieve, among other things, the following objectives are as follows

• To provide a sound, healthy, viable and cost effective housing finance system to all segment of the population and to integrate the housing finance system with the overall financial system

• To promote a network of dedicated housing finance institutions to adequately serve various regions and different income groups.

• To augment resource for the sector and channelise them for housing.

• To make housing credit more affordable.

• To regulate the activities of housing finance companies based on regulatory ) and supervisory authority derived under the Act.

• To encourage augmentation of supply of building land and also building materials for housing and to upgrade the housing stock in the country.

• To encourage public agencies to emerge as facilitation and suppliers of serviced land for housing.