FINANCIAL INSTITUTIONS : FINANCIAL INSTITUTIONS BY - NEHA SINGHAL FINANCIAL INSTITUTIONS : FINANCIAL INSTITUTIONS The Indian financial system can broadly classified into the following groups:-
Organized sector; &
The organized financial system comprises the: banking system, the co-operative system, development banking system, money markets, financial companies/institutions.
The unorganized financial system comprises if moneylenders, indigenous bankers, lending pawnbrokers, landlords, traders, etc. investment companies, chit fund, etc. the central bank or govt. does not regulate these in a systematic manner. HISTORY : HISTORY The journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below:
Early phase from 1786 to 1969 of Indian Banks.
Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms.
New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991. APEX BANKING INSTITUTES : APEX BANKING INSTITUTES Established in 1935;
Monopoly on issue of banknotes;
The government’s banker & the banker’s bank (“lender of last resort);
Manages country’s foreign exchange & gold reserves;
Regulation & supervision of banking industries;
Manages inflation in a the country; etc. Established on 9th July 1988 under the National Housing Bank Act,1987;
Issue directions to housing finance institutions to ensure their growth on sound lines;
Make loans & advances and render any other form of financial assistance to scheduled banks and housing finance institutions; etc.
Various HFCs are as follows:-
SRG Housing Finance Ltd. – raj(Udaipur);
GE Money Housing Finance-delhi;
Haware's Housing Development Finance Corporation Ltd. –maharashtra;
Inara Housing Finance Limited.-gujrat; etc. RBI-RESERVE BANK OF INDIA NHB-NATIONAL HOUSING BANK COMMERCIAL BANKS : COMMERCIAL BANKS A commercial bank is a type of financial intermediary;
Issuing bank drafts and bank cheques;
lending money by overdraft, installment loan, or other means;
safekeeping of documents and other items in safe deposit boxes;
It provides Loan options that include secured loans, unsecured loans, and mortgage loans; etc. PUBLIC SECTOR BANKS : PUBLIC SECTOR BANKS After independence the largest commercial bank-Imperial bank of India was nationalized & the first public sector commercial bank-SBI was set up in 1955;
To provide strong base to SBI, 7 princely banks were Nationalized as its subsidiaries;
They are as follows:-
SB of Bikaner & Jaipur;
SB of Indore;
SB of Patiyala;
SB of Travancore;
SB of Mysore;
SB of Saurashtra; &
SB of Hyderabad. The successful working of SBI was realized that banks can work in a better way when they are in Public Sector to provide credit facilities to rural areas;
Consequently, 14 major commercial banks with their deposits of RS. 50 crore or more were Nationalized on 19th july,1969;
The success motivated to nationalize 6 more large commercial banks having total deposit of Rs. 200 crore or more in 1980;
The 19 nationalized banks are as follows:-
Andhra Bank SBI & SEVEN SUBSIDIARIES 19 NATIONALIZED BANKS Bank of Baroda
Bank of India
Bank of Maharashtra
Central Bank of India
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Union Bank of India
United Bank of India
Vijaya Bank PRIVATE SECTOR BANKS : PRIVATE SECTOR BANKS Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India(RBI) Act, 1934;
Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs;
"Non-scheduled bank in India" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank. SCHEDULED & NON-SCHEDULED BANKS OF INDIAN SCHEDULED BANKS IN INDIA : SCHEDULED BANKS IN INDIA • State Bank of India
• State Bank of Bikaner and Jaipur
• State Bank of Hyderabad
• State Bank of Indore
• State Bank of Mysore
• State Bank of Saurashtra
• State Bank of Travancore
• Andhra Bank
• Allahabad Bank
• Bank of Baroda
• Bank of India
• Bank of Maharashtra
• Canara Bank
• Central Bank of India
• Corporation Bank; Eetc. • ING Vysya Bank Ltd
• Axis Bank Ltd
• Indusind Bank Ltd
• ICICI Bank Ltd
• South Indian Bank
• HDFC Bank Ltd
• Centurion Bank Ltd
• Bank of Punjab Ltd
• IDBI Bank Ltd
• Jammu & Kashmir Bank Ltd. PUBLIC SECTOR PRIVATE SECTOR FOREIGN BANKS • American Express Bank Ltd.
• ANZ Gridlays Bank Plc.
• Bank of America NT & SA
• Bank of Tokyo Ltd.
• Banquc Nationale de Paris
• Barclays Bank Plc
• Citi Bank N.C.
• Deutsche Bank A.G.
• Hongkong and Shanghai Banking Corporation
• Standard Chartered Bank.
• The Chase Manhattan Bank Ltd.
• Dresdner Bank AG. PRIVATE SECTOR BANKS : PRIVATE SECTOR BANKS Foreign Banks are not new phenomena in Indian bank in system. Standard Charted Bank started its operation in 1858 and Citi Bank opened its branch in India in 1902;
Similarly Hong Kong and Shanghai Banking Corporation is functioning in India since 1953;
Foreign banks in India have brought the latest technology and new banking practices. This helped the domestic banks to improve their performance and provide better customer service. Due to their fast and efficient working style and better customer service foreign banks in India captured a large customer base;
Present there are 29 foreign banks are operating in India and some of the important foreign banks in India are:
Abu Dhabi Commercial Bank
Bank of Ceylon
BNP Paribas Bank
China Trust Commercial Bank
JPMorgan Chase Bank
Standard Chartered Bank
Taib Bank Foreign exchange banks throughout the world participate and play a big role in forex;
Apart from normal banks, central banks also participate in the foreign exchange market to regulate currencies in protection of their economy. Central banks or and national banks serve a dominant role in controlling inflation, interest rates and money supply;
Following are the foreign exchange banks in india:-
The Development Bank of Singapore Ltd.
HDFC Bank Ltd.
ABN AMRO Bank N.V.
Abu Dhabi Commercial Bank Ltd.
American Express Bank Ltd.
Federal Bank Ltd.; etc. FORIGN BANKS FOREIGN EXCHANGE BANKS COMMERCIAL BANKS COMMERCIAL BANKS : COMMERCIAL BANKS Lack of well trained & efficient employees;
Inadequate capital & deposits;
Neglecting rural areas;
Political & administrative interference; etc. Recruitment of well educated & efficient employees;
Effective bank management;
Increase in capital & other resources;
Branch expansion in rural areas;
Least political & administrative interference;
Effective internal Audit, inspection & management;
Review & updated banking laws; etc. PROBLEMS REMEDIAL MEASURES SPECIALIZED FINANCIAL INSTITUTES : SPECIALIZED FINANCIAL INSTITUTES Slide 15: Export-Import Bank of India is the premier export finance institution of the country, set up in 1982 under the Export-Import Bank of India Act 1981;
Government of India launched the institution with a mandate, not just to enhance exports from India, but to integrate the country’s foreign trade and investment with the overall economic growth. IDFC is India’s leading financial institution at the forefront of developing infrastructure through its presence across financing, advisory, investment banking, development and asset management functions related to the sector. EXIM BANK IDFC –INFRASTRUCTURE DEVELOPMENT FINANCE COMPANY LTD. IFCI VENTURE CAPITAL FUNDS : IFCI VENTURE CAPITAL FUNDS IFCI Venture Capital Funds Ltd was set up by IFCI Ltd in 1975 as Risk Capital Foundation with a view to widen the entrepreneurial base by providing start up capital for setting up Green Field projects
The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as biotechnology, IT, Software Slide 17: Since its inception IFCI Venture has provided the start-up capital and venture funding to over 400 entrepreneurs.
Venture Capital provides long-term, committed share capital, to help unquoted companies grow and succeed.
Difference between VC and private equity:
Private equity refers to equity or quasi-equity investments in high-growth companies and includes buyouts, mezzanine financing, privatization and public as well as private deals. Slide 18: The private equity asset class includes venture capital, buyouts, and mezzanine investment activity.
venture capital focuses on investing in private, young, fast growing companies, private equity players largely provide mezzanine or bridge funding
What kind of businesses are attractive to venture capitalists:
Venture capitalists prefer to invest in "entrepreneurial businesses". This does not necessarily mean small or new businesses. ICICI VENTURE LTD. : ICICI VENTURE LTD. It formerly known as Technology Development & Information Company of India Limited (TDICI), was founded in 1988 as a joint venture with the Unit Trust of India. Subsequently, it became a fully owned subsidiary of ICICI.
It is a technology venture finance company, set up to sanction project finance for new technology ventures.
The industrial units assisted by it are in the fields of computer, chemicals/polymers, drugs, diagnostics and vaccines, biotechnology, environmental engineering, etc. TOURISM FINANCE CORPORATION OF INDIA LTD. : TOURISM FINANCE CORPORATION OF INDIA LTD. All-India Financial/Investment Institutions and Nationalised Banks promoted a Public Limited Company under the name of "Tourism Finance Corporation of India Ltd
TFCI became operational with effect from 1st February, 1989 on receipt of Certificate of the Commencement of Business from the Registrar of Companies Slide 21: TFCI provides financial assistance to enterprises for setting up and/or development of tourism-related projects, facilities and services.
TFCI has also provided high-quality research and consultancy services to the tourism industry in general and to the investors in tourism industry in particular
TFCI's range of activities in the Consultancy Division covers tourism-related studies, surveys and project-related services
TFCI is truly 'Helping Tourism Grow' by taking proactive steps in providing financial assistance for the growing industry and thereby improving its own margin, profitability and other important financial parameters REGIONAL RURAL BANKS : REGIONAL RURAL BANKS The committee chaired by Shri Narsimha Rao recommended the setting up of RRBs in July, 1975 & 5 RRBs were set up on 2nd Oct. 1975 in Bhiwani (Haryana), Muradabad and Gorakhpur (U.P.), Jaipur (Raj.), and Malda (West Bengal).
They provide credit & credit facilities especially to the small & marginal farmers, agricultural laborers, artisans and small entrepreneurs in rural areas.
They provide banking facilities to the backward & tribal areas of the country where banking facility have not reached so far. CO-OPERATIVE BANKS : CO-OPERATIVE BANKS “Co-operative banks is a mutual society formed, composed and governed by working people themselves by encouraging regular saving and granting small loans easy term of interest and repayment.” NABARD : NABARD The National Bank for Agriculture And Rural Development (NABARD) is an apex development bank for promotion of agriculture , small scale industries, cottage industries, handicrafts, and agricultural credit, other allied activities in rural areas.
NABARD was established on 12-07-1982 (NABARD Act ,1981 ) Slide 26: There are three main functions:
REGULATORY functions SHORT-TERM AND MEDIUM-TERM CO-OPERATIVES : SHORT-TERM AND MEDIUM-TERM CO-OPERATIVES State Co-operative Banks Central Co-operative Banks Primary Co-operative Credit Societies PRIMARY CO-OPERATIVE CREDIT SOCIETIES : PRIMARY CO-OPERATIVE CREDIT SOCIETIES PACS IS A FORMAL BODY CREATED BY ITS MEMBERS TO MEET THEIR EMERGING CREDIT NEEDS.
MEMBERSHIP OF PACS:
Minimum 100 Members required for Registration of NEW PACS.
OBJECTIVE OF PACS:
To assess the credit needs of members.
Recover loan in instalments or in lump-sum.
Promote economic empowerment of members.
To arrange Inputs like Seeds, Fertilizers, Pesticides, Insecticides and Equipments etc. for members. CENTRAL CO-OPERATIVE BANKS (365) : CENTRAL CO-OPERATIVE BANKS (365) CCB is a Federation of PACS and other Cooperative Societies functioning in the District.
CCB is an intermediatory institution between a PACS and State Cooperative Bank.
CCB is a Rural Development Institution for District.
CCB is one of the implementing agency of State/Central Government.
Fee and Fixed Deposit of Rs.500/-to become a Nominal Member. FUNCTIONS OF A CCB : FUNCTIONS OF A CCB To fulfill All types of Credit needs of PACS, such as S.T., M.T. and L.T
Commercial Banking Functions:
Accepting Deposits from Public and Granting various types of loans including overdraft facility.
Collection of Cheques, Bills,
Advancing loans to Individuals & other Cooperative Societies. STATE CO-OPERATIVE BANKS : STATE CO-OPERATIVE BANKS The state cooperative banks finance & control the central cooperative banks in the state;
It is a link between NABARD for which it borrows * the central co-operative banks & the village primary agricultural credit societies;
There are 29 state-cooperative banks in India; etc. LAND DEVELOPMENT BANKS OF INDIA : LAND DEVELOPMENT BANKS OF INDIA The special banks providing Long Term Loans are called Land Development Banks (LDA). The history of LDB’s is quite old. The first LDB was started at ‘Jhang’ in Punjab in 1920. But the real impetus to these banks was received after passing the Land Mortgage Banks Act in 1930’s (LDB’s were originally called Land Mortgage Banks). Objective : 1. promote the development of agriculture and
2. increase the agricultural production. The
3.CLDBs provide long-term finance to PLDBs affiliated to them or finance directly through their branches. Objective Bank have two-tier structure : Bank have two-tier structure Slide 35: Primary Land Development Banks (PLDB)
These are at district level with branches at ‘taluka’ level These banks were originally organized to cover one or a few ‘taluks’ in the district. At present they are eligible to cover one development block. Slide 36: State Land Development Bank.
All primary Land Development Banks are federated into Central Land Development Bank at the State Level. In some States, there is “ Unitary structure” wherein, there is only one State Land Development Bank at the state level operating through its branches and sub-branches at district and below levels. INVESTMENT BANKS : INVESTMENT BANKS LIFE INSURANCE CORPORATION OF INDIA(LIC) : LIFE INSURANCE CORPORATION OF INDIA(LIC) It was founded in 1956 with the merger of more than 200 insurance companies and provident societies
LIC is the largest state-owned life insurance company in India, and also the country's largest investor Slide 39: It has assets estimated of US$ 211.34 billion
LIC deals in three products:-
Pension Zindagi ke saath bhi,zindagi ke baad bhi : Zindagi ke saath bhi,zindagi ke baad bhi UNIT TRUST OF INDIA (UTI) : UNIT TRUST OF INDIA (UTI) It is known as axis bank
It is a financial services firm that had begun operations in 1994
As on the year ended 31 March 2009 the Bank had a total income of US$ 3.12 billion and a net profit of US$ 411.54 million Slide 43: On 24 February 2010, Axis Bank announced the launch of 'AXIS CALL & PAY on atom', a unique mobile payments solution using Axis Bank debit cards.
Axis Bank is the first bank in the country to provide a secure debit card-based payment service over IVR General Insurance Corporation of India (GIC) : General Insurance Corporation of India (GIC) It was formed in pursuance of the General Insurance Business (Nationalization) Act, 1972(GIBNA ), for the purpose of superintending, controlling and carrying on the business of general insurance or non-life insurance;
Initially, GIC had four subsidiary branches, namely, National Insurance Company Ltd , The New India Assurance Company Ltd , The Oriental Insurance Company Ltd and United India Insurance Company Ltd . But these branches were delinked from GIC in 2000 to form an association known as 'GIPSA' (General Insurance Public Sector Association). DEVELOPMENT INSTITUTIONS : DEVELOPMENT INSTITUTIONS INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI) : INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI) Started in 1964
Provide finance for different activities Act as principal financial institution INDUSTRIAL CREDIT & INVESTMENT CORPORATION OF INDIA (ICICI) : INDUSTRIAL CREDIT & INVESTMENT CORPORATION OF INDIA (ICICI) Started in 1955
By world bank ,government of India and private industry
Assist in creation ,expansion and modernization of industrial enterprises
Promoting private capital in industrial enterprises
Promoting industrial investment INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI) : INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI) Started in 1948
Provide long term loan to large industry
1 project financing
2 financial services SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI) : SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI) Started in 1990
Subsidiary of IDBI
provide loan to small industries INDUSTRIAL INVESTMENT BANK OF INDIA (IIBI) : INDUSTRIAL INVESTMENT BANK OF INDIA (IIBI) Started in 1971
Given the name IIBI in 1997
Give finance to sick industrial units STATE FINANCE CORPORATIONS (SFCs) : STATE FINANCE CORPORATIONS (SFCs) It is state level institution
Provide loan to small and medium industries
Help in starting new business
There are 18 SFC STATE INDUSTRIAL DEVELOPMENT CORPORATIONS (SIDC) : STATE INDUSTRIAL DEVELOPMENT CORPORATIONS (SIDC) Started in 1960
State level institution
Give loan to small industries
Help in other promotional activities OTHER FINANCIAL INSTITUTIONS : OTHER FINANCIAL INSTITUTIONS Slide 54: It was established in the year 1957 by the Government of India to strengthen the export promotion drive by covering the risk of exporting on credit.
Provides a range of credit risk insurance covers to exporters against loss in export of goods and services.
Offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them.
Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan. Insurance bank deposit is intended to give a measure of protection to depositors, particularly the smaller depositors, from the risk of loss of their savings arising from bank failures.
Establishment of DIC came in the wake of certain bank failures in fifties & early sixties and consequent efforts to restore the confidence of the depositing public in the banking system by safeguarding their interests. ECGC DICGC PRESENT SCENARIO OF THE BANKS IN INDIA : PRESENT SCENARIO OF THE BANKS IN INDIA Banks are extremely useful and indispensable in the modern community. The banks create the purchasing power in the form of bank notes, cheques bills, drafts etc, transfers funds bring borrows and lenders together, encourage the habit of saving among people.
The banks have played substantial role in the growth of Indian economy. At present in India there are 20 nationalized banks, State bank of India and its seven Associate banks, 21 old private sector banks and 8 new private sector banks.
Besides them there are more than 30 foreign banks either operating themselves or having their branches in India. FUTURE IS BRIGHT : FUTURE IS BRIGHT The Information Technology (IT) is becoming an important component of the banking sector. The customers have become more demanding and they need value added services from the banks.
The foreign banks have raised the expectations of the customers causing the bank to invest strongly on IT.
The Indian banks have started to meet the expectations of the people by opening both onsite and offsite ATMs. Banks have also started telebanking, anytime/anywhere banking, mobile banking and Internet banking to give the facilities to the customers. CONCLUSION : CONCLUSION Banking Sector in India is likely to undergo a major change. This change will be in the form of mergers and acquisitions and takeovers.
The State Bank of India may merge all its associate banks with itself to make a one bank.
The banks based in South India may look for a bank in North India to have presence in North. Similarly banks in North may look for banks in South to increase its area of operations.
Consolidation will be the key to the banking sector in future. THANK YOU… : THANK YOU…