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MICROFINACE - I
In any economy, economic development is not possible unless there is an adequate amount of
Capital formation. The serious capital deficiency in developing Countries is removed by banks.A
sound banking system mobilizes small savings of the community and makes them available for
interest and thus convert savings into active capital. Otherwise that amount would have
remained idle. Banks distribute these savings through loans among productive enterprises
which are helpful in nation building. It facilitates the optimum utilization of the financial
Banks helps in providing financial resources to industries and that helps in automatically generate
employment opportunity. Especially employment generated by banking sector every year runs in
millions. Equally revenue generation through tax and dividend collection by the government invested
every year. While revenue and employment generation are two very important contributions,
successfully maintaining healthy credit line to industrial sector as well as to overall economy is
The commercial banks finance the industrial sector in a number of ways. They provide short-term,
medium-term and long-term loans to industry .The Industrial Development Bank of India is the main
institution in India providing financial assistance to the industrial sector. It provides direct financial
assistance to the industrial enterprises in the form of granting loans and advances, and purchasing or
Bank attracts depositors by introducing attractive deposit schemes and providing higher rates of
People in underdeveloped countries being poor and having low incomes do not have sufficient
financial resources to buy durable consumer goods. The commercial banks advance loans to
consumers for the purchase of such items as houses, furniture, refrigerators, etc. In this way, they also
help in raising the standard of living of the people in developing countries by providing loans for
consumption activities.
The commercial banks help in financing both internal and external trade. The banks provide
loans to retailers and wholesalers to purchase goods in which they deal. They also help in the
movement of goods from one place to another. Banks provide all types of facilities such as
discounting and accepting bills of exchange, providing overdraft facilities, issuing drafts, etc.
Foreign currency loans are meant for setting up of new industrial projects. Banks also helps in
Banks also helps in financing import of equipment from abroad and/or technical knowhow.
Development banks in India have also achieved a success in creating a new class of entrepreneurs
and spreading the industrial culture. Special capital and seed Capital schemes have been introduced to
provide equity type of assistance to new and technically skilled entrepreneurs who lack financial
Modern banks spreading its operations throughout the world. We can see number of big banks like
citi bank, SBI, PNB, Baroda bank etc. It helps a country to spread banking activities in rural and
semi urban areas. With the spreading of banking operations all over the country, helps to attain
balanced regional development by promoting rural areas. The Reserve Bank of India (RBI) has
granted in-principle licenses to 10 applicants to open small finance banks, which will help expanding
lays out parameters of banking operations within which the country’s banking and financial
C) lays down policies for encouraging the movement from paper-based payment systems to
electronic modes of payments.
RBI manages forex under the FEMA- Foreign Exchange Management Act, 1999. in order to
RBI issues and exchanges currency as well as destroys currency & coins not fit for
circulation to ensure that the public has an adequate quantity of supplies of currency
notes and in good quality.
Commercial banks are the most important types of banks. The term ‘commercial’ carries the
significance that banking is a business like any other business. In other words, commercial
banks are essentially profit-making institutions.
They collect deposits from the public and lend money to business firms (manufacturers),
traders, farmers and consumers. Commercial banks normally meets the working capital needs
of trade and industry and are a part of the money market.
The current account deposits of commercial banks are used as a medium of exchange, i.e., for
making transactions. Deposits of other banks are not so used. These are specialized
institutions which give loans to specific sectors of the economy. Here we are mainly
concerned with commercial banks. So we generally use the term ‘banks’ to refer to
commercial banks.
Development banks:
Development banks are parts of a country’s capital market. In India they are called public
financial institutions. They are specialized financial institutions which supply long-term
finance to large and medium industries. They also perform various promotional functions for
accelerating the rate of capital formation in the country.
In this way they promote industrial development in particular and economic development in general.
IFCI, IDBI and ICICI are examples of such banks. These institutions have assumed a crucial
importance in providing an ever-increasing proportion of industrial finance and various types of
development assistance to business enterprises in India.
Co-operative banks:
The co-operative banks are set up under the provisions of the co-operative society’s laws of a country.
In India such banks have been set up to provide credit to primary agricultural credit societies at low
rates of interest. However, some co-operative banks also function in rural areas.
These banks (called land mortgage banks in India) provide long-term credit to farmers for land
development. They also give long-term loans to farmers for acquiring new land.
Investment banks:
When a corporate entity wants to issue new equity or debt securities, an investment bank serves the
role of an intermediary. They sometimes also make investment in these companies through purchase
of equity shares.
Merchant banks:
A merchant bank helps a company to sell its new shares to the general public. The main job of a
merchant bank is raise money to lend to industry. They do not lend money themselves but instead
help circulate money from those who want to lend to firms who wish to borrow.
Foreign banks:
There are many foreign banks in India like the Citi Bank, the Hong Kong and Sanghai Bank and the
Bank of America. These are not nationalized institutions like Indian commercial banks.
Central bank:
The central bank is the bankers’ bank and is also the banker to the government. It controls the entire
banking system of the country. The Reserve Bank of India (RBI) is India’s central bank and the Bank
of England is that of England.