FINANCIAL INSTITUTIONS

Introduction

A financial institution is an institution that provides financial

services for its clients or members. Probably the most important
financial service provided by financial institutions is acting as financial
intermediaries. Most financial institutions are regulated by the
government. Financial institutions in most countries operate in a
heavily regulated environment as they are critical parts of countries'
economies.

They mobilize savings of the surplus units and allocate them in

productive activities promising a batter rate of return.
Financial institutions are also termed as financial intermediaries
because they act as middlemen between the savers and borrowers.

Definition
A financial institution is an institution which collects funds from the
public and places them in financial assets, such as deposits ,loans, and
bonds, rather than tangible property.
Financial institutions are the intermediaries who facilitate smooth
functioning of the financial system by making the investors and
borrowers meet.

Classifications of Financial Institutions

Institutions in India are divided in two categories.
1.Regulatory institutions
Reserve Bank of India (RBI)
Securities and Exchange Board of India (SEBI)
Central Board of Direct Taxes (CBDT)
Central Board of Excise & Customs

Contd
2.Intermediaries.
Unit Trust of India (UTI)
Securities Trading Corporation of India Ltd. (STCI)
Industrial Development Bank of India (IDBI)
Industrial Reconstruction Bank of India (IRBI), now (Industrial
Investment Bank of India)
Export - Import Bank of India (EXIM Bank)
Small Industries Development Bank of India (SIDBI)
National Bank for Agriculture and Rural Development (NABARD)
Life Insurance Corporation of India (LIC)

Contd..
General Insurance Corporation of India (GIC)
Shipping Credit and Investment Company of India Ltd. (SCICI)
Housing and Urban Development Corporation Ltd. (HUDCO)
National Housing Bank (NHB)

Classifications of Financial
Institutions
By Banking Business Nature:
Banking Institutions and Non Banking Institutions
All India Institutions
State level institutions

Banking Institutions
A bank is an institution that accepts deposits of money from the
public, which are repayable on demand and withdraw able by
cheques. The banking institutions of India play a major role in the
economy of the country. The banking institutions are the providers of
depository and transaction services. These activities are the major
sources of creating money. The banking institutions are the major
sources of providing loans and other credit facilities to the clients.

Non Banking Financial

Institutions(NBFC).
An Institution which carried on as its business or part of its business
the following activities:

financing
acquisition of securities
hire purchase
insurance

chit fund
mutual benefit company

But does not include Institutions which carries on as its principal

business:
agricultural operations,
industrial activities
Sale and purchase of goods
providing of services
purchase, sale and construction of immovable property

Contd..
By Business Operations:
Thrift type
Contractual type
Investment type
Other type

Contract-type
Financial Institutions
Insurance Companies:
Life Insurance
Accident and Healthy Insurance
Pension Funds:
Mandatory Providence Funds
Retirement Funds/Pension Funds

Investment-type
Financial Institutions
Investment Companies:
Closed-end Investment Companies - Investment Brokers
Open-end Investment Companies - Mutual Funds/Unit Trust
Real Estate Trust Investment Companies

Other Financial Institutions

Finance Companies
Factors Companies
Lease Companies
Mortgage Companies
Credit Card Companies
Non-finance Financial Institutions:
General Electric, Ford Motors, Toyota Motors
wholesalers, Manufactures, Department Stores

Why Financial Institutions?

Fulfill economic goals

Reduce transaction and information costs
Provide liquidity
Prevent risks
As transmission of monetary policy
Provide payment mechanism
Supply credit allocation

Duties of the Management of

Financial Institutions
1. Determining the optimal capital structure

Assets, Liabilities, and Capital

2. Managing interest rate/currency/credit risks

3. electing/Pricing investments and liabilities

Maturity Matching, Profit Making

4. Operating effectively

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