INDIAN FINANCIAL INSTITUTIONS

 Financial Institution:
A financial institution (FI) is a company engaged in the business of dealing with financial and
monetary transactions such as deposits, loans, investments, and currency exchange. Financial
institutions encompass a broad range of business operations within the financial services sector
including banks, trust companies, insurance companies, brokerage firms, and investment
dealers. Virtually everyone living in a developed economy has an ongoing or at least periodic
need for the services of financial institutions.

Financial institutions serve most people in some way, as financial operations are a critical part
of any economy, with individuals and companies relying on financial institutions for
transactions and investing. Governments consider it imperative to oversee and regulate banks
and financial institutions because they do play such an integral part of the economy.
Historically, bankruptcies of financial institutions can create panic.

 Indian Financial Institution:

All India Financial Institutions (AIFI) is a group composed of development finance institutions
and investment institutions that play a pivotal role in the financial markets. Also known as
"financial instruments", the financial institutions assist in the proper allocation of resources,
sourcing from businesses that have a surplus and distributing to others who have deficits - this
also assists with ensuring the continued circulation of money in the economy. Possibly of
greatest significance, the financial institutions act as an intermediary between borrowers and
final lenders, providing safety and liquidity. This process subsequently ensures earnings on the
investments and savings involved. The Financial Institutions in India mainly comprises of the
Central Bank which is better known as the Reserve Bank of India, the commercial banks, the
credit rating agencies, the securities and exchange board of India, insurance companies and the
specialized financial institutions in India.

Financial Institutions in India are divided in two categories.

i. The first type refers to the regulatory institutions and

ii. The second type refers to the intermediaries.
The regulators are assigned with the job of governing all the divisions of the Indian financial
system. These regulatory institutions are responsible for maintaining the transparency and the
national interest in the operations of the institutions under their supervision.

The regulatory bodies of the financial institutions in India are as follows:

i. Reserve Bank of India (RBI)

ii. Securities and Exchange Board of India (SEBI)
iii. Central Board of Direct Taxes (CBDT)
iv. Central Board of Excise & Customs

Apart from the Regulatory bodies, there are the Intermediaries that include the banking and
non-banking financial institutions. Some of the specialized financial institutions in India are as
follows:

i. Unit Trust of India (UTI)

ii. Securities Trading Corporation of India Ltd. (STCI)
iii. Industrial Development Bank of India (IDBI)
iv. Industrial Reconstruction Bank of India (IRBI), now (Industrial Investment Bank of India)
v. Export - Import Bank of India (EXIM Bank)
vi. Small Industries Development Bank of India (SIDBI)
vii. National Bank for Agriculture and Rural Development (NABARD)
viii. Life Insurance Corporation of India (LIC)
ix. General Insurance Corporation of India (GIC)
x. Shipping Credit and Investment Company of India Ltd. (SCICI)
xi. Housing and Urban Development Corporation Ltd. (HUDCO)
xii. National Housing Bank (NHB)

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.

Apart from the banking financial institutions, there are a number of specialized financial
institutions in India that have been incorporated for a definite purpose. These institutions
include the insurance companies, the housing finance companies, mutual funds, merchant
banks, credit reporting and debt collection companies and many more.

Apart from these, there are several other financial institutions that are existing in the country.
These are the stock brokers and sub-brokers, portfolio managers, investment advisors,
underwriters, foreign institutional investors and many more.

 Role of Financial Institutions in India:

i. One of the more recent microeconomic approaches to economic growth is the

promotion of entrepreneurial activities.
ii. Entrepreneurial efforts have been found to generate a wide range of economic
benefits, including new businesses, new jobs, innovative products and services.
iii. Financing the small scale sector: Credit is the prime input for sustained growth of small
scale sector and its availability is thus a matter of great importance.
iv. Micro Finance Credit: Providing loans to unemployed or low-income individuals or
groups who would otherwise have no other means of gaining financial services.
v. State level Institutions: Several financial institutions have been set up at the State level
which supplements the financial assistance provided by the all India institutions.
vi. Insurance and Financial services: The institutions are supporting a broad range of
financial services to help expand local capital markets and develop local financial
infrastructure

 Regulatory Institutions in India:

 RBI
The Reserve Bank of India (RBI) is India's central bank and regulatory body under the
jurisdiction of Ministry of Finance, Government of India. It is responsible for the issue
and supply of the Indian rupee and the regulation of the Indian banking system. It also
manages the country's main payment systems and works to promote its economic
development.

Functions of RBI in Indian Financial Institutions are as follows:

i. Issue of Bank Notes
ii. Banker to the Government
iii. Custodian of the Cash Reserves of Commercial Banks
iv. Custodian of country’s foreign exchange
 v. Lender of last resort
vi. Controller of credit

Role of RBI:

Reserve Bank of India (RBI) is India's Central bank. It plays multi-facet role by executing multiple
functions such as overseeing monetary policy, issuing currency, managing foreign exchange,
working as a bank of government and as banker of scheduled commercial banks, among others.
It also works for overall economic growth of the country.

 SEBI
SEBI (Securities and Exchange Board of India) is a statutory regulatory body established on the
12th of April, 1992. It monitors and regulates the Indian capital and securities market while
ensuring to protect the interests of the investors, formulating regulations and guidelines. The
head office of SEBI is at Bandra Kurla Complex, Mumbai.

Functions of RBI in Indian Financial Institutions are as follows:

i. SEBI is primarily set up to protect the interests of investors in the securities market.
ii. It promotes the development of the securities market and regulates the business.
iii. SEBI provides a platform for stockbrokers, sub-brokers, portfolio managers,
investment advisers, share transfer agents, bankers, merchant bankers, trustees of
trust deeds, registrars, underwriters, and other associated people to register and
regulate work.
iv. It regulates the operations of depositories, participants, custodians of securities,
foreign portfolio investors, and credit rating agencies.
v. It prohibits insider trading, i.e. fraudulent and unfair trade practices related to the
securities market.
vi. It ensures that investors are educated on the intermediaries of securities markets.
vii. It monitors substantial acquisitions of shares and take-over of companies.
viii. SEBI takes care of research and development to ensure the securities market is
efficient at all times.
Role of SEBI:

SEBI’s main role in the Indian financial system is to regulate that the Indian stock markets in an
orderly manner. SEBI was formed to protect the interests of investors and traders in the Indian
stock market.

 IRDA
Insurance Regulatory Development Authority (IRDA) is a regulatory body created with
the aim of protecting your interests. It also regulates and sees to the development of
the insurance industry, while monitoring insurance-related activities. It is a regulatory
body under the jurisdiction of Ministry of Finance, Government of India and is tasked
with regulating and promoting the insurance and re-insurance industries in India. It was
constituted by the Insurance Regulatory and Development Authority Act, 1999, an Act
of Parliament passed by the Government of India.[3] The agency's headquarters are in
Hyderabad, Telangana, where it moved from Delhi in 2001.

Functions of IRDA in Indian Financial Institutions are as follows:

i. It monitors and protects the interests of policyholders by ensuring that no
insurance company can deny the claim on the basis of free will and honour the
scope of the cover
ii. It sets a code of conduct for the Insurance Industry of the country as a whole
iii. It prevents the occurrence of misdeeds and conducts investigations
iv. It regulates the rates offered by all insurance companies so it is fair for all
customers
v. It provides resolution in case of any dispute between the insurer and
policyholder

Role of IRDA in the Insurance Sector in India:

i. The insurance industry of India works as per the guidelines set as per the IRDA.
ii. Here are some of the significant responsibilities of IRDA.
iii. Ensure the systematic growth of the insurance industry to benefit customers
who invest in insurance policies for safeguarding their life and family.
iv. Promote fair dealings between the insurance companies and policyholders.
v. Provide resolution in case of disputes and expediate claim settlement.
 vi. Prevent frauds and scams by setting proper standards for the industry and
conducting vigilance.

 Intermediaries:

 NSDL (National Securities Depositories Ltd.)

National Securities Depository Limited (NSDL) is an Indian central securities depository under
the jurisdiction of Ministry of Finance, Government of India based in Mumbai. It was
established in August 1996 as the first electronic securities depository in India with national
coverage. It was established based on a suggestion by a national institution responsible for the
economic development of India.

Functions of National Securities Depository Ltd:

NSDL performs the following functions through its participants:

i. It maintains investors’ holdings in the electronic form.

ii. It enables the surrender and withdrawal of securities to and from the depository.
iii. If effects settlement of securities traded on exchanges.
iv. It carries out settlements that have not been done on the stock exchanges.
v. It makes allotment in electronic form, of initial public offerings (IPO).
vi. It offers facility for freezing or locking of investors’ accounts.
vii. It facilitates offer of securities as a mortgage for loans.

 Stock Exchange in India

The stock exchange in India serves as a market where financial instruments like stocks,
bonds and commodities are traded. It is a platform where buyers and sellers come together
to trade financial tools during specific hours of any business day while adhering to SEBI’s
well-defined guidelines. However, only those companies who are listed in a stock exchange
are allowed to trade in it.

Functions of National Securities Depository Ltd:

 Mobilize the Savings for Investments:

 Savings in the investment can be done through the mutual funds, the investment trusts and
variety of the other securities and these are all traded in the stock exchanges. Those
individuals that cannot afford to invest in the huge amount of the securities for them, there
are many of the opportunities by the mutual funds and the investment trusts.

 They protect the Investors Interest:

The Stock Exchange has also been as the safeguard for the investors protects their interest
in the stock market. The investments or the funds that all the investors used in the stock
market are controlled by the exchange in order to gain the trust of the investors to make an
interest in the stock market.

 Economic Growth:
The share market used to control the channel through which all the savings of the investors
has been made in some of the useful investments according to the individual investors. Due
to all this channelization of the savings, it leads to the economic growth and the capital
formation in the economy.

 Stock Exchange provides Liquidity:

In the stock exchange, you get the opportunity of the liquidity. As whenever there is the
need for funding’s then you can sell the investment positions from the stock exchange with
ease and with a short period of time and then you can take out your money from it.

 Provides Safety in Capital and in Fair Dealing:

All the transactions that have been made in the stock exchange are all transparent and
abide by the rules and regulations by the Securities and Exchange Board of India. This
measure ensures about the safety of the capital of the investors and the format of the fair
dealing for all the investors.

 Encourages Healthy Speculation in the Stock Exchange:

The price for the securities is based on the demand and supply of the position. This helps in
the encouragement of the speculation in the stock exchange by providing opportunities to
the investors to speculate and get to make high profits from the fluctuations in the security
prices.

 Mobility in funding:
The stock exchange helps both the investors and the companies in order to buy or sell their
securities and creates the funds for them. Due to this procedure, the money market also
gets strong in dealing with the short-term funds.
 Corporate Governance:
There are many rules and regulations by the stock exchange in order to maintain the
corporate governance to satisfy the demands of the shareholders and to make the
management more efficient.

 Redistribution of the Wealth:

By giving the chance to all types of investors or traders to do their trades in the stock
market, the stock exchange removes the inequalities in the wealth generation. All type of
traders or the investors can make profitable deals from the stock market.

 It also creates Investment Opportunities for small investors:

Investing in the stock market can be done with some funding also rather than entering into
the big businesses with huge capital investments. So, it benefits the small investors also to
grow their funding with small amounts and provides them with passive income from their
savings.

Role of Stock exchange in India:

i. It allows people to buy or sell discrete and equal shares of ownership in various
companies.
ii. It facilitates the transfer of funds between investors and businesses regulating as
necessary to provide maximum safety for everyone’s investment.
Examples: NSE & BSE