Structure of financial institutions

The structure of financial institutions is a matter of great importance in the study of financial system. Although the banking system remains the largest sector of IFS, now the significant rapid growth of other financial institutions , they also become an important part of the IFS. This can be shown in various ways.. Bank deposits have a largest share in the total financial claims in India. NBFIS has a group has also become large enough to be taken in to consideration in policy making.

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It is estimated that the outstanding loans and advances of the financial institutions were equivalent to about 51% 0f commercial and cooperative bank credit at the end of march 1989 On an incremental basis the increase in outstanding loans by all financial institutions at Rs.9060 crore was 55% of the increase of 16440 crore in outstanding credit by commercial and cooperative banks in 1988-89 Like wise the investment of those institutions in government securities , in bonds and debentures of public sector undertaking and private corporate securities are equivalent to 47 % of such investment by banking system in 1988-89

 Another way to study this matter to look at the relative shares of different financial institutions in the aggregate volume of financial asset of all financial institutions. The share of all financial banks in the total financial asset is the largest, it declined from 68.77 % in 1981 to 62.10 % in 1996, and increased again to 69.6 % in 2002.

 The state co-operative bank s have a very small share and it has a remained constant. The share of all nonbanking institutions increased from 27.6% in 1981 to 36.3 % in 2000 The term lending institutions and insurance companies had about an equal share about 12% in 1981. later it is declined to 10% The subsequent years

 In the subsequent period, insurance company grew faster than the term lending institutions. As a result , the share of the former in total asset exceeded that of latter. According to monetary theory , the growth of non-banking financial institutions tends to undermine the efficiency of monetary policy. There is evidence to show that the growth of such institutions in India as actually weakened the monetary policy in this country in various ways.

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