Financial institutions

1. 1. Presented by Happy V.S Roll No.5 MBA (PT) SMS CUSAT 1

2. 2. ObjectivesTo understand various aspects offinancial institutions and theirfunctioning in
India. 2
3. 3. DefinitionA financial institution is an institution whichcollects funds from the public and
placesthem in financial assets, such as deposits ,loans, and bonds, rather than
tangibleproperty 3
4. 4. Functions of Financial InstitutionsLiability-Asset transformationThey issue claims to
their customers that have characteristics different from those of their own assets.SizetransformationThey provide large volumes of finance on the basis of small deposits or
unit capital.Risk transformationThey distribute risk through diversification and thereby
reduce it for savers as in the case of mutual funds.Maturity transformationThey offer
savers alternate forms of deposits according to their liquidity preferences, and provide
borrowers with loans of requisite maturities 4
5. 5. Classifications of Financial InstitutionsFinancial Institutions in Indiaare 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 & Customs2.Intermediaries. 5
6. 6. Classifications of Financial Institutions 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) 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) 6
7. 7. Classifications of Financial InstitutionsBanking Institutions and Non Banking
Institutions All India Institutions State level institutions 7
8. 8. 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. 8
9. 9. 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 companyBut 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 9

10. 10. All India InstitutionsIndustrial Finance Corporation of India (IFCI)First all India termlending institutionSet-up in 1948provide institutional credit to medium and large
industries.Head Quarters - New Delhi 10
11. 11. Industrial Finance Corporation of India (IFCI)Project financingMedium/Long term
credit for setting up new projectExpansion schemes Financial assistance by way of
rupee loansLoans in foreign currenciesUnderwriting of direct subscription of
shares/debentures. 11
12. 12. Industrial Finance Corporation of India (IFCI)Sources of Funds are Paid up capital
Reserves re payment of loans market borrowing, loans from government of India
advances form Industrial Development Bank of India foreign lines of credit from KFW
(west Germany) FFCE ( France) ODA (UK) 12
13. 13. Functions of IFCIFor setting up a new industrial undertaking. For expansion and
diversification of existing industrial undertaking.For renovation and modernisation of
existing concerns.For meeting the working capital requirements of industrial concerns
in some exceptional cases. 13
14. 14. Industrial Credit and Investment Corporation of India(ICICI) Indias largest bank in
the private sector second largest Indian bank including all public and private
enterprises incorporated in 1994. first Indian company to raise funds from
international markets network of 1308 branches 3950 ATMs subsidiaries in uk,
russia, canada, singapore etc launched private banking in 2002. Head Quarters Mumbai 14
15. 15. Industrial Development Bank of India (IDBI)Established in 1964 as a subsidary of
RBIAppex term financial lending institutions in IndiaDirect finance to
industrySupports State financial corporations , SIDC, commercial banksHead
Quarters - Mumbai 15
16. 16. Industrial Development Bank of India (IDBI)Assistance from IDBIDirect: 1. By
subscription to share capital and debentures 2. Rupee loans and foreign currency loans
3. Underwriting of issues.Indirect: 1. Refinance facilities to state level institutions and
commercial banks 2. Bill re-discounting facility 16
17. 17. Industrial Development Bank of India (IDBI)Resources of IDBI are:-Paid up
capitalReservesRepayments of loansMarket borrowingsTemporary credit from
RBIForeign lines of credit from world bank, ADBI and others 17
18. 18. Small Industries Development Bank of India(SIDBI)The Small Industries
Development Bank of India (SIDBI) is a wholly owned subsidiary of IDBI.SIDBI has
been set up to provide services to the small scale industrial units (SSIs).Services of
SIDBI are similar to the IDBI, but is meant for SSIs whereas IDBI is intended for medium
and large scale sector 18
19. 19. Life Insurance corporation of India (LIC)Founded in 1956Largest insurance co. in
India Owned by Government8 zonal offices100 Divisional offices2048 Branch
offices100,21,449 Agents 19
20. 20. State level InstitutionsState Financial CorporationsState Industrial Development
Corporations 20
21. 21. State Financial Corporations In order to meet the financial requirements of small
scale and medium-sized industries, there was a need of special financial institutions. With
this view, the Central Government passed the State Financial Corporation Act of 28th

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September, 1951 which empowered the state government to establish financial

corporation to operate within the state 21
22. State Financial Corporations ObjectivesTo establish uniformity in regional
industries,To provide incentive to new industries,To bring efficiency in regional
industrial units, To provide finance to small-scale, medium sized and cottage industries
in the state, To develop regional financial resources. 22
23. State Financial CorporationsFunctions To provide loans for a period not exceeding 20
years to industrial units. To underwrite the issue of shares, debentures and bonds for a
period not exceeding 20 years of industrial units. To give guarantee to loans taken by
industrial units for a period not exceeding 20 years. To make payment of capital goods
purchased in India by these industrial units. To subscribe to the share capital of the
industrial units, in case they wish to raise additional capital. 23
24. Kerala State Industrial Development Corporation Industrial and investment promotion
agency of the Government of Kerala promotion and development of medium and large
scale units in the State of Kerala Nodal Agency for foreign and domestic investments in
Kerala provides support for investors, besides processing various incentive schemes
and facilitating interaction between the government and the industrial sector. Established
in 1961, KSIDC is led by a group of professionals from various fields including
Engineering, Management, Finance and Law. 24
25. Kerala State Industrial Development CorporationAreas of focusIdentification of
Investment IdeasTranslating ideas into concrete proposalsFeasibility Study, Project
EvaluationFinancial Structuring, Loan SyndicationAssisting in Central and State
Govt. ClearancesDevelopment and Administration of Growth CentersIndustrial and
Infrastructure development 25
26. specialized financial institutionsExport and Import Bank (EXIM Bank),Export
Credit Guarantee Corporation (ECGC)Industrial Reconstruction Bank of India (IRBI) 26
27. specialized financial institutionsThe special purpose finance institutions, IRBI
provides finance for rehabilitation of sick units, which show signs of recovery.EXIM
Bank provides finance and other related services for import and export of goods and for
export project. It functions as a coordinating agency in export finance.ECGC provides
the credit insurance cover against the commercial and other risks inherent in the exports
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28. Forms of AssistanceDirect financial Assistance Fund based assistance Rupee
term loans Foreign currency term loans Subscription to equity shares Seed
capitalIndirect Financial Assistance Deferred payment guarantee Guarantee for
foreign currency loans underwriting 28
29. Direct financial Assistance Fund based assistance provided in both rupees and in
foreign currency. Apart from this, funds are provided by subscription to the equity shares
of the company. Rupee term loans extended for site, construction, factory and other
buildings purchase of plant and machinery, as well as, for technical know how,
preliminary and pre-operative expenses, and margin money for working capital.
Generally, the repayment period is five to fifteen years with an initial moratorium of six
months 29
30. Direct financial Assistance Foreign currency term loans fund the acquisition of fixed
assets like plant and machinery, as well as to acquire technical know how from foreign
suppliers Subscription to equity shares This form of assistance is available to the

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project only when institutions are sure that the project is not able to take any more debt,
although the proposed venture is worthwhile. It is often a very small part of the project
cost 30
31. Direct financial Assistance Seed capital All borrowers have to submit their
proposals, through their respective SFCs and SIDCs. This assistance carries interest as
low as one percent, and can be payable on easy terms, subject to the applicability of
certain conditions. 31
32. Indirect Financial Assistance Deferred payment guarantee Financial institutions
provide this deferred credit facility to the equipment suppliers on behalf of their clients
and charge guarantee commission to the client. Guarantee is provided for the purchase
of both indigenous and imported equipment. Most scheduled banks and co- operative
banks provide this facility Guarantee for foreign currency loans This kind of
guarantee is provided to the client as raised term loans from overseas market, directly.
Underwriting The process by which investment bankers raise investment capital from
investors on behalf of corporations and governments that are issuing securities (both
equity and debt). 32
33. Special SchemesBill rediscounting schemesSuppliers line of creditSoft loan
schemeEquipment finance scheme 33
34. Term Loan procedureSubmission of loan applicationInitial processing of loan
applicationAppraisal of the proposed projectIssue of the letter of
sanctionAcceptance of the terms and conditions by the borrowing unitExecution of
the loan agreementDisbursement of loansCreation of securityMonitoring 34
35. Project appraisalSystematic and comprehensive review of theeconomic,
environmental, c financial, social,technical and other such aspects of a project
todetermine if it will meet its objectives. 35
36. Project appraisalMarket appraisalTechnical appraisalFinancial
appraisalEconomic appraisalManagerial appraisal 36
37. Key financial indicatorsInternal rate of returnDebt service coverage ratioBreak
even point 37
38. Thank you 38