Affiliated To University of Mumbai

Affiliated to
University of Mumbai
Revised Syllabus for

Programme:
B.Com.
(ACCOUNTING & FINANCE)
Semester VI
Under Choice Based Credit System
Academic Year 2021-2022
PROJECT
A STUDY ON ROLE OF FINANCIAL INSTITUTIONS IN
INDIAN ECONOMY
PROJECT REPORT
ON
A STUDY ON ROLE OF FINANCIAL INSTITUTIONS IN
INDIAN ECONOMY
SUBMITTED BY
T.Y.B.Com.
(ACCOUNTING & FINANCE)
(SEMESTER VI)
UNDER THE GUIDANCE OF
Mr Nishant Modi
ACADEMIC YEAR
2021 - 2022
DECLARATION
I, Miti Prashant Shah the student of T.Y.BCom

(ACCOUNTING & FINANCE) Semester VI (2021 - 2022)
hereby declare that I have completed the Project on A STUDY
ON ROLE OF FINANCIAL INSTITUTIONS IN INDIAN
ECONOMY.
I also declare that this report which is the partial fulfilment of
the requirement for the degree of T.Y.BCom (ACCOUNTING
& FINANCE) of KES SHROFF COLLEGE OF ARTS AND
COMMERCE is the result of my own efforts with the help of
experts.

CERTIFICATE

This is to certify that MS Miti Prashant Shah of Third Year
B.Com (ACCOUNTING & FINANCE) Semester VI (2021 -
2022) has successfully completed the Project on STUDY ON
ROLE OF FINANCIAL INSTITUTIONS IN INDIAN
ECONOMY as per the guidelines of KES’ Shroff College of
Arts and Commerce, Kandivali (W), Mumbai-400067.
Dr.Vaibhav R. Ashar Mr.Nishant Dr. L. Bhushan

Modi
Coordinator Guide Principal
LIBRARY ATTENDANCE CERTIFICATE
This is to certify that Ms.Miti Prashant Shah of third year

B.Com (Accounting & Finance) having Roll No. 10, division D
has successfully completed her minimum hours of attendance in
the library to complete the 100 marks project on topic titled A
Study On ROLE OF FINANCIAL INSTITUTIONS IN
INDIAN ECONOMY.
Sign Sign Sign
Librarian Project Guide Head of Department

ACKNOWLEDGEMENT
To list who all have helped me is difficult because they are so

numerous and the depth is so enormous.
I would like to acknowledge the following as being idealistic
channels and fresh dimensions in the completion of this
internship.
I take this opportunity to thank the KES SHROFF COLLEGE
OF ARTS AND COMMERCE (AUTONOMOUS) for giving
me chance to present this report.
I am thankful to KES SHROFF COLLEGE OF ARTS AND
COMMERCE (AUTONOMOUS) and Rajvi Shah for providing
me opportunity to work on the project with their company and
gaining work experience.
I would like to thank my Principal, Dr. Lily Bhushan for
providing the support required for the internship.
I take this opportunity to thank our Guide Mr. Nishant Modi, for
her moral support and guidance.
Lastly, I would like to thank each and every person who directly
or indirectly helped me specially my parents and peers who
supported me throughout my project.
EXECUTIVE SUMMARY
Financial Institutions is something that facilitates and provide monetary transactions like
loans, deposits, mortgages etc. Institutions that provide all these financial services are
Central banks, internet banks, Credit Unions, Brokerage firms, Insurance Companies etc.
Almost everyone deals with financial institutions on a regular basis. Everything from
depositing money to taking out loans and exchanging currencies must be done through
financial institutions.
The aim of Financial Institutions (FI) is to make easy access of financial services to the
large underprivileged population of the country. 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.
Types of Financial Institutions are Commercial Banks, Mutual funds’ Investments banks,
Credit Unions, Insurance Companies etc. Every Investment products gives different
returns.
There were many reasons for the need of Financial Institutions one of them is to provide
short term and long term funds to small and large businesses. The main role of a financial
institution is to transfer financial resources from those who save it to those who are in
need of financial resources for economic activity.
The main advantage of financial institutions is proving funds; many of these institutions
provide financial, managerial and technical advice and consultancy to the business firms.
All these financial Institutions use the funds that customers provide, and then distribute
funds to individuals and businesses that need them. Thus, they connect savers and
spenders to facilitate transactions in the financial markets.
Every Individual has their own objective or aim to invest in financial institutions some
invest for Children's educations, some for long term growth etc.Without financial
institutions, people wouldn’t be able to take advantage of rising and falling interest rates
and there would be no saving of money.
CHAPTER TOPIC PAGE

NO NO
1 INTRODUCTION 1-43
1.1 NEED OF FINANCIAL
INSTITUTION
1.2 TYPES OF FINANCIAL
INSTITUTION
1.3 ROLES OF FINANCIAL
INSTITUTION
1.4 ENROLMENT TRISTS
1.5 LIC LIFE INSURANCE
CORPORATION
1.6 IMPORTANTOF
FINANCIAL
INSTITUTION
1.7 ADVANTAGES AND
DISADVANTAGES
2 REVIEW OF LITERATURE 44-55
3 RESEACH METHODOLOGY 56-59

3.1 OBJECTIVES
3.2 RESEARCH DESIGN
3.2.1 DATA SOURCE
3.2.2 SIMPLE
3.2.3SAMPLE SIZE
3.2.4 SAMPLE DESIGN
3.3 DATA COLLECTION
3.4 SCOPE OF STUDY
3.5 LIMITATIONS
4 DATA ANALYSIS 60-72

5 CONCUSION AND SUGGESTIONS 73-75
BIBLOGRAPHY 76
APPENDIX 77-80
CHAPTER 1
INTRODUCTION
Financial Institutions is something that facilitates and provide monetary deals like loans,
deposits, mortgages etc. Institutions that provide all these financial services are Central
banks, internet banks, Credit Unions, Brokerage firms, Insurance Companies etc. The
Financial Institutions in India mainly contain of the Central Bank which is 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. Almost every person gives out with financial institutions on a regular
basis. Everything from depositing money to taking out loans and exchanging currencies
must be done through financial institutions. Here is an overview of some of the major
categories of financial institutions and their roles in the financial system. Finance
businesses’ provide loans, business inventory financing and indirect consumer loans.
These companies get their funds by issuing bonds and other obligations. These
companies operate in a number of countries. On the other hand, there are insurance
companies that provide coverage for a variety of risk factors and they also provide
several investment options. A network of financial institutions helps an economy to
augment its savings. At the same time it leads to a more efficient.
The term "financial services" became more common in the United States partly as a result
of the Gramm–Leach–Bliley Act of the late 1990s, which enabled different types of
companies operating in the U.S. financial services industry at that time to merge.
Financial inclusion is concerned with providing financial and banking services on lower
costs to low section and slum people of society. It can be a great weapon to financial
institutions ratings refer to the credit rating processes and analysis of financial institutions
performed by various credit rating agencies. This can exacerbate a country's financial
problems and draw attention to the very fact that economies are heavily reliant upon the
financial sector.
1
Companies usually have 2 distinct approaches to this new type of business. One approach
would be a bank that simply obtains an insurance company or an investment bank, keeps
the original brands of the acquired firm, and adds the acquisition to its holding company
simply to expand its earnings. Outside the U.S. (e.g. Japan), non-financial services
companies are permitted within the holding company. In this scenario, each company still
looks independent and has its own customers, etc. In the other style, a bank would simply
create its own insurance division or brokerage division and attempt to sell those products
to its own existing customers, with incentives for combining all things with one
company.
Financial Inclusion is defined as “the process of ensuring access to financial services and
timely and adequate credit where needed by vulnerable groups such as weaker sections
and low income groups at an affordable cost” (Rangarajan, 2008) in the report of the
Committee on financial inclusion in India. During April 2012, World Bank carried out a
study which revealed that only 9 per cent individuals’ avails new loans from banks in the
previous year and 35 per cent population are having formal bank accounts in India
whereas in the case of developing economies it is 41 per cent.
“Financial inclusion is the process of ensuring access to appropriate financial products

and services needed by all sections of society including vulnerable groups such as weaker
2
sections and low income groups at an affordable cost in a fair and transparent manner by
mainstream institutional players” (Chakra arty, 2013). The aim of Institutions (FI) is to
make easy access of financial services to the large underprivileged population of the
country. It is an attempt for achieving inclusive growth of the society by making
availability of finance to the deprived section of population. Companies usually have 2
distinct approaches to this new type of business. One approach would be a bank that
simply obtains an insurance company or an investment bank, keeps the original brands of
the acquired firm, and adds the acquisition to its holding company simply to expand its
earnings. Outside the U.S. (e.g. Japan), non-financial services companies are permitted
within the holding company. In this scenario, each company still looks independent and
has its own customers, etc. In the other style, a bank would simply create its own
insurance division or brokerage division and attempt to sell those products. In order to
reap the benefits of the financial services, lot of measures has been taken by Government
of India in the favour of poor and neglected section of the society 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.
Financial institutions can vary by size, scope, and geography. Financial institutions serve
most people in some way, as financial operations are an important part of any economy,
with individuals and companies count on financial institutions for transactions and
investing. Governments regard 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 utilization of the available
investible resources. Financial Inclusion is defined as “the process of ensuring access to
financial services and timely and adequate credit where needed by vulnerable groups
such as weaker sections and low income groups at an affordable cost” (Rangarajan, 2008)
in the report of the Committee on financial inclusion in India. During April 2012, World
3
Bank carried out a study which revealed that only 9 per cent individuals’ avails new loans
from banks in the previous year and 35 per cent population are having formal bank
accounts in India whereas in the case of developing economies 35 per cent population are
having formal bank accounts in India whereas in the case of developing economies. Thus,
a sound and efficient financial system can contribute to economic growth and
development in a number of ways. 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
transactions like sector, including banks, trust companies, insurance companies,
brokerage firms and investment dealers. Virtually everyone living in a developed
economy has an on-going or at least recurring need for the services of financial
institutions. Governments consider it imperative to run and regulate banks and financial
institutions because they do play such an integral role in the economy.
The definition of a financial institution typically describes an establishment that

completes and facilitates monetary transactions, such as loans, mortgages, and deposits.
Financial institutions are a place where consumers can effectively run earnings and grow
financial footing. Consumers can make an informed choice when choosing a bank to keep
their money by knowing the core features of financial institutions.do play such an integral
part in the economy. Bankruptcies of financial institutions can create panic. The
institutions also facilitate the expansion of markets through distributive ideas and
undertake other promotional jobs necessary nature, such as, marketing and investment
research surveys, techno-economic feasibility and cost-benefit studies of different growth
sectors or a region, particularly the backward regions of the country so as to identify
potential for economic growth.
4
Financial inclusion enables poor people to save and to borrow—allowing them to build
their assets, to invest in education and entrepreneurial ventures, and thus to improve their
livelihoods. It is likely to benefit disadvantaged groups such as women, youth, and rural
communities. For all these reasons financial inclusion has gained prominence in recent.
Financial inclusion also mitigates the exploitation of vulnerable sections by the usurious
money lenders by facilitating easy access to formal credit. Financial inclusion is an
innovative concept which helps to achieve the sustainable development of the country, by
making available financial services to the unreached people with the help of financial
institutions. The concept of financial inclusion gets popularity from 2000. Financial
inclusion is concerned with providing financial and banking services on lower costs to
low section and slum people of society. Companies usually have 2 distinct approaches to
this new type of business. One approach would be a bank that simply obtains an
insurance company or an investment bank, keeps the original brands of the acquired firm,
and adds the acquisition to its holding company simply to expand its earnings. Outside
the U.S. (e.g. Japan), non-financial services companies are permitted within the holding
company. In this scenario, each company still looks independent and has its own
customers, etc. In the other style, a bank would simply create its own insurance division
or brokerage division and attempt to sell those products
Banking and financial services play very crucial role in the growth and development of
an economy. Research shows that a well-functioning and inclusive financial system is
linked to a faster and equitable growth. There is wide range of personal finance options
for higher and upper middle income population in the form of financially engineered and
innovative products whereas a significantly large section of population still lack access to
the most basic banking services that is holding a bank account. This is termed as
“financial exclusion” which further leads to social exclusion. So it is necessary to provide
individuals with easy and affordable institutional financial products or services popularly
called “financial inclusion financial inclusion is linked with giving financial and banking
services on lower costs to low section and slum people of society. It can be a great
equipment
5
Without financial institutions, people would not be able to take good advantage of
increasing and falling interest rates and there would be no saving of money, other than
the stacks you stuff under your mattress. Prior, industrial finance by development
banking is highly preferable as it increases productivity, income and standard of living,
capital formation and national output besides employment generation. The development
banks also can prevent the concentration of economic power and be successful in
promoting the indigenous growth of small entrepreneurs. Thus, financial institutions not
only help in mobilization and collection of scattered savings from different sections of
population, but they also help to increase the overall level of savings and investment and
allocate more efficiently scarce savings among most desirable and productive
investments in accordance with the national priorities.Financial institutions, sometimes
called banking institutions, are business entities as intermediaries for different types of
financial monetary briefly giving; there are 3 types of financial institutions:
Financial institutions can be distinguished broadly into two categories according to

ownership structure: Commercial banks Cooperative banks some experts see a trend
toward homogenization of financial institutions, meaning a tendency to invest in similar
areas and have similar business plans. This is why of the United Nations Sustainable
Development Goal 10 is to improve the regulation and monitoring of global financial
institutions and strengthen such regulations.
A financial institution is an organization that deals in a variety of monetary deals, such as

cash, loans, exchanging increasing capital. It median transactions between the people
who deposit or invest money and the people who need to borrow or raise money.
Financial institutions are businesses that provide different types of financial services to
customers. They use the funds that customers provide, and then distribute funds to
individuals and businesses that need them. Thus, they connect savers and spenders to
6
facilitate transactions in the financial markets. For example, these businesses make it
possible for borrowers to obtain loans using the funds that savers have made available.
These organizations also play roles in helping customers raise funds and invest their
money. This includes facilitating the buying and selling of securities like bonds and
stocks. Some financial institutions also assist customers with protecting their assets,
alongside helping them with managing their money. For example, some will offer
insurance policies that protect homes or cars from financial loss. Financial institutions
may also buy and sell foreign currencies.
Two of the most common examples of financial institutions are consumer banks and
credit unions. These institutions allow customers to open checking and savings accounts
to securely and conveniently hold their money. Banks and credit unions then use
customer deposits to extend loans and credit to other customers, generating revenue
through charging interest. You can also manage a variety of other tasks through these
institutions, such as cashing checks, exchanging currencies, investing money in a
retirement account, and paying bills
How Does a Financial Institution Work?
Financial institutions exist to solve the problem of making money available to the people
and businesses that need it. Without these organizations and a standard system, it would
be challenging and risky to match up people with extra funds with those who need to
borrow. For example, you’d likely need to find multiple willing individuals to lend you
enough money for a major purchase, and the borrowers would need to take on the risk
that you might not pay them back.
A financial institution is an organization that deals in a variety of monetary transactions,

such as cash deposits, loans, exchanging securities, and raising capital. It intermediates
7
transactions between the people who deposit or invest money and the people who need to
borrow or raise money.
How to financial institutions make money?
As hubs for money and financial services, banks deal with lending money and keeping it
secured for their customers, but how do banks make money? Much like any other profit-
driven business, banks charge money for the services and financial products they provide.
The two main offerings banks profit from are interest on loans and fees associated with
their services. Interest is what is charged to borrow money. Banks offer customers a
service by lending money, and interest is how they profit off of that service.
Typically, interest is charged as a percentage of the amount borrowed. Banks charge

interest on a variety of products and services like credit cards, loans, and mortgages.
Interest rates vary for different offerings, so take a look at the table below for examples.
They also fluctuate over time and based on the economy. For the better part of 2020, 30-
year fixed-rate mortgage rates fell to historic lows, hovering around or below 3 percent. .
Banks make money on the services they provide. They earn money by charging
customers interest on various loans and through bank fees. As hubs for money and
financial services, banks deal with lending money and keeping it secured for their
customers, but how do banks make money.
Much like any other profit-driven business, banks charge money for the services and
financial products they provide. The two main offerings banks profit from are interest on
loans and fees associated with their services. You can also manage a variety of other
tasks through these institutions, such as cashing checks, exchanging currencies, investing
money in a retirement account, and paying bills
8
Bank Fees
Banks make a significant amount of their money by charging customers fees to use their
financial products and services. Fees take many forms, but they’re often charged to create
and maintain a bank account or to execute a transaction. They can be recurring or one-
time charges. All banks should be upfront about all of their fees and disclose them
somewhere accessible to their customers. Look for a fee schedule online or in the fine
print your financial documents.
It’s important to educate yourself on the types of fees that banks impose so that you can
be an involved advocate for your own financial wellbeing. Knowing what certain fees are
and why they’re charged is a great way to manage the money you keep in the bank and
prevent mistakes or errors from eating into your budget. Learn about common bank fees
below.
Non-sufficient Funds (NSF) Fees
Non-sufficient funds fees are charged when a customer makes a transaction but doesn’t
have enough money to pay for it. The transaction “returns” or “bounces,” and the bank
charge the customer an NSF fee.
9
Overdraft Fees
An overdraft occurs when your bank balance falls below zero. An overdraft fee is
charged, and interest can even accrue on the overdrawn amount because the bank may
consider that money borrowed as a short-term loan.
ATM Fees
Fees are charged for a few reasons when it comes to ATMs. If you use an ATM that isn’t
associated with your bank’s network, you’ll most likely be charged a fee for that
transaction. Another fee can be charged if you make too many withdrawals from your
account through ATMs.
Late Payment Fees
Fees are charged on credit card or bank statements if a customer misses a payment or
pays their bill late. The charge is 950 if the outstanding amount is above 10000.The late
fees would be charged by the bank in your next credit card bill .Late payment cannot be
reported to the credit reporting bureaus until it is at least 30 days past due
10
Minimum Balance Fees
Certain bank accounts have a minimum balance that’s required to stay within the account.
If you fall below this minimum balance at any point, you’ll be charged a fee at the top of
the month. If you don’t maintain the minimum balance required for your account, your
bank may even close your account.
Withdrawal Fees
Depending on your account, you may have a selected number of withdrawals you’re
allowed to prepare per month. Checking accounts are intended for transactional purposes
and may allow a certain number of withdrawals before charging a fee. Savings accounts,
on the opposite hand, often put a stricter limit on withdrawals, with the federal limit at six
withdrawals. If you make more than the number of allowed withdrawals, you’ll pay a fee
whoever
Wire Transfer Fees
A wire transfer fee is incurred when you transfer funds electronically. They’re typically
wanted to transfer money safely and securely across large geographic distances.
Financial institutions in India can be broadly classified into three categories, viz., All-
India Financial Institutions (AIFIs), State level institutions and other institutions (Chart
On the basis of functions and activities, the AIFIs have four segments;
(i) all-India development banks,
(ii) specialized financial institutions,
(iii) investment institutions
The State level institutions comprise State Financial Corporations (SFCs) and State
Industrial Development Corporations (SIDCs). Other financial institutions include Credit
Guarantee Corporation of India (ECGC) Ltd. and Deposit Insurance and Credit
11
Guarantee Corporation (DICGC). Out of 17 AIFIs, the Federal Reserve Bank regulates
and supervises online. Out of these nine, six FIs, viz., Industrial Development Bank of
India (IDBI), Industrial Finance Corporation of India (IFCI) Ltd., Industrial Investment
Bank of India (IIBI) Ltd., Tourism Finance Corporation of India (TFCI) Ltd.,
Infrastructure Development non depository Finance Company (IDFC) Ltd. and EXIM
Bank are ‘Term Lending Institutions’, while the remaining three FIs, viz., National Bank
for Agriculture and Rural Development (NABARD), National Housing Bank (NHB) and
Small Industries Development Bank of India (SIDBI) are termed as ‘Refinance
Institutions’ for regulatory and supervisory purposes. However, there was a huge gap
between the supply of savings and demand for the investment opportunities in the
country.
All India Financial Institutions (AIFI) may be a group composed of financial regulatory
bodies 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. Tourism Finance Corporation
of India (TFCI) Ltd., Infrastructure Development non depository Finance Company
(IDFC) Ltd. and EXIM Bank are ‘Term Lending Institutions’, while the remaining three
FIs, viz., National Bank for Agriculture and Rural Development (NABARD), National
Housing Bank (NHB) and Small Industries Development Bank of India (SIDBI) are
termed as ‘Refinance Institutions’ for regulatory and supervisory purposes. In Post-
Independence India, people were encouraged to increase savings, a tactic intended to
provide funds for investment by the Indian government. However, there was a huge gap
between the supply of savings and demand for the investment opportunities in the
country.
12
Functions of Financial Institutions
Liability-Asset transformation- They issue claims to their customers that have

characteristics different from those of their own assets.
Size transformation. They provide large volumes of fiancé on the basis of small deposits
or unit capital. The financial institutions assist in the proper allocation of resources,
sourcing from businesses that have a surplus and distributing to others who have deficits
Maturity transformation -They offer savers alternate forms of deposits according to their
liquidity preferences, and provide borrowers with loans of requisite maturities
Risk transformation -They distribute risk through diversification and thereby reduce it for
savers as in the case of mutual funds.
Maturity transformation -They offer savers alternate forms of deposits according to their
liquidity preferences, and provide borrowers with loans of requisite maturities
Categories of Financial Institutions
Reserve Bank of India:

The Reserve Bank of India was established in the year 1935 with a view to organize the
financial frame work and facilitate fiscal stability in India.
·The bank acts as the regulatory authority with regard to the functioning of the various
commercial bank and the other financial institutions in India.
·The bank formulates different rates and policies for the overall improvement of the
banking sector. It issue currency notes and offers aids to the central and institutions
governments.
Commercial Banks in India:
The commercial banks in India are categorized into foreign banks, private banks and the
public sector banks. The commercial banks indulge in varied activities such as
13
acceptance of deposits, acting as trustees, offering loans for the different purposes and are
even allowed to collect taxes on behalf of the institutions and central government.
Credit Rating Agencies in India:
The credit rating agencies in India were mainly formed to assess the condition of the
financial sector and to find out avenues for more improvement.
The credit rating agencies offer various services as:
 Operation Up gradation
 Training to Employees
 Scrutinize New Projects and find out the weak sections in it Securities and
Exchange Board of India:
 The securities and exchange board of India, also referred to as SEBI
Was founded in the year 1992 in order to protect the interests of the investors and to
facilitate the functioning of the market intermediaries.
 They supervise market conditions, register institutions and indulge in risk management.
Insurance Companies in India:
The insurance companies offer protection against losses. They deal in life insurance,
marine insurance, and vehicle insurance and so on.
 The insurance companies collect the little saving of the investors and then reinvest those
savings in the market.
 The insurance companies are collaborating with different foreign insurance companies
after the liberalization process.
 The insurance companies are collaborating with different foreign insurance companies
after the liberalization process.
14
Specialized Financial Institutions in India:
The specialized financial institutions in India are government undertakings that were set
up to provide assistance to the different sectors and thereby cause overall development of
the Indian economy.
The significant institutions falling under this category includes:
 Board for Industrial & Financial Reconstruction
 Export-Import Bank Of India
 Small Industries Development Bank of India.
Financial institutions exist to solve the problem of making money available to the people
and businesses that need it. Without these organizations and a standard system, it would
be challenging and risky to match up people with extra funds with those who need to
borrow. For example, you’d likely need to find multiple willing individuals to lend you
enough money for a major purchase, and the borrowers would need to take on the risk
that you might not pay them back.
1.1 NEED OF FINANCIAL INSTITUTIONS IN INDIA
The financial institutions were established to foster industrial development in the

country. A consequence of this might be fewer banks serving specific target groups, for
example small scale producers could be under served. As payment agents, banks make
commercial transactions much more convenient
Below mentioned arguments were put forward in favour of these special institutions:
15
1. These institutions will assist large and small industries by providing both long-term and
short-term funds for the fixed investments, i.e., to supply investment funds.
2. These institutions will offer finance at concessional terms to undertake manufacturing

activities and thereby promote industrial culture
3. These institutions were necessity of the time so as to ensure the pace and pattern of
industrial development because they could supply finance to the public sector, private
sector companies as well as large scale and SSI.
4. As private sector was not interested in establishing these financial institutions,

Government has to set up these institutions. Some experts see a trend homogenization of
financial institutions, meaning a tendency to invest in similar areas and have similar
business strategies. A consequence of this might be fewer banks serving specific target
groups, for example small scale producers could be under served. These institutions will
offer finance at concessional terms to undertake manufacturing activities and thereby
promote industrial culture
As payment agents, banks make commercial transactions much more convenient; it is

not necessary to carry around large amounts of physical currency when merchants will
accept the checks, debit cards or credit cards that banks provide.
1.2 TYPES OF FINANCIAL INSTITUTIONS IN INDIA:
Commercial Banks Commercial banks accept deposits and supply security and
convenience to their customers. As payment agents, banks make commercial transactions
much more convenient; it is not necessary to carry around large amounts of physical
currency when merchants will accept the checks, debit cards or credit cards that banks
provide.
16
Part of the first purpose of banks was to offer customers safe. Keeping for their money.
By keeping physical cash at home or in a wallet, there are risks of loss due to theft and
accidents, not to mention the loss of possible income from interest. With banks,
consumers no longer need to keep large amounts of currency on hand; transactions can be
handled with checks, debit cards or credit cards, instead. A consequence of this might be
fewer banks serving specific target groups, for example small scale producers could be
under served.
Investment banks do not take deposits; instead, they assist individuals, businesses and
governments raise capital through the issuance of securities. Investment companies,
traditionally known as mutual fund companies, pool funds from individuals and
institutional investors to provide them access to the broader securities market.Robo-
advisors are the new breed of such companies, enabled by mobile technology to support
investment services more cost-effectively and provide broader access to investing by the
public.
Commercial banks also make loans that individuals and businesses use to buy goods or
expand business operations, which in turn lead to more deposited funds that make their
way to banks. If banks can lend money at a higher interest rate than they have to pay for
funds and operating costs, they make money. Banks also serve often under-appreciated
roles as payment agents within a country and between nations. Not only do banks issue
debit cards that allow account holders to pay for goods with the swipe of a card, they can
also arrange wire transfers with other institutions.
Banks essentially underwrite financial transactions by lending their reputation and

credibility to the transaction; a check is basically just a promissory note between two
people, but without a bank's name and information on that note, no merchant would
accept it. As payment agents, banks make commercial transactions much more
17
convenient; it is not necessary to carry around large amounts of physical currency when
merchants will accept the checks, debit cards or credit cards that banks provide.
1. Central Banks
Central banks are the financial institutions liable for the oversight and management of all
other banks. In the United States, the FI the central bank is the Federal Reserve Bank,
which is liable for conducting monetary policy and supervision and regulation of
financial institutions..
2. Retail and Commercial Banks
Traditionally, retail bank offered products to individual consumers while commercial

banks worked directly with businesses. Currently, the bulk of huge banks offer time
deposit account, lending, and limited financial advice to both demographics. Products
offered at retail and commercial banks include checking and savings accounts,
3. Internet Banks
A newer entrant to the financial organizations market is internet bank, which work
similarly to retail banks. Internet banks offer the same products and services as
conventional banks, but they do so through online platforms instead of brick and mortar
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locations. Under internet banks, there are two categories: digital banks and neo-banks.
Digital banks are online-only platforms affiliated with traditional banks. However, neo
banks are pure digital native banks with no affiliation to any bank but themselves.
4.Credit Unions
Credit unions serve a selected demographic per their field of membership, like as teachers
or members of the military. While the products offered resemble retail bank offerings,
credit unions are owned by their members and operate for their benefit. A credit union is
a type of not-for-profit financial institution controlled by its members, the people who
deposit money into it. While traditional banks are run by shareholders whose goal is to
maximize profits, credit unions return all profits to its members in the form of more
favourable interest rates. While traditional banks are run by shareholders whose goal is to
maximize profits, credit unions return all profits to its members in the form of more
favourable interest rates
5. Savings and Loan Associations
Financial institutions that are mutually held and supply no quite than 20% of total lending
to businesses fall into the category of savings and loan associations. Individual
consumers use savings and loan associations for deposit accounts, personal loans, and
mortgage lending.
6 Investment Banks and Companies
Investment banks do not take deposits; instead, they assist individuals, businesses and
governments raise capital through the issuance of securities. Investment companies,
traditionally known as mutual fund companies, pool funds from individuals and
institutional investors to provide them access to the broader securities market.Robo-
advisors are the new breed of such companies, enabled by mobile technology to support
19
investment services more cost-effectively and provide broader access to investing by the
public.
7 .Brokerage Firms
Brokerage firms assist individuals and institutions in buying and selling securities among
available investors. Customers of brokerage firms can place trades of stocks, bonds,
mutual funds, exchange-traded funds (ETFs), and some alternative investments. A
brokerage acts as an intermediary between buyers and sellers to facilitate securities
transactions.
Brokerage companies are compensated via commission after the transaction has been
successfully completed. For example, when a trade order for a stock is carried out, an
individual often pays a transaction fee for the brokerage company's efforts to execute the
trade. A brokerage can be either full service or discount.
A full service brokerage provides investment advice, portfolio management and trade
execution. Brokerage firms assist individuals and institutions in buying and selling
securities among available investors. Customers of brokerage firms can place trades of
stocks, bonds, mutual funds, exchange-traded funds (ETFs), and some alternative
investments.
8. Insurance Companies
Financial institutions that help individuals transfer the risk of loss are known as insurance
companies. Individuals and businesses use insurance companies to protect against
financial loss due to death, disability, accidents, property damage, and other misfortunes
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Mortgage Companies
Financial institutions that originate or fund mortgage loans are mortgage companies.
While most mortgage companies serve the individual consumer market, some specialize
in lending options for commercial real estate only. Shadow Banks The housing bubble
and subsequent credit crisis brought attention to what is commonly called "the shadow
banking system."
This is a collection of investment banks, hedge funds, insurers and other non-bank
financial institutions that replicate some of the activities of regulated banks, but do not
operate in the same regulatory environment. The shadow banking system funnelled a
great deal of money into the U.S. residential mortgage market during the bubble.
Insurance companies would buy mortgage bonds from investment banks, which would
then use the proceeds to buy more mortgages, so that they could issue more mortgage
bonds.
The banks would use the money obtained from selling mortgages to write still more
mortgages. Many estimates of the size of the shadow banking system suggest that it had
grown to match the size of the traditional U.S. banking system by 2008. Apart from the
absence of regulation and reporting requirements, the nature of the operations within the
shadow banking system created several problems. Specifically, many of these institutions
"borrowed short" to "lend long." In other words, they financed long-term commitments
with short-term debt. This left these institutions very vulnerable to increases in short-term
rates and when those rates rose, it forced many institutions to rush to liquidate
investments and make margin calls. Moreover, as these institutions were not part of the
formal banking system, they did not have access to the same emergency funding
facilities.
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National Housing Bank (NHB)
National Housing Bank (NHB), a wholly owned subsidiary of Reserve Bank of India
(RBI), was set up on 9 July 1988 under the National Housing Bank Act, 1987. NHB is an
apex financial institution for housing. NHB has been established with an objective to
operate as a principal agency to promote housing finance institutions both at local and
regional levels and to provide financial and other support incidental to such institutions
and for matters connected therewith.NHB registers, regulates and supervises Housing
Finance Company (HFCs), keeps surveillance through On-site & Off-site Mechanisms
and co-ordinates with other Regulators
. NHB has been established to achieve, inter-Alia, the following objectives –
•To promote a sound, healthy, viable and cost effective housing finance system to cater to
all segments of the population and to integrate the housing finance system with the
overall financial system.
•To promote a network of dedicated housing finance institutions to adequately serve

various regions and different income groups.
•To augment resources for the sector and channelize them for housing.
•To make housing credit more affordable.
•To regulate the activities of housing finance companies based on regulatory and
supervisory authority derived under the Act.
•To encourage augmentation of supply of buildable land and also building materials for
housing and to upgrade the housing stock in the country.
•To encourage public agencies to emerge as facilitators and suppliers of serviced land, for
housing.
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•The National Housing Policy, 1988 envisaged the setting up of NHB as the Apex level
institution for housing. In pursuance of the above, NHB was set up on 9 July 1988 under
the National Housing Bank Act, 1987. NHB is wholly owned by Reserve Bank of India,
which contributed the entire paid-up capital. The general superintendence, direction and
management of the affairs and business of NHB vest, under the Act, in a Board of
Directors. The Head Office of NHB is at New Delhi. The Sub-Group on Housing Finance
for the Seventh Five Year Plan (1985–90) identified the non-availability of long-term
finance to individual households on any significant scale as a major lacuna impeding
progress of the housing sector and recommended the setting up of a national level
institution. The general superintendence, direction and management of the affairs and
business of NHB vest, under the Act, in a Board of Directors. The Head Office of NHB is
at New Delhi.
The Committee of Secretaries considered' the recommendation and set up the High Level
Group under the Chairmanship of Dr. C. Rangarajan, the then Deputy Governor, RBI to
examine the proposal and recommended the setting up of National Housing Bank as an
autonomous housing finance institution. The recommendations of the High Level Group
were accepted by the Government of India.
The Humble Prime Minister of India, while presenting the Union Budget for 1987-88 on
28 February 1987 announced the decision to establish the National Housing Bank (NHB)
as an apex level institution for housing finance. Following that, the National Housing
Bank Bill (53 of 1987) providing the legislative framework for the establishment of NHB
was passed by Parliament in the winter session of 1987 and with the assent of the Humble
President of India on 23 December 1987, became an Act of Parliament. The general
superintendence, direction and management of the affairs and business of NHB vest,
under the Act, in a Board of Directors. The Head Office of NHB is at New Delhi.
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1.3 ROLES OF FINANCIAL INSTITUTIONS
The main part of a financial institution is to move financial assets from those who save it
to those who are in need of financial resources for economic activity. The functions of
financial institutions, such as stock exchanges, commodity markets, and futures,
currency, and options exchanges are very important for the economy. . These companies
are involved in a number of financial activities, such as underwriting securities, selling
securities to investors, providing brokerage services, and fundraising advice these
institutions are complex in creating and giving ownership for financial claims. These
institutions are also responsible for maintaining liquidity in the market and managing
price change risks. As part of their various services, these institutions give investment
opportunities to businesses to generate funds for various purposes.
The functions of financial institutions like investment banks are also important and
related to the investment sector. These companies are involved in a number of financial
activities, such as underwriting securities, selling securities to investors, providing
brokerage services, and fundraising advice. There is an important role of financial
institutions in economic development, particularly of banks, which has been popularized
by distinguished economists like Schumpeter, Kalecki and Keynes. wrote,
“The banker, therefore, is not so much primarily a middleman in the commodity

`purchasing power’, as a producer of this commodity. Newly created purchasing power
by banks placed in the hands of the entrepreneur enables him to secure command over
physical resources and thus push through his investment projects. . These companies are
involved in a number of financial activities, such as underwriting securities, selling
securities to investors, providing brokerage services, and fundraising advice Once the
investment results in the increased production, the initial credit inflation disappears and
the equivalence between money and commodities streams is restored.
24
Some of the roles are:
● Mobilizing Savings for Capital Formation: Financial institutions help in capital

formation, i.e., increase in capital stock like the plant, machinery, tools and equipment,
buildings, means of transport and communication, etc. They do so by mobilizing the idle
savings from individuals in the economy to the investor through various monetary
services.
● Existence of A Large Non-Monetized Sector: A growing economy is characterized

by the survived of a large non-monetized sector, particularly, in the backward and
inaccessible areas of the country. The existence of this non-monetized sector is a
hindrance in the economic development of the country. The banks by opening branches
in rural and backward areas can promote the process of monetization in the economy.
●Financing Industrial Sector: Commercial Banks provide short-term and medium term
loans in the industry. In India, they undertake financing of small scale industries and also
25
provide hire-purchase finance. These banks not only provide finance for industry but also
help in developing the capital market which is underdeveloped in such countries
●They Help in Monetary Policy: Financial institutions like the central bank help in
regulating the money supply in the economy. They do it to maintain stability and control
inflation. The central bank try various calculate like increasing or decreasing repo rate,
cash reserve ratio, open market operations, i.e., trading government securities to regulate
liquidity in the economy.
●Commercial Banks Help in Financing Internal and External Trade: The banks give
loans to wholesalers and retailers to stock goods .they measure. They also help in the
movement of goods from one place to another by providing all types of facilities such as
discounting and accepting bills of exchange, providing overdraft facilities, issuing drafts,
etc. They help by giving finance both exports and imports of growing countries.
●Provision for Long Term Finance for The Improvement Of Agriculture: Normally
commercial banks grant short term loans to the trade and industries in developed
countries. But in developing countries new businesses and improvement in agriculture
need long term loans for proper development. Therefore, the commercial banks should
change their policies in favour of granting long term loans to trade and industries.
They also help in the movement of goods from one place to another by providing all
types of facilities such as discounting and accepting bills of exchange, providing
overdraft facilities, issuing drafts, etc. They help by giving finance both exports and
imports of growing countries.
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Normally commercial banks grant short term loans to the trade and industries in
developed countries. But in developing countries new businesses and improvement in
agriculture need long term loans for proper development. Therefore, the commercial
banks should change their policies in favour of granting long term loans to trade and
industries.
1.4 INVESTMENT TRUSTS
Meaning:
Investment Trusts are investment institutions which are establish to provide to investors,
particularly smaller ones having small savings, the benefits of diversified investment and
skilled management in the area of investment in industrial securities. These institutions
give their shares or units to small investors to mobilize their savings. These savings are
invested in shares, debentures, bonds and loans of profit–making joint stock companies.
The investments are diversified, that is, made in securities of a sufficiently large number
of companies, generally from different industries, using professional management skills.
This lowers the investment risk and ensures reasonable income from the investments.
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The trust collect income from investments by way of dividend on shares, interest on
debentures, bonds and loans and profit on sale of securities. After meeting the
management expenses, the income of the trust is distributed among the investors. Thus
the investment trusts, on the one side, ensures small investors to participate in the
industrial prosperity of the country. And on the other hand, ensures joint stock companies
to get financial resources from bigger sources. Banking and financial services play very
important role in the growth of an economy. Research shows that a well-functioning and
inclusive financial system is linked to a faster and equitable growth. There is wide range
of personal finance options for higher and upper middle income population in the form of
financially engineered and innovative products whereas a significantly large section of
population still lack access to the most basic banking services that is holding a bank
account. This is termed as “financial exclusion” which further leads to social exclusion.
So it is necessary to provide individuals with easy and affordable institutional financial

products or services popularly called “financial inclusion". Universally, it is accepted that
the objective of financial inclusion is to extend the scope of activities of the organized
financial system to include within its ambit the people with low incomes. In India, there
is a need for coordinated action amongst the banks, the government and related agencies
to facilitate access to bank accounts to the financially excluded. In view of the need for
further financial deepening in the country in order to boost economic development, there
is a dire need for expanding financial inclusion.
Twenty-three years after economic reforms unfurled in India, the financial sector still
suffers from many maladies. There are various socio-cultural, economic issues that
hinder the process of financial inclusion. For instance on demand side, it includes lack of
awareness and illiteracy. From supply side, lack of avenues for investment such as poor
bank penetration, unwillingness of banks to do financial inclusion or high cost involved
in financial inclusion seem to be some likely reasons for financial exclusion. Normally
the weaker sections of the society are completely ignored by the formal financial
28
institutions in the race of making chunks of profits or the complexities involved in
providing finance to the weaker section.
low section and slum people of society. It can be a great weapon to financial institutions
ratings refer to the credit rating processes and analysis of financial institutions performed
by various credit rating agencies. According to the credit rating of the financial
institutions, the strength of a particular financial institution can be judged. At present,
there are more than 100 credit rating agencies all over the world. There are a large
number of credit rating agencies all over the world that carry out credit rating functions
for financial institutions. A credit rating agency is basically an organization, which allots
credit ratings for financial institutions or issuers of various types of debt obligations like
bonds and debentures.
financial sector.
It can also be defined as the process of ensuring access to financial services and timely
and adequate credit where needed by vulnerable groups such as weaker sections and low
income groups at an affordable cost. Financial inclusion broadens the resource base of the
29
financial system by developing a culture of savings among large segment of rural
population and plays its own role in the process of economic development. Further, by
bringing low income groups within the perimeter of formal banking sector; financial
inclusion protects their financial wealth and other resources in exigent circumstances.
low section and slum people of society. It can be a great weapon.
Types of Investment
Trusts Investment trusts are basically of the following two types-
(1) ‘Open-end’ Investment Trusts
In U.K, such trusts are known as ‘Unit Trust’ while in USA, they are 67 commonly
known as ‘Mutual funds’. The distinguishing characteristics of such trusts are -
●There is a definite arrangement under which the trust continuously offers to sell fresh
shares or units at a price based on the net asset value of the underlying securities.
●There is also a definite arrangement under which the trust buys back its own shares or
units at a price based on the net asset value of the underlying securities.
●The income of the trust is divided among the unit holders or shareholders of the trust
after meeting management expenses.
(2) ‘Closed-end’ Investment Trusts
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The distinguishing characteristics are as under -
●These Trusts do not continuously sell their shares or units;
●They also do not buy back their shares or units;
●The shares or units of the trust are listed on stock exchanges and can be bought and sold
like shares of any other company;
●The market value of shares or units of these trusts depends upon the market forces of
demand and supply;
●Such institutions can also raise loans to make investments;
●They may plough back a part of their profits.
1.5 LIC (LIFE INSURANCE CORPORATIONS)
Life Insurance Corporation of India (LIC) is an Indian state-owned insurance group and
investment company headquartered in Mumbai. It is the largest insurance company in
India with an estimated asset value of ₹2,529,390 crores (US$350 billion) (2016). As of
2013 it had total life fund of ₹1,433,103.14 core and total number of policies sold
coming in at ₹367.82 lakh that year (2012-13).
The Life assurance Corporation of India was founded in 1956 when the Parliament of
India passed the Life assurance of India Act that nationalized the private insurance
industry in India. Over 245 insurance companies and provident societies were merged to
make the state owned Life Insurance Corporation. The functions of the Corporation shall
be to hold on and develop life insurance business to the best advantage of the community:
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Objectives of LIC:
●To carry on capital redemption business, annuity certain business or reinsurance

business in so far as such reinsurance business relating to life insurance business.
●To invest the funds of the Corporation in such manner because the Corporation may
think fit and to take all such steps as could also be necessary or expedient for the
protection or realization of any investment including the taking over of and administering
any property offered as security for the investment until a suitable opportunity arises for
its disposal.
●To acquire, hold and dispose of any property for the purpose it’s a business.
●To transfer the entire or any part of the life assurance business carried on outside India
to other person or persons if within in the interest of the Corporation it is expedient so to
do
To advance or lend money upon the security of any movable or immovable property or
otherwise.
●To borrow or raise any money in such manner and upon such security as the
Corporation may think fit.
ROLES AND FUNCTIONS OF LIC:
It collects the savings of the people through life policies and invests the fund in a variety
of investments.
It invests the funds in profitable investments so as to get good return. Hence the policy
holders get benefits in the form of lower rates of premium and increased bonus. In short,
has been answerable with the policy holders.
It subscribes to the shares of companies and corporations. It is a major shareholder in a

large number of blue chip companies.
32
It gives direct loans to industries at a lesser rate of interest. It is giving loans to industrial
enterprises to the extent of 12% of its total commitment.
It provides refinancing activities through SFCs in different states and other industrial loan
giving institutions.
Issuing directives to the acquiring companies in relation to the conduct of general

insurance business.
Issuing directions and encouraging competition among the acquiring companies in order
to render their services more efficiently.
DEVELPOMENT OF FINANCIAL INSTITUIONS
Development banks can be known as special industrial financial institutions. These

banks were mostly established after World War II in both developed as well as
developing countries in the world. Just like elsewhere, the development banks in India
are responsible for accelerating the economic development of the country. In the
following banking awareness study notes on development banks, we shall learn more
about them in terms of meaning, types, features, and more!
Unlike other commercial banks, the development banks do not mobilize savings. Instead,
they invest the resources in a productive and efficient manner. Financial institutions
ratings refer to the credit rating processes and analysis of financial institutions performed
by various credit rating agencies. According to the credit rating of the financial
institutions, the strength of a particular financial institution can be judged. At present,
there are more than 100 credit rating agencies all over the world. There are a large
number of credit rating agencies all over the world that carry out credit rating functions
for financial institutions. A credit rating agency is basically an organization, which allots
credit ratings for financial institutions or issuers of various types of debt obligations like
bonds and debentures.
33
These banks are expert financial bodies that perform the dual functions of granting
medium and long-term finances to private entrepreneurs and performing promotional
roles for the economic development of the country.
The development banks are responsible to provide medium and long-term finances to the
industrial as well as agricultural sectors. As well, they finance both private and public
sectors. Some of the most popular development banks in India are the Industrial
Development Bank of India (IDBI), the Industrial Credit and Investment Corporation of
India (ICICI), and Export-Import (EXIM) Bank of India, etc.
In the following article, let us learn in detail about the development banks in India.
Banking and finance aspirants are advised to read through the below sections to have a
clear understanding of the topic for UPSC IAS and relevant competitive exams.
Development banks are nothing but financial institutions providing long-term funds for
capital-intensive investments for a long period of time. Their lending yields low rates of
returns, such as irrigation systems, urban infrastructure, mining, and heavy industries, etc.
They are also known as development finance institutions (DFI) or long-term lending
institutions. These banks lend at low and stable interest rates so as to promote long-term
investments along with social benefits.
Development banks are not the same as commercial ones. Instead, development banks
mobilize short to medium-term deposits and lend for similar periods of tenure to avoid a
maturity mismatch, which causes a bank’s solvency and liquidity.Development banks are
specialized institutions that provide medium and long-term credit lending facilities. Their
main objective is to serve the public interest instead of earning profits. They provide
financial assistance to both public as well as private sector institutions.
34
Features of Development banks
Unlike commercial banks, the development banks do not accept deposits from the public.
Hence, they do not entirely depend upon saving mobilization. They also help in the
movement of goods from one place to another by providing all types of facilities such as
discounting.. They help by giving finance both exports and imports of growing countries.
Development banks are specialized institutions that provide medium and long-term credit
lending facilities. Their main objective is to serve the public interest instead of earning
profits. They provide financial assistance to both public as well as private sector
institutions.
They are also known as development finance institutions (DFI) or long-term lending
institutions. These banks lend at low and stable interest rates so as to promote long-term
investments along with social benefits. These banks lend at low and stable interest rates
so as to promote long-term investments along with social benefits. These banks lend at
low and stable interest rates so as to promote long-term investments along with social
benefits
Importance of Development Banks
Lays the foundation for industrial growth and development in the country
Meets long-term capital needs
Undertakes promotional activities
Helps small and medium sectors
Objectives of Development Banks
1. Promotion of industrial growth
2. Creation of employment opportunities
3. Promotion of self-employment projects

35
4. Reviving sick units
5. Improving the capital market in the country
6. To generate more exports and promote import substitution
7. To promote science and technology in new areas by extending risk capital
8. improving the management of large industries by providing them adequate training
9. Encouraging modernization and improvement in the technology sector
1.6 IMPORTANCE OF FINANCIAL INSTITUTIONS
Financial institutions provide consumers and commercial clients with a good range of
services and different types of banking products. The importance of financial institutions
to the wider economy is apparent during market booms and recessions. During economic
upturns, financial institutions provide the financing that drives economic growth, and
during recessions, banks curtail lending. Financial inclusion also mitigates the
exploitation of vulnerable sections by the usurious money lenders by facilitating easy
access to formal credit. Financial inclusion is an innovative concept which helps to
achieve the sustainable development of the country, by making available financial
services to the unreached people with the help of financial institutions. The concept of
financial inclusion gets popularity from 2000.
financial sector.
36
Moneylenders and insurance companies have been lending money to people and insuring
against loss for 100 centuries, but within in the 20th century, governments around the
world began to recognize the importance of financial institutions and passed legislation
that made it easier for more people to obtain products and services from these entities. In
many countries, banks are encouraged or even compelled to lend money to home buyers
and small businesses. Readily available loans encourage consumer spending, and this
spending leads to economic process.
Consumers are often either people with cash who are seeking returns on their money or
people without cash who got to borrow money in order to cover their short-term
expenses. Banks behave as intermediaries between these 2 groups. People with cash lend
money to the back in return for a nominal rate of interest, and banks lend that same
money to consumers at a much higher rate of interest. The difference between the price a
bank pays to borrow and the price it charges its own customers to borrow enables the
bank to generate a profit. In many instances, the importance of financial institutions is
most vivid during recessions when savers run low of money and banks lack the cash to
finance consumer lending.
Financial institutions offer various types of insurance, ranging from life insurance to
insurance on mortgage contracts. Insurance firms and banks also insure other financial
institutions. If one bank becomes insolvent, its losses are partially absorbed by the other
institutions that insured it. In some instances, this can lead to systemic risk, which
describes the danger of a major bank's collapse having a filter down effect on other banks
and the economy as a whole. When major banks and insurance firms become insolvent,
government regulators are reminded of the importance of financial institutions to the
economy and the financial inclusion also mitigates the exploitation of vulnerable sections
by the usurious money lenders by facilitating easy access to formal credit. Financial
inclusion is an innovative concept which helps to achieve the sustainable development of
the country, by making available financial services to the unreached people with the help
of financial institutions. The concept of financial inclusion gets popularity from 2000.
37
performed by various credit rating agencies.
people without cash who need to borrow money in order to cover their short-term
expenses. Banks act as intermediaries between these two groups. People with cash lend
most vivid during recessions when savers run short of cash and banks lack the cash to
Dangers presented by systemic risk. Regulators in many countries regularly audit

financial institutions to try to resolve short-term cash flow issues before those issues
evolve into major banking industry problems. In many countries, government regulators
have imposed caps on the amount of loans a bank can write and on the amount of
insurance policies that any one firm can issue. Such moves are intended to ensure that no
bank becomes so important to the economy that its failure could put the health of the
entire economy in doubt.
●A large number of corporate valuation firms is operating in the financial market. They
provide valuable services to the financial institutions regarding their valuation. According
to their opinion, the market valuation of a financial institution is dependent on the
following factors:
38
●Corporate strategy and competitive positioning
●Business model that is being followed
●Performance of operations
●Growth of earnings
●Management of capital
●Market perception
●Market disclosure
●A large number of corporate valuation firms is operating in the financial market. They
provide valuable services to the financial institutions regarding their valuation.
people without cash who need to borrow money in order to cover their short-term
expenses. Banks act as intermediaries between these two groups. People with cash lend
most vivid during recessions when savers run short of cash and banks lack the cash to
According to their opinion, the market valuation of a financial institution is dependent on

the following factors:
●Corporate strategy and competitive positioning
●Business model that is being followed
●Performance of operations
39
●Growth of earnings
●Management of capital
●Market perception
●Market disclosure
Valuing financial institutions carry a substantial degree of importance in the financial

market because of the simple reason that companies having higher asset value and net
profit attract greater number of investors. The management of the value of financial
institutions enables those institutions to produce greater value for the stockholders with
the help of appropriate risk and finance management.
Financial institutions ratings refer to the credit rating processes and analysis of financial
institutions performed by various credit rating agencies. According to the credit rating of
the financial institutions, the strength of a particular financial institution can be judged.
At present, there are more than 100 credit rating agencies all over the world. There are a
large number of credit rating agencies all over the world that carry out credit rating
functions for financial institutions. A credit rating agency is basically an organization,
which allots credit ratings for financial institutions or issuers of various types of debt
obligations like bonds and debentures.
Financial institutions ratings refer to the credit rating processes and analysis of financial
institutions performed by various credit rating agencies. According to the credit rating of
the financial institutions, the strength of a particular financial institution can be judged.
At present, there are more than 100 credit rating agencies all over the world. There are a
large number of credit rating agencies all over the world that carry out credit rating
functions for financial institutions. A credit rating agency is basically an organization,
which allots credit ratings for financial institutions or issuers of various types of debt
obligations like bonds and debentures.
40
The financial institutions for which the credit rating is done usually include the
following:
●Companies
●Non-profit organizations
●Investment banks
●Federal government agencies
●State government agencies
These entities issue debt securities that are traded on the secondary market. They do it for
various funding purposes. With the help of a credit rating, the creditworthiness of a
financial institution can be measured. It also analyses the ability of a financial institution
regarding the repayment of loans that it has taken, and also the amount of interest that is
accrued.
 The rating of a financial institution also influences the interest rates applicable to the
bonds and debentures issued by those institutions. If the credit rating of a financial
services provider or bond issuer is high, then the amount of interest paid to the investors
is low because they consider the investment to be less risky. On the other hand, if the
credit rating of a financial services provider or bond issuer is low, then the amount of
interest paid to the investors is high because the investors consider the investment to be
riskier and the issuer tries to compensate the degree of risk by paying high rate of
interest. As repayment of loans can often made in easy installments, it does not convince
to be much of a burden on the business.The funds are made available even during times
of depression, when other sources of finance are not available.
41
The credit ratings of financial institutions are useful for the following entities-bond
issues, investment banks, broker-dealers, government regulatory agencies, structured
financial institutions. A financial services provider or bond issuer is high, then the
amount of interest paid to the investors is low because they consider the investment to be
less risky. They also help in the movement of goods from one place to another by
providing all types of facilities such as discounting and accepting bills of exchange,
providing overdraft facilities, issuing drafts, etc. They help by giving finance both
exports and imports of growing countries. They help by giving finance both exports and
imports of growing countries.
On the other hand, if the credit rating of a financial services provider or bond issuer is
low, then the amount of interest paid to the investors is high because the investors
consider the investment to be riskier and the issuer tries to compensate the degree of risk
by paying high rate of interest. The credit ratings of financial institutions are useful for
the following entities-bond issues, investment banks, broker-dealers, government
regulatory agencies, structured financial institutions. The main difference between other
financial institutions cannot accept deposits into sayings and demand deposits while the
same is the core for banks
1.7 ADVANTAGES OF FINANCIAL INSITUTIONS:
Financial institutions provide long term finance, which are not provided by commercial
banks. The advantages of financial institutions are as follows
Besides proving funds, many of these institutions provide financial, managerial and
technical advice and consultancy to the business firms.
 Obtaining loans from financial institutions increases the goodwill ofthe borrowing
company in the capital market.
 As repayment of loans can often made in easy installments, it does not convince to be
42
much of a burden on the business.
 The funds are made available even during times of depression, when other sources of
finance are not available.
DISADVANTAGES OF FINANCIAL INSTITUTIONS:
Financial institutions follow rigid criteria for grant of loans. Too many formalities make
the procedure time consuming and expensive.
 Certain restrictions such as restrictions on dividend payment are imposed on the powers
of the borrowing company by the financial institutions.
 The financial institutions may have their nominees on the board of directors of the
borrowing company thereby restricting the power of company.
 Many deserving concerns may fail to get assistance for want of security and other
conditions lay down by these institutions.
43
CHAPTER 2
REVIEW OF LITERATURE
Joseph Massey (2010) said that, monetary role of financial institutions in growing
country is important in encouraging financial inclusion. The efforts of the government to
market financial inclusion and deepening can be further increase by the pro-activeness on
the small bit of capital market players including financial institutions. Financial
institutions have a very important role to play in fostering financial inclusion. National
and international forum have recognized this and try are seen on domestic and global
levels to encourage the financial institutions to hold larger responsibilities in including
the financially excluded lot.
Bihar (2011) examined financial inclusion plans in the light of global practices, eleventh
five year Indian plan and banks performance as well as no frill account. This research
tells about financial literacy and better quality improvement in no frill account can
achieve financial inclusion plans growth.
Agarwal (2000) investigated the relationship between financial services stock markets
and financial intermediaries’ development and the panel between stock market
development and long-term growth in India. The learning of this proposes that well-
developed stock markets offer different types of financial institutions than those of the
banking system and 22 therefore provide a bit of extra impetus to economic activity.
Hence, banking sector and capital markets are complementary and not substitutes. Also
disband different parameters of stock market such as size is statistically significant in
explaining economic activity.
Beck and Levine (2001) inspect the link between financial development and extension
and the independent effect of banks and stock markets on future growth. Their history or
discovery is same with the models that suggest that well- functioning financial systems
44
relieve transaction costs, and thereby, enhance resource allocation and growth. They
found that the measures of banking development and stock market development both
frequently enter the growth 23 regression significantly, which suggests that banks and
stock markets independently raises growth and examined financial inclusion plans in the
light of global practices, eleventh five year Indian plan and banks performance as well as
no frill account. This research tells about financial literacy and better quality
improvement in no frill account can achieve financial inclusion plans growth.
Ram Mohan and Ray (2004) conducted a study on the show of Indian commercial
banks including public, private, and foreign banks using physical qualities of input and
outputs and compared revenue maximization efficiency of banks. This time of research
was 1992-2000.study concluded that public sector bank showed a better performance
than private sector bank but was head on with foreign banks. This time of research was
1992-2000.study concluded that public sector bank showed a better performance than
private sector bank but was head on with foreign banks. Thus it was concluded that in
post reform time the public sector bank performed much good than private sector banks..
Demerge-Kunt and Levine (1996) made a pioneering study using data from both
industrial and developing countries. Their learning supports the Gurley and Shaw (1955)
view that at low levels of growth commercial banks are the main financial institutions. As
economies grow and financial intermediaries and equity markets develop and prosper,
which will reduce the share of banking finance in the all over financial institutions. They
also learned that the interaction between development of financial intermediaries and
stock market development. Their research tells that across countries the level of stock
market development is positively related with the development of financial
intermediaries. Thus it was concluded that in post reform time the public sector bank
performed much good than private sector banks..
45
Boyd and Smith (1996) studied the co-evolution of the real and financial sectors of the
economy as it develops. Boyd and Smith disagree innovation is a dynamic process that
both influences and is influenced by the real sector. As an economy develops, the
aggregate ratio of debt to equity generally falls; yet, debtors and equity markets function
as complements rather than substitutes in financing real 17 development of the economy.
They found that the development of equity markets occur relatively late in the economic
growth process of the frictions in the financial business. However these frictions become
less drastic overtime, the economy gets the good of a wider efficiently functioning set of
capital markets. This time of research was .study concluded that public sector bank
showed a better performance than private sector bank but was head on with foreign
banks.
Levine and Zeros (1998) studied the factual relationship between various actions of
stock market development and long-term economic growth. They found that even after
controlling for other factors associated with growth, stock market liquidity and banking
development are both positively and robustly correlated with contemporaneous and future
rates of economic growth, capital accumulation and productivity growth. They found no
proof for theories that twenty one suggest more liquid and more internationally integrated
capital markets hinder saving and growth rates.
Harvey (1989) finalized the forecasting capacity of stock and bond prices for gross
national product growth rate. Also found that information about economic growth can be
drawn from both bond market and stock market variables. However, the bond market
delivers more information about future economic growth than the stock market. He found
that the bond market forecasts also differentiate favourably with the forecasts from
leading econometric models, whereas forecasts from stock market models do not perform
well in this regard.
46
Levine (1991) studied the impact of stock markets on economic activity through the
creation of liquidity. The study revealed strong link between stock market liquidity and
economic growth even after controlling for other economic, social, political, and policy
factors that affect economic growth. Stock market liquidity is proved to be a good
predictor of future long-term growth. However, other measures of 18 stock market
development such as stock market size and volatility do not significantly affect economic
growth.
Levine and Zeros (1998) studied the factual relationship between various actions of
stock market development and long-term economic growth. They found that even after
controlling for other factors associated with growth, stock market liquidity and banking
development are both positively and robustly correlated with contemporaneous and future
rates of economic growth, capital accumulation and productivity growth. They found no
proof for theories that twenty one suggest more liquid and more internationally integrated
capital markets hinder saving and growth rates.
Filer and Campos (1999) stock markets, especially in more growing countries,
incorporate expected future growth in to current prices. Their study also revealed a strong
relationship between stock market activity and future economic growth for the low and
middle income countries but not in higher income countries with more developed
alternative financial mechanism. They argued for the establishment of proper institutional
framework for stock market since it is found that stock market activity fails to contribute
to economic growth in countries which with inefficient institutional system.
Caporal, et al (2003) reported the hypothesis that financial development causes higher
growth through its influence on the level of investment and productivity. The conclusion
reiterated that investment productivity is the channel through which stock market
development enhance growth rate in the long run. The study supported the 24
47
endogenous growth proposition that economic policies intended to encourage financial
institutions will lead to increase the rate of growth in the future times
Sharia and Junanker (2003) analysed the impact of stock markets on economic growth
in Arab countries using panel estimation techniques. Sharia and Junanker also found that
the level of stock market activity was related to economic growth in the Arab countries.
Of the various stock market development measures used, the turnover ratio shows
significant impact on growth when compared to market capitalisation and value traded in
stock market.
Bhaskaran (2010) in his article “Impact of financial crisis on banks in India” told that
the impact was more in private sector bank when compared with public sector banks.
NPA has affected the whole banking industry which during the time of financial
problems that affected most to the private sector banks.
Bayer, et al (2004) examined the connection between the variations of stock exchanges
and economic growth. They found that economic growth increased relative to the rest of
the world after a stock exchange opened. Proof has indicated that increased growth of
productivity is the primary way through which a stock exchange increases the growth rate
of output, rather than an rise in the growth rate of physical capital. They also found that
financial deepening is fast before the creation of a stock exchange and slower
subsequently.
Rangarajan Committee (2008) on financial inclusion stated that: “Financial institutions

may be defined as the process of ensuring access to financial services and timely and
adequate credit where needed by vulnerable groups such as weaker sections and low
income groups at an affordable cost.” The financial services include the entire gamut of
savings, loans, insurance, credit, payments, etc. The financial system is regarded to
48
provide its function of moving resources from surplus to deficit units, but both deficit and
surplus units are those with low incomes, poor background, etc. By giving all this
services, the aim is to support them come out of poverty.
MandiraSarma and Jerimaine (2008) suggest that the issue of financial inclusion is a
development policy priority in so many countries. Using the index of financial inclusion
developed in levels of human development and financial inclusion in a country move
closely with each other, although a few exceptions exist. Among socioeconomic factors,
as expected, income is positively associated with the level of financial inclusion. Further
physical and electronic connectivity and information availability, indicated by road
network, telephone and internet usage, also play positive role in enhancing financial
inclusion.
Abu-Bader and Abu-Qarn (2007) . They have also suggested the need to improve the
pace of financial reforms in order to increase economic growth. Another part of research
highlights the importance of income level of the countries while examining the
relationship between their financial development and economic growth.
Oya Pinar Adric et al (2011) discuss the state of financial inclusion mandates around
the world. The findings indicate that there is yet much to be done in the financial
inclusion arena. Fifty-six percept of adults in the world do not have access to formal
financial services.
Band, Naidu and Mahadi (2012) argued about opportunities and problems in the path of
success of financial institutions plan.. Authors told better coordination in between
different banks, NGOs, etc. for better improvement of financial inclusion.
Outreville (1990) finds that there is significant and positive relationship between
insurance demand and financial development. The study also shows that in the
49
developing countries the importance given to insurance sector is comparatively low in
view of the insurance premium.
Siddiqi, RaoThakkar (1999) surveyed on 17 commercial banks having top 800 NPAs
and reported that the diversion of funds like diversification, promoting sister branches,
modernization and expansion etc.
Schumpeter (1911) argued that the services provided by them are important for
economic development. This study encouraged the researchers to observe investigate the
relationship between financial development and economic growth.
Patrick (1966) determined certain pattern while researching this relationship. These were
the “demand following” and “supply leading” patterns. In the demand following view,
the growth in the economy creates demand for financial services that in turn leads
financial development. As per the supply leading view, the growth in the financial sector
leads to the collections of small savings towards big investors that ultimately stimulates
economic growth. This elevated the question of causality between these two broad
sectors in different economies of the world.
McKibbin (2007) determined that the reforms in the financial sector have not caused
economic growth in the long run. Instead it is growth in the economy that has led higher
financial development.
Chang (2011) has advocated 3 ways through which development in the economy affects
financial institutions. In the first instance, the inflate affluence as a result of economic
growth increases demand for such institutions which are good in quality, i.e., institutions
with high standards and responsibility. Meeting the standards of service, the institutions
become costly. Nevertheless, the increased affluence due to economic growth makes the
costly financial institutions reachable. Also, the development in the economy brings forth
50
new participants that support change and call for the creation of new institutions. The
study also asserts that the well-off countries of present era, for instance, the Anglo
American countries obtained majority of the important institutions only after achieving
their economic development.
According to Badajena, S, N and Prof. Gundimeda, H (2010) “Self-help group

bank linkage model and financial inclusion in India” this research is conducted to
study the impact of self help group linkage programme in achieving financial
inclusion across sixteen states for the time 2008. The researchers had found out that
in spite of the rise in spread of formal banking network in the earlier past, access to basic
financial services are still beyond the reach of big sections of society. And studied the
factual relationship between various actions of stock market development and long-term
economic growth.
They found that even after controlling for other factors associated with growth, stock
market liquidity and banking development are both positively and robustly correlated
with contemporaneous and future rates of economic growth, capital accumulation and
productivity growth. They found no proof for theories that twenty one suggest more
liquid and more internationally integrated capital markets hinder saving and growth rates.
Researchers have given idea that the relationship between financial development and
economic growth depends on the level of economic development in the country. For
example.
Liang and Reichert (2006) find that the causality between financial development and
economic growth changes with the change in growth of economic cycle. At some level it
is “demand following” while at some other level it is “supply led.” For the developing
51
countries the causality shows “demand following” relationship while such results for the
developed countries were found to be weak.
Demetrius’s and Lintel (1996) inspect the effect of different banking controls on the
financial deepening of the Indian economy. According to their thoughts, the policies
which clash the financial deepening of the country, may also affect the growth of the
economy
Rioja and Valev (2004) advocate that the relationship between financial development
and economic growth changes according to the level of financial growth. Here, they
divided financial development in 3 stages, the “low region,” the “intermediate region”
and the “high region.” They claim that the economic growth is strongly affected by
financial development only when financial development attains the intermediate stage.
Below this stage the effect of financial development is not sure while the effect of
financial development falls down after attaining high stage.
So, the study reflects that the effect of financial development varies from country to
country depending upon their level of financial development. Such results are also
confirmed by Cave all et al. (2014) where they have advocated that the banking
development, examine it as an indicator of financial development, affects economic
growth only after gaining a threshold level.
Sweden, Sandberg (1978) contends that Sweden gained from its peculiar and effective
commercial banking system in every economic growth stage for the 50 years before
World War I. The study also highlights that Sweden was pioneer in banking in Europe in
the seventeenth century and it recorded the highest growth rate of per capita gross
national product during 1870-1914. After 1870 it also changed itself to the richest
country of Europe from one of Europe’s very poor countries.
52
Similar work includes the study of Levine (1997). Taking bank credit and deposit as a
part of financial development indicators, the study empirically finds a positive
relationship between financial development and economic growth. Finding the empirical
relationship between structure of banking market and economic growth, Corelli and
Gambera (2001) find that concentration of banks encourages growth in the industrial
sector by meeting the credit needs of those firms who are dependent on external source of
finance especially new firms.
However such phenomenon is not found to have an elating effect on the growth of all
sectors. In another study by Trine (1996) the link between Brazilian banking and
economic growth in the industrialization period is examined. The results show a positive
relationship between real bank deposits and industrial output. However such relationship
is not found between bank deposits and agricultural growth. Thus, while banking was
found to be related to industrial growth, similar result for agricultural production was not
found.
Kaushal and Ghosh (2016) noted a long run relationship between financial services,
including banking and insurance and economic growth in the Indian economy. It is
noticed that the a small change in the level of household income, housing price and
population positively impact, whereas cost of living and rising interest rates adversely
impact the mortgage debtor in the long run.
The empirical study by Arena (2008) finds that economic growth is positively and
importantly affected by insurance activity. The research shows that life insurance has a
important effect on economic growth on high income.
53
According to Dr. Swamy,
V and Dr. Vijayalakshmi
(2010)5, in their article,
“Role of financial
inclusion for inclusive
growth in India- issues and
challenges” claimed that
importance of financial
inclusion arises from the
problem of financial
exclusion of nearly three
billion people from the
formal
financial services across the
world. India has 135 million
54
financially excluded
households, the second
highest number after China.
Through graduated credit,
the attempt must be to lift
the poor from one
level to another, so that
they come out of poverty.
They identified twenty one
steps for twenty first
century financial inclusion.
There is a need for co-
ordinated action between the
government and others
55
to facilitate access to bank
accounts among the
financially excluded.
56
formal
the poor from one
57
accounts among the
58
formal
the poor from one
59
accounts among the
According to Dr. Swami, V and Dr. Vijayalakshmi (2010), in their article, “Role
of financial inclusion for inclusive growth in India- crises and challenges” announce
that importance of financial inclusion comes from the problem of financial banning of
nearly 3 billion people from the formal financial services across the world. India has 135
million financially excluded households, the second highest number after China.
Through graduated credit, the attempt must be to lift the poor from one level to
another, so that they come out of poverty.
They identified twenty one steps for twenty first century financial inclusion. There is a
need for co-ordinated action between the government and others to provide access to
bank accounts among the financially excluded.
60
The establishment of the Indian financial system evolved as a result of planned economic
policy that gave much significance to it. The start of this policy led to some important
growth in the country that include the establishment of financial institutions crucial for
the growth of the country as well as nationalization of important institutions including
State Bank of India in 1955, Life Insurance Corporation of India (LICI) in 1956, and
General Insurance Corporation (GIC) in 1972. The Indian financial system experienced a
completely regulated regime dominated by public sector banks and state regulated
insurance companies till 1990.
However the state ownership and control continuously repressed the financial system and
seriously harmed it. The introduction of latest Economic Policy in 1991 gave special
attention to financial reforms on account of degradation of financial health, autonomy,
soundness and resonance of the financial sector
.Researchers has been argued that the very fundamental activity of the banking sector,
delivery of credit, is essential to boost any economic activity and enables the generation
of abilities (Sen., 2000).
Dangi and Kumar (2013) examined the initiatives and policy measures taken by RBI
and Government of India.
Kalpesh (2011) in his comparative study of financial performance of Indian banks points
out that stability of banking and its efficiency is depending on reform measures, which
ultimately improves the liquidity and profit of both private and public sector banks.
61
It is disclosed from the above review of literature that although lots of studies have done
on financial organizations, comparison between private and public sector banks and
evaluative study on Indian banks and their role in economic growth
According to
Rao,N,N,D,S,V(2010)3, in
his research paper,
“Financial inclusion-
Banker’s
perspective”, done with the
objective of suggesting a
suitable structure to
implement financial
62
inclusion, advocated to the
banks/RBI should conduct
awareness camps about
financial inclusion to
the bank staff. And also he
found out that banking to
the poor is not poor
banking. There is lot of
potential to get business
from the people at the
bottom, as amply shown
by the self help group
movement in the past ten
years or more. It should be
63
imbibed in the minds of
operating functionaries
CHAPTER 3
RESEARCH METHODOLOGY
3.1 OBJECTIVES:
 To study the various types of banking and non-banking financial institutions in India.
 To know that how the financial institution has been developed in India.
 To understand the role of financial institution in India.
 To understand the types of insurance companies.
 To transfer resources across time and space
 To provide services and savings plans that will save the customer money.
 To know the importance of financial institutions in India.
 To study the advantages and disadvantages of financial institutions in India.
3.2 Research Design:
This report is form on primary as well as secondary data, however primary data
collection was given more significance since it is overhearing factor in attitude studies.
64
One of the most important uses of research design is that it helps in associating the
problem, collecting, analysing the information and providing an alternative solution to
the problem. It also helps in collecting vital information that is required by the top
management to assist them for better decision making both day to day decisions and
critical ones.
3.2.1 Data sources:
Research is based on primary data; secondary data can be only used for reference.
Research has been done by primary data collection and primary data has been collected
by Google form .The secondary data has been collected through various journals and
websites etc.
3.2.2 Sample procedure:
The sample was selected by the citizens of India with the help of the
googledocs.thequestionare was made by the goggle form docs. And shared that survey
through links from which I got the sample of the survey. Total I had collected 109
responses.
3.2.3 Sample size:
So, let’s talk about the sample size of the survey taken with the help of the primary
data .109 responses were collected.
3.2.4 Sample design:
Data has been presented with the help of pie charts and interpretations.
65
3.3 DATA COLLECTION
Data collection is the process of gathering and measuring information on targeted
variables in an established system, which then enables one to answer relevant questions
and evaluate outcomes. Data collection is a main part of research in all fields of study.
While conducting a research study on ROLE OF FINANCIAL INSTITUTIONS
collected primary and secondary data. Collection of Primary Data: The primary data for
the study are collected by using one questionnaire for the respondents.
Primary data was collected through survey by administering questionnaire. Data

pertaining to research has been collected with the help of questionnaire. This phase of the
research process has helped a great deal in enhancing the contents of the schedules in
tune with objectives set out for the study. Collection of Secondary Data:. The secondary
data are drawn from research reports, published books, journals, bulletins, and the
internet. The library of Mumbai University, college library, online libraries and public
libraries was helpful for the collection of secondary data.
3.4 Scope Of The Study:
Financial institutions are widely spread all over India. The banks, credit unions etc,In
expanding on the model introduced above in delves deeper in its explanation about the
scope of financial institutions. Furthermore, it provides a more detailed account of the
distinctive attributes of the financial institution as it pertains to the structure and
governance of a firm.
An explanation is provided of the representative financial institution as relating to the

maximization of the risk-adjusted rate of return, how this is conceived and how its
various elements drive the ‘production’ of the financial ‘product’. The imperatives behind
offshoring are looked at, treating insourcing and outsourcing as expressions of
geographical footprints and identifying a summary of current offshoring strategies in the
66
financial industry along with emerging hybrid strategies and trends. This would lead to
go ahead for the scope of the research.
An explanation is provided of the representative financial institution as relating to the

maximization of the risk-adjusted rate of return, how this is conceived and how its
various elements drive the ‘production’ of the financial ‘product’. The imperatives behind
offshoring are looked at, treating insourcing and outsourcing as expressions of
geographical footprints and identifying a summary of current offshoring strategies in the
financial industry along with emerging hybrid strategies and trends. This would lead to
go ahead for the scope of the research.
3.5 LIMITATIONS:
Restriction on dividend payment imposed on the powers of the borrowing company by

the financial institutions. The concern requiring finance from public financial institutions
has to submit itself to a thorough investigation that involves a number of formalities and
documents.
·As these institutions come under government criteria, they follow rigid rules for
granting loans. Too many formalities make the procedure time-consuming. Many
deserving concerns may fail to get assistance for want of security and other conditions lay
down by these institutions.
·Financial institutions may have their nominees on the Board of Directors of the
borrowing company thereby restricting the powers of the company.
67
·Sometimes, these institutions place restrictions on the autonomy of management. They
lay down a convertibility clause in loan agreements. In some cases, they insist on the
appointment of their nominees to the Board of Directors of the borrowing company.
·Financial institutions follow rigid criteria for grant of loans. Too many formalities make
the procedure time consuming and expensive.
68
CHAPTER 4
DATA ANALYSIS AND INTERPRETATION
69
3.
INTERPRETATION:
Majority of the respondents are the student that is consisting of 67.9% whereas remaining
of them belongs to the different occupations namely Professional, Businessman,
Housewife, Trainee and others.
4.
70
INTERPRETATION:
From this above response we can interpretate that 72.5% has been aware of the concept
of financial institutions and 11.9% are not sure about this concept whereas 15.6% are not
aware of the concept at all.
5.
71
INTERPRETATION:
As there are many sources in India, from where people can know about financial
institutions so from interpretation we can find that the highest is 41.3% who are aware
about various financial institutions such as from their friends and relatives and other have
known from colleges , schools television etc.
72
INTERPRETATION:
Majority of the people thinks that financial institutions helps in growth of economy
because provide liquidity to the economy and permit a higher level of economic activity
than would otherwise be possible.
73
7.
INTERPRETATION:
34.9% has been responded to commercial banks is that they find commercial banks as the
most secure one while other have responded to central banks, credit unions, brokerage
firm and investment banks from which credit unions being the least of all.
74
8.
INTERPRETATION:
40.4% thinks that the most advantageous of financial institutions is long term finance
whereas 22% has respondent to loans and 37.6% to investments.
75
9.
INTERPRETATION:
44% thinks that the most disadvantageous of financial institutions is having different
terms and conditions whereas 27.5% has respondent to time consuming and 28.4% to
lack of security.
76
10.
INTERPRETATION:
40.4% thinks that stock trading generates better returns as we know high risks generates
high returns whereas 17.4% thinks fixed deposits as it provides fix rate of return, 9.2%
thinks life insurance.
77
11.
INTERPRETATION:
63.3% has responded to RBI, 12.8% has responded to SIDBI and 23.9% for UTI.So,
basically RBI is an institution who made the initial’s contribution more than others for
setting up financial inclusion fund and technology fund.
78
12.
INTERPRETATION:
Every people have different reasons or different objectives for investing in financial
institutions. The highest is 60.6% who responded for long term growth and others have
responded for retirement, children education and others.
79
13.
INTERPRETATION:
49.5% are not aware that development helps specific sectors to grow and help economy
overall whereas 46.8% thinks yes and remaining few of them thinks No.
80
14.
INTERPRETATION:
Majority of the people i.e 70.6% thinks that financial institutions helps in money saving
as it helps to generate income and also help them to get a better standard of living. On the
other hand, 18.3% are confused and 11% feels that it doesn’t helps in money saving.
81
CHAPTER 5
CONCLUSION AND SUGGESTIONS
CONCLUSION
•A financial institution is defined as a financial institution is an intermediary bank

between the consumers & the capital or debt markets providing banking and investment
services.
•The basic emphasis of a financial institution is on long term finance and on assistance
for activities for sectors of the economies where the risk maybe higher than the ordinary
financial system is willing to bear.
•In India, the need for development of financial institution was felt very strongly.
Immediately after the independence. RBI was interested with the task of developing and
appropriate financial construction through institution building so as to mobilize indirect
sources to proffered sectors as per the plan priorities.
•The first step towards development of institution was established in 1948 by establishing
Industrial Finance Corporation of India (IFCI) followed by setting up of State Financial
Corporation’s (SFCs) at the state level after passing of the SFCs Act (1951)
•Development financial institutions have mainly catered to the medium to long term
financial requirements. They tend to lend not only for working capital purposes, but to
finance long term investment as well, including in capital-incentives sectors
82
•DFIs were extended funds are concessional rates in the form of Long Term Operations
Fund. Of the RBI government guaranteed bonds on a long-term basis.
•The industrial financial corporation of India (IFCI) was established on July 1, 1948 as
the first development financial institution in the country to cater to the long term finance
needs of the industrial sector.
SUGGESTIONS:
1. Any financial institution that looks like, acts like, or sounds like other banks and credit
unions can’t complain when they are forced to compete on rates, fees and price.
Differentiation is the key to strong brand.
2. Mobile solutions: If your financial institution isn’t offering some form of mobile
banking service currently, there had better be plans underway or you risk falling behind
competitively. Demand for services like remote deposit, SMS, and apps for smart phones
and I Pad is growing rapidly, and are quickly becoming common consumer expectations.
3. Identify profitable customers: How can you focus on cultivating profitable

relationships if you don’t first understand who profitable customers are, why they are
profitable and how they got that way.
4. it’s simply stunning how many financial institutions still don’t utilize email marketing
tools. Even today, you still hear bankers say things like, No, we don’t really collect
people’s email addresses or we don’t check your mails soon.
83
5. Banks and credit unions seem to design their websites based more on what other
financial institutions are doing than how consumers actually use the sites. There is a
wealth of information that often goes ignored during the redesign process for banking
websites.
6. There should be proper security in every financial institution whether banking or non-
banking if security will be not provided properly many peoples will not deposit their
money in the banks no peoples will invest in any financial institutions many peoples will
take loans but no proper check on them.
84
BIBLIOGRAPHY
 www.shodhganga.com
 www.wikipedia.com
 www.investopedia.com
 www.yourarticleslibrary.com
 Thefinancialbrand.com
 www.downtoearth.com
 www.figrow.com
 https://core.ac.uk/reader/234646410
 http://hdl.handle.net/10603/234557
 https://corporatefinanceinstitute.com/resources/knowledge/economics/government/
 https://www.inspirajournals.com
 https://financialservices.gov.in
 https://www.thebalance.com
 https://www.tandfonline.com
 Www.core.ac.ukreader.com
https://www.researchgate.net/publication/
322405641_Impact_Of_Indian_Commercial_Banks_In_Financial_Inclusion
85
APPENDIX/ANNEXURE
1. Are you aware of the concept of Financial Institutions? *

A.Yes
B.No
C.Maybe
2From which source you come to know about various financial

institutions services? *
A. Banks
B. Television/Newspaper
C. Friends/Relatives
D .Others
3. Do you think financial institutions helps in growth of economy? *

A.Yes
B.No
C .Maybe
86
4. Which financial institutions do you find the most secure?
A. Commercial banks
B .Central banks
C. Credit unions
D. Brokerage firms
E. Investment banks
F., Other:
5. What do you find advantageous about financial institutions? *

A. Loans
B. Long term finance
C .Investments
D. Other:
6. What do you find disadvantageous about financial institutions? *

A. Lack of security
B .Time consuming
C. Different terms and conditions
d. Other:
87
7. According to you, which investment product generates better
returns *
A .Mutual Funds
B Stock trading
C .Fixed deposit
D Life Insurance
E .Other
8. Which among the following institutions made the initials

contribution for setting up financial institutions fund? *
A.UTI
B.RBI
C.SIDBI
D Other
9. What is your objective in investing in financial institutions? *

A, Retirement
B. Children's education
C .Long term growth
D. Others
88
10. Do development banks help the specific sectors to grow and help
economy? *
A, Yes
B, Maybe
C .No
11. Does financial institutions helps in money saving? *

A.Yes
B.No
C. Maybe
89

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Revised Syllabus for

I, Miti Prashant Shah the student of T.Y.BCom

Dr.Vaibhav R. Ashar Mr.Nishant Dr. L. Bhushan

This is to certify that Ms.Miti Prashant Shah of third year

Sign Sign Sign

Librarian Project Guide Head of Department

To list who all have helped me is difficult because they are so

CHAPTER TOPIC PAGE

3 RESEACH METHODOLOGY 56-59

4 DATA ANALYSIS 60-72

“Financial inclusion is the process of ensuring access to appropriate financial products

The definition of a financial institution typically describes an establishment that

Financial institutions can be distinguished broadly into two categories according to

A financial institution is an organization that deals in a variety of monetary deals, such as

How Does a Financial Institution Work?

A financial institution is an organization that deals in a variety of monetary transactions,

How to financial institutions make money?

Typically, interest is charged as a percentage of the amount borrowed. Banks charge

Non-sufficient Funds (NSF) Fees

Late Payment Fees

Wire Transfer Fees

(i) all-India development banks,

(ii) specialized financial institutions,

(iii) investment institutions

Liability-Asset transformation- They issue claims to their customers that have

Categories of Financial Institutions

Reserve Bank of India:

Commercial Banks in India:

Credit Rating Agencies in India:

The credit rating agencies offer various services as:

Exchange Board of India:

 The securities and exchange board of India, also referred to as SEBI

Insurance Companies in India:

The significant institutions falling under this category includes:

 Board for Industrial & Financial Reconstruction

 Export-Import Bank Of India

 Small Industries Development Bank of India.

1.1 NEED OF FINANCIAL INSTITUTIONS IN INDIA

The financial institutions were established to foster industrial development in the

2. These institutions will offer finance at concessional terms to undertake manufacturing

4. As private sector was not interested in establishing these financial institutions,

As payment agents, banks make commercial transactions much more convenient; it is

1.2 TYPES OF FINANCIAL INSTITUTIONS IN INDIA:

Banks essentially underwrite financial transactions by lending their reputation and

2. Retail and Commercial Banks

Traditionally, retail bank offered products to individual consumers while commercial

5. Savings and Loan Associations

6 Investment Banks and Companies

. NHB has been established to achieve, inter-Alia, the following objectives –

•To promote a network of dedicated housing finance institutions to adequately serve

•To make housing credit more affordable.

“The banker, therefore, is not so much primarily a middleman in the commodity

● Mobilizing Savings for Capital Formation: Financial institutions help in capital

● Existence of A Large Non-Monetized Sector: A growing economy is characterized

1.4 INVESTMENT TRUSTS

So it is necessary to provide individuals with easy and affordable institutional financial

Trusts Investment trusts are basically of the following two types-

(1) ‘Open-end’ Investment Trusts

(2) ‘Closed-end’ Investment Trusts

●These Trusts do not continuously sell their shares or units;

●They also do not buy back their shares or units;

●Such institutions can also raise loans to make investments;