Role Of Financial Institution

The roles of financial institution is extremely crucial in any economy. Finance is the backbone of a
country because it helps in procuring funds for creation of investment opportunities, development of
infrastructure, boosting trade and commerce and overall development.

The financial Institutions are the ones that facilitate in conducting transactions related to loans, deposits,
investment opportunity, buying and selling or making and receiving payments related to any kind of
business. The role of financial institutions in economic development lies in the fact that such institutions
help in channelizing funds that are earned and saved by individuals or corporates. It is important to
direct those funds towards proper uses where they will be invested in projects or areas where finance is
urgently required for development and expansion.

These institution facilitate allocation of money efficiently by facilitating flow of money within business,
banks, credit unions, insurance companies and individuals which highlights the role of financial
institutions in economic development.

The following Is the list of roles performed by financial institutions: –

1.Regulation of monetary supply

2.Banking services

3.Insurance services

4.Capital formation

5.Investment advice

6.Brokerage services

7.Pension fund services

8.Trust fund services

9.Financing the small and medium-scale enterprises

10.Act as a government agent for economic growth

Industrial Finance Corporation of India(IFCI)

Government of India set up the Industrial Finance Corporation of India (IFCI) in July 1948 under a special
Act. This is the first financial institution set up in India with the main object of making medium and long
term credit to industrial needs. The Industrial Development Bank of India, Scheduled banks,
insurance companies, investment trusts and co-operative banks are the shareholders of IFCI.
The Union Government has guaranteed the repayment of capital and the payment of a
minimum annual dividend.

The functions of the IFCI

(i) The corporation grants loans and advances to industrial concerns.

(ii) Granting of loans both in rupees and foreign currencies.

(iii) The corporation underwrites the issue of stocks, bonds, shares etc.

Industrial Credit and Investment Corporation of India (ICICI)

Industrial Credit and Investment Corporation of India (ICICI) was established in 1955 as public limited
company under Indian Company Act, for developing medium and small industries of private
sector.Initially its equity capital was owned by companies, institutions and individuals but at present
its equity capital has been owned by public sector institutions like—Banks, LIC, CIC and its associate
companies. In March 2002, the ICICI was merger with the ICICI Bank and created a first universal
bank in India. With this merger, ICICI does not exist any more as a development financial institution.

Objectives:

The important objectives of the ICICI are as follows:

(i) To provide loans to industrial projects in private sector.

(ii) To stimulate the promotion of new industries.
(iii) To assist the expansion and modernization of existing industries.
(iv) To provide Technical and managerial aid to increase production.

Industrial Development Bank of India (IDBI)

Industrial Development Bank of India (IDBI) established under Industrial Development Bank of India Act,
1964, is the principal financial institution for providing credit and other facilities for developing industries
and assisting development institutions.Till 1976, IDBI was a subsidiary bank of RBI. In 1976 it was
separated from RBI and the ownership was transferred to Government of India. IDBI is the tenth largest
bank in the world in terms of development. The National Stock Exchange (NSE), the National Securities
Depository Services Ltd. (NSDL), Stock Holding Corporation of India (SHCIL) are some of the Institutions
which has been built by IDBI.

Functions of IDBI:

The main functions of IDBI are discussed below:

 (i) To provide financial assistance to industrial enterprises.
(ii) To promote institutions engaged in industrial development.
(iii) To provide technical and administrative assistance for promotion management or
expansion of industry.
(iv) To undertake market and investment research and surveys in connection with development
of industry.

EXIM Bank

EXIM Bank is popularly regarded as an ‘Export-Import Bank‘. It was established in the year 1982
under the Indian act of Export-Import Bank of India Act,1982 and has been set up to provide long-
term finance to exporters as well as importers to meet their financial needs related to international
trade of the country India. It is the biggest and the salient institution which is based on finance of
export for the investment and trade of foreign countries with the country’s economic growth. The 1 st
Chairman of the bank was R.C. Shah and who was also the first Managing director. Exim Bank
lengthens the LOCs (Lines of Credit) to banks of regional development, financial overseas
institutions, sovereign government and many more institutions for import and export of goods,
services, trade, infrastructural equipment etc. from and to the country India.

Functions of EXIM Bank

The role of EXIM Bank are as follows;

Financial export and import of services and goods from the country as exim trade.

It helps in financing the export as well as import of machines.

It also helps to refinance the bank services as well as other institutions for foreign financing trade or
exim trade.

It helps in financing the export or import of services and goods from other countries also.

UNIT TRUST OF INDIA(UTI)

UTI was established by an Act of Parliament on November 26. 1963. It started the sale of its units on July
1, 1964. It was established to encourage and mobilise savings of small investors through the sale of its
‘units’, and to channelise these resources into corporate securities.Over the years, it has rapidly grown
and diversified to be an important part of the Indian financial system. In June 1997, UTI launched the
first Indian off-shore debt fund — India Debt Fund’. It has supported the development of Unit Trusts in
developing countries like Sri Lanka and Egypt providing technical advice as well as participation in the
equity capital.

LIFE INSURANCE CORPORATION OF INDIA(LIC)

Life Insurance Corporation of India (LIC of India) is a leading life insurance company headquartered in
Mumbai. LIC is the largest life insurance company in India with an asset value of over 2,529,390 crores.
LIC of India was created on 1st September 1956 when the government of India passed the Life Insurance
of India Act, nationalising the private insurance industry in India.

The company was established with the merger of over 245 insurance companies and provident societies.
LIC offers an array of life insurance plans including a range of ULIPs, pension plans, child plans, term
insurance and others. The company is well established in urban as well as rural areas of India and is well
abiding by its motto- “Yogakshemam Vahamyaham”, which means “your welfare is our responsibility”.
With the advent of technology, the LIC of India has established its brand’s presence online by selling an
array of savings and investment products online.

General Insurance Corporation (GIC)

The general insurance industry in India was nationalised and a government company known as General
Insurance Corporation (GIC) was formed by Central Government in 1972.With effect from January 1,
1973, the erstwhile 107 Indian and foreign insurers who were operating in the country prior to
nationalisation, were grouped into four operating companies, namely, (a) National Insurance Company
Limited; (b) New India Assurance Company Limited; (c) Oriental Insurance.

SIDBI (Small Industries Development Bank of India)

The SIDBI (Small Industries Development Bank of India) is a wholly-owned subsidiary of IDBI (Industrial
Development Bank of India), established under the special Act of the Parliament 1988 which became
operative from April 2, 1990.SIDBI was made responsible for administering Small Industries
Development Fund and National Equity Fund that were administered by IDBI before.

Functions of SIDBI

Small Industries Development Bank of India refinances loans that are extended by the PLIs to the small-
scale industrial units and also offers resources assistance to them.

It discounts and rediscounts bills.

It also helps in expanding marketing channels for the products of SSI (Small Scale Industries) sector both
in the domestic as well as international markets.

It offers services like factoring, leasing etc. to the industrial concerns in the small-scale sector.

NATIONAL SMALL INDUSTRIES CORPORATION (NSIC)

NSIC (National Small Industries Corporation) is an ISO certified Indian Government Enterprise under
Micro, Small and Medium Enterprises. National Small Industries Corporation is working to aid, foster
and promote the growth of MSMEs (micro, small and medium enterprises) all across the country. NSIC
operates all across the nation through a network of Technical Centres and offices.
To manage its functions and operations in African countries, National Small Industries Corporation
operates performs its administration from Johannesburg, South Africa. Apart from this, National Small
Industries Corporation has set up Training cum Incubation Centres managed by highly trained
professional manpower.

Mission and Vision of NSIC

Vision: To become a leading organization fostering the growth of MSMEs Sector in India.

Mission: To support and promote MSMEs Sector by providing combined support services encircling
Finance, Marketing, Technology and other Allied Services.

STATE FINANCE CORPORATIONS( SFCs)

The State Finance Corporations (SFCs) are the integral part of institutional finance structure in the
country. SEC promotes small and medium industries of the states. Besides, SFCs are helpful in ensuring
balanced regional development, higher investment, more employment generation and broad ownership
of industries.

Functions:

The important functions of State Finance Corporations are:

(i) The SFCs grant loans mainly for acquisition of fixed assets like land, building, plant and
machinery.
(ii) The SFCs provide financial assistance to industrial units whose paid-up capital and reserves
do not exceed Rs. 3 crore (or such higher limit up to Rs. 30 crore as may be specified by the
central government).
(iii) The SFCs underwrite new stocks, shares, debentures etc., of industrial concerns.

„The Role of Banks in the development of entrepreneurship in India‟

III. Role Of Banks In Enterprise Development And Financing

There is no gainsaying the fact that activities of banks reflect their unique role as the engine of
growth .In any economy. Banks especially commercial and specialized ever remain crucial to the
growth and Development of entrepreneurship, and their operations provide a solid backing capable
of encouraging .

Entrepreneurs in viable and profitable ventures. The role of banks goes beyond their traditional
functions which If entrepreneurs avail themselves of could be of tremendous assistance in meeting
their desired needs.
Along the lines of the main functions of banks mentioned above, we shall now examine their role in
Entrepreneurship development and enterprise financing. And; for the purpose of convenience and
proper

Understanding, the roles can be categorized as follows:

1. Statutory Roles

These consist in the main the functions for which banks were created in the first place. Such roles
are

For example accepting of deposit and safekeeping of same, transfer of money, giving of loans and
advances, etc.

2. Financing Roles

The primary reason that banks want deposits is to enable them grant loans and advances from which

They earn interest income. Extension of credit to the economy for the financing of business enterprises
is the

Core link that banks have to the real sector, acting like a catalyst and contributing to the growth of the
economy Of the country.

3. Business Investment Promotion Roles.

Because of the specialized and professional status of banks, they are in a position to play investment

Promotion roles to entrepreneurs. Such roles may include management of investment for customers,
advice on

Sustainable lines of investment to follow by analyzing the pros and cons of each investment alternatives
to the Entrepreneur-customer.

4. Advisory, Guaranty and Consultancy Roles.

In addition to the normal lending and other service, banks now also engage in business advisory,

Guaranty and other consultancy services which help immensely in the promotion and financing of
Entrepreneurship activities in the country.