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y In financial economics, a financial institution is an

institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries. Most financial institutions are highly regulated by government.


Institution which collects funds from the public and places them in financial assets, such as deposits, loans, and bonds, rather than tangible property.


At the time of independence in 1947, India's capital market was relatively under-developed. Although there was significant demand for new capital, there was a dearth of providers. Merchant bankers and underwriting firms were almost non-existent. And commercial banks were not equipped to provide long-term industrial finance in any significant manner. It is against this backdrop that the government established The Industrial Finance Corporation of India (IFCI) 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. The newlyestablished DFI was provided access to low-cost funds through the central bank's Statutory Liquidity Ratio or SLR which in turn enabled it to provide loans and advances to corporate borrowers at concessional rates.

History of Department of Financial Institutions

y The Department of Financial Institutions was created in

1995 Wisconsin Act 27. The formerly independent offices of the commissioners of banking, savings and loan, and securities were reorganized as divisions and transferred to the department. In addition, Act 27 transferred the responsibility for business organization filings and the Uniform Commercial Code lien information fillings to the department from the Office of the Secretary of State. The same act transferred the regulation of mortgage bankers and loan originators and solicitors to the department from the Department of Regulation and Licensing.

Department's Responsibilities

y The Department of Financial Institutions regulates state-

chartered banks, savings and loans associations, and savings banks, as well as various operations of the securities industry. It examines and files charters and other documents of businesses and organizations and registers and regulates the mortgage banking industry and other financial service providers. It oversees Uniform Commercial Code filings. It also administers the Wisconsin Consumer Act and registers merchants who extend credit that carries a finance charge. The department is self-supporting through program revenue derived from fees and assessments paid by regulated entities and individuals.









Deposit taking institutions that accept and manage deposits and make loans. Including banks, building societies, credit unions, trust companies, and mortgage loan companies. 2. Insurance companies and pension funds. 3. Brokers, under writers and investment funds.


y Accepting Deposits y Providing Commercial Loans y Providing Real Estate Loans y Providing Mortgage Loans y Issuing Share Certificates


The transformation of assets, which are acquired through markets, into a wider and more preferable form, which becomes their liability this function is performed mainly by financial intermediaries, which is undeniably the most important category of financial institutions.

2. Financial institutions are involved in exchanging of assets on behalf of their customers. 3. Financial institutions create financial assets for their customers and sell those assets to other market participants for a definite emolument.

4. Financial institutions are also involved in providing investment advice to market participants and managing the portfolios of market participants. 5. Financial institutions provide service as intermediaries of the capital and debt markets. They are responsible for transferring funds from investors to companies in need of those funds. Financial institutions facilitate the flow of money through the economy.


y The financial regulations are laid out for the purpose

of creating a fair and customer-friendly environment in the financial market of a particular country, which is conducive for economic growth. Some of the examples of financial regulatory bodies are the Federal Reserve Bank (United States), Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), the Financial Services Authority (FSA) in the United Kingdom, the Securities and Exchange Commission (SEC) in the United States and many others.


y Market confidence: Sustaining confidence in the

financial markets is one of the most important objectives of the financial regulatory bodies y Consumer protection: Ensuring the most suitable level of customer protection y Public awareness: Encouraging public awareness about the financial market through imparting educational programs y Eliminating financial crime: The financial regulations are designed for the purpose of reducing financial crimes and frauds


The Industrial Finance Corporation of India (IFCI) 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. The newly-established DFI was provided access to low-cost funds through the central bank's Statutory Liquidity Ratio or SLR which in turn enabled it to provide loans and advances to corporate borrowers at concessional rates. Since its inception IFCI venture has provided the start up capital and venture funding to over 400 entrepreneurs.

i) Granting loans and advances for the

establishment, expansion, diversification and modernisation of industries in corporate and co-operative sectors. ii) Guaranteeing loans raised by industrial concerns in the capital market, both in rupees and foreign currencies. iii) Subscribing or underwriting the issue of shares and debentures by industries. Such investment can be held up to 7 years.

y iv) Guaranteeing credit purchase of capital goods,

imported as well as purchased within the country. y v) Providing assistance, under the soft loans scheme, to selected industries such as cement, cotton textiles, jute, engineering goods, etc. y vi) Providing technical, legal, marketing and administrative assistance to any industrial concern for the promotion, management and expansion of the industrial concern.

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an allstock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry

(i)It provides medium and long-term loans in Indian and foreign currency for importing capital equipment and technical services. Loans sanctioned generally go towards purchase of fixed assets like land, building and machinery; (ii) It subscribes to new issues of shares, generally by underwriting them; (iii) It guarantees loans raised from private sources including deferred payment; (iv) It directly subscribes to shares and debentures

(v) It provides technical and managerial assistance to industrial units; (vi) It provides assets on lease to industrial concerns. In other words, assets are owned by ICICI but allowed to be used by industrial concerns for a consideration called lease rent. (vii) It provides project consultancy services to industrial units for new projects. (viii) It provides merchant banking services.

The Industrial Development Bank of India was set up in July 1964 as a wholly owned subsidiary of the Reserve Bank of India. The purpose was to enable the new institution to benefit from the financial support and experience of RBI. After a decade of its working, it was delinked from RBI in 1976, when its ownership was transferred to the Government of India. The purpose was to allow RBI to concentrate on its central banking function and allow IDBI to grow into a developmental agency.

(1) To grant loans and advances to IFCI, SFCs or any other financial institution by way of refinancing of loans granted by such institutions which are repayable within 25 year. (2) To grant loans and advances to scheduled banks or state co-operative banks by way of refinancing of loans granted by such institutions which are repayable in 15 years. (3) To grant loans and advances to IFCI, SFCs, other institutions, scheduled banks, state co-operative banks by way of refinancing of loans granted by such institution to industrial concerns for exports.

(4) To discount or rediscount bills of industrial concerns. (5) To underwrite or to subscribe to shares or debentures of industrial concerns. (6) To subscribe to or purchase stock, shares, bonds and debentures of other financial institutions. (7) To grant line of credit or loans and advances to other financial institutions such as IFCI, SFCs, etc. (8) To grant loans to any industrial concern. (9) To guarantee deferred payment due from any industrial concern.

y The National Bank for Agriculture And Rural

Development is an apex development bank for promotion of agriculture small scale industries, cottage industries, handicrafts, and agricultural credit, other allied activities in rural areas. NABARD was established on 12-07-1982( NABARD Act, 1981).

y Serves as an apex financing agency for the institutions

providing investment and production credit for promoting the various developmental activities in rural areas y Takes measures towards institution building for improving absorptive capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institutions, training of personnel, etc. y Co-ordinates the rural financing activities of all institutions engaged in developmental work at the field level and maintains liaison with government of india, state governments, reserve bank of India (RBI) and other national level institutions concerned with policy formulation y Undertakes monitoring and evaluation of projects refinanced by it.

Role of Banks

y Capital Formation: The rate of saving is generally

low in an underdeveloped economy due to the existence of deep-rooted poverty among the people . Even the potential savings of the country cannot be realized due to lack of adequate banking facilities in the country . To mobilize dormant savings and to make them available to the entrepreneurs for productive purposes , the development of a sound system of commercial banking is essential for a developing economy.

y Monetization :An underdeveloped economy is

characterized by the existence 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.

y Innovations : Innovations are an essential

prerequisite for economic progress . These innovations are mostly financed by bank credit in the developed countries . But the entrepreneurs in underdeveloped countries cannot bring about these innovations for lack of bank credit in an adequate measure . The banks should , therefore , pay special attention to the financing of business innovations by providing adequate and cheap credit to entrepreneurs .

y Finance for Priority Sectors : The commercial

banks in underdeveloped countries generally hesitate in extending financial accommodation to such sectors as agriculture and small scale industries , on account of the risks involved there in . They mostly extend credit to trade and commerce where the risk involved is far less .But for the development of these countries it Is essential that the banks take risk in extending credit facilities to the priority sectors , such as agriculture and small scale industries.

y Provision for Medium and Long term

Finance : The commercial banks in underdeveloped countries invariably give loans and advances for a short period of time . They generally hesitate to extend medium and long term loans to businessmen. As is well known , the new business need medium and long term loans for their proper establishment . The commercial banks should , therefore , change their policies in favour of granting medium and long to business and industry .

y Cheap Money Policy : The commercial banks in

an underdeveloped economy should follow cheap money policy to stimulate economic activity or to meet the threat of business recession. In fact , cheap money policy is the only policy which can help promote the economic growth of an underdeveloped country . It is heartening to note that recently the commercial banks have reduced their lending interest rates considerably .