A Financial Institution is an organization that manages money-related and financial exchanges like deposits, loans, investments, and currency exchange.
Types of Financial Institutions
- Fixed-Term Credit institutions – Their main activity is direct lending through fixed-term loans and investments.
- Refinancing Institutions – They fund their refinancing mainly to banks and non-bank institutions.
For example:
– The National Bank for Agriculture and Rural Development (NABARD)
– The Small Industries Development Bank of India (SIDBI)
– The National Housing Bank (NHB). - Investment Institutions – They invest their assets primarily in financial securities.
For example:
– Life Insurance Corporation (LIC)
Here are some major financial institutions in India:
Reserve Bank of India (RBI)
The Reserve Bank of India was established in 1935. It aims to organize the financial framework and promote economic stability in India. The bank acts as the regulator for the operation of the various commercial banks and other financial institutions in India. The bank formulates various interest rates and policies too. It also offers assistance to central government and institutions.
Commercial Banks
There are three types of Commercial Banks in India:
1. Foreign Banks
2. Private Banks
3. Public Sector Banks.
Commercial banks go about various activities such as taking deposits, lending for various purposes. They can even collect taxes on behalf of institutions and the central government.
Securities and Exchange Board of India
The Securities and Exchange Board of India was established in 1992. It aims to protect the interests of investors. It also monitors market conditions, register institutions, and are dedicated to risk management.
Insurance Companies
Insurance companies offer damage protection. They deal with life insurance, transport insurance, car insurance, etc. They collect the small savings from investors and then reinvest these savings in the market. The insurance companies are collaborating with different foreign insurance companies after the liberalization process. This move aimed to expand the Indian insurance market.
Credit Rating Agencies
The credit rating agencies in India were mainly formed to assess the condition of the financial sector. It also finds different options for more improvement. The credit rating agencies offer various services as:
- Operation upgradation
- Training to employees
- Analyze new projects and find out the weak sections in it
- Rate different sectors
The two most important credit rating agencies in India are:
- CRISIL
- ICRA
Specialized Financial Institutions
Specialized Financial Institutions in India are government companies established to support various sectors. They affect the overall development of the Indian economy.
The significant institutions falling under this category include:
- Board for Industrial & Financial Reconstruction
- Export-Import Bank Of India
- Small Industries Development Bank of India
- National Housing Bank
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