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Financial Institutions in India

This article briefs about the Financial institutes in India, types of financial institutions in India, and Non-banking Financial institutions in India.

Financial Institutions in India, the Banking sector plays a vital role in the country’s economic development. These institutions help firms or individuals start their savings and make them available for investment. 

Several financial institutions in India have been founded to absorb the household sector’s savings. The government mobilises this tiny saving throughout the economy through these financial organisations. These large and small organisations serve the same function in the economy as blood does in the human body.

Department Of Financial Services

The Department of Financial Services is responsible for the operation of banks, insurance companies, financial institutions, and the National Pension System.

The Departments consist of 13 members. It is headed by the Financial Secretary (FS). The FS is assisted by three Additional Secretaries (AS), one Economic Advisers (EA), seven Joint Secretaries (JS), and a Deputy Director General (DDG).

The Department of Financial Services (DFS) is in charge of various significant government programs/initiatives and reforms about the Banking Sector, Insurance Sector, and Pension Sector in India. Initiatives and reforms linked to Social Security, Financial Inclusion, and Insurance as a Risk Transfer Mechanism; Credit Flow to critical sectors of the economy/farmers/common man are some of the Department’s primary priority areas.

Financial Institutions 

In India, Financial Institutions (FIs) are grouped into three main groups based on the primary activity they do.

  • Term-lending institutions, whose primary activity is direct lending through term loans and investments; 
  • Refinance institutions, such as the National Bank for Agriculture and Rural Development (NABARD), the Small Industries Development Bank of India (SIDBI), and the National Housing Bank (NHB), primarily extend refinance to banks and non-banking financial institutions. 
  • Investment firms such as Life Insurance Corporation (LIC) invest mostly in marketable securities. Another different type is state/regional level institutions.

In recent years, the Reserve Bank of India has undertaken a number of steps to gradually bring Financial Institutions’ (FI) regulatory rules into line with those of the rest of the financial industry. Among them are the following: 

  • SIDBI’s (Small Industries Development Bank of India) exposure to State Finance Corporations accounts for a sizable share of its total exposure (SFCs). The bad financial health of SFCs has a knock-on impact on SIDBI’s financial health.
  • From time to time, the Government of India issues special securities (e.g., oil bonds, fertiliser bonds) that do not fulfil bank SLR criteria. These government securities are subject to a distinct set of terms and conditions and have a greater degree of liquidity spread.

Development Financial Institutions In India

Development financial institutions in India provide Extended-term financing for capital-intensive developments with long payback periods, such as urban infrastructure, irrigation systems, and mining and heavy industries. They serve as essential middlemen in channelling long-term infrastructure financing and achieving stronger economic growth.

Following the 1991 reforms, major DFIs in India were turned into commercial banks. However, after this, the country had few institutions capable of overseeing industrial or infrastructure growth. To address the infrastructure gap, the government has made a welcome step by proposing the re-establishment of DFIs in India.

Types Of Financial Institutions In India

Below are a few types of financial institutions in India:

  1. Commercial Banks: Banking is a business, just like any other. Profits are the reason that banks and other financial entities exist. Its primary goal is to give specific services to clients in exchange for payment from them.
  2. Merchant Banks: These are investment and commercial banks that lend, borrow, underwrite, trade securities, and offer a variety of other financial services.
  3. Mutual Funds: These are investment firms that issue and sell redeemable securities that represent an undivided interest in the assets managed by the funds; they are also known as management companies.
  4. Mutual Savings Banks: Originally designed to service extremely little saves. These banks can use their deposits for several reasons, including bond and blue-chip stock investments.
  5. Investment Banks: Such banks conduct banking operations related to securities underwriting, making a market in securities, and arranging mergers, acquisitions, and restructuring governed by the Securities and Exchange Board of India (SEBI).

Non-Banking Financial Institutions In India

Non-Banking Financial Companies (NBFCs) provide financial and banking services but are not legally defined as banks. They are governed by the Reserve Bank of India’s banking laws and offer banking services such as loans, retirement planning, credit facilities, investing, etc.

Non-Banking Financial Companies (NBFCs) are broadly classified into three types: 

  • NBFCs that accept public deposits; 
  • NBFCs that do not accept/hold public deposits; and 
  • Core investment companies (i.e., those that acquire shares/ securities of their group/holding/subsidiary companies to the extent of not less than 90% of total assets and do not accept public deposits).


The Central Bank of India, also known as the Reserve Bank of India, commercial banks, credit rating agencies, the Securities and Exchange Board of India, insurance firms, and specialised financial institutions in India make up the majority of the financial institutions in India.