Specialised Financial Institutions

What is a Financial Institution?

A financial institution (FI) is a firm that specialises in financial and monetary activities such as deposits, loans, investments, and currency exchange. Financial institutions, which include banks, trust companies, insurance companies, brokerage firms, and investment dealers, cover a wide variety of commercial operations in the financial services industry.

Understanding Financial Institutions (FIs)

Financial institutions provide services to the majority of people in some form, as financial activities are an important element of any economy, with individuals and businesses relying on financial institutions for transactions and investments. Because banks and financial institutions play such an important role in the economy, governments feel it as essential to control and regulate them.  

Types of Financial Institutions In India

Financial institutions offer a wide range of products and services for individual and commercial clients. The specific services offered vary widely between different types of financial institutions.

Commercial Banks

A commercial bank is a type of financial institution that accepts deposits, offers checking account services, makes business, personal, and mortgage loans, and offers basic financial products like certificates of deposit (CDs) and savings accounts to individuals and small businesses. A commercial bank is where most people do their banking, as opposed to an investment bank. 

Investment Banks

Investment banks specialise on services that help businesses run more smoothly, such as capital expenditure finance and stock offers, such as initial public offerings (IPOs) (IPOs). They frequently provide investment brokerage services, operate as market makers for trading exchanges, and oversee mergers, acquisitions, and other business restructurings.

Specialised Financial Institutions

Specialised Financial Institutions means the financial institutions established by specific law, namely Government Savings Bank, Bank for Agriculture and Agricultural Co-operatives, Government Housing Bank etc.

Role of Specialised Financial Institutions

Specialised Financial Institution have the following functions:

1. Lending: To provide industrial establishments with longer-term financing,

2. The formation of business units: To assist in the formation of business units that require a substantial sum of money and have a long gestation period.

3. Economic progress: To assist the rapid growth of the economy in general and backward regions in particular.

4. Consulting services: To provide specialised services in the areas of marketing, project help, technical aid, and entrepreneur training and development.

5. Assist with new projects: To assist in the identification, appraisal, and implementation of new initiatives by providing technical and professional management services.

Types of Specialised Financial Institutions:

• Industrial Credit and Investment Corporation of India (ICICI) :

This was founded in 1955 as a public limited company under the Companies Act of 1956 for the purpose of providing long-term loans to companies for up to 15 years and subscribing to their shares and debentures for the sole purpose of the creation, expansion, and modernization of private sector industrial enterprises. The proprietary and partnership businesses were also eligible for ICICI loans. It has also attracted foreign money to invest in the nation.

• Industrial Finance Corporation of India (IFCI):

It was founded as a statutory company in July 1948 under the Industrial Finance Corporation Act of 1948, with the primary goal of providing long- and medium-term financing to big industrial firms. Its goals include assisting in the establishment of a balanced regional economy, encouraging new entrepreneurs to enter key industries, and expanding management education throughout the country. With effect from June 1, 1993, IFCI has been renamed IFCI Ltd. to ensure more flexibility in meeting the demands of the developing financial sector.

• Industrial Development Bank of India (IDBI):

It was established in 1964 as a subsidiary of the Reserve Bank of India with the goal of coordinating the activities of other financial institutions, including commercial banks, and providing financial assistance to all types of industrial enterprises without regard to the type of finance or the amount of funds available. It also does underwriting of public offerings and discounts and rediscounts commercial bills of exchange. IDBI has changed its name to IDBI Ltd. as of October 1, 2004.

• State Financial Corporations (SFCs):

Most of our country’s states have established SFCs under the State Financial Corporations Act of 1951 to give financial support to proprietary and partnership enterprises as well as corporations. SFCs provide financing in the form of long-term loans or debenture subscriptions, provide guarantee for loans acquired from other sources, and underwrite company public stock and debenture offerings. They are, however, unable to subscribe to the firms’ shares directly.

• Life Insurance Corporation of India (LIC):

LIC was set up in 1956 under the LIC Act, 1956 after nationalising 245 existing insurance companies. It mobilises the community’s savings in the form of insurance premium and makes it available to industrial concerns, both public as well as private, in the form of direct loans and underwriting of and subscription to shares and debentures.

• Small Industries Development Bank of India (SIDBI):

It was set up in 1990 for the promotion, financing and development of small-scale industrial enterprises. It is an apex institution of all the banks providing credit facility to small-scale industries in our country and offers refinancing of bills, rediscounting of bills, and several other support services to Small Scale Industries (SSI).