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instruments and services. The Indian financial system is characterised by its two major segments -
an organised sector and a traditional sector that is also known as informal credit market. Financial
intermediation in the organised sector is conducted by a large number of financial institutions which
are business organisations providing financial services to the community. Financial institutions
whose activities may be either specialised or may overlap are further classified as banking and non-
banking entities. The Reserve Bank of India (RBI) as the main regulator of credit is the apex
institution in the financial system. Other important financial institutions are the commercial banks
(in the public and private sector), cooperative banks, regional rural banks and development banks.
Non-bank financial institutions include finance and leasing companies and other institutions like LIC,
GIC, UTI, Mutual funds, Provident Funds and even Post Offices. The financial market is of course,
dominated by the banks, which contribute close to 80% of the total capital in the market.
Recognising the critical nature of the financial sector prompted the Government to set up two
Committees on the Financial System (Narasimham Committees) in 1991 and 1998 to examine all
aspects relating to the structure, organisation, functions and procedures of the financial system. The
deliberations of the Committees were guided by the demands that would be placed on the financial
system by the economic reforms taking place in the real sectors of the economy and by the need to
introduce greater competition through autonomy and private sector participation in the financial
sector. Despite the fact that the bulk of the banks were and are likely to remain in the public sector,
and therefore with virtually zero risk of failure, the health and financial credibility of the banking
sector was an issue of paramount importance to the Committees.
Banks are institutions which accept deposits and make use of those deposits. Banks in India are
generally classified into
In 2008, the government took over the stake held by the Reserve Bank of India in SBI.
SBI has been ranked 285th in the Fortune Global 500 rankings of the world's biggest
corporations for the year 2012.
As in December 2012, it had assets of US$501 billion and 15,003 branches, including 157
foreign offices making it the largest banking and financial services company in India by
assets.
Earlier SBI had seven associate banks, all of which had belonged to princely states until the
government nationalised them between October 1959 and May 1960. There has been a
proposal to merge all the associate banks into SBI to create a "mega bank" and streamline
the group's operations. The first step towards unification occurred in August 2008 when
State Bank of Saurashtra merged with SBI, reducing the number of associate state banks
from seven to six. Then in June 2009 the SBI board approved the absorption of State Bank
of Indore.
SBI has five associate bank as of today:
i State Bank of Bikaner & Jaipur
ii State Bank of Hyderabad
iii State Bank of Mysore
iv State Bank of Patiala
v State Bank of Travancore
III. Industrial Development Bank of India (IDBI)
IDBI Bank Limited is a developmental financial service company headquartered Mumbai. RBI has
categorised IDBI as an "other public sector bank" the only bank in this category, treated at par
with other nationalized banks. It was established in 1964 by an Act of Parliament to provide
credit and other facilities for the development of the fledgling Indian industry. It is currently
10th largest development bank in the world in terms of reach with 1594 ATMs, 1000 branches
including one overseas branch at DIFC, Dubai and 678 centers including two overseas centres at
Singapore & Beijing.
At the time of independence in 1947, India's capital market was relatively underdeveloped.
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 (DFI) 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.
This arrangement continued until the 1990s when it was recognized that there was need for
greater flexibility to respond to the changing financial system. It was also felt that IFCI should
directly access the capital markets for its funding needs. It is with this objective the constitution
of IFCI was changed in 1993 from a statutory corporation to a company under the Indian
Companies Act, 1956. Subsequently the name of the company was also changed to 'IFCI Limited '
with effect from October 1999.
IFCI has fulfilled its original mandate as a DFI by providing long term financial support to
all segments of Indian Industry. It has also been chiefly instrumental in translating the
government's development priorities into reality. Until the establishment of ICICI in
1956, IFCI remained solely responsible for implementation of the government's
industrial policy initiatives. Its contribution to the modernization of Indian Industry,
export promotion, import substitution, entrepreneurship development, pollution
control, energy conservation and generation of both direct and indirect employment is
noteworthy.
V. Export - Import Bank of India (Exim Bank)
Export-Import Bank of India is the premier export finance institution of the country, established
in 1982 under the Export-Import Bank of India Act 1981. Government of India launched the
institution with a mandate, not just to enhance exports from India, but to integrate the countrys
foreign trade and investment with the overall economic growth. The Bank extends lines of credit
to overseas financial institutions, foreign governments and their agencies, enabling them to
finance imports of goods and services from India on deferred credit terms. Exim Banks lines of
Credit obviate credit risks for Indian exporters and are of particular relevance to SME exporters.
In 2010, at the behest of Government of India, Exim Bank extended a Line of Credit
(LOC) of USD 1 billion to the Government of Bangladesh, for financing goods and
services including project exports from India into Bangladesh. The USD 1 billion is the
largest ever Exim Bank's GOI-supported LOC to any country.
VI. Industrial Reconstruction Bank of India (IRBI) now (Industrial Investment Bank of India)
National Bank for Agriculture and Rural Development (NABARD) is an apex development bank in
India having headquarters based in Mumbai and other branches are all over the country. The
Committee to Review Arrangements for Institutional Credit for Agriculture and Rural
Development (CRAFICARD), set up by the Reserve Bank of India (RBI) under the Chairmanship of
B. Sivaraman, conceived and recommended the establishment of the National Bank for
Agriculture and Rural Development (NABARD). It was established on 12 July 1982 by a special
act by the parliament and its main focus was to uplift rural India by increasing the credit flow
for elevation of agriculture & rural non-farm sector. It has been accredited with "matters
concerning policy, planning and operations in the field of credit for agriculture and other
economic activities in rural areas in India".
RBI sold its stake in NABARD to the Government of India, which now holds 99% stake
VIII. Small Industries Development Bank of India (SIDBI)
Small Industries Development Bank of India (SIDBI), set up on April 2, 1990 under an Act of
Indian Parliament, is the Principal Financial Institution for the Promotion, Financing and
Development of the Micro, Small and Medium Enterprise (MSME) sector and for Co-ordination
of the functions of the institutions engaged in similar activities.
The business domain of SIDBI consists of Micro, Small and Medium Enterprises (MSMEs), which
contribute significantly to the national economy in terms of production, employment and
exports. MSME sector is an important pillar of Indian economy as it contributes greatly to the
growth of Indian economy with a vast network of around 3 crore units, creating employment of
about 7 crore, manufacturing more than 6,000 products, contributing about 45% to
manufacturing output and about 40% of exports, directly and indirectly. In addition, SIDBI's
assistance also flows to the service sector including transport, health care, tourism sectors etc.
The National Housing Bank (NHB) is a state owned bank and regulation authority in India,
created on July 8, 1988 under section 6 of the National Housing Bank Act (1987). The
headquarters is in New Delhi. The institution, owned by the Reserve Bank of India, was
established to promote private real estate acquisition. The NHB is regulating and re-financing
social housing programs and other activities like research and IT-initiatives, too.
X. Unit Trust of India (UTI)
Unit Trust of India was a financial organization in India, created by the UTI Act passed by the
Parliament in 1964. For more than two decades it remained the sole vehicle for investment in
the capital market by the Indian citizens. In mid- 1980s public sector banks were allowed to
open mutual funds. The real vibrancy and competition in the MF industry came with the setting
up of the regulator SEBI and its laying down the MF Regulations in 1993.UTI maintained its pre-
eminent place till 2001, when a massive decline in the market indices and negative investor
sentiments after Ketan Parekh scam created doubts about the capacity of UTI to meet its
obligations to the investors. This was further compounded by two factors; namely, its flagship
and largest scheme US 64 was sold and re-purchased not at intrinsic NAV but at artificial price
and its Assured Return Schemes had promised returns as high as 18% over a period going up to
two decades.
Fearing a run on the institution and possible impact on the whole market Government came out
with a rescue package and change of management in 2001.Subsequently, the UTI Act was
repealed and the institution was divided into two parts.
UTI Mutual Fund was created as a SEBI registered fund like any other mutual fund.
The assets and liabilities of schemes where Government had to come out with a bail-out
package were taken over directly by the Government in a new entity called Specified
Undertaking of UTI (SUUTI).
o SUUTI, created in 2002 after the then UTI was wound up, owns strategic stakes
in three listed blue-chip entities: ITC (11.54%), Axis Bank (23.6%) and L&T
(8.3%).
o Besides, SUUTI also owns significant stakes in unlisted companies such as the
Stock Holding Corporation of India (SHCIL), in which it owns 16.96% that is
valued at about Rs300 crore.
o The government is planning to en-cash these holdings which are worth over Rs
40,000 crore, as part of its efforts at meeting the fiscal deficit target by
divestment.
XI. Life Insurance Corporation of India (LIC)
Life Insurance Corporation of India (LIC) is the largest insurance group and investment company
in India. Its a state-owned where Government of India has 100%stake. LIC also funds close to
24.6% of the Indian Government's expenses. It has assets estimated of 13.25 trillion (US$240
billion). It was founded in 1956 with the merger of 245 insurance companies and provident
societies(154 life insurance companies,16 foreign companies & 75 provident companies).
GIC of India (GIC Re) is the sole reinsurance company in the Indian insurance market with over
three decades of experience. GIC has its registered office and headquarters in Mumbai. The
entire general insurance business in India was nationalised by the Government of India (GOI)
through the General Insurance Business (Nationalisation) Act (GIBNA) of 1972. 55 Indian
insurance companies and 52 other general insurance operations of other companies were
nationalized through the act.
The General Insurance Corporation of India (GIC) was formed in pursuance of Section 9(1) of
GIBNA. It was incorporated on 22 November 1972 under the Companies Act, 1956 as a private
company limited by shares.