Chapter 5
FIM
Chapter 5
• Banking
• Banking refers to a financial activity to manage and safeguard your
hard-earned money. Banks cater to all sorts of individuals, small
businesses, and large corporations. Banks offer financial management
products, including various types of accounts and loans
• Banking
• Banking refers to the system of financial institutions, such as banks
and credit unions, that provide various financial services to
individuals, businesses, and governments. Banking services mainly
include accepting deposits, lending money, facilitating transactions,
and offering various financial products like savings accounts, loans,
and credit cards.
• Banking plays a crucial role in the economy by facilitating the flow of
money and enabling economic activities.
Some of the major functions of banks are
mentioned below:
• Banks in India offer a wide range of banking services, such as savings and checking accounts, loans (personal,
business, and mortgages), credit cards, investment services, and electronic banking options like online and
mobile banking.
• Some of the major functions of banks are mentioned below:
• Banks provide a safe place for individuals and businesses to deposit their money, which can be withdrawn
when needed.
• Banks lend money to individuals and businesses for various purposes, such as home mortgages, business
expansion, or personal loans.
• Banks enable transactions through various payment methods, like checks, debit/credit cards, and electronic
transfers.
• Many banks offer foreign exchange services, allowing customers to buy, sell, or exchange foreign currencies.
• Some banks offer safe deposit boxes for customers to securely store valuable items and documents.
• Banks also provide investment products like mutual funds, stocks, and bonds, helping customers grow their
wealth.
• Banks offer online and mobile banking services, making it convenient for customers to access their accounts,
pay bills, and transfer funds
• Types of Banks in India
• The Banking System in India is divided into several types, each serving
specific functions and purposes. The table below represents the different
types of banks in India and how it is further divided:
• Central Bank
• Commercial Banks
• Co-operative Banks
• Payment Banks
• Small Finance Banks
• Scheduled Banks
• Non-scheduled Banks
1) Central Bank
The Reserve Bank of India (RBI) serves as the Central Bank of India and is responsible for regulating and controlling the monetary and
banking system in the country.
2) Commercial Banks
These are the most common types of banks and include public sector banks, private sector banks, and foreign banks. They provide
various services like savings and current accounts, loans, and investments.
These are the most common types of banks and include public sector banks, private sector banks, and foreign banks. They provide
various services like savings and current accounts, loans, and investments.
Owned and operated by the government, examples include State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda
(BOB).
These are privately owned and managed banks, such as HDFC Bank, ICICI Bank, and Axis Bank.
These banks have branches in India and are headquartered in foreign countries. Some examples are Citibank, Standard Chartered,
and HSBC.
These banks cater to rural and semi-urban areas and are owned by the government, commercial banks, and state governments
• 3) Cooperative Banks
•
• A Co-operative Bank is registered under the Co-operative Societies
Act of 1912 and is run by an elected managing committee. It works on
a non-profit, no-loss basis and mainly serves entrepreneurs, small
businesses, self-employment, and more in urban areas.
• 4) Payment Banks
•
• The payment banks are a relatively new banking model in the country that has
been conceptualised by the RBI. This bank is allowed to accept a restricted
deposit. This amount is limited to Rs. 1 lakh for a customer. The bank also offers
services such as ATM cards, net banking and more.
• 5) Small Finance Banks
•
• These banks primarily serve the unserved and underserved sections of the
population, including small businesses and low-income individuals.
•
• This type of bank is licensed under Section 22 of the Banking Regulation Act 1949,
and it is governed by the Provisions Act of 1934.
• Here are a few examples of Small Finance Banks in India:
• AU Small Finance Bank [Link] Small Finance Bank [Link]
Small Finance Bank [Link] Small Finance Bank [Link] Small
Finance Bank [Link] Small Finance Bank [Link] Small Finance
Bank [Link] Small Finance Bank [Link] Small Finance Bank
[Link] East Small Finance Bank Ltd.
• 6) Scheduled Banks
•
• These banks are covered under the 2nd Schedule of RBI Act 1934, and
they need to have a paid-up capital of Rs. 5 lahks or more.
• 7) Non-Scheduled Banks
•
• The non-scheduled banks are local area banks that are not listed in
the 2nd Schedule of the RBI Act 1934.
Types of Bank Accounts in India
• Savings Account
• Every earning individual must have a savings account and a secure place to store hard-earned money. The primary purpose of a
savings account is to provide a valuable medium for people to save money that they will not be using regularly.
• ypes of Savings Accounts
• In India, banks usually provide various types of Savings Accounts that can be opened to meet various investment needs. The types
include-
• Regular Savings Account
• It is the simplest savings account that an individual can open. On such an account, the holder will tend to earn interest. The holder
will be required to maintain a minimum balance in the regular savings account.
• Instant Digital Savings Account
• An Instant Digital Savings Account is usually opened through a mobile application or the official website. A mandatory KYC will be
required to complete the account opening process.
• Zero Balance or Basic Savings Bank Deposit Account
• In a Zero Balance or Basic Savings Bank Deposit Account, the account holders are not required to maintain the minimum average
monthly balance.
• Such an account can be opened with no amount kept as a balance in the account. For it, banks levy some stipulations, for instance,
no chequebook facility, a limitation on the number of withdrawals from the ATM, type of debit card available, etc.
• Women’s Savings Account
• A Women’s Savings Account is designed especially for women. Such accounts offer women many benefits, including preferential
loans, discounts on lockers, unlimited ATM cash withdrawals, relaxed minimum balance requirements, etc.
• Kids’ Savings Account
• A Kids’ Savings Account can be opened by the parent/guardian in the name of children below 18. Such accounts can help children
understand how banking works and learn at an early age. These savings accounts have regulated deposit and spending limits.
• Senior Citizens’ Savings Account
• A senior citizen savings account can be opened for those above 60. The accountholders can avail of many benefits on these
accounts like low interest on credit, exciting interest rates on deposits, etc.
• Family Savings Account
• Individuals of a family can create many accounts under one family ID. For example, through a Family Savings Account, the
members can benefit from opening FD, RD, savings accounts, etc.
• Salary Account
• A Salary Account is suitable for salaried accountholders who receive a salary monthly. Many benefits on such accounts can be
availed, including fre
• NBFC
• NBFCs are regulated by the Reserve Bank Of India (RBI) and the Securities
and Exchange Board of India (SEBI) in India. NBFCs are essential as they
fulfill the financial needs of individuals and businesses. They play a crucial
role in the financial sector. They help in the loan process.
• Understanding the types of NBFCs and the services they offer-
• Asset Financing
• Infrastructure Financing
• Microfinance
• Housing finance
• “Overview of Non-Banking Financial Companies (NBFCs) and their Services”
• The specialization in certain sectors allows NBFCs to effectively serve the needs of specific communities, especially those traditionally underserved by
more traditional financial institutions.
• Non-Banking Financial Companies (NBFCs) play a critical role in the Indian financial system by catering to the credit needs of various sectors of the
economy. NBFCs offer a wide range of financial products and services, which can be categorized into several types based on their services.
• Asset Financing: NBFCs specializing in asset financing provide loans for purchasing assets such as machinery, vehicles, and equipment. These loans are
typically secured against the asset being financed.
• Infrastructure Financing: Infrastructure financing NBFCs provide loans for developing infrastructure projects such as roads, ports, airports, and power
plants. These loans are generally long-term and involve a high degree of risk.
• Microfinance: Microfinance NBFCs offer small loans to low-income individuals and small businesses typically not served by traditional banks. These
loans are often used for income-generating activities such as starting a small business or purchasing inventory.
• Housing Finance: Housing finance NBFCs provide loans for purchasing, constructing, or renovating residential properties. These loans are typically
secured against the property being financed.
• Commercial Finance: NBFCs provide working capital loans to businesses for various purposes, such as inventory financing, trade finance, and invoice
discounting.
• Personal Finance: Personal finance NBFCs offer personal loans, credit cards, and other financial products to individuals. These loans are typically
unsecured and can be used for various purposes, such as home renovations, weddings, or medical expenses.
• In addition to the above categories, NBFCs may specialize in specific sectors such as agriculture, education, and healthcare. For example, an
agriculture finance NBFC may offer farmers loans to purchase seeds, fertilizers, and equipment. In contrast, an education finance NBFC may provide
loans for students pursuing higher education.
• Role of NBFCs in the Indian Financial System
• NBFCs play a crucial role in the Indian financial system by catering to the diverse credit needs of various
sectors of the economy. Their ability to provide customized financial products and services tailored to the
specific needs of different segments of society makes them a vital component of the financial system.
• The role of NBFCs can be summarized as follows:
• Providing Credit: NBFCs credit various population segments, including individuals, small and medium
enterprises (SMEs), and large corporations. NBFCs are generally more flexible than banks in terms of lending
criteria, and they can provide credit to those who may not meet the stringent requirements of traditional
banks.
• Mobilizing Savings: NBFCs mobilize savings from different sources, such as retail investors, high-net-worth
individuals (HNIs), and institutional investors, and they use these savings to finance various activities.
• Providing Investment Services: NBFCs provide investment services such as portfolio management,
investment advisory, and distribution of financial products.
• Providing Payment Services: NBFCs also provide payment services such as issuing debit and credit cards,
electronic fund transfers, and mobile banking. Supporting Infrastructure Development: NBFCs also play a
key role in supporting infrastructure development by providing long-term finance to infrastructure projects.
• Scope of NBFC
• Non-Banking Financial Companies (NBFCs) have gained significant
importance in the financial sector over the past few decades. They
play a crucial role in the economy by providing financial services to
those who may not have access to traditional banking services. In this
article, we will explore the scope of NBFCs, their role in the economy,
and the challenges they face.
• Role of Non-Banking Financial Companies (NBFCs) in Financial Inclusion
• The role of NBFCs in the economy is significant, as they cater to the
unbanked and underbanked population of the country. NBFCs provide
financial services to individuals, small and medium-sized enterprises, and
other businesses not served by traditional banks. They are crucial in
financial inclusion, a key component of sustainable economic growth.
• The role of NBFCs in the economy is significant, as they cater to the
unbanked and underbanked population of the country. NBFCs provide
financial services to individuals, small and medium-sized enterprises, and
other businesses not served by traditional banks. They are crucial in
financial inclusion, a key component of sustainable economic growth.
• Challenges Faced by NBFCs in the Regulatory Environment
• Another challenge faced by NBFCs is the regulatory environment. The
Reserve Bank of India (RBI) regulates NBFCs, and they have to comply
with several regulations and guidelines issued by the RBI. This can be
time-consuming and costly for NBFCs, especially for small and mid-
sized players who may not have the resources to comply with
regulatory requirements.
• Moreover, NBFCs also face operational challenges. Due to their
limited size and scale, NBFCs may not have the same level of
operational efficiency as banks. This can result in higher operating
costs, impacting their profitability and ability to compete with banks.
Functions Of Bank.
• ACCEPTING DEPOSITS.
• PROVIDING LOANS.
• PAYMENTS AND SETTLEMENTS.
• CURRENCY EXCHANGE.
• SAFEKEEPING OF VALUABLES.
• INEVESTMENT SERVICES.
• INTERNET BANKING SERVICES.
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Development banks are
financial agencies that
Development Financial provides medium and long
Institution. term financial assistance and
act as catalytic agents in
promoting balanced
development of country.
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Functions Of EXIM Bank.
The EXIM bank of india is a specialized financial institution in india that was established in 1982. the banks primary function is
to finance, facilitate and promote india's international trade. It is owned by the government of india and operates as a
statutory corporations.
• Financial export and import of
services and goods from the • It also helps to refinance the bank services as
county as exim trade. well as other institutions for foreign financing
trade or exim trade.
• It helps in financing the
export as well as import of • It helps in financing the export or import of
machines. services and goods from other countries also.
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Functions Of EXIM Bank.
• It also provides financial • EXIM trade helps in functioning the export and
assets for the business in import of merchant navy bank .
foreign and also helps the • EXIM bank also plays a major role in weiting
business to join the joint shares , bonds, stocks as well as debentures
venture in foreign. involved in foreign companies trade.
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Roles And Objectives Of EXIM Bank.
• To ensure the export or import projections.
• To encourage and facilitate the export of international and technical and merchant banking sevices as well as
their joint ventures
• To lengthen the LOCs and credit of buyers.
• To make competition for exporters on the financial terms.
• To provide timely and relevant information to exporters of india about their opportunities in various export
fields and areas.
• To look into Indian finance problems and give resolution policies for it.
• To enhance and promote the trade of foreigners in our county.
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Structure Of EXIM Bank.
•BOARD OF DIRECTORS.
•SENIOR MANAGEMENT.
•BUSINESS DIVISIONS.
•REGIONAL OFFICES.
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NABARD.
NABARD was established in 1982 and is
headquartered in mumbai. It operates as
an apex development bank with the
primary objective of promoting sustainable
and equitable rural development. It acts as
a bridge between financial institutions
and rural India.
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STRUCTURE OF NABARD.
NABARD has a hierarchical structure comprising the following key elements:
• BOARD OF DIRECTORS: the highest decision making body.
• EXECUTIVE COMMITTEE: responsible for the day to day operations.
• REGIONAL OFFICES: spread across india to facilitate better implementation of programs.
• TRAINING INSTITUTIONS: NABARD has training institutions to provide education and training in
rural development and banking.
26
SIDBI.
SIDBI plays a crucial role in the
development of the micro , small, and
medium enterprises(MSME) sector in india
. It acts as the principal financial
institution for the promotion, financing and
development of MSMEs.
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Functions Of SIDBI.
It acts as the principles financial institutions for the
promotion, financing.
• Financial assistance.
•Refinancing.
•Promotion of enterpreneurship.
•Technology upgradation.
• Developmental initiatives.
• Risk capital.
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MUDRA AND ITS
FUNCTIONS .
• MUDRA focuses on the
FUNCTIONS: development and refinancing
• Refinancing support. of micro enterprises in india ,
with the aim of promoting
• Loan products. entrepreneurship and
• Shishu. facilitating financial inclusion.
• Kishor.
• Regulation of microfinance institutions.
• Enterpreneurial development.
• Monitoring and evaluation.
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NHB.
NHB serves as the apex financial
institution for housing in india,
playing a key role in promoting
the development of a stable and
sound housing finance system.
30
Functions of NHB.
• Refinancing.
• Regulation and supervisions.
• Resource mobilization.
• Promotion of housing finance institutions .
• Research and training.
• Affordable housing initiatives.
31
LIC AND ITS FUNCTION.
Ensure and enhance the quality of life
of people through financial security by
• Providing life insurance. providing products and services of
aspired attributes with competitive
• Promoting savings. returns and by rendering resources for
• Supporting economic growth. economic development.
• Offering group insurance.
• Providing pension plans.
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The LIC committee comprises 15 members
appointed by central government of India. Following
is the structure of this committee,
There are 4 managing directors, 4 member and 3
non-official directors on the LIC board of directors.
Structure of LIC. Further the responsibilities divide into 4 tier offices 33
as follows,
Central office.
UTI.
Unit Trust of Inidia provides to
the investors a safe return of the
investment whenever they
require funds. UTI provides daily
price record and advertises it in
the newspapers.
Thus two prices are quoted on a
daily basis, the purchase price
and the sale price of the units.
34
Structure of UTI.
• UTI is managed by a board of trusties, consisting of a chairman and four members
nominated by Reseve Bank of India, one member nominated by state bank of India ,and
two members elected by the contributing institutions.
35
The state finance corporations
are an integral art of
SFC AND ITS FUNCTONS. institutional finance structure
of a country. Where SEC
• It grants loan and advances to industrial concerns that
promotes small and medium
are repayable within the maximum period of 20 years. [Link] of the
• It subscribes and also inderwrites the shares and [Link] SFC help
ensuring balanced regional
debentures of industrial concerns.
development, higher
• it guarantees loans raised by the industrial concerns investment, more employment
repayable within 20 years. generation and broad
ownership of various
• Guarantees deferred payments for purchase of capital
industries
goods with india.
• It acts as an agent of the state and central government.
36
STRUCTURE OF SFCs.
• The state finance • Three directors are elected by all types of
corporations are run by a insurance companies, schedule banks, investment
board of ten directors, which
trusts, co-operative banks and other financial
are appointed by the state
organizations. As a result, the state government
government. In general, the
managing director is chosen in bodies select the vast majority of directors.
consultation with the RBI and
named by three other
directors by the state
government.
37
STRUCTURE OF
NBFC.
NBFC regulatory structures will be
divided into four layers. The
lowest tier's NBFC are referred to
as the NBFC-Base Layer. NBFC-
Middle Layer and NBFC-Upper
Layer are the names given to the
NBFCs in the middle and upper
layers.
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