Financial institutions1. 1. Presented by Happy V.S Roll No.5 MBA (PT) SMS CUSAT 12. 2.ObjectivesTo understand various aspects offinancial institutions and theirfunctioning in India. 23. 3.DefinitionA financial institution is an institution whichcollects funds from the public and placesthem in financial assets, such as deposits ,loans, and bonds, rather than tangibleproperty 34. 4.Functions of Financial InstitutionsLiability-Asset transformationThey issue claims to their customers that have characteristics different from those of their own assets.Size-transformationThey provide large volumes of finance on the basis of small deposits or unit capital.Risk transformationThey distribute risk through diversification and thereby reduce it for savers as in the case of mutual funds.Maturity transformationThey offer savers alternate forms of deposits according to their liquidity preferences, and provide borrowers with loans of requisite maturities 45. 5.Classifications of Financial InstitutionsFinancial Institutions in Indiaare divided in two categories.1.Regulatory institutions Reserve Bank of India (RBI) Securities and Exchange Board of India (SEBI) Central Board of Direct Taxes (CBDT) Central Board of Excise & Customs2.Intermediaries. 56. 6.Classifications of Financial Institutions Intermediaries. Unit Trust of India (UTI) Securities Trading Corporation of India Ltd. (STCI) Industrial Development Bank of India (IDBI) Industrial Reconstruction Bank of India (IRBI), now (Industrial Investment Bank of India) Export - Import Bank of India (EXIM Bank) Small Industries Development Bank of India (SIDBI) National Bank for Agriculture and Rural Development (NABARD) Life Insurance Corporation of India (LIC) General Insurance Corporation of India (GIC) Shipping Credit and Investment Company of India Ltd. (SCICI) Housing and Urban Development Corporation Ltd. (HUDCO) National Housing Bank (NHB) 67. 7.Classifications of Financial InstitutionsBanking Institutions and Non Banking Institutions All India Institutions State level institutions 78. 8.Banking institutions A bank is an institution that accepts deposits of money from the public, which are repayable on demand and withdraw able by cheques. The banking institutions of India play a major role in the economy of the country. The banking institutions are the providers of depository and transaction services. These activities are the major sources of creating money. The banking institutions are the major sources of providing loans and other credit facilities to the clients. 89. 9.Non Banking Financial Institutions(NBFC).An Institution which carried on as its business or part of its business the following activities: - financing - acquisition of securities - hire purchase - insurance - chit fund - mutual benefit companyBut does not include Institutions which carries on as its principal business: - agricultural operations, - industrial activities - Sale and purchase of goods - providing of services - purchase, sale and construction of immovable property 910. 10.All India InstitutionsIndustrial Finance Corporation of India (IFCI)First all India term- lending institutionSet-up in 1948provide institutional credit to medium and large industries.Head Quarters - New Delhi 1011. 11.Industrial Finance Corporation of India (IFCI)Project financingMedium/Long term credit for setting up new projectExpansion schemes Financial assistance by way of rupee loansLoans in foreign currenciesUnderwriting of direct subscription of shares/debentures. 1112. 12.Industrial Finance Corporation of India (IFCI)Sources of Funds are Paid up capital Reserves re payment of loans market borrowing, loans from government of India advances form Industrial Development Bank of India foreign lines of credit from KFW (west Germany) FFCE ( France) ODA (UK) 1213. 13.Functions of IFCIFor setting up a new industrial undertaking. For expansion and diversification of existing industrial undertaking.For renovation and modernisation of existing concerns.For meeting the working capital requirements of industrial concerns in some exceptional cases. 1314. 14.Industrial Credit and Investment Corporation of India(ICICI) Indias largest bank in the private sector second largest Indian bank including all public and private enterprises incorporated in 1994. first Indian company to raise funds from international markets network of 1308 branches 3950 ATMs subsidiaries in uk, russia, canada, singapore etc launched private banking in 2002. Head Quarters - Mumbai 1415. 15.Industrial Development Bank of India (IDBI)Established in 1964 as a subsidary of RBIAppex term financial lending institutions in IndiaDirect finance to industrySupports State financial corporations , SIDC, commercial banksHead Quarters - Mumbai 1516. 16.Industrial Development Bank of India (IDBI)Assistance from IDBIDirect: 1. By subscription to share capital and debentures 2. Rupee loans and foreign currency loans 3. Underwriting of issues.Indirect: 1. Refinance facilities to state level institutions and commercial banks 2. Bill re-discounting facility 1617. 17.Industrial Development Bank of India (IDBI)Resources of IDBI are:-Paid up capitalReservesRepayments of loansMarket borrowingsTemporary credit from RBIForeign lines of credit from world bank, ADBI and others 1718. 18.Small Industries Development Bank of India(SIDBI)The Small Industries Development Bank of India (SIDBI) is a wholly owned subsidiary of IDBI.SIDBI has been set up to provide services to the small scale industrial units (SSIs).Services of SIDBI are similar to the IDBI, but is meant for SSIs whereas IDBI is intended for medium and large scale sector 1819. 19.Life Insurance corporation of India (LIC)Founded in 1956Largest insurance co. in India Owned by Government8 zonal offices100 Divisional offices2048 Branch offices100,21,449 Agents 1920. 20.State level InstitutionsState Financial CorporationsState Industrial Development Corporations 2021. 21.State Financial Corporations In order to meet the financial requirements of small scale and medium-sized industries, there was a need of special financial institutions. With this view, the Central Government passed the State Financial Corporation Act of 28th September, 1951 which empowered the state government to establish financial corporation to operate within the state 2122. 22.State Financial Corporations ObjectivesTo establish uniformity in regional industries,To provide incentive to new industries,To bring efficiency in regional industrial units, To provide finance to small-scale, medium sized and cottage industries in the state, To develop regional financial resources. 2223. 23.State Financial CorporationsFunctions To provide loans for a period not exceeding 20 years to industrial units. To underwrite the issue of shares, debentures and bonds for a period not exceeding 20 years of industrial units. To give guarantee to loans taken by industrial units for a period not exceeding 20 years. To make payment of capital goods purchased in India by these industrial units. To subscribe to the share capital of the industrial units, in case they wish to raise additional capital. 2324. 24.Kerala State Industrial Development Corporation Industrial and investment promotion agency of the Government of Kerala promotion and development of medium and large scale units in the State of Kerala Nodal Agency for foreign and domestic investments in Kerala provides support for investors, besides processing various incentive schemes and facilitating interaction between the government and the industrial sector. Established in 1961, KSIDC is led by a group of professionals from various fields including Engineering, Management, Finance and Law. 2425. 25.Kerala State Industrial Development CorporationAreas of focusIdentification of Investment IdeasTranslating ideas into concrete proposalsFeasibility Study, Project EvaluationFinancial Structuring, Loan SyndicationAssisting in Central and State Govt. ClearancesDevelopment and Administration of Growth CentersIndustrial and Infrastructure development 2526. 26.specialized financial institutionsExport and Import Bank (EXIM Bank),Export Credit Guarantee Corporation (ECGC)Industrial Reconstruction Bank of India (IRBI) 2627. 27.specialized financial institutionsThe special purpose finance institutions, IRBI provides finance for rehabilitation of sick units, which show signs of recovery.EXIM Bank provides finance and other related services for import and export of goods and for export project. It functions as a coordinating agency in export finance.ECGC provides the credit insurance cover against the commercial and other risks inherent in the exports 2728. 28.Forms of AssistanceDirect financial Assistance Fund based assistance Rupee term loans Foreign currency term loans Subscription to equity shares Seed capitalIndirect Financial Assistance Deferred payment guarantee Guarantee for foreign currency loans underwriting 2829. 29.Direct financial Assistance Fund based assistance provided in both rupees and in foreign currency. Apart from this, funds are provided by subscription to the equity shares of the company. Rupee term loans extended for site, construction, factory and other buildings purchase of plant and machinery, as well as, for technical know how, preliminary and pre-operative expenses, and margin money for working capital. Generally, the repayment period is five to fifteen years with an initial moratorium of six months 2930. 30.Direct financial Assistance Foreign currency term loans fund the acquisition of fixed assets like plant and machinery, as well as to acquire technical know how from foreign suppliers Subscription to equity shares This form of assistance is available to the project only when institutions are sure that the project is not able to take any more debt, although the proposed venture is worthwhile. It is often a very small part of the project cost 3031. 31.Direct financial Assistance Seed capital All borrowers have to submit their proposals, through their respective SFCs and SIDCs. This assistance carries interest as low as one percent, and can be payable on easy terms, subject to the applicability of certain conditions. 3132. 32.Indirect Financial Assistance Deferred payment guarantee Financial institutions provide this deferred credit facility to the equipment suppliers on behalf of their clients and charge guarantee commission to the client. Guarantee is provided for the purchase of both indigenous and imported equipment. Most scheduled banks and co- operative banks provide this facility Guarantee for foreign currency loans This kind of guarantee is provided to the client as raised term loans from overseas market, directly. Underwriting The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 3233. 33.Special SchemesBill rediscounting schemesSuppliers line of creditSoft loan schemeEquipment finance scheme 3334. 34.Term Loan procedureSubmission of loan applicationInitial processing of loan applicationAppraisal of the proposed projectIssue of the letter of sanctionAcceptance of the terms and conditions by the borrowing unitExecution of the loan agreementDisbursement of loansCreation of securityMonitoring 3435. 35.Project appraisalSystematic and comprehensive review of theeconomic, environmental, c financial, social,technical and other such aspects of a project todetermine if it will meet its objectives. 3536. 36.Project appraisalMarket appraisalTechnical appraisalFinancial appraisalEconomic appraisalManagerial appraisal 3637. 37.Key financial indicatorsInternal rate of returnDebt service coverage ratioBreak even point 3738. 38.Thank you 38