FINANCIAL INSTITUTIONS

Financial institutions are the major part of the Indian financial

system. It is more important than other component of the Financial
System because all the components of Indian Financial System are
directly or indirectly related with the financial institutions.
Financial institutions are providing various services to the economic
development with the help of issuing of the financial instruments.
Financial institutions can be classified into banking and non-banking
institutions.

Banking Institutions
Banking institutions are the key part of the economic development of
the nation. Banking institutions play a major role in the field of
savings and investments of money from public and lending loans to
the business concern.
Indian Banking institutions may be classified into two board
categories:
(1) Commercial Banks (2) Cooperative Banks
Commercial Banks
Commercial Banks are the most important deposits mobilization and
disbursers of finance.
The main function of the commercial banks are accepting deposits
and rendering loans to the public.

Indian commercial banks can be classified into the following

categories:

Scheduled Commercial Banks

Scheduled banks are those which are included in the second
scheduled of Banking Regulation Act 1934 and others are non
scheduled banks. To be included in the second scheduled of the
Banking regulation act the bank full fill the following conditions:
Must have paid up capital and reserves of not less than Rs. five
lakh.
It must also satisfy the RBI that its affairs are conducted in a
manner.
It is required to maintain a certain amount of reserves with the RBI.

Non-Scheduled bank
Non-scheduled banks are those which have not been included in the
second schedule of the Act.
Non-scheduled banks are subject to the statutory cash reserve
requirement. But they are not required to keep them with the RBI;
they may keep these balances with themselves. They are not entitled
to borrow from the RBI for normal banking purposes, though they

may approach the RBI for accommodation under abnormal

circumstances.

Non-banking Institutions
Non-banking institutions are also performing their function to
improve the Indian financial system. Non-banking Institutions can be
classified
into the following two major categories:
1. Non-banking Financial Institutions.
2. Non-banking Non-financial Institutions.

NBFI
A Non Banking Financial Institution is a company registered under
the Companies Act, 1956 of India, engaged in the business of loans
and advances, acquisition of shares, stock, bonds hire-purchase,
insurance business or chit business but does not include any
institution whose principal business is that includes agriculture or
industrial activity or the sale, purchase or construction of immovable
property.
The working and operations of NBFCs are regulated by the Reserve
Bank of India (RBI) within the framework of the Reserve Bank of India
Act, 1934 (Chapter III B) and the directions issued by it.

STATE FINANCE CORPORATION (SFC)

Central government decided to promote the Small Scale Industries

and Medium Scale Industries at the state level by establishment of
State Finance Corporation under a special Act. It is called as State
Finance Corporation Act 1951. According to this act, state
government has been empowered to set up State Finance
Corporation. At present these are 18 State Finance Corporation in
India.

UNIT TRUST OF INDIA

Unit trust was set up in 1964 by a special act passed in the
parliament under the name of Unit Trust of India Act 1963, for the
purpose to promote and regulate the mutual fund activities in India.
LIC
"Ensure and enhance the quality of life of people through financial
security by providing products and services of aspired attributes with
competitive returns, and by rendering resources for economic
development."

NON-BANKING NON-FINANCIAL INSTITUTIONS

Non-banking nonfinancial institutions are providing fee based
services to the public, such as merchant banking, underwriting,
counseling, etc. These institutions will not lending any financial
assistance to public but they will provide financial services.