Financial Institution (FI)

Financial Institutions are businesses that offer various types of financial services to
customers. These organizations provide a multitude of services, such as accepting deposits,
making investments, advancing loans, offering foreign exchange services, etc.

Financial Institutes are not limited to banks, as credit unions, insurance companies,
investment banks, and brokerage firms are also part of FIs. These organizations play a crucial
role within a capitalistic economic system, as they regulate the economy, ensure fair financial
practices, connect savers and spenders and facilitate prosperity to facilitate transactions.

As financial institutions have an imperative role in our economy, regulating their activities
has become a part of governmental authorities. As a result, the government makes myriad
laws and regulations to oversee and regulate financial institutions’ activities.

Choosing the most suitable financial institution to meet a specific need is necessary; thus,
let’s understand the various types of the financial institution and the purpose they solve.

Types of Financial Institutions

Commercial Banks

A commercial bank is a financial institution that accepts money from individuals and
businesses and provides loans to those in need. They offer services such as loans, savings,
certificates of deposits, bank accounts, bank overdrafts, etc., to their customers. These
organizations earn money by granting loans to individuals and gaining interest on loans.
Business loans, house loans, personal loans, car loans, and education loans are the different

Investment Banks

Investment banking helps individuals, organizations, governments, and other institutions raise
capital and provide financial consultancy advice. They don’t deal with customer deposits but
rather assist with financing through securities such as bonds and stocks.

They are a type of financial institution that provides services that specialize in facilitating
business operations, such as financing and offerings of capital expenditure and equity,
mergers and acquisitions, and new issues of initial public offerings (IPOs). They also
commonly act as market makers for trading exchanges, provide brokerage services for
investors, and other corporate restructurings.

Credit Unions

A credit union is a type of financial institution similar to a commercial bank. But is a non-
profit institution that is created, owned, and operated by its members. They provide
traditional banking services only to their members, such as account opening, issuing credit
cards, loans, etc. Credit unions charge interest and account fees just like a bank, but they
reinvest those profits into the products they offer; however, banks provide these profits to
their shareholders.
In the recent past, credit unions only serve a particular demographic as per their field of
membership, such as military members, teachers, etc. Although, nowadays, they have
liberated the restrictions on membership and provide their services to the general public.

Insurance Companies

Insurance companies are familiar kinds of non-bank financial institutions. They offer
insurance services to both individuals and organizations. The insurance can be related to the
protection against financial risk, life insurance, health, home, shop, company, products,
vehicles, etc. These institutions put the money from insurance premiums into a pool to fund
the policy coverage. Insurance companies can be necessary for the stability of financial
systems mainly because they are significant investors in financial markets. As a result of the
growing links between insurers and banks, insurers are insuring the risks of households and
firms to guarantee their financial stability.

Brokerage Firms

A brokerage firm or company is a middleman who connects the buying and selling parties to
facilitate the transaction. They assist in the dealing of securities such as stocks, mutual funds,
shares, bonds, options, and other financial instruments. Once the transaction is completed,
brokers receive the brokerage (commission) from both parties involved. Some brokerage
companies also provide financial advice and act as consultants.

Some Indian Major Financial institutions

Refinancing Institutions – They fund their refinancing mainly to banks and non-bank
institutions.
For example:
– The National Bank for Agriculture and Rural Development (NABARD)
– The Small Industries Development Bank of India (SIDBI)
– The National Housing Bank (NHB).

Investment Institutions – They invest their assets primarily in financial securities.

For example:
– Life Insurance Corporation (LIC)

1. Small Industrial Development Bank of India

SIDBI has been set by the government of india with his headquarters in
Lucknow. Utter Pradesh. As the principle financial institutions for promotion, financing
and development of industries in the small scale sector and to coordinate function of
the institutions engaged in similar activities.

2. National Bank for Agriculture & Development Bank of India

NABARD is established as a development Bank, in term of the Preamble of
the act for providing and regulating credit and other facilities for the promotion and
development of agriculture, small scale industries, cottage and village industries,
handicraft and other rural craft and other allied economy activities in rural areas with a
a view to promoting integrating rural development and securing prosperity of rural
areas fund for matters connected therewith or incidental there to.

3. Reserve Bank of India (RBI)

The Reserve Bank of India was established in 1935. It aims to organize the financial
framework and promote economic stability in India. The bank acts as the regulator for the
operation of the various commercial banks and other financial institutions in India. The bank
formulates various interest rates and policies too. It also offers assistance to central
government and institutions.

4. Established: IRDDAI was set up in the year 1999 by the Insurance Regulatory and
Development Authority Act, 1999, which was passed by the Government of India.
Headquarter: Hyderabad, Telangana.
Chairman: Shri. Debasish Panda

 It is an autonomous apex statutory body to control & develops insurance

agencies in India. IRDA is a national agency of GOI.
 Passed by the Government of India under IRDA Act 1999 on the recommendation of
Malhotra Committee.
 It was incorporated as a statutory body in April 2000
 IRDA act 1999, amended in 2002 to incorporate some emerging requirements
 Objective To protect the interest of policyholders, to regulate, promote & ensure
orderly growth of the insurance industry & for matters connected therewith or
incidental thereto.

5. XIM BANK (Export-Import Bank)

Established: EXIM Bank was established on January 1, 1982, for the purpose of financing,
facilitating, and promoting foreign trade of India.
Headquarter: Mumbai, Maharashtra.
Managing Director: Harsha Bhupendra Bangari (MD)

 It was established in 1982 under the EXIM Bank of India Act 1981.
 The bank lays special emphasis on the extension of Lines of Credit (LOCs) to
overseas entities, national govt., regional financial institutions, and Commercial
Banks.
 The bank extends Buyers credit & suppliers credit to finance and promote the
country's exports. To promote hi-tech exports from India, the bank has a lending
program to finance the Research & Development (R & D) activities of export-oriented
companies.
 The authorized capital of the EXIM bank is Rs. 200 crores & the paid-up capital
is Rs. 100 crore, wholly subscribed by the central government.

6. NabFID:- NaBFID is a development financial institution for infrastructure financing.

This is special financial institution for long term financing. NaBFID was announced in the
Budget 2021. It was established under the National Bank for Financing Infrastructure and
Development (NaBFID) Act, 2021. NaBFID shall be regulated and supervised as an All India
Financial Institution (AIFI) by the Reserve Bank under Sections 45L and 45N of the Reserve
Bank of India Act, 1934. NaBFID is the newest AIFI after EXIM Bank, NABARD, NHB and
SIDBI

7. NHB:- ational Housing Bank works for development of Housing loans sector of the
economy. The National Housing Policy, 1988 envisaged the setting up of NHB as the Apex
level institution for housing. In pursuance of the above, NHB was set up on July 9, 1988
under the National Housing Bank Act, 1987.

Reserve Bank of India initially contributed the entire paid-up capital. However, in terms of
the amendment made to the NHB Act, 1987 in 2019, shares stand transferred from Reserve
Bank of India to Government of India. The entire capital of NHB is now contributed by the
Government of India.... Read more at: https://www.bankersadda.com/all-india-financial-
institutions-list-of-aifis/