Unit 2- Financial Institutions

Characteristics of financial institutions

Financial institutions play a crucial role in the economy by facilitating the flow of funds between
individuals, businesses, and governments. They provide various financial services, such as banking,
investing, lending, and insurance. Here are some common characteristics of financial institutions:

Intermediation: Financial institutions act as intermediaries between savers (those with surplus funds)
and borrowers (those in need of funds). They collect deposits and use them to make loans or
investments, enabling the efficient allocation of capital in the economy.

Risk management: Financial institutions assess and manage risk as an integral part of their
operations. They employ risk management techniques to analyse creditworthiness, assess market
risks, and protect against potential losses.

Regulatory oversight: Financial institutions are subject to regulatory oversight by government bodies to
ensure stability, transparency, and consumer protection. Regulations vary across jurisdictions but
generally aim to maintain the integrity of the financial system and safeguard the interests of customers.

Liquidity management: Financial institutions manage liquidity by balancing their assets and
liabilities. They ensure they have sufficient liquid assets to meet customer demands for withdrawals or
payments while investing in longer-term assets to generate income.

Capital adequacy: Financial institutions are required to maintain a certain level of capital to absorb
potential losses and provide a buffer against financial shocks. Capital adequacy regulations help
ensure that institutions can withstand adverse economic conditions without jeopardizing their
solvency.

Information asymmetry: Financial institutions often possess more information than individual
customers, particularly when it comes to assessing creditworthiness or investment opportunities. This
information advantage gives them the ability to make informed decisions and manage risks effectively.

Diversification of services: Financial institutions offer a wide range of services to meet the diverse
needs of their customers. These services may include banking products (e.g., checking accounts,
savings accounts), investment services (e.g., asset management, brokerage), insurance products (e.g.,
life insurance, property insurance), and more.

Financial intermediaries: Financial institutions act as intermediaries in the financial system by pooling
funds from various sources and channeling them towards productive uses. They bridge
the gap between surplus and deficit units in the economy, facilitating economic growth and
development.

Technology adoption: Financial institutions have increasingly embraced technology to streamline

their operations, improve customer experience, and enhance efficiency. Online banking, mobile
payments, robo-advisors, and digital currencies are some examples of technological advancements
adopted by financial institutions.

Systemic importance: Some financial institutions, particularly large banks and insurance companies,
are considered systemically important due to their size, interconnectedness, and potential impact on
the overall financial system. These institutions are subject to additional scrutiny and regulations to
prevent disruptions that could have far-reaching consequences.

The specific characteristics of financial institutions may vary depending on the type of institution (e.g.,
commercial banks, investment banks, credit unions) and the regulatory framework of the country in
which they operate.

Broad categories of financial institutions

Broadly speaking, financial institutions can be categorized into several categories based on their primary
activities and functions. Here are some of the main categories:

Banks: Banks are the most well-known and widely used financial institutions. They provide a range of
services such as accepting deposits, lending money, facilitating transactions, offering credit cards, and
providing various financial products and services.

Credit Unions: Credit unions are member-owned financial cooperatives that offer similar services to
banks, including savings accounts, loans, and other financial products. They are typically created to
serve a specific group or community, and their members have a say in the institution's operations.

Investment Banks: Investment banks primarily deal with large-scale financial transactions for
corporations, governments, and institutional clients. They offer services such as underwriting, issuing
securities, mergers and acquisitions, advisory services, and trading of stocks, bonds, and other financial
instruments.

Insurance Companies: Insurance companies provide coverage and protection against potential
risks and losses. They offer various types of insurance policies, including life insurance, health
insurance, property insurance, auto insurance, and liability insurance.

Brokerage Firms: Brokerage firms facilitate the buying and selling of financial securities, such as
stocks, bonds, mutual funds, and other investment products. They act as intermediaries between
investors and the financial markets, executing trades on behalf of their clients.
Asset Management Companies: Asset management companies manage investment portfolios on behalf
of individuals, institutions, or funds. They aim to maximize returns while minimizing risks by investing
in a diversified range of assets, such as stocks, bonds, real estate, and commodities.

Mutual Funds: Mutual funds pool money from multiple investors to invest in a diversified
portfolio of stocks, bonds, and other securities. They are managed by professional fund managers
and offer investors an opportunity to invest in a diversified portfolio with relatively small amounts
of money.

Pension Funds: Pension funds are set up by employers, unions, or governments to provide retirement
benefits to employees. They receive contributions from employers and employees and invest the
funds to generate returns that will be used to pay out pensions to retirees.

Stock Exchanges: Stock exchanges provide platforms for the buying and selling of stocks, bonds, and
other securities. They facilitate the trading of securities between buyers and sellers, ensuring
transparency, liquidity, and fair pricing.

Non-Banking Financial Companies (NBFCs): NBFCs are financial institutions that provide banking
services without holding a full banking license. They offer services such as loans, credit facilities,
leasing, hire purchase, and investment advisory. NBFCs play a crucial role in providing financial
services to underserved sectors of the economy.

Money market institutions

Money market institutions refer to financial institutions that specialize in providing short-term
borrowing and lending services in the money markets. These institutions play a vital role in
facilitating liquidity and funding for various participants in the financial system, including
corporations, governments, and other financial institutions.

Some common types of money market institutions include:

Commercial Banks: Commercial banks offer a range of financial services, including money market
accounts, certificates of deposit (CDs), and short-term lending. They act as intermediaries by
accepting deposits from customers and providing loans to borrowers.

Investment Banks: Investment banks engage in various activities, including underwriting

securities, facilitating mergers and acquisitions, and trading financial instruments. They also
participate in the money markets by offering short-term loans, commercial paper, and repurchase
agreements (repos).

Money Market Mutual Funds (MMMFs): MMMFs are mutual funds that invest in short-term debt
securities such as Treasury bills, commercial paper, and certificates of deposit. They allow
individual and institutional investors to access the money markets indirectly and earn a
competitive yield on their investments.

Brokerage Firms: Brokerage firms provide services related to buying and selling financial
securities. They may also engage in money market activities, such as offering money market funds
and facilitating short-term lending through repurchase agreements.

Central Banks: Central banks, such as the RBI in India , Federal Reserve in the United States and the
European Central Bank, play a crucial role in regulating and stabilizing the money markets. They
provide liquidity to financial institutions, manage interest rates, and implement monetary policy to
maintain price stability and economic growth.

Government-Sponsored Enterprises (GSEs): GSEs, such as IFCI, IDBI, etc are specialized financial
institutions created by the government. They facilitate the flow of credit and issuing short-term debt.
These institutions, among others, form the backbone of the money markets, ensuring the efficient
allocation of funds and liquidity in the short-term financial system. They provide opportunities
for investors to earn a return on their surplus funds while offering borrowers access to short-term
financing for their operational needs.

Capital market institutions

Capital market institutions are entities that facilitate the flow of capital between investors and borrowers
in the financial markets. These institutions play a vital role in the functioning of capital markets by
providing various services and products to investors and businesses. Here are some key capital market
institutions:

Stock Exchanges: Stock exchanges are platforms where shares of publicly traded companies are
bought and sold. Examples include the Bombay stock exchange (BSE), National Stock exchange
(NSE). New York Stock Exchange (NYSE), NASDAQ, London Stock Exchange (LSE), and Tokyo
Stock Exchange (TSE). They provide the infrastructure and regulations necessary for trading stocks and
other securities.

Brokerage Firms: Brokerage firms are intermediaries that facilitate the buying and selling of securities
on behalf of investors. They provide access to stock exchanges and other financial markets, execute
trades, and offer investment advice and research to clients. Examples include Charles Schwab, Fidelity
Investments, and Morgan Stanley.

Investment Banks: Investment banks provide a range of financial services to corporations,

governments, and institutional investors. They assist in raising capital through underwriting securities
offerings (such as initial public offerings or bond issuances), mergers and acquisitions advisory, and
other financial advisory services. Well-known investment banks include Goldman Sachs, JPMorgan
Chase, and Citigroup.
Mutual Funds: Mutual funds are investment vehicles that pool money from multiple investors to invest
in a diversified portfolio of securities. They are managed by professional fund managers and offer
individual investors the opportunity to access a diversified investment portfolio. Examples of mutual
fund companies include ICICI Prudential Mutual fund, SBI Mutual fund, HDFC and TATA mutual
fund.

Pension Funds: Pension funds are institutional investors that manage funds on behalf of employees
and retirees. These funds invest in a variety of assets, including stocks, bonds, and real estate, with the
goal of providing retirement income for their beneficiaries. Examples of pension funds are UTI
retirement solutions Ltd, kotak Mahindra pension fund Ltd etc

Insurance Companies: Insurance companies collect premiums from policyholders and invest the
funds in various assets, including stocks and bonds. They play a significant role in the capital markets
by providing long-term investment capital and stability to the financial system. Well-known insurance
companies include LIC, GIC, SBI general insurance, Prudential Financial, and Allianz etc
Rating Agencies: Rating agencies assess the creditworthiness of issuers of debt securities and provide
ratings that reflect the risk associated with those securities. These ratings help investors make informed
investment decisions. Prominent rating agencies include CRISIL, ICRA, CARE and Acuite ratings and
research Ltd etc

Venture Capital and Private Equity Firms: Venture capital and private equity firms provide capital to
startup companies and businesses at different stages of development. They typically invest in exchange
for equity or ownership stakes in the company and help support their growth and expansion. Examples
include Fluid Ventures, Matrix Partners in India etc.

Objectives and Functions of Industrial Finance Corporation of India (IFCI)

The Industrial Finance Corporation of India (IFCI) was a government-owned financial institution in
India. It was set up as a statutory corporation in 1948 for providing medium- and long-term finance to
industry.

The main objectives and functions of the Industrial Finance Corporation of India (IFCI) are as
follows:

Industrial Financing: IFCI was established to provide financial assistance and support to
industrial projects in India. Its primary objective was to promote and develop industries by
extending long-term financial assistance, both in the form of loans and equity participation

Project Financing: IFCI focused on financing large and medium-scale industrial projects. It
provided term loans for the establishment, expansion, modernization, and diversification of industrial
projects across various sectors such as manufacturing, infrastructure, and services.

Promoting Capital Markets: IFCI played a vital role in the development of the capital markets in
India. It acted as an intermediary between investors and industrial projects by facilitating the issue of
securities such as debentures and bonds. IFCI also encouraged the establishment and growth of stock
exchanges and other financial institutions in the country.

Technical and Managerial Assistance: Apart from providing financial support, IFCI offered technical
and managerial assistance to industrial projects. It aimed to promote efficient management practices,
technological advancements, and modernization in the industrial sector.

Equity Participation: IFCI had the authority to participate in the equity capital of industrial projects.
By taking an equity stake, IFCI shared the risks and rewards of the project and played a role in its
governance and decision-making process.

Refinancing: IFCI provided refinancing facilities to banks and other financial institutions to support
their industrial lending activities. This helped to channel funds from the banking sector to industrial
projects and promoted overall industrial development.

Rehabilitation of Sick Units: IFCI played a significant role in the revival and rehabilitation of sick
industrial units. It provided financial and managerial assistance to distressed companies to help them
overcome their financial difficulties and restore their operations.

Promoting Small and Medium Enterprises (SMEs): In addition to financing large and medium-
scale industries, IFCI also supported small and medium enterprises (SMEs) through various schemes
and initiatives. It aimed to foster entrepreneurship and contribute to the development of the SME
sector in India.

These objectives and functions of the Industrial Finance Corporation of India (IFCI) were aimed at
promoting industrial development, fostering entrepreneurship, and supporting the growth of the Indian
economy by providing financial and technical assistance to industrial projects.

Objective and functions of Industrial Development Bank of India (IDBI)

The Industrial Development Bank of India (IDBI) is a government-owned financial institution in India.
It was constituted under the IDBI Act, 1964 as a development financial institution and came into being
on July 1, 1964. Its objective is to provide financial assistance and support for the development of
various industrial sectors in the country. The main functions of IDBI include:

Financing Industrial Projects: IDBI offers financial assistance to various industrial projects, both in
the public and private sectors. It provides term loans, working capital finance, and other financial
products to help industries establish, expand, or modernize their operations.
Promoting Industrial Growth: IDBI plays a crucial role in promoting industrial growth by
providing long-term finance to industries, particularly those in sectors that are considered important
for the overall economic development of the country. It focuses on sectors such as infrastructure,
manufacturing, agribusiness, and small and medium enterprises (SMEs).

Infrastructure Development: IDBI plays an active role in financing infrastructure projects such as
power plants, roads, ports, airports, and telecommunications networks. It provides financial support to
both public and private sector entities involved in infrastructure development.

Refinancing and Rediscounting: IDBI acts as a refinancing institution for various financial institutions
such as commercial banks, state financial corporations, and cooperative banks. It refinances loans
extended by these institutions for industrial and infrastructure projects, thereby ensuring a steady flow of
credit to the industrial sector.

Assistance to Small and Medium Enterprises (SMEs): IDBI provides financial assistance and support
to small and medium-sized enterprises (SMEs), which are considered crucial for employment generation
and balanced regional development. It offers customized financial products and advisory services to meet
the specific needs of SMEs.

Technical and Advisory Services: IDBI offers technical and advisory services to industrial units,
particularly in the areas of project appraisal, project monitoring, and rehabilitation of sick units. It
provides guidance and expertise to help industries improve their operational efficiency and
competitiveness.
International Operations: IDBI also engages in international operations by participating in
financing projects outside India. It provides financial assistance to Indian companies undertaking
overseas projects or ventures, thereby supporting their global expansion plans.

Overall, IDBI plays a pivotal role in facilitating industrial development and supporting the growth of
various sectors in India through its financial assistance, infrastructure financing, and advisory services.

State financial Corporations

Objective and functions

State Financial Corporations (SFCs) are financial institutions established by the state governments in
India to promote small and medium-sized enterprises (SMEs) within their respective states. At present
in India There are 18 SFCs were established under the SFC Act 1951. The main objective of State
Financial Corporations is to provide financial assistance and support to industrial and commercial
enterprises in the state. Here are the key objectives and functions of State Financial Corporations:
Financial Assistance: SFCs provide financial assistance to small and medium-scale industries by
offering various types of loans, such as term loans, working capital loans, equipment financing, and seed
capital assistance. They bridge the funding gap and help SMEs access the necessary capital for their
business operations.

Promoting Industrial Development: SFCs play a crucial role in promoting industrial development
within their respective states. They identify potential industries and sectors for development, assess
their financial viability, and extend financial support to promote their establishment, expansion, and
modernization.

Project Appraisal: SFCs conduct thorough project appraisal to evaluate the feasibility and viability of
proposed projects seeking financial assistance. They analyze various factors such as market demand,
technical feasibility, financial projections, and management capability to determine the prospects of
success.

Guarantees and Collateral Support: SFCs provide guarantees and collateral support to borrowers
to facilitate their access to credit from commercial banks and other financial institutions. By sharing
the risk associated with loans, SFCs enhance the creditworthiness of SMEs and make it easier for
them to obtain loans.

Technical and Managerial Consultancy: SFCs offer technical and managerial consultancy services to
assist small and medium-sized enterprises in enhancing their operational efficiency, adopting best
practices, and improving their overall competitiveness. These services may include assistance in project
planning, market research, technology upgradation, and quality control.

Syndication of Loans: SFCs collaborate with other financial institutions, including commercial banks
and development finance institutions, to syndicate loans for large-scale industrial projects. By pooling
resources and expertise, SFCs facilitate access to larger funding requirements and promote cooperative
lending.

Rehabilitation and Revival: SFCs play a vital role in rehabilitating sick and potentially viable industrial
units. They formulate and implement restructuring plans, reschedule loan repayments, and extend
additional financial assistance to revive such units, thereby preventing job losses and promoting
economic stability.

Equity Participation: SFCs may participate in the equity capital of small and medium-sized enterprises
by acquiring shares or convertible debentures. This equity participation helps in strengthening the
financial structure of enterprises and provides long-term support for their growth and expansion.

Promoting Entrepreneurship: SFCs actively promote entrepreneurship and encourage

individuals to set up their own businesses. They provide guidance and support to budding
entrepreneurs, facilitate the establishment of new enterprises, and foster a favourable business
environment within the state.

Policy Advocacy: SFCs serve as advocates for the SME sector and provide valuable inputs to the state
government regarding policy formulation, regulatory frameworks, and other measures to promote
industrial growth. They represent the interests of small and medium-sized enterprises and work towards
creating a conducive ecosystem for their development.

Overall, State Financial Corporations play a vital role in fostering industrial development,
promoting entrepreneurship, and providing financial assistance and support to small and medium-
sized enterprises. Their objective is to contribute to the economic growth and job creation within
their respective states.

Objectives and functions of ICICI

ICICI (Industrial Credit and Investment Corporation of India) is an Indian multinational banking and
financial services company. It was established in 1955as a public limited company. It offers a wide
range of services to individuals, businesses, and corporate clients. The objectives and functions of
ICICI can be summarized as follows:

Banking Services: ICICI provides various banking services, including savings accounts, current
accounts, fixed deposits, recurring deposits, and debit cards. It facilitates everyday banking
transactions for individuals and businesses.

Loans and Credit Facilities: ICICI offers a wide range of loans and credit facilities to cater to different
needs. This includes personal loans, home loans, car loans, education loans, business loans, and working
capital finance. ICICI evaluates loan applications and disburses funds to eligible customers.

Investment and Wealth Management: ICICI provides investment and wealth management services to
help individuals and organizations achieve their financial goals. It offers products such as mutual funds,
insurance plans, fixed income products, and portfolio management services. ICICI assists customers in
making informed investment decisions and managing their wealth effectively.
Corporate and Institutional Banking: ICICI serves corporate clients and institutions by providing a
range of specialized banking services. This includes working capital finance, trade finance, cash
management, foreign exchange services, investment banking, and treasury solutions. ICICI supports
businesses in managing their financial operations and facilitating growth.

International Banking: ICICI has a significant presence in international markets and offers a range of
services for customers engaged in cross-border transactions. It provides
correspondent banking services, trade finance, foreign currency accounts, remittances, and other
international banking solutions.

Digital Banking and Technology Solutions: ICICI has embraced digital banking and provides a range
of online and mobile banking services. It offers internet banking, mobile banking apps, digital wallets,
and other technology-driven solutions to enhance customer convenience and accessibility.

Customer Service and Support: ICICI places emphasis on customer service and support. It offers
various channels for customers to reach out for assistance, including phone banking, online chat,
email, and branch visits. ICICI aims to provide prompt and efficient customer support to address
queries, concerns, and complaints.

Financial Inclusion: ICICI is committed to promoting financial inclusion and reaching out to
underserved sections of society. It offers specialized products and services for rural customers,
microfinance initiatives, and partnerships with government programs to extend banking facilities to
unbanked populations.

Risk Management and Compliance: ICICI has robust risk management and compliance
mechanisms in place to ensure the safety and security of customer funds and adherence to regulatory
requirements. It employs advanced risk assessment tools, internal controls, and regulatory
compliance frameworks to mitigate risks.

Overall, ICICI's objectives revolve around providing comprehensive banking and financial
solutions to meet the diverse needs of its customers, fostering economic growth, and contributing
to the development of the Indian financial sector.

Objective and functions of EXIM Bank

The EXIM Bank, also known as an Export-Import Bank, is a government or quasi-governmental

institution that provides financial assistance and support for international trade. It was set up in 1982. It
was previously branch of the IDBI, but as the foreign trade sector grew, it was made into an independent
body. Its primary objective is to promote and facilitate the export and import activities of a country. Here
are the main objectives and functions of an EXIM Bank:

Facilitating Export and Import: The EXIM Bank aims to enhance a country's exports and imports by
providing financial resources and services to exporters and importers. It offers various financing options
and solutions to help businesses overcome the challenges associated with international trade.

Export Credit Financing: One of the crucial functions of an EXIM Bank is to provide export credit
financing. It offers loans, lines of credit, and guarantees to exporters, ensuring that they receive the
necessary funds to fulfill their export contracts. This helps exporters manage cash flow, mitigate risks,
and remain competitive in the global market.
Import Financing: In addition to supporting exports, EXIM Banks also provide financing facilities
for imports. They offer importers credit lines and loans to procure goods and services from foreign
markets. By facilitating imports, EXIM Banks contribute to meeting domestic demand and fostering
economic growth.

Export Credit Insurance: EXIM Banks offer export credit insurance to protect exporters against the
risk of non-payment by foreign buyers. This insurance coverage mitigates the risk of default or delayed
payment, allowing exporters to expand their markets and trade with confidence.

Political Risk Insurance: EXIM Banks also provide political risk insurance, which protects exporters
and investors against losses resulting from political events such as war, civil unrest, or government
actions that may disrupt international trade.

Trade Promotion: EXIM Banks actively engage in trade promotion activities to encourage exports
and imports. They conduct market research, organize trade fairs and exhibitions, and provide
information and advisory services to businesses interested in international trade.

Guarantees and Counter-guarantees: EXIM Banks issue guarantees and counter-guarantees to banks
and financial institutions involved in trade transactions. These guarantees help mitigate risks and instill
confidence in the financial system, encouraging banks to finance trade-related activities.

Working Capital Assistance: EXIM Banks provide working capital loans and assistance to exporters
and importers. This helps businesses manage their day-to-day operations, such as purchasing raw
materials, fulfilling orders, and maintaining inventory.

Infrastructure Financing: Some EXIM Banks also play a role in financing infrastructure
projects related to international trade. They provide funding for the development of ports,
airports, roads, and other critical infrastructure that facilitates trade and transportation.

Development Assistance: EXIM Banks may extend financial support and development assistance to
emerging markets and developing countries. This assistance aims to foster economic growth, improve
infrastructure, and promote trade and investment in these regions.

Overall, the objective of an EXIM Bank is to support and promote international trade by providing
financial resources, insurance, and guarantees to exporters and importers. Through its functions, an
EXIM Bank contributes to economic development, job creation, and increased competitiveness in the
global market.

Objective and functions of national industrial development corporation

The National Industrial Development Corporation (NIDC) is a government-owned organization or

agency that aims to promote and facilitate industrial development within a country. While the
specific objectives and functions of the NIDC may vary depending on the country, here are some
common objectives and functions associated with such entities:

Industrial Development: The primary objective of the NIDC is to foster and promote industrial
growth and development within the country. This involves supporting existing industries, encouraging
the establishment of new industries, and facilitating their expansion.

Investment Promotion: The NIDC often plays a role in attracting domestic and foreign
investment in industrial projects. It identifies potential investment opportunities, provides
information to investors, and offers incentives and support to encourage investment in key sectors
or regions.

Financial Assistance: The NIDC may provide financial assistance to industrial enterprises through
loans, equity investments, or guarantees. It aims to address the capital requirements of industries,
especially those engaged in strategic sectors or facing funding challenges.

Infrastructure Development: The NIDC may actively participate in the development of industrial
infrastructure, such as industrial parks, special economic zones, and technology parks. It collaborates
with relevant stakeholders to create a conducive environment for industrial activities.

Policy Formulation and Advocacy: The NIDC often contributes to policy formulation related to
industrial development. It conducts research, analyzes trends, and provides recommendations to the
government on issues affecting the industrial sector. Additionally, it may advocate for policies that
promote industrial competitiveness, innovation, and sustainability.

Technical Assistance and Capacity Building: The NIDC may provide technical assistance, advisory
services, and training programs to industrial enterprises. This support aims to enhance their
competitiveness, productivity, and technological capabilities.

Collaboration and Coordination: The NIDC works in collaboration with various government agencies,
industry associations, and other stakeholders to coordinate and align efforts in industrial development. It
may establish partnerships with research institutions, universities, and international organizations to
leverage expertise and resources.

Monitoring and Evaluation: The NIDC typically monitors and evaluates the performance of industrial
projects it supports. This includes assessing the impact of investments, measuring the effectiveness of
policies, and identifying areas for improvement.

Promoting Sustainable Development: The NIDC may prioritize sustainable industrial development
by encouraging environmentally friendly practices, promoting renewable energy solutions, and
supporting industries that contribute to social and economic inclusivity.
Overall, the NIDC plays a crucial role in driving industrialization, fostering economic growth, and
enhancing the competitiveness of industries within a country.

Objective and functions of National Small Industrial Development Corporation

The National Small Industries Development Corporation (NSIC) was established in the year 1955. It is
a government organization that aims to promote and support the growth of small-scale industries in
India. Its primary objective is to facilitate the development, expansion, and modernization of micro,
small, and medium enterprises (MSMEs) in the country. Here are the key objectives and functions of
the NSIC:

Objectives:

Promotion of MSMEs: The NSIC strives to promote and encourage the establishment and growth
of small-scale industries in India. It aims to create a favorable environment for their development
and provide them with necessary support.

Facilitation of Financial Assistance: NSIC facilitates the availability of financial assistance and credit
to MSMEs by assisting them in obtaining loans from financial institutions. It acts as a channel for the
flow of credit to these enterprises.

Enhancing Competitiveness: The corporation works towards enhancing the competitiveness of

MSMEs by providing them with access to modern technologies, training programs, and marketing
support. It aims to improve their productivity and efficiency.

Facilitating Technology Upgradation: NSIC assists small industries in adopting modern

technologies and upgrading their production processes. It helps MSMEs in sourcing and
implementing advanced technology to improve their products and services.

Procurement Support: NSIC provides procurement support to small-scale industries by

facilitating their participation in government tenders and procurement processes. It aims to enhance
their market access and business opportunities.

Functions:

Financial Assistance: NSIC provides financial assistance to MSMEs through various schemes such as
the Single Point Registration Scheme, Performance and Credit Rating Scheme, and Raw Material
Assistance Scheme. It helps small industries in obtaining loans and credit facilities.

Capacity Building and Skill Development: The corporation conducts training programs, workshops,
and skill development initiatives to enhance the capabilities of MSMEs. It focuses on areas like
entrepreneurship development, technology adoption, and managerial skills.
Technology Support: NSIC assists small-scale industries in technology upgradation and
modernization by providing technical guidance, consultancy services, and support in adopting
innovative solutions.

Marketing Support: The corporation promotes the marketing of products and services of MSMEs
through its various channels and networks. It organizes trade fairs, exhibitions, and buyer-seller
meets to facilitate business opportunities for small industries.

Advisory Services: NSIC offers advisory services to small-scale industries on various aspects such as
 project identification, feasibility studies, export promotion, and quality management. It provides
guidance and consultancy to help MSMEs overcome operational challenges.

Networking and Collaboration: The NSIC acts as a nodal agency for coordinating with various
stakeholders, including government departments, financial institutions, industry associations, and other
support organizations. It fosters collaboration and networking among different entities to support the
growth of MSMEs.

Overall, the NSIC plays a crucial role in the development and promotion of small-scale industries in
India by providing them with financial, technical, marketing, and advisory support, thus contributing
to the overall economic growth of the country.

RBI Measures for NBFC

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956
engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities
issued by Government or local authority or other marketable securities of a like nature, leasing, hire-
purchase, insurance business, chit business but does not include any institution whose principal business
is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or
providing any services and sale/purchase/construction of immovable property. A non-banking institution
which is a company and has principal business of receiving deposits under any scheme or arrangement in
one lump sum or in installments by way of contributions or in any other manner, is also a non-banking
financial company (Residuary non-banking company).

In terms of Section 45-IA of the RBI Act, 1934, no Non-banking Financial company can commence or
carry on business of a non-banking financial institution without obtaining a certificate of registration
from the Bank and without having a Net Owned Funds of ₹ 25 lakhs .

NBFCs are doing functions similar to banks. What is difference between banks & NBFCs?

NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a
few differences as given below:

i. NBFC cannot accept demand deposits;

ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;

iii. deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to
depositors of NBFCs, unlike in case of banks.

The Reserve Bank of India (RBI) has implemented several measures to regulate and supervise Non-
Banking Financial Companies (NBFCs) in India. These measures aim to strengthen the financial stability
of the NBFC sector and ensure the protection of investors and consumers. Here are some key measures
taken by RBI:

Registration and Categorization: RBI mandates that NBFCs must obtain a Certificate of Registration
(CoR) to operate. It categorizes NBFCs based on their activities and size, such as asset finance, loan
companies, infrastructure finance companies, etc. Different categories have specific regulations and
requirements.

Capital Adequacy: RBI has set minimum capital adequacy requirements for NBFCs. It ensures that
NBFCs maintain a minimum level of capital to absorb potential losses and operate with sufficient
financial strength.

Prudential Norms: RBI has implemented prudential norms for NBFCs regarding income
recognition, asset classification, provisioning, and exposure norms. These norms ensure
transparency, accuracy, and consistency in financial reporting.
Asset-Liability Management (ALM): NBFCs are required to maintain an appropriate Asset Liability
Management framework to manage and mitigate liquidity and interest rate risks. RBI monitors the
ALM practices of NBFCs through reporting requirements and periodic inspections.

Governance and Risk Management: RBI emphasizes the need for robust governance practices and
effective risk management frameworks in NBFCs. It expects the board of directors and senior
management to establish sound governance policies, risk management systems, and internal controls.

Supervision and Reporting: RBI conducts regular supervision of NBFCs to monitor their financial
health, compliance with regulations, and assess the risk profile. NBFCs are required to submit periodic
reports and disclosures to RBI, including audited financial statements, asset liability statements, and
other regulatory returns.

Fair Practices Code: RBI has issued guidelines for fair practices in lending, recovery, and customer
services for NBFCs. These guidelines aim to protect the interests of borrowers and ensure fair
treatment in loan disbursement, pricing, and collection practices.

Financial Inclusion: RBI encourages NBFCs to support financial inclusion initiatives by extending
credit to underserved and economically weaker sections of society. It provides guidelines and
incentives for NBFCs to prioritize lending to priority sectors and marginalized segments.

Regulatory Framework Enhancement: RBI regularly reviews and updates the regulatory framework
for NBFCs to address emerging risks and challenges. It introduces new regulations and guidelines as
deemed necessary to maintain a stable and resilient NBFC sector.