Business Environment

Macro Factor
Economy

Financial Institutions

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 Business Environment
Macro Factor
Economy
• Financial Institutions
– Functions of financial institutions
• To provide financial services to its clients
• Financial institutions act as financial intermediaries
• They facilitate the flow of money within the economy
from investors to the companies which are in need of
such funds

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Macro Factor-Financial Institutions
• Types of Financial institutions
– Banking companies
– Non-banking financial companies

– Organised Sector
– Un organised Sector

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Macro Factor-Financial Institutions
• Banking Companies
– Perform financial transactions
• Receiving
• Lending
– First Banking system was established in 1786.
– It was known as the General Bank of India
– It was followed up by other banks in the colonial
period
– Banking is interpreted as accepting for the purpose of
lending or investment of deposits from the public,
repayable on demand and withdrawable by
cheque,draft and order or otherwise.

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Macro Factor-Financial Institutions
• Banking Companies

– Banks provide loans of all types of businesses and

industries , including agriculture, besides other
developmental activities such as education.
– Present banking system in the organised sector comprises
of
• Central Bank ( Reserve Bank of India )
• Commercial banks
• Agricultural banks
• Cooperative banks
• Exchange Banks
• Development Banks

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Macro Factor-Financial Institutions
• Reserve Bank of India ( RBI )
– RBI Governs, regulates and directs all other banks in their
functioning , serves as the banker to the government and
lender of the last resort
– It manages foreign exchange reserves of the nation and
acts as controller of credits besides performing various
other functions.
– RBI controls the monitory policy of the Indian Currency
– Established on 1 st April , 1934 . ( During I st World War)
– Initially it was shareholders bank
– Later nationalised in 1949.

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Macro Factor-Financial Institutions
• Commercial Banks
– Act as financial institutions to businesses of all kinds
– There are Indian Commercial Banks
– And foreign commercial banks
– In public Sector
– In Private sector
– SBI is the largest public sector bank and also serves as the
development bank
– SBI--Previously was the Imperial Bank of India that was nationalised
on I st July, 1955.
– There are various other commercial banks, including
• Regional Rural Banks, Post Office Savings banks ets. In the commercial sector
in the public domain.
– There are private sector banks with public shareholding

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Macro Factor-Financial Institutions
• Agricultural and Rural Banks

– Agricultural banks focus on agriculture and rural

development
– At the apex of the rural banking system is NABARD (
National Bank for Agriculture and Rural development )
– NABARD is funded b the Government, RBI and the
World Bank.
– NABARD also refinances other agricultural and rural
banks for specific projects

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Macro Factor-Financial Institutions
• Cooperative Banks
– Cooperative banks are engaged in retail as well as commercial banking
organised in the cooperative sector
– They function on cooperative basis
– They play a very important role in rural banking system
– They are registered under Cooperative Societies Act.
– They are governed by The Banking regulation Act, 1949. And the
Banking Laws ( cooperative societies) Act, 1965
– They finance under various heads ,
• In Rural areas--such as
– Farming,Cattle,Milk,Hatchery,Personal Finance
• In Urban Areas such as
– Self-employment,Industries,Small Scale Units,Home Finance,Consumer Finance,Personal
Finance

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Macro Factor-Financial Institutions
• Exchange Banks

– Exchange banks deal with foreign exchange transactions

– They do buying and selling of various foreign currencies
– They finance import and export by providing credit
– Many commercial banks also work as exchange banks
– The foreign exchange transactions are administered
through—FEMA (Foreign Exchange management Act,
1999, which came into force on is t June 200.
– Export and Import Bank of India ( EXIM Bank) Established
in 1982.

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Macro Factor-Financial Institutions
• Exchange Banks

• The Exchange bank supports businesses

– to import technology,
– Export Product development
– Export production
– Export marketing both pre-shipment and post
shipment
– Overseas investments

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Macro Factor-Financial Institutions
• Exchange Banks
• The bank provides comprehensive range of services
– Export Credit Facilities
– Finance of export oriented companies
– Finance for Indian Companies for overseas investments
– Lines of credit to overseas importers of goods and services from
India
– Finance and Business Advisory services for Small and Medium
Enterprises (SMEs)
– Finance for export of Agricultural Products
– Finance for film production
– Rural initiatives for export at grass root industries
– Advisory and support services for export

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Macro Factor-Financial Institutions
• Development Banks
– The objective of development bank is to promote overall industrial
development
– These banks provide long-term loans for this purpose
– Drivers of Industrial development
– They are either Public or Joint Venture
– There are national level development banks such as
• Industrial Finance Corporation of India ( IFCI)
• Industrial Development Bank of India ( IDBI)
• Small Industries Development Bank of India ( SIDBI)
• Industrial Investment Bank of India (IIBI)
• National Bank for Agriculture and Rural Development ( NABARD)
• Unit trust of India (UTI)
• State Bank of India ( SBI)
– There are state level development banks-such as
• State Finance Corporations
• State Industrial Development Corporations

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Macro Factor-Financial Institutions
• Non Banking Financial Companies ( NBFCs)

– NBFCs function like banks but for withdrawal of deposits

on demand
– The deposits are for fixed periods
– They are present in the organised sector as registered
companies
– They are not governed by the Banking Act 1949.
– But they come under the Perview of
• RBI
• Indian Companies Act 1956
• RBI closely monitors their functioning including liquidity and
management expertise

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Macro Factor-Financial Institutions
• Banking in Unorganised Sector
– It does not come under the perview of the Banking Act
and RBI
– Traditional system of banking
– It deals in
– private banking
– money lending
– Pawning
– To known clients
– High Interest rates
– Some times with security and some times without security
– Muscle power used in collections some times

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