Indian Financial Institutions: RBI, IDBI, SIDBI, NABARD, EXIM, NH

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Indian Financial Institutions

The Indian banking structure has a wide and comprehensive form. Apex institutions in the form of banking institutions are playing important role in the country. The chief regulator of banking system in our country is the Reserve bank of India. Industrial Development Bank of India (IDBI) is an apex body in the industrial sector.

National Bank of Agriculture and Rural Development (NABARD) has been working as an apex institution for the agriculture and rural development. Import-Export Bank of India (EXIM) is an Apex body of international trade. National Housing Bank (NHB) is an apex institution in field of housing construction.

Thus these four apex institutions are accelerating the banking system by providing refinance facilities to commercial banks and other financial institutions along with other banking services.

Reserve Bank of India (RBI)

The Indian Banking structure has a wide and comprehensive form. Apex Institutions in the form of banking institutions are playing important role in the country. The chief regulator of banking system in our country is the Reserve Bank of India.

The Reserve Bank of India (RBI) was established in April 1935 with a share capital of Rs. 5 Crores on the basis of the recommendations of the Hilton Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private shareholders in the beginning. The Government held shares of nominal of Rs. 2,20,000

The Reserve Bank of India was set up as a private shareholder bank under the Reserve Bank of India Act, 1934 and it started functioning as the central bank since 1st April 1935.

Objectives of RBI

The following were the objectives of RBI when it was set up:

  • To manage adequate money and credit in the country
  • To maintain the stability of rupee internally and externally
  • Balanced and well managed banking development in the country
  • To develop well organized money market
  • To provide adequate agriculture credit
  • To manage public debt
  • To seek international monetary co-operation
  • Centralization of cash reserves of commercial banks
  • To set up Government banks
  • To set up Government banks
  • Publication of data

Functions of RBI

RBI is an apex banking institution of the country. It carries on several functions as a central bank. According to RBI Act, 1934, “the principal function of RBI is to issue notes and maintain reserves, currency and credit to maintain monetary stability in the general interest of the nation.”

As a central banking authority RBI carries on the following functions:

  • RBI regulates issue of bank notes above one rupee denomination.

  • Undertakes distribution of all currency notes and coins on behalf of the government.

  • Acts as the banker to the Government of India and the State governments, Commercial and Cooperative banks.

  • Formulates and administers the monetary policy.

  • Maintain exchange value of rupee 6. Represent India at the International Monetary Fund (IMF).

  • RBI acts as a banker for all the commercial banks. All scheduled banks come under the direct control of RBI. All commercial as well as schedule bank has to keep a minimum reserve with the RBI. They have to submit weekly reports to RBI about their transactions.

    By performing 3 functions, the RBI helps the member banks significantly. They are given below such as:
    • It acts as the lender of the last resort
    • It is the custodian of cash reserves of commercial banks.
    • It clears, transfers the transaction
    • It acts as the central clearing house

  • Regulation of Banking system

  • Credit Control

Industrial Development Bank of India (IDBI)

This is an apex institution providing long-term finance to industrial sector. It was set us as a subsidiary of the RBI in 1964. In February, 1976 it was segregated from the RBI.

At present its whole of the share capital is owned by the Government of India. IDBI provides financial assistance to industrial concerns by way of variety of products and services which include project finance, equipment finance, asset credit, equipment lease, technology up gradation fund scheme, refinance for medium scale industries and bill finance. It provides as well as for expansion, diversification and modernization of existing industrial enterprises.

In response to the changing financial needs of industries, IDBI has also designed other products to meet the short term funding, core working capital and other short term requirements of industrial units. It also offers fee-based services in the area of merchant banking, corporate advisory services, foreign exchange services etc.

IDBI has also set up subsidiaries and associates to offer banking products & services, capital market and trusteeship services, as also registrar and transfer services structured to meet customized client requirements.

For meeting fund requirements thereof as well as towards its various other business operations, IDBI raises resources directly from the market (at market-related interest rates) from retail as well as institutional investors – both within India and abroad, through a variety of investor-friendly instruments. IDBI’s resources raising efforts have brought it closer to all sections of society.

Small Industries Development Bank of India (SIDBI)

Small Industries Development Bank of India (SIDBI) was established in April 1990 under an Indian Parliament wholly-owned subsidiary of Industrial Development Bank of India (IDBI)

SIDBI’s stature provides that it should serve as the principal financial institution for:

  • Promotion
  • Financing
  • Development if industry in the small scale sector and
  • Coordinating the functions of other institutions engaged in Similar activities

The Small Scale industry (SSI) sector, which is vibrant and dynamic sub-sector of the India’s industrial economy, comprises the area of SIDBI’s business. The contribution of the SSI’s in term of production, employment and export earnings has been significant.

The objectives of Government policy have been to impart vitality and growth impetus to the sector by removing bottlenecks that affect the growth potential. In the liberalized era and emerging economic scenario, the sector is assured of continued support.

National Bank for Agriculture and Rural Development (NABARD)

In order to meet the credit requirement of agriculture and rural development the NABARD was set up in 1982 with the merger of ‘Agriculture Credit Department’ and Agriculture \Refinance and development Corporation’ of the RBI.

The bank provides short term and long term credit to agriculture and non agriculture activities namely hand weaving, artisans etc. and coordinate the activities. It provides refinance facilities on the loan given by commercial banks and cooperative for the agriculture and rural development.

Function of NABARD

  • Refinancing to Cooperative Banks
  • Financing to Rural Banks
  • Loan facilities for purchase of Shares
  • Refinance of Rural Development loans
  • Long term Loan Facilities
  • Technical Assistance and Advice

Export-Import Bank of India (EXIM)

The Export-Import Bank of India (EXIM Bank) was set in January, 1982 with its headquarters in Mumbai. It Perform the normal banking functions connected with import and export of goods, and several other functions.

These major functions include financing of exports from and imports to India, financing joint ventures in foreign countries and financing the export and import of machinery and equipment on lease basis. It also undertakes purchasing, discounting and negotiating of exports bills and thus encourages the exporters.

National Housing Bank (NHB)

The National Housing Bank (NHB) was established on 9th July 1988 under an Act of the Parliament viz. the National Housing Bank Act, 1987 to function as a principal agency to promote Housing Finance Institutions and to provide financial and other support to such institutions.

The Act, inter alia, empowers NHB to:

  • Issue Directions to housing finance institutions to ensure their growth on sound lines

  • Make a loan and advances and render any other form of financial assistance to scheduled banks and housing finance institutions or to any authority established be or under any Central, State of Provincial Act and engaged in slum improvement and

  • Formulate schemes for the purpose of mobilization of resource and extension of credit for housing.

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