Financial Institutions are an important segment of the financial system of any country as they provide medium to long-term finance to different sectors of the economy. In India, these institutions are set up to meet the growing demands of particular sectors, such as rural, housing, small industries, export and import. These institutions have been playing a crucial role in channelizing credit to these sectors.
There are four prominent specialized banks or financial institutions in India. These are – Export-Import Bank of India (EXIM Bank), National Bank for Agriculture and Rural Development (NABARD), National Housing Bank (NHB) and Small Industries Development Bank of India (SIDBI).
Export-Import Bank of India (EXIM Bank)
Export-Import Bank ranks high among the specialized financial institutions in India. It was established under the Export-Import Bank of India Act, 1981 as a purveyor of export credit, mirroring global Export Credit Agencies
(ECAs). The EXIM Bank commenced its operations in 1982. It serves as a growth engine for industries and SMEs through a wide range of products and services. These include import of technology and export product development, export production, export marketing, pre-
shipment and post-shipment and overseas investment. It offers financial assistance to the exporters and importers and also by acting as a link between the various financial institutions to ensure the overall development of the Indian financial market. The category of term loans are issued for modernization, purchase of equipments, acquisitions etc. For the exporters the bank provides warehousing finance, export lines of credit facilities. The funded capital scheme of the bank includes long-term working capital, cash flow financing, and the non funded capital scheme include letter of credit limits, guarantee limits. For the film industry the bank has arranged for cash flow financing for film production, funds for exhibition in overseas market. The bank is engaged in offering specialized services Human Resource Management, Research and Planning, Internal Audit etc. The Export-Import Bank of India has set up offices throughout India and in foreign countries as well. The head office is located at Mumbai.
National Bank for Agriculture and Rural Development (NABARD)
The importance of institutional credit in boosting rural economy has been clear to the Government of India right from its early stages of planning. Therefore, the Reserve Bank of India (RBI) at the insistence of the Government of India, constituted a Committee to Review the Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD) to look into these very critical aspects. The
Committee was formed on March 30,1979. The Committee’s report outlined the need for a new organisational device for providing undivided attention, forceful direction, and pointed focus to credit related issues linked with rural development. Its recommendation was formation of a unique development financial institution which would address these aspirations and formation of National Bank for Agriculture and Rural Development (NABARD) was approved by the Parliament through Act 61 of 1981. NABARD came into existence in July 1982 by transferring the agricultural credit functions of RBI and refinance functions of the then Agricultural Refinance and Development Corporation (ARDC). Set up with an initial capital of Rs.100 crore, its’ paid up capital stood at Rs. 5,000 crore as on March 31, 2016. Consequent to the revision in the composition of share capital between Government of India and RBI, the Government of India today holds Rs. 4,980 crore (99.60 per cent) while Reserve Bank of India holds Rs. 20.00 crore (0.40 per cent).
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National Housing Bank (NHB)
The National Housing Bank (NHB) was established in the year 1988 as per the guidelines of the National Housing Bank Act, 1987 with a view to accelerate the growth of
the Housing Financing Institutions by providing them with financial and other required assistance. It extends financial assistance for entire infrastructural development offers refinance to the existing housing finance companies etc. The bank has set up specialized divisions like Development and Risk Management, Project Finance, Refinancing Operations, Resource Mobilization and Management etc. NHB is wholly owned by Reserve Bank of India, which contributed the entire paid-up capital. The general superintendence, direction and management of the affairs and business of NHB vest, under the Act, in a Board of Directors.
Small Industries Development Bank of India (SIDBI)
Small Industries Development Bank of India (SIDBI), set up on April 2, 1990 under an Act of Indian Parliament, acts as the Principal Financial Institution for the promotion, financing and development of the Micro, Small and Medium Enterprise (MSME) sector and for coordination of the functions of the institutions engaged in similar activities. The business domain of SIDBI consists of Micro, Small, and Medium Enterprises ( M S M E s ) , which contribute significantly to the national economy in terms of production, employment and exports. MSME sector is an important pillar of Indian economy as it contributes greatly to the growth of Indian economy with a vast network of around 5.1 crore units, creating employment of about 11.7 crore, manufacturing more than 6,000 products, contributing about 45 per cent to manufacturing output and about 40 per cent of exports in terms of value, about 37 percent of GDP. The business strategy of SIDBI is to address the financial and non-financial gaps in MSME eco-system. Financial support to MSMEs is provided by way of (a) Indirect /refinance to banks / Financial Institutions for onward lending to MSMEs and (b) direct finance in the niche areas like risk capital, sustainable finance, receivable financing, service sector financing, etc. In order to promote and develop the MSME sector, SIDBI adopts a ‘Credit Plus’ approach, under which, besides credit, SIDBI supports enterprise development, skill up-gradation, marketing support, cluster development, technology modernization, etc., in the MSME sector through its promotional and developmental support to MSMEs. These P and D support have benefitted more than 2.3 lakh persons in the MSME sector, created more than 1.5 lakh employment, and helped in setting up more than 80,000 units, mostly rural enterprises.