Unit - V
Financial Institutions
Reserve Bank of India(RBI)
Reserve Bank of India (RBI)
Headquarters Bombay, Maharashtra, India
Coordinates 18.932679°N 72.836933°ECoordinates: 18.932679°N 72.836933°E
Established 1 April 1935; 85 years ago
Ownership 100% state ownership
Governor Shaktikanta Das
Central bank of India
Currency Indian rupee( ₹ )
Reserves ₹3,830,997 crore (US$540 billion)
Bank rate 4.00%
Interest on reserves 3.35% (market determined)
Website rbi.org
Reserve Bank of India(RBI)
The Reserve Bank of India (RBI) is India's central bank.
It controls the issue and supply of the Indian rupee.
RBI is the regulator of the entire Banking in India.
RBI plays an important part in the Development Strategy of the Government of India.
RBI regulates commercial banks and non-banking finance companies working in India.
It serves as the leader of the banking system and the money market.
Until the Monetary Policy Committee was established in 2016,it also controlled monetary
policy in India.
Following India's independence on 15 August 1947, the RBI was nationalised on 1 January
1949.
It is a member bank of the Asian Clearing Union.
Reference: Foreign Trade by Khushpat Jain
Reserve Bank of India(RBI)- Structure
Organisational
Structure
Not more than 4 deputy
governors
4 Directors to represent
regional boards
Economic Affairs secretary
Financial service secretary
10 other directors from various fields.
Governor
Reserve Bank of India(RBI)- Functions
Functions of RBI
Financial supervision
Regulator and supervisor of the financial system
Regulator and supervisor of the
payment and settlement systems
Managing foreign
exchange
Banker and debt manager to government
Issue of currency Banker's bank
Developmental role
Custodian to foreign
exchange
Detection of fake currency
Regulator of the Banking System
Foreign Exchange Deparment
Vision
To evolve appropriate environment in discharging the basic objective
of the Foreign Exchange Management Act (FEMA), 1999;
To facilitate external trade and payments and to promote orderly
development and maintenance of foreign exchange market in India;
To frame prompt and pro-active policy responses, as part of active
capital account management, within the evolving macroeconomic
conditions.
Reference: Foreign Trade by Khushpat Jain
Foreign Exchange Deparment
Mission
Evolving and disseminating rules and regulations in a user friendly language;
Having regular interface with the users to assess their needs with greater focus on
the requirements of resident individuals /entities;
Rendering effective and efficient customer service with greater transparency;
Empowering authorised persons and enlarging their role as a conduit to create
awareness about the developments;
Facilitating hassle-free cross-border transactions;
Capturing data on a real time basis to dynamically induce policy changes and
disseminating data in a transparent manner.
Reference: Foreign Trade by Khushpat Jain
Foreign Exchange Department- Structure
The Department's endeavor is to render efficient customer service through its;
Central Office at Mumbai
17 Regional Offices and
two Cells, one each at Nagpur and Srinagar.
Reference: Foreign Trade by Khushpat Jain
Foreign Exchange Department- Functions
Conduct of Foreign Exchange Transactions
Compounding Authority for FEMA Contraventions
This department is responsible for maintaining the exchange rate and
controlling the foreign exchange. Also, they try to stabilize the exchange rate.
Reference: Foreign Trade by Khushpat Jain
Department for Industrial Credit
This department as the name suggests is related to the credit-related activities of the
industries. Their primary task is to provide various credit guarantee schemes for the
small-scale industries and looking after their administration.
Thus, they work in tandem with the government of India, SFCs, and industrial
development bank of India (IDBI).
Because their task is to collect data about the finances of the small-scale businesses
and other related problems.
Reference: Foreign Trade by Khushpat Jain
Export – import bank
• Export import bank of India is the premier export finance institution
in India, established in 1982 under Export- Import Bank of India Act
1981.
• Since its inception, Exim Bank of India has been both a catalyst and
a key player in the promotion of cross border trade and investment.
• Exim bank of India, over the period, evolved into an institution that
plays an important role in partnering Indian industries, particularly
the Small and Medium Enterprises
• Headquarters :- Mumbai, India
Reference: Foreign Trade by Khushpat Jain
Origin of EXIM Bank
• Post WTO era resulted in dismantling of protective barriers to
trade and investment.
• Increase in trade opportunities in global markets
• Need for the country to enhance their domestic
competitiveness
• Absence of any specialised institution to enhance foreign trade
in country.
Reference: Foreign Trade by Khushpat Jain
Objectives of Export import bank
• Financing of exports and imports of goods and services not only
of India but also of third world countries.
• Financing of joint ventures in foreign countries.
• Financing of Indian manufactured goods, consultancy and
technological services on deferred payment terms.
• Financing R & D and techno economic studies.
• Co-financing global and regional development agencies.
Reference: Foreign Trade by Khushpat Jain
Functions of Export import bank
EXIM Bank
The Export and Import Bank of India, popularly known as the EXIM Bank was set up in 1982.
It is the principal financial institution in India for foreign and international trade.
It was previously a branch of the IDBI, but as the foreign trade sector grew, it was made into an independent body.
The ultimate aim is to promote foreign trade activities in the country.
EXIM Bank
Objective providing financial assistance to
exporters and importers, and ... functioning as the principal financial institution for coordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the country's international trade...
... act on business principles with due regard to public interest.
(Export-Import Bank of India Act, 1981)
EXIM Bank- Evolving Vision
Product centric approach
Customer centric approach
EXIM Bank- Role
EXIM Bank- Range of Operation
EXIM Bank- Range of Products and Services
EXIM Bank- Range of Financing Programmes
EXIM Bank- Organization
Board of Directors
Directors(17)
Managing Director
2 deputy managing directors
1 director each nominated by the RBI; IDBI Bank Ltd. and ECGC Ltd.
5 directors are Central Government officials
not more than 3 directors are from commercial banks
up to 4 directors are professionals with experience in export / import or financing.
Chairman
Functions of the EXIM Bank
Finances import and export of goods and services from India
It also finances the import and export of goods and services
from countries other than India.
It finances the import or export of machines and machinery on
lease or hires purchase basis as well.
Provides refinancing services to banks and other financial
institutes for their financing of foreign trade
EXIM bank will also provide financial assistance to businesses
joining a joint venture in a foreign country.
Reference: Foreign Trade by Khushpat Jain
Functions of the EXIM Bank
The bank also provides technical and other assistance to importers and exporters.
The EXIM bank will provide guidance and assistance in administrative matters as
well.
Undertakes functions of a merchant bank for the importer or exporter in transactions
of foreign trade.
Will also underwrite shares/debentures/stocks/bonds of companies engaged in
foreign trade.
Will offer short-term loans or lines of credit to foreign banks and governments.
EXIM bank can also provide business advisory services and expert knowledge to
Indian exporters in respect of multi-funded projects in foreign countries,
Reference: Foreign Trade by Khushpat Jain
Commercial Banks
Commercial banks are the most important components of the whole banking system.
A commercial bank is a profit-based financial institution that grants loans accepts deposits, and
offers other financial services, such as overdraft facilities and electronic transfer of funds.
Role and Importance of Commercial Banks
Accelerating the Rate of
Capital Formation
Provision of Finance and
Credit
Developing Entrepreneurs
hip
Promoting Balanced Regional
Development
Help to Consumers
Structure of Commercial Banks in India
Structure of Commercial Banks in India
Functions of Commercial Banks in India
Export credit guarantee corporation
Government owned enterprise
Provides credit insurance facilities to exporters and banks in India
Works under administrative control of Ministry of Commerce & Industry
Managed by a Board of Directors comprising representatives of the Government,
Reserve Bank of India, banking , insurance and exporting community.
It has evolved various export credit risk insurance products to suit the requirements
of Indian exporters and commercial banks
The seventh largest credit insurer of the world Essentially an export promotion
organization
Seeking to improve the competitive capacity of Indian exporters by giving them
credit insurance covers comparable to those available to their competitors from most
other countries
It keeps its premium rates at the lowest level possible.
Reference: Foreign Trade by Khushpat Jain
Export Credit and Guarantee Corporation(ECGC)
ECGC Ltd. (Formerly Export Credit Guarantee Corporation of India Ltd.), wholly owned by Government of India, was set up in 1957 with the objective of promoting exports from the
country by providing Credit Risk Insurance and related services for exports.
It functions under the administrative control of Ministry of Commerce & Industry, and is managed by a Board of Directors comprising representatives of the Government, Reserve
Bank of India, banking, and insurance and exporting community.
Over the years it has designed different export credit risk insurance products to suit the requirements of Indian exporters and commercial banks extending export credit.
ECGC is essentially an export promotion organization, seeking to improve the competitiveness of the Indian exporters by providing them with credit insurance covers.
ECGC keeps its premium rates at the optimal level.
Export Credit and Guarantee Corporation(ECGC)
Risk Associated with Exports
Export Insurance
Export Insurance
Receivables
Exchange risk Payment risk
Goods
Loss or Damage
Hedging by Authorized Dealer
Credit Insurance Marine Insurance
What does ECGC do?
Provides a range of credit risk insurance covers to exporters
against loss in export of goods and services
Offers Export Credit Insurance covers to banks and financial
institutions to enable exporters to obtain better facilities
from them
Provides Overseas Investment Insurance to Indian
companies investing in joint ventures abroad in the form of
equity or loan
Reference: Foreign Trade by Khushpat Jain
How does ECGC help exporters?
ECGC Offers insurance protection to exporters against payment
risks.
Provides guidance in export-related activities.
Makes available information on different countries with it’s own
credit ratings.
Makes it easy to obtain export finance from banks/financial
institutions.
Assists exporters in recovering bad debts.
Provides information on credit-worthiness of overseas buyers.
Reference: Foreign Trade by Khushpat Jain
Need for export credit insurance
Objectives of ECGC
To encourage and facilitate globalization of India’s trade.
To assist Indian exporters in managing their credit risks
To protect the Indian exporters against unforeseen losses
To facilitate availability of adequate bank finance to the Indian exporters by providing
surety insurance covers for bankers at competitive rates.
To achieve improved performance in terms of profitability, financial and operational
efficiency indicators and achieve optimum return on investment.
To develop world class expertise in credit insurance among employees and ensure
continuous innovation and achieve the highest customer satisfaction by delivering top
quality service.
To educate the customers by continuous publicity and effective marketing.
Reference: Foreign Trade by Khushpat Jain
Role of ECGC Its primary role is to provide a variety of risk insurance products.
The ECGC also offers export credit insurance cover to banks and financial
institutions .
The Corporation also offers overseas investment insurance to Indian companies
that are entering into international joint ventures, in the form of equity or loans.
The ECGC also provides guidance on export-related activities to exporters,
including credit rating-based information on different countries.
The ECGC can also help exporters arrange for export finance from and financial
institutions.
Finally, it assists exporters with debt recovery and checking the creditworthiness
of overseas customers.
Also, there is no GST payable in insurance premium.
Reference: Foreign Trade by Khushpat Jain
Procedures with ECGC to cover insurance:
A purchase order is issued to the seller by the buyer.
The purchase order contains complete details about the buyer who has to
make payment.
The seller (exporter) approaches ECGC to get approval on the buyer and
the amount which can be shipped.
The ECGC with the help of overseas network provides details regarding
the creditworthiness of the buyer.
ECGC collects some amount on the export and issues insurance policy.
Reference: Foreign Trade by Khushpat Jain
ECGC Policies
Functions of ECGC
• Provides a range of credit risk insurance covers to exporters
against loss in export of goods and services
• Offers Export Credit Insurance covers to banks and financial
institutions to enable exporters to obtain better facilities from
them
• Provides Overseas Investment Insurance to Indian companies
investing in joint ventures abroad in the form of equity or loan
Reference: Foreign Trade by Khushpat Jain
How does ECGC helps Exporters
Offers insurance protection to exporters against payment
risks
Provides guidance in export-related activities Makes
available information on different countries with it's own
credit ratings
Makes it easy to obtain export finance from
banks/financial institutions
Assists exporters in recovering bad debts Provides
information on credit-worthiness of overseas buyers
Reference: Foreign Trade by Khushpat Jain
Objectives of ECGC
• To encourage and facilitate globalization of India’s trade
• To assist Indian exporters in managing their credit risks by
providing timely information on worthiness of the buyers,
bankers and the countries.
• To protect the Indian exporters against unforeseen losses
which may arise due to failure of the buyer, bank or problems
face by the country of the buyer by providing cost effecting
credit insurance covers.
Reference: Foreign Trade by Khushpat Jain
Objectives of ECGC
• To facilitate availability of adequate bank finance to the Indian
exporters by providing surety insurance covers for bankers at
competitive rates
• To develop world class expertise in credit insurance among
employees and ensure continuous innovation and achieve the
highest customer satisfaction by delivering top quality services.
• To educate the customers by continuous publicity and effective
marketing
Reference: Foreign Trade by Khushpat Jain
Risk covered under ECGC
Risks not Covered
Risks of loss due to commercial or quality disputes
Insolvency or default of any agent of the exporter or of
the collecting bank
Loss or damage to the goods which can be covered by
general insurers
Exchange Rate Fluctuation
Failure of the exporter to fulfil the terms of the contract
or negligence on his part
Reference: Foreign Trade by Khushpat Jain
ECGC Policies
Export credit insurance for Exporters
Export credit insurance to banks
Special scheme
Main policies of ECGC
• Contract Policy
• Shipment Policy
• Constructions Work Policy
• Services Policy
• Overseas Investment Insurance
Reference: Foreign Trade by Khushpat Jain
Industrial Development Bank of India(IDBI)
Industrial Development Bank of India (IDBI Bank Limited or IDBI Bank or IDBI) was established in 1964 by an Act to provide credit and other financial facilities for the development of the fledgling Indian industry.
Many national institutes finds their roots in IDBI like SIDBI, Exim Bank, NSE and NSDL.
LIC completed acquisition of 51% controlling stake on January 21, 2019 making it the majority shareholder of the IDBI Bank.
Reserve Bank of India has clarified that IDBI Bank stands re-categorized as a Private Sector Bank for regulatory purposes with effect from January 21, 2019.
Overview of development banking in India
Development Banking emerged after the Second World War and the Great
Depression in the 1930s. The demand for reconstruction funds for the affected
nations compelled in setting up of national institutions for reconstruction.
At the time of Independence in 1947, India had a fairly developed banking system.
The adoption of bank dominated financial development strategy was aimed at
meeting the sectoral credit needs, particularly of agriculture and industry.
Towards this end, the Reserve Bank concentrated on regulating and developing
mechanisms for institution building.
The commercial banking network for general banking
Meeting the short-term working capital requirements of industry and agriculture.
Specialised Development Financial Institutions (DFIs) such as the
IDBI, NABARD, NHB and SIDBI were set up to meet the long-term financing
requirements of industry and agriculture.
Reference: Foreign Trade by Khushpat Jain
Formation of Industrial Development Bank of India (IDBI)
• The Industrial Development Bank of India (IDBI) was established in 1964 under an Act of Parliamentas a wholly owned subsidiary of the Reserve Bank of India.
• In 1976, the ownership of IDBI was transferred to the Government of India and it was made the principal financial institution for coordinating the activities of institutions engaged in financing, promoting and developing industry in India.
•IDBI provided financial assistance, both in rupee and foreign currencies, for green-field projects and also for expansion, modernisation and diversification purposes.
•Some of the institutions built with the support of IDBI are SEBI, NSE, NSDL, SHCIL, Credit Analysis & Research Ltd, Exim Bank (India), the SIDBI and the Entrepreneurship Development Institute of India.
Objectives of IDBI
To provide financial assistance to industrial enterprises.
To promote institutions engaged in industrial development.
To provide technical and administrative assistance for promotion management or expansion of industry.
To undertake market and investment research and surveys in connection with development of industry.
Organisation and Management:
IDBI consist of a Board of Directors, consisting of a chairman and
Managing Director appointed by the Government of India, a Deputy
Governor of the RBI nominated by that bank and 20 other Directors are
nominated by the Central Government.
The board had constituted an Executive Committee consisting of 10
Directors, including the Chairman and Managing Director. The executive
committee is empowered to sanction financial assistance.
The Head office of IDBI is located in Mumbai. The bank has five regional
offices, one each in Kolkata, Guwahati, New Delhi, Chennai and Mumbai.
Besides the bank have 21 branch offices.
Reference: Foreign Trade by Khushpat Jain
Functions of IDBI
Role of IDBI in Foreign Trade
It manages various financial institutions working under IDBI bank
Provides financial assistance to various industrial units in terms of
developments
It also offers refinancing options including term loans to the suitable financial
institutions
It provides funding to the industrial units that are involved in manufacture or
processing of goods, mining, transport generation and distribution of power
both in private and public sectors
It also provides finance to various projects, expansion of any project,
diversifications, or even developing the projects which will exceed ` 30 million
and it also provides funding to those projects which cost less than ` 30 million
through indirect means as it offers refinancing to the main financial institutions
such as SFC/SIDC/Commercial Banks etc
Reference: Foreign Trade by Khushpat Jain
Industrial Credit and Investment corporation of India(ICICI)
Industrial Credit and Investment Corporation of India (ICICI) was established in 1955 as public limited company under Indian Company Act, for developing medium and small industries of private sector.
Initially its equity capital was owned by companies, institutions and individuals but at present its equity capital has been owned by public sector institutions like—Banks, LIC, CIC and its associate companies.
In March 2002, the ICICI was merger with the ICICI Bank and created a first universal bank in India. With this merger, ICICI does not exist any more as a development financial institution.
Objectives
To provide loans to industrial projects in private sector.
To stimulate the promotion of new industries.
To assist the expansion and modernization of existing industries.
To provide Technical and managerial aid to increase production.
Reference: Foreign Trade by Khushpat Jain
Financial Assistance of ICICI:
To achieve its objectives, ICICI provides financial assistance in various forms such as:
Long term and medium term loans both in terms of rupee and foreign currency.
Participating in equity capital and in debentures.
Underwriting new issues of shares and debentures.
Guarantee to suppliers of equipment and foreign loaners.
Reference: Foreign Trade by Khushpat Jain
Activities of ICICI:
The activities of ICICI are discussed below: Project Finance:
Leasing:
Project Advisory Services:
Facilities for Non-resident Indians:
Provision of Foreign Currency Loans:
Other Institutions Promoted:
Housing Development Finance Corporation (HDFC)
Credit Rating Information Services of India Ltd. (CRISIL)(with UTI)
Technology Development and Information Company of India Ltd. (TDICI)
Programme for the Advancement of Commercial Technology (PACT)
Programme for Acceleration of Commercial Energy Research (PACER)
Reference: Foreign Trade by Khushpat Jain
Industrial Finance corporation of India
Government of India set up the Industrial
Finance Corporation of India (IFCI) in July 1948 under a special Act.
This is the first financial institution set up in India with the main object of making medium and long term credit to industrial needs.
The Industrial Development Bank of India, Scheduled banks, insurance companies, investment trusts and co-operative banks are the shareholders of IFCI. The Union Government has guaranteed the repayment of capital and the payment of a minimum annual dividend.
The corporation is authorised to issue bonds and debentures in the open market, to borrow foreign currency from the World Bank and other organisations, accept deposits from the public and also borrow from the Reserve Bank.
Functions
The corporation grants loans and advances to industrial concerns.
Granting of loans both in rupees and foreign currencies.
The corporation underwrites the issue of stocks, bonds, shares etc.
The corporation can grant loans only to public limited companies and co-operatives
but not to private limited companies or partnership firms.
Reference: Foreign Trade by Khushpat Jain
Organisation and Management:
The Head Office of the IFCI is in New Delhi. It has also established its
Regional offices in Bombay, Chennai, Kolkata, Chandigarh, Hyderabad,
Kanpur and Guwahati. The branch office of IFCI is located in Bhopal, Pune,
Jaipur, Cochin, Bhubaneswar, Patna, Ahmedabad and Bangalore.
The IFCI is managed by a Board of Directors, headed by a Chairman, who is
appointed by the Government of India, in consultation with RBI. The
chairman holds his position for a period of 3 years, subject to extension.
Of the 12 directors, 4 are nominated by the IDBI, three of whom are experts
in the fields of industry, labour and economics and the fourth is the General
Manager of the IDBI. The remaining 8 directors are nominated. Two directors
are nominated for a term of 4 years by each of the following-scheduled banks, co-
operative banks, insurance companies and investment companies making up eight
directors.
Reference: Foreign Trade by Khushpat Jain
Activities of the IFCI:
Soft Loan Assistance
Entrepreneur Development
Industrial Development in Backward Areas
Subsidised Consultancy
Management Development
Reference: Foreign Trade by Khushpat Jain
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