The providers of financial services fall in the following category: 1. Specialized Financial Institutions 2. Commercial Banks 3. Merchant Bankers 4. Insurance Companies 5. Investment Trusts and Mutual Funds 6. House Building Co-operative Societies 7. Credit Card Issuer Companies 8. Leasing Companies 9. Venture Capital Companies 10. Credit Rating Agencies 11. Non-banking Financial Companies (NBFCs).
These are also known as ‘Development Banks’ because they provide finance as well as assist in promoting new enterprises. There are four important financial institutions at national level viz., Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India Ltd. (IDBIL), Industrial Credit and Investment Corporation of India (ICICI) and the Industrial Investment Bank of India Ltd. (IIBIL). The nineteen State Financial Corporations (SFCs) and 28 State Industrial Development Corporations (SIDCs) are also coming under this class of financial service providers.
Financial services offered by specialized financial institutions include:
i. Rendering financial assistance to industrial concerns through different schemes, e.g. Direct Assistance Scheme, Soft Loans Scheme, Technical Development Fund Scheme of IDBI Ltd.
ii. Corporate counseling for financial reconstruction
iii. Revival of Sick units
iv. Financing Risk Projects e.g. Risk capital scheme of IFCI, Venture Capital Fund of IDBI Ltd. Etc. to provide venture capital.
v. Promotion of Credit Rating Agencies, e.g. Credit rating agencies like CRISIL, ICRA and CARE are promoted by specialized financial institutions like ICICI, UTI, IFCI, IDBI etc.
vi. Assistance to Entrepreneurs in entering joint ventures and foreign collaborations.
vii. Establishment of subsidiaries for providing financial services like Investment banking, Asset management, Stock broking etc. e.g., ICICI promoted ICICI Direct for internet broking business, I-SEC for Investment banking, IDBIL Principal Asset Management Company for Mutual fund business etc.
viii. Promotional activities such as identification of project idea- selection and training of entrepreneur, provision of technical assistance during project implementation etc. by SIDC’s.
2. Commercial Banks:
Commercial banks have been rightly crowned as the nerve centre of all economic activity. They encourage peoples’ saving habit through various savings deposit schemes and mobilize these savings to business people in the form of short or working capital loans, long term loans for productive use.
Various financial services offered by commercial banks are:
(i) Providing short-term and long-term financial assistance to industrial sector,
(ii) Meeting the working capital needs of industrial enterprises,
(iii) Subscribing to shares and debentures of corporate units.
(iv) Underwriting of securities
(v) Offering consumer credits
(vi) Venture capital assistance
(vii) Bill discounting
(viii) Merchant banking services through subsidiaries.
(ix) Issuing Credit /Debit cards
(x) Mutual Fund business through subsidiaries e.g. Can Bank Mutual Fund
(xi) Factoring services through subsidiaries e.g. SBI Factors, Can Bank Factors etc.
(xii) Innovative customer services like Phone banking, Internet banking, Core banking, faster remittance services, Cyber cash, Home banking etc.
(xiii) Insurance Services e.g. SBI Life
3. Merchant Banks:
Merchant bankers are important financial intermediaries providing a wide range of financial services to the corporates and investors. It includes Issue management, Underwriting, Project counselling, Advisory services on mergers and acquisitions, Portfolio management services, Capital restructuring etc.
4. Insurance Companies:
Insurance services to the corporates and individuals are provided by the Insurance companies. They make good the loss suffered by the insured (policy holder) against a specific risk such as fire, accidents, theft (General Insurance) or compensate the beneficiaries of policy holder on the happening of a specified event such as accident or death.
To cater to the varying needs of the insured, a variety of policies are offered by insurance organizations. Until 1999, there were only two public sector organizations viz., LIC and GIC. But by the establishment of IRDA, new players have entered the field, e.g. HDFC Life, Max New York Life Insurance, Birla Sun Life Insurance
5. Investment Trusts and Mutual Funds:
A Mutual fund is a financial service organization that collects investible funds of large number of investors and invests them in diversified portfolio. The funds from investors are collected by selling the units of mutual fund Mutual fund companies offer different types of schemes to cater the varied needs of investors. Mutual funds help small individual investors to become the beneficiaries of Blue chip firms which otherwise not possible because of the huge investment required Mutual funds offer benefits of professional management diversification of risk and high returns to the investors.
6. House Building Co-Operative Societies and Banks:
Housing finance contributed to social stability by enabling people to purchase an asset. Housing finance has emerged as an important avenue of financial services activity due to availability of security low supervising cost and low default risks and never ending demand.
At the national level Housing and Urban Development Corporation (HUDCO), Housing Development Finance Corporation (HDFC) and National Housing Bank (NHB) and all India financial institutions co-operative institutions, state housing finance societies, housing boards of central and state governments commercial bank subsidiaries etc. are different house building institutions.
7. Credit Card Issuer Companies:
Banks and other financial institutions issue credit cards to their customers. Credit card enables card holders to purchase goods, travel and dine in hotel without making immediate payments. It helps to make a cashless and cheque less society and also increases the consumerism.
8. Leasing Companies:
Leasing is an arrangement that provides a firm with the use and control over assets without buying and owning the same. Leasing industry in India is a growing business activity in the country. Leasing companies acting as the owners of the assets and receives lease rentals in return. Major players in leasing business can be categorized into five groups’ e.g. Independent leasing companies, Manufacturer Lessors Financial Institutions, In house lessors and Commercial banks.
9. Venture Capital Companies:
Venture capital companies provide risk-bearing capital, usually in the form of equity participation, to companies with high-growth potential. Venture capital companies may be structured as an Investment Company, Investment Trust, Offshore Investment Company etc.
The sponsors of venture capital funds in India fall into five broad categories:
(i) Central financial institutions such as Industrial Development Bank of India (IDBI), Small Industries Development Bank of India (SIDBI), Industrial Finance Corporation of India (IFCI) etc. e.g. IDBI Venture Capital Fund, Small Industries Development Bank of India (SIDBI) Venture Capital Scheme etc.
(ii) State level financial institutions e.g. Andhra Pradesh Industrial Development Corporation Limited (APIDC) Venture Capital Ltd., a joint venture of Andra Pradesh Industrial Development Corporation Ltd.
(iii) Banks e.g. Can Bank Venture Capital Fund Ltd.
(iv) Private Sector institutions e.g. Pathfinder Investment Company Pvt. Ltd., Indus Venture Management Limited etc.
(v) Overseas funds- e.g. Hong Kong and Shanghai Banking Corporation (HSBC) Private Equity Management Mauritius Ltd., Alliance Venture Capital Advisors Ltd. etc.
10. Credit Rating Agencies:
Credit Rating Agencies evaluates the ability of issuers of securities, to repay the principal and interest. Credit rating is an indicator to investors and creditors in determining the credit risk associated with debt instruments or credit obligations. They act as a regulatory body in protecting the interest of investors.
Credit rating agencies are established by all India financial institutions and public sector banks, e.g. Credit Rating Information Services of India Limited (CRISIL), Investment Information and Credit Rating Agency of India Limited (IICRA), Credit Analysis and Research Ltd (CARE) etc. in India.
11. Non-Banking Financial Companies (NBFCs):
The NBFCs constitute a significant element of the organization of Indian Financial system and broaden the range of financial services. They offer financial services like equipment leasing, hire purchase, venture capital, corporate advisory services on issue management, mergers and acquisitions etc.
RBI directives classified NBFCs into five categories:
i. Equipment Leasing Company
ii. Hire-purchase Finance Company
iii. Investment Company
iv. Loan Company
v. Mutual Benefit Finance Company