financial intermediares

DAZZLING DAFFODILSMACRO ECONOMICS

JAYALAKSHMI.SCHITRA.M.V

SHWETHA.N.T

MANASA.H.BSHRAVANI.R

SPOORTHI.A.SVINDHYA.N.S

FINANCIAL INTERMEDIARIES

OVERVIEW What are Financial Intermediaries?

Functions Performed

Role

Types of Financial Intermediaries in India.

What are Financial Intermediaries?Financial intermediaries are the institutions that connect borrowers and lenders by accepting funds from lenders and loaning funds to borrowers.

Financial intermediation consists of channelling funds between surplus and deficit agents.The classic example of a Financial Intermediary is a bank that transforms bank deposits into bank loans.

Functions Performedby

Financial IntermediariesMaturity Transformation-Converting short term liabilities to long term assets.Risk Transformation-Converting risky investments into relatively risk free ones. Convenience Denomination-Matching small deposits with large loan and large deposits with small loans.

Role of Financial IntermediariesTransfer of funds from savers to investors

Types of Investmentsa. Direct Investment

For example, purchasing a portfolio of stocks and bonds

b. Indirect InvestmentFor example, purchasing an equity claim issued by an investment company

Continued…

Providing Maturity Intermediation

Reducing Risk Through Diversification

Reducing Costs of Contracting and Information Processing

Providing a Payments Mechanism

TYPES OFFinancial Intermediaries

TYPES OFFinancial Intermediaries

1.Reserve Bank of India(RBI)2.Commercial Banks3.Savings Bank4.Life Insurance5.General Insurance6.Trusts7.Investment Companies8.Mortgage Banks9.Government Lending Institutions

1. RESERVE BANK OF INDIA

EVOLUTION• Established on 1st April 1935 under Reserve Bank of India Act, 1934

•Its head quarters is in Mumbai.

•226 offices in which 4 are located in metropolitan cities.

INTRODUCTION The RBI is the apex

financial institution of our banking systems.

Central arch–pillar of the monitory and fiscal framework in our country.

Supervises, regulates and controls the functioning of the commercial banks in our country.

RBI works as a central bank where commercial banks are account holders and can deposit money.RBI maintains banking accounts of all scheduled banks.

The RBI controls and supervises the overall operations of all banks in India. These banks may be:

- Public sector banks- Private sector banks- Foreign banks- Co-operative banks, or- Regional rural banks

RBI – BANKER’S BANK

MAIN FUNCTIONS OF RBI

MONETARY AUTHORITY

MANAGER OF EXCHANGE CONTROL

ISSUER OF CURRENCY

DEVELOPMENTAL ROLE

RELATED FUNCTIONS

MONETARY AUTHORITY

The RBI formulates, implements and monitors the monetary policies. Maintaining price stability and ensuring an adequate flow of credit to productive sectors. The RBI controls the monetary supply, monitors economic indicators like Gross Domestic Product and takes measures to check on Inflation.

MANAGER OF EXCHANGE CONTROL

Foreign exchange is a system of converting one nation’s currency into another and of transferring money from one country to another.

RBI regulates foreign exchange through Foreign Exchange Management Act, 1999 (FEMA)

Facilitates external

trade and payments

Promotes for the orderly development and maintenance of

FOREX market in India

Consolidates and amends

the law relating to

foreign exchange

FOREIGN EXCHANGE

MANAGEMENT ACT,1999

ISSUER OF CURRENCY

Section 22 of the RBI Act, gives authority to the RBI to issue currency notes. The RBI also takes action to control circulation of fake currency.The bank issues and exchanges currency notes and coins and destroys the same when they are not fit for circulation.

DEVELOPMENTAL ROLE

The Central Bank performs a wide range of promotional functions to support national objectives and industries.

The RBI faces a lot of inter-sectoral and local inflation-related problems. Some of this problems are results of the dominant part of the public sector.

RELATED FUNCTIONS

It acts as a banker to the central and state Government.

Example:In 1988 The National Housing Bank(NHB) was established to promote private real-estate acquisition.It also maintains banking accounts of all scheduled banks.

REPO

BANK RATEREPO RATE

REVERSE REPO RATE

CASH RESERVE RATIO (CRR)

STATUTORY LIQUIDITY RATIO(SLR)

BASE RATE

SAVINGS DEPOSIT RATE

TERM DEPOSIT RATE

8.50%

6.75%

6.50%

4%

21.50%

10%-10.25%

4%

8% - 9%

Policy Rates, Reserve Ratios, Lending and Deposit Rates as on 2015

WHY did RBI announce for the withdrawal of currency notes issued before 2005?

The Reserve Bank of India’s move to withdraw currency notes issued before 2005 is going to be a major exercise for the banking sector.

It will kill two birds with one stone:-Rationalization of currency notes with better security features and -Flushing out of unaccounted money stored in bank and personal lockers.

People across the country will have to exchange 36,984 million pieces of notes issued before 2005, which is valued at Rs 3,61,229 crore .

2. COMMERCIAL BANKS

Commercial bank is a type of bank that provides services such as accepting deposits, making business loans and offering basic investment products.

Role of COMMERCIAL BANKS Banks promotes capital formation- Accepts deposits. Investment in new enterprises-For entrepreneurs. Promotion of trade and industry-Bank Instruments. Development of agriculture and SSIs in Rural areas.

Balanced development of different regions- Transfer of surplus. Influencing economic activities-Availability of Credit. Implementation of monetary policy-Price stability and promotes Economic Growth. Monetisation of the economy-Non-monetised to Monetised. Export promotion cells-Encourages Exports for economic

FUNCTIONS OF COMMERCIAL BANKS

PRIMARY FUNCTIONS

SECONDARY FUNCTIONS

3. SAVINGS BANKS

A savings bank is a financial institution, whose primary function is accepting savings deposits and paying interests on those deposits.

FUNCTIONS OF SAVINGS BANKS

Assemble capital of the community, conserve idle wealth, and having aggregated into sizable funds, loan it to business enterprises. Has the capacity to save but not to use funds for themselves or to invest.

They promote thrift of money.

Builds up independence and stability of character and improves social and political life of the community.

The rate of interest payable is very nominal on saving accounts. At present it is between 4% to 6% p.a. in India.

A minimum amount has to be kept on saving account to keep it functioning.

Generally, equated monthly installments (EMI) for housing loan, personal loan, car loan, etc., are paid (routed) through saving bank account.

Savings Bank 

a. Name of Scheme Savings Bank A/c b. Scheme available At all branches c. Eligible Individual - Single Accounts, Two or more

individuals in Joint Accounts , Illiterate Persons Blind persons, Minors, Associations, Clubs, Societies, etc. Trusts, Institutions/Agencies specifically permitted by the RBI

d. Initial Deposit Rs.500/- for Cheque book operated and Rs.100/- for non cheque book a/cs, For Pensioners Rs.100/- and Rs.10/- respectively for cheque book and non cheque book a/cs

e. Incentives 1.For Cheque Operated Accounts – Free 50 Cheque Leaves P.A

2.No Ledger folio/ Transaction charges

3.Free GLOBAL DEBIT CUM ATM Card (Annual Charges applicable from next year) with free Star Sandesh (SMS) on debit transactions

4.Free Internet Banking facility

5.Free Fund Transfer Through Internet Banking

6.Unlimited Internet & ATM transactions (Only at BOI ATMs)

f. Product available specially to BOI customers

BOI-National Swasthya Bima Policy floater mediclaim policy of NICL available at low premium

7.Free access to BOI ATMs under Cash Tree

8.Free SMS and Telebanking,

9.Personalised cheque book on request at select centres

10.Free utility bills payment facility through E-pay

TYPES OF ACCOUNTSA. Savings AccountThe main objective of saving account is to promote savings.

There is no restriction on the number and amount of deposits. However, in India, mandatory PAN (Permanent Account Number) details are required to be furnished for doing cash transactions exceeding र50,000.

Withdrawals are allowed subject to certain restrictions.The money can be withdrawn either by cheques or withdrawal slip of the respective bank.

B. Fixed deposits -It is a financial institution where a sum is given to bank. - The entity pays specified percentage of interest for the time duration of the deposit.- Fixed deposit can be opened for a minimum period of 7 days to a maximum of 10 years.- In this case the deposit cannot be withdrawn before the maturity date.

C. Recurring Deposit Account

- Certain fixed amount is accepted every month for a specified period and the total amount is repaid with interest at the end of particular fixed period.-Develops regular saving habit among the public.- The period of deposit is minimum of six months and maximum of 10 years.

Insurance is an arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium.

4. LIFE INSURANCE

Life insurance in a contract between the insured and the insurer, where the insurer promises to pay a designated beneficiary a sum of money in exchange for a premium, upon the death the insured person.

First life insurance entity in India:Oriental Life Insurance Company in 1818 – Established in Calcutta

Objectives of LIC of India

1) To spread and provide life insurance to the masses at a reasonable cost.

2) To spread life insurance widely and in particular to the rural areas.

3) To maximize mobilization of people’s savings by making insurance linked savings adequately attractive.

4) To conduct business with utmost economy and with the full realization that the money belongs to the policy holders.

5) To act as a trustees of the insured public in their individual and collective capacities.

6) To meet the various life insurance needs of the community that would arise in the changing social and economical environment.

4 I’s OF INSURANCE SERVICE

INTANGIABILITY

INCONSISTENCY

INSEPARABILITY

INVENTORY

INTANGIABILITY

Insurance is a guarantee against risk Guarantee and risk – Intangible

Insurance is a Service - Intangible

INCONSISTENCY

Service Quality is inconsistent.Such an inconsistency can be reduced through standardization and training.

INSEPARABILITY

Services are produced and consumed simultaneously.

INVENTORY

No inventory can be maintained for services.

5. GENERAL INSURANCE

General Insurance is an assurance to make good the loss on happening of a certain event on consideration of a premium.

• Motor insurance• Fire insurance• Health insurance• Marine insurance

MOTOR INSURANCE- For cars, trucks and other road vehicles.- Protection against physical damage or bodily injury and liability arising there from.

FIRE INSURANCE- Commercial policy- Covers building, offices, machinery, contents and personal belongings in accordance with the policy.

HEALTH INSURANCE- Against the risk of incurring medical and surgical expenses.- Premium should be paid according to the policy, covers for a period of 1 year, normally. Policy is renewable.

MARINE INSURANCE-Covers loss or damage of ships or cargo by which the property is transferred, acquired or held between the point of origin and the final destination.

SOME GENERAL INSURANCE COMPANIES IN INDIA

6. TRUST- Trust means Management of assets of Individuals / Group of Individuals / Institution- The assets are typically held in the form of a trust, a legal instrument that spells out who the beneficiaries are and what the money can be spent for.- Main source of income is normally donations made by public and Government Institutions. -Administration of Trust including its assets are done by TRUSTEEs.

TYPES OF TRUSTS

REVOCABLE TRUST

IRREVOCABLE TRUST

- Assets are owned by Trustee.- Settler has a power of revocation, hence has control over the property.- No tax advantage.

-Ex: Trust created for administration of a minor’s property. -Kartha of a HUF

- Used for charitable purposes as well as management of inheritances.- Trustee has the control over the property.- Charitable activities have tax benefits for the donors under 80G of IT Act.

-Ex: Ashakta Poshaka Sabha

GIVE SOME

EXAMPLES OF A

TRUST

7. INVESTMENT COMPANIES- INDIA – 5th biggest economy in the world – Preferred hub for investment projects among foreign investors.

TOP 10 INVESTMENT

COMPANIES IN INDIA

-Collaboration between Bajaj Finserv and Allianz SE.

-Renowned asset management company.

-Provides Life, general and travel insurance in more than 70 nations.

-Customized services offered : Insurance and Investment solutions.

-Administers wealth over a trillion.

-Provides Services : Mutual Fund and Portfolio Management.

-Has an excellent track record.

-Has assets worth over USD 381.40

-Supervision across the globe and offices in around 20 nations.

-India’s recognised fiscal service provider.

-Offers investment solutions across India and is expanding its business operations in international locations.

-At present has more than 1500 branches spread across 350 Indian cities.

Shah Monetary Groups-Initiated in the year 2004-Distributes trade of individual business, finance and home finance.-Finance is given through several monetary institutions, banks-The group also offers fiscal, tax relief and finance enhancement to its corporate and non corporate clients.

-Chief activity is to offer investment supervision facilities to its clients.-It functions through its subordinate Stanrose Mafatlal Lubechem Ltd.-Involved in inter-corporate endowments, fund market operations and financing.

-Endorsed by Tata Sons.

-Established to help sponsorship new firms and schemes besides the investment activities.

-It is now involved in the allocation of mutual funds and other endowment linked securities.

Toss monetary services Pvt. Ltd.-Certified associate of National Stock Exchange.

-It is a recognised stock broking and Investment Management consultation firm in India.

-Offers consultation services in monetary sector.

Veronica money services Pvt. Ltd.-An Integrated investment firm.

-Involved in locating and investing the firms facing fiscal crunch and assists to grow financially.

-Assisted by professionals.

-The firm manages the sick company until it attains profitability stage

Indian Investment Centre

-A certified group operating under the managerial control of Ministry Of finance.

-Endorses NRI Investment as well as foreign private investment.

J.M capital Management Pvt. Ltd.

-Manages capital for both organizational and individual investors present in India as well as abroad.

-Has one of the biggest distribution channels with each symolising a large segment of retail customers.

8. MORTGAGE BANKSMortgage - A legal agreement that conveys the conditional right of ownership on an asset or property by its owner (the mortgagor) to a lender (the mortgagee) as security for loan.

Mortgage bank – state licensed banking entity that makes Mortgage loans directly to consumers.

9. GOVERNMENT LENDING INSTITUTIONS IN INDIA

- THE RBI

-THE COMMERCIAL BANKS

-THE CREDIT RATING AGENCIES

-THE SEBI

-INSURANCE COMPANIES

-THE SPECIALIZED MONETARY INSTITUTUIONS IN INDIA