FINANCIAL

INSTITUTIONS
AND CREDIT
RATING
AGENCIES

Financial Institutions
They are the participants in the financial market. They are business
orgs dealing in financial resources. They collect resources by
accepting deposits from individuals and institutions and lend them to
trade, industry& others. They buy & sell financial instruments and
deals in financial assets. They accept deposits, grant loans and invest
securities.
On the basis of nature of activities financial institutions may be
classified as:
Regulatory and promotional institutions: Financial institutions,
financial markets, financial services are all regulated by regulators
like IRDA, The Company Law Board, ministry of finance etc. The
two major regulatory institutes in India are RBI & SEBI they
administer legislate supervise monitor & control the entire financial
system.
Banking Institutions: They mobilize the savings of people. They
provide mechanism for smooth exchange of goods & services. There
are 3 basic

categories of banking institutions namely commercial banks, co-operative

banks and development banks.
Non-Banking Institutions: They also mobilizes financial resources
directly or indirectly from the people. They lend funds but do not create
credit. Companies like LIC, GIC, UTI, Provident funds falls in this
category.

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2.
3.
4.
5.

FUNCTIONS OF FINANCIAL INSTITUTIONS

To facilitate creation & allocation of credit & liquidity.
To help in process of balanced economic growth.
To provide financial convenience.
To serve as intermediaries for mobilization of savings
To provide information and facilitate transactions at lower cost.

MERCHANT BANKS

SERVIES OFFERED BY MERCHANT

BANKERS:

Management of debt and equity offerings .

Placement and distribution.
Advisory services.
Project advisory services.
Loan syndication .

INVESTMENT
COMPANIES

Unit trust of
India (UTI)

Life insurance
corporation of
India (LIC)

General
insurance
corporation of
India (GIC)

Objectives of unit trust of India (UTI)

To encourage and pool the savings of the
middle and low income groups.
To enable them to share the benefits and
prosperity of the industrial development
in the country.
To pay dividend to the unit holders.
To sell units among as many investor as
possible.

Objectives of life insurance

corporation of India (LIC)
Maximization of mobilization of peoples savings foe
nation building activities.
Provide complete security and promote efficient service to
the policy holders at economic premium rates.
Act as trustees of the insured public in their individual and
collective capacities.
Meet the various life insurance needs of the community
that would arise in the changing social and economic
environment.

General insurance corporation of

India (GIC)
General insurance industry in India was nationalized and a
government company known as general insurance corporation
of India was formed by the central government in November
1972.
General insurance companies have willingly catered to these
increasing demands and have offered a plethora of insurance
covers that almost cover anything under the sun.

MANAGEMENT INVESTMENT
COMPANIES:

A management investment company is one of the three fundamental

types of investment companies.
It allows investors to pool their capital with that of other investors in
order to purchase professionally-managed groups of diversified
securities.
A management investment company is headed by a CEO, a team of
officers and a board of directors.
These company leaders choose the types of investment products the
company will offer.
Management investment companies are subject to rules set forth in the
Investment Company Act of 1940.

MANAGEMENT INVESTMENT
COMPANIES:
NON-BANKING FINCANCIA COMPANIES (NBFCS)
Non-banking financial companies, or NBFCs, are financial
institutions that provide banking services, but do not hold a banking
license.
They attract deposits of huge amounts by attractive rates of interest.
They run chit funds, provide hire purchase, lease financing etc.
Also renew short period loans from time to time.
Some of the other services offered by NBFCS include
loans without securities, retirement planning, money markets,
underwriting, and merger activities.

Development Banks in India

In the field of industrial finance, the concept of development bank is
of recent origin. In a country like India, the emergence of
development banking is a post-independence phenomenon.
In India, the first development bank called the Industrial Finance
Corporation of India was established in 1948.
Development bank is essentially a multi-purpose financial institution
with a broad development outlook. A development bank may, thus,
be defined as a financial institution concerned with providing all
types of financial assistance (medium as well as long term) to
business units, in the form of loans, underwriting, investment and
guarantee operations, and promotional activities economic
development in general, and industrial development, in particular.

Features

Specialised financial institution.

Provides medium and long term finance to business units.
Unlike commercial banks, it does not accept deposits from the public.
Not just a term-lending institution. It is a multi-purpose financial institution.
It encourages new and small entrepreneurs and seeks balanced regional
growth.
Provides financial assistance not only to the private sector but also to the
public sector undertakings.
Aims at promoting the saving and investment habit in the community.
Its major role is of a gap-filler, i. e., to fill up the deficiencies of the existing
financial facilities.
Motive is to serve public interest rather than to make profits. It works in the
general interest of the nation.

MUTUAL FUNDS
A mutual fund is a type of professionally managed investment
fund that pools money from many investors to purchase
securities.

CONCEPT

 Mutual Funds are there in India since 1964.

FACTS

Mutual Funds market has evolved in USA

& is there for the last 60 years
Mutual funds are the best solution for people who wants to
manage risks and get good returns.
Some of the top ranked mutual funds are
Birla sun life,sbi blue chip fund,tata equity.

OPEN ENDED FUND - Fund manager

continuously allows investors to join or leave the
fund.
CLOSE ENDED FUND- Similar to a listed
company with respect to its share capital. These
shares are not redeemable and are traded in the
stock exchange like any other listed securities.

TYPES

Credit Rating Agencies, India

Crisil Limited
Corporate office Mumbai, Maharashtra | Establishment 1987

Credit Information Bureau India Limited -(CIBIL)

Corporate office Mumbai, Maharashtra | Establishment 2000

Fitch Ratings India Private Ltd.

Corporate office New York, USA | Establishment 1913

Equifax
Corporate office Atlanta, United States | Establishment 1899

Credit Analysis & Research Ltd. (CARE)

Corporate office Mumbai, Maharashtra | Establishment 1993

ICRA Limited
Corporate office Gurgaon, Haryana | Establishment 1991

What is credit rating?

Acredit ratingis an evaluation of thecredit
worthinessof
adebtor,
especially
abusiness(company) or a government, but
not individual consumers.

What is a credit rating agency?

A credit rating agency (CRA, also called a ratings service) is
a company that assigns credit ratings, which rate a debtor's
ability to pay back debt by making timely interest payments and
the likelihood of default.

Credit rating services

Bonds/debentures
Commercial paper
Bank loans
Fixed deposits and bank certificate of deposits
Mutual fund debt schemes
Initial public offers

Role of credit rating agencies

Provide superior information

Low cot information
Basis for a proper risk and return
Healthy discipline on corporate borrowings
Greater credence to financial and other representation
Formation of public policy