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Unit 8: Financial Institutions

commercial banks, wanted to broaden their activity beyond their local area. In recent Notes
years, however, such companies have concentrated on acquiring mobile home loans in
volume for both commercial banks and savings and loan associations. Service companies
obtain these loans from retail dealers, usually on a non-recourse basis. Almost all bank/
service company agreements contain a credit insurance policy that protects the lender if
the consumer defaults.
3. Unsecured loan: Unsecured loans are monetary loans that are not secured against the
borrowers' assets (i.e., no collateral is involved). These may be available from financial
institutions under many different guises or marketing packages:

(i) Bank overdrafts: Allowing the account holder to draw more than the balance held in
the account, specially the current account.
(ii) Corporate bonds: Debt issued by the companies as unsecured (no promise that the
principal amount will be paid back).
(iii) Credit card: Facility to get credit up to a certain amount on your income on purchases
or cash drawn through a plastic smart card called credit card.
(iv) Credit facilities or lines of credit.
(v) Personal loans.

8.3 Various Types of Banks in India

In India, several types of banking are available. Brief descriptions of all the banks are given
below:
1. Commercial bank: The definition and class of commercial bank has been discussed in the
previous part of this unit.
2. Investment bank or merchant banks: These are banks which takes part in long and mid
term fixed loan to the business organization. They take part in the development of new
business, besides helping them to raise money from the financial market.
3. Exchange banks: These are banks which provide foreign exchange to the business house
for settlement of transaction of overseas business.
4. Cooperative banks: These banks are formed under the cooperative system and are largely
operative in rural and agrarian sector.

5. Land development banks: These banks are essentially formed to finance the short-term
and long-term fund requirements of the agriculture sector. They are popularly called as
Regional Rural Banks.
6. Saving banks: These mobilize fund through savings in domestic sector. In India,
Government arranges to run saving banks through post offices.

7. Central banks: These are controlling banks for the financial and fiscal system of various
countries. They act as the lender of last resort to the banks and act as the custodian of
money. The Reserve Bank of India (RBI) is the central bank of India.

Various Kinds of Banking Prevalent in India

1. Branch banking: Under this method a single bank does the banking through a network of
branches in various parts of the country. Most of the scheduled commercial banks operate
in India through branch banking mode.

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