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Unit 8: Financial Institutions

for SIDCs to help the business units to assist them in providing marketing and production Notes
management and warehousing, exporting kind of areas.
 The SIDCs in Andhra Pradesh, Maharashtra, Gujarat, Tamil Nadu, Karnataka have shown
promising performance.
 RRBs have had a definitive role to play in the development of rural India. Directly under
the supervision of the RBI, it has been a major channeliser of livelihood and other rural
employment schemes of the Government of India. Despite the fact that effort has been put
to create wealth for the poor through RRBs, the gap between the objectives and the
achievements for RRBs have been large.

8.9 Keywords

Bank risk: Banks in the process of providing financial services assume various kinds of risks,
credit, interest rate, currency, liquidity and operational risks.
Credit risk is the risk of loosing money when loans default. Credit risk or default risk gives
rise to problems of bank management.
Development banking is the financing of projects assessed on the basis of their viability to
generate cash flows to meet the interest and repayment obligation. They have an in-built
promotional aspect, because projects have to fall within the overall national industrial priorities,
located preferably in backward areas and promoted by entrepreneurs.
Liquidity risk refers to the bank’s ability to meet its cash obligations to depositors and
borrowers. A liability-sensitive position than to assets of interest rates reduces the liquidity
position of a bank.
Unit banking consists of provision of banking services by a single institution. The size as well
as the area of operation is small and far more limited than branch banking. However, the unit
bank may have branches within a strictly limited area.
Venture capital is long-term risk capital to finance high technology projects, which involve
risk, but at the same time has strong potential for growth.
Venture capitalist pools their resources including managerial abilities to assist new
entrepreneurs in the early years of the project. Once the project reaches the stage of profitability,
they sell their equity holdings at high premium.

8.10 Review Questions

1. Describe the meaning of the word 'banking' tracing its roots in history. How have modern
banks evolved from the traditional banks?
2. Enumerate the banking history of India and explain its role in the modern-day economy.
3. How has nationalization of commercial banks in India helped in supporting the Indian
economy?
4. Detail the economic liberalization and its role in the Indian economy.
5. Describe the various kinds of banking prevalent in India.
6. What are NBFCs and how are they different from RNBCs?
7. Explain the various needs for regulating the NBFCs in India.
8. What are the liberalization drives that have been undertaken to make NBFCs perform
better?
9. Explain the role of IDBI in promoting industry India.

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