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Unit 14: Capital Market and Financial Institutions

(b) Specific industries requiring funds for modernization Notes
(c) New concerns set up by new entrepreneurial groups
(d) Concerns involved in innovation and new technological developments
(e) Concerns requiring extraordinarily large amounts of finance for a long gestation
period
(f) Concerns in backward areas. One of the very important needs for SFIs was to meet
the long-term financial requirement of such organizations on economic and social
grounds.
In general it can be said that the gap between the demand for and supply of finance in general
and industrial finance more specifically, is sought to be filled through term loans being offered
by various financial institutions. And this makes itself as the most important need for financial
institutions.

14.7 Classification of Financial Institutions

Financial institutions can be of different types in accordance with the difference in the financial
systems of different economies. In India, the financial system includes various types.
We can classify financial institutions into two categories:
 Banking

 Non-banking institutions
14.7.1 Banking Institutions

The Banking institutions in India can be broadly grouped under two categories viz., (i) scheduled,
and (ii) non-scheduled. Since 1951 there has been a significant decline in the number of these
institutions. From a total of 566 banks (of both categories) in 1951, the number had come down
to only 109 in 1965. The reduction in the number of non- scheduled banks has been phenomenal —
from 473 to mere 33; and the scheduled banks from 92 in 1951 to 76 in 1965. As is only natural,
with reduction in numbers on the one side and growth in banking deposits on the other, it has
led to larger concentration within the banking sector.
There are various types of banks which operate in our country to meet the financial requirements
of different categories of people engaged in agriculture, business, profession, etc. On the basis of
functions, the banking institutions in India may be divided into the following types:

Types of Banks

Central Bank Development Banks Specialised Banks
(RBI, in India) (EXIM Bank
SIDBL NABARD)

Commercial Banks Co-operative Banks
(i) Public Sector Banks (i) Credit Societies
(ii) Private Sector Banks (ii) Central Co-operative Banks
(iii) Foreign Banks (iii) State Co-operative Banks

Now let us learn about each of these banks in detail.

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