Financial institutions play an important role in economic development of a country. These would typically include commercial banks, specialized financial institutions and organized capital markets. Financial needs of a business are both long term and short term. The long term needs are for meeting the capital expenditure, while short term needs are for meeting working capital requirements like for buying raw materials, paying off debtors and so on.
There are different financial institutions which help finance both long term and short term requirements of running a business.
Banking Sector:
Banking framework has been described by me in one of the articles called banking institutional framework in India. But apart from the scheduled commercial banks that I have talked of, there are Regional Rural Banks (RRBs) as well. These were set up in 1975, in order to mobilize rural savings and provide credit and other facilities to small craftsmen, farmers and entrepreneurs.
Insurance Sector:
The insurance companies are major financial intermediaries in the non-banking sector. The life insurance business in India started in 1818. In the year 1956, when the life insurance business was nationalized, there were as many as 245 insurance companies conducting the business. With nationalization of these companies, a single organization was created called Life Insurance Corporation of India (LIC). Today LIC enjoys monopoly situation. In addition, it has been able to mobilize substantial amounts of rural savings.
The business of general insurance was also in the hands of private companies. There were 68 Indian organizations and 45 non-Indian organizations. In November 1972, these organizations were nationalized and General Insurance Corporation (GIC) was created which has four subsidiaries, namely, New India Insurance Assurance Company Ltd., United India Insurance Company Ltd., National Insurance Company Ltd and Oriental Fire and General Insurance Company Ltd.
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