BANKING INSTITUTIONS:

1.COMMERCIAL BANKS
2.COOPERATIVE BANKS
3. MERCHANT BANKING

FUNCTIONS OF COMMERCIAL BANKS:

Banking Functions:
1. Acceptance of deposits from public: (i) Demand deposits can be in the
form of current account or savings account. These deposits are withdrawable any time
by depositors by cheques. Current deposits have no interest or nominal interest. Such
accounts are maintained by commercial firms and business man. Interest rate of
saving deposits varies with time period. Savings accounts are maintained for
encouraging savings of households.
(ii) Fixed deposits are those deposits which are withdrawable only after a specific
period. It earns a higher rate of interest.
(iii) In recurring deposits, people deposit a fixed sum every month for a fixed period
of time.
2. Credit Creation: It manufactures money.
3. Advancing loans: Usually banks grant short term or medium term loans to
meet requirements of working capital of industrial units and trading units. Banks
discourage loans for consumption purposes. Loans may be secured or unsecured.
Banks do not give loan in form of cash. They make the customer open account and
transfer loan amount in the customers account.
4. Use of cheque system: Banks have introduced the cheque system for
withdrawal of deposits. There are two types of cheques bearer & cross cheque. A
bearer cheque is encashable immediately at the bank by its possessor. A crossed
cheque is not encashable immediately. It has to be deposited only in the payees
account. It is not negotiable.
5. Remittance of funds: Banks provides facilities to remit funds from one place
to another for their customers by issuing bank drafts, mail transfer etc.

Non-Banking Functions:
1. Agency Service
2. General Utility Services
Commercial banks are classified into (a) scheduled banks and (b) non-scheduled banks.

A scheduled bank is so called because it has been included in the second schedule of the
Reserve Bank of India Act, 1934. To be eligible for this inclusion, a bank must satisfy the
following three conditions:(i) it must have a paid-up capital and reserves of an aggregate value of at least Rs. 5.00 lacs.
(ii) it must satisfy the RBI that its affairs are not conducted in a manner damaging to the
interests of its depositors; and
(iii) it must be a corporation and not a partnership or a single-owner firm.

Commercial banks may be classified as (a) Indian and (b) foreign bank.
(a) Indian banks are those banks which are incorporated in India and whose head offices are
in India.
(b) Foreign banks are those banks which are incorporated outside of India and whose head
offices are in outside of India.

Commercial banks may also be classified as 3) (a) Private and (b) Public sector bank.
(a) Private sector banks are those banks whose at least 51% shares are holding by private
sectors.
(b) Public sector banks are those banks which are not private sectors.
The State Cooperative Bank is a central institution at the State level which works as a final
link in the chain between the small and widely scattered primary societies, on the one hand,
and the money market, on the other. It balances the seasonal excess and deficiency of funds
and equate the demand for and supply of capital. It takes-off the idle money in the slack
season and supplies affiliated societies and Central Co-operative Banks with fluid resources
during the busy season.
Merchant Banking
Merchant bank may be defined as a kind of financial institution that provides a variety of
services such as (i) marketing and underwriting of new issue (ii) investment banking,(iii)
management of customer security, (iv)project promotion & project finance(v) merger &
takeover related services (vi) portfolios, (vii) insurance, accept of bills etc and (viii) advises
in the raising of corporate capital. Therefore, merchant banking is a skill-oriented
professional service about financial need of the client.
The Preamble of the Securities and Exchange Board of India describes the basic functions
of the Securities and Exchange Board of India as ...to protect the interests of investors in
securities and to promote the development of, and to regulate the securities market and
for matters connected therewith or incidental thereto

A Non-Banking Financial Company (NBFC) is a company registered under the Companies

Act, 1956 engaged in the business of loans and advances, acquisition of
shares/stocks/bonds/debentures/ securities issued by Government or local authority or other
marketable securities of a like nature, leasing, hire-purchase, insurance business, chit
business but does not include any institution whose principal business is that of agriculture
activity, industrial activity, purchase or sale of any goods (other than securities) or providing
any services and sale/purchase/construction of immovable property. A non-banking institution
which is a company and has principal business of receiving deposits under any scheme or
arrangement in one lump sum or in installments by way of contributions or in any other
manner, is also a non-banking financial company (Residuary non-banking company).
Difference between banks & NBFCs
NBFCs lend and make investments and hence their activities are akin to that of banks;
however there are a few differences as given below:
(i) NBFC cannot accept demand deposits;
(ii) NBFCs do not form part of the payment and settlement system and cannot issue cheques
drawn on itself;
(iii) Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not
available to depositors of NBFCs, unlike in case of banks.
INSURANCE:
1. General Insurance
2. Life Insurance
The insurance industry has both economic and social purpose and relevance. It provides
social security and promotes individual welfare. It reduces risk and helps to raise productivity
in the economy. The actual premium of insurance companies comprises the pure premium
and administrative as well as marketing cost. The pure premium is the present value of the
expected cost of an insurance claim.
The insurance companies are financial intermediaries as they collect and invest large amounts
of premiums. Their liabilities in most cases are long-term liabilities, for many life policies are
held for 30 or 40, or 50 or even more years. As a result, the liquidity is not a problem for
them, and their major activity is in the field of long-term investments. Since they offer lifecover to the investors, the guaranteed rate of return specified in insurance policies is
relatively low. Therefore, they do not need to seek high rates of return on their investments.
The insurance companies are active in the following fields among otherlife, health, and
general, and they have begun to operate the pension schemes and mutual funds also.
Insurance business consists of spreading risks over time and sharing them between persons
and organisations. The major part of insurance business is life insurance, the operations of
which depend on the laws of mortality. The distinction between life and general insurance

business is that with regard to the former, the claim is fixed and certain, but in the case of the
latter, the claim is uncertain i.e., the amount of claim is variable and it is ascertainable only
sometime after the event. Pension business is a specialised form of life assurance.