Types/ Classification of Financial Intermediaries

Financial Intermediaries may also be classified into three:

  1. Regulatory Bodies.
  2. Banking Financial Intermediaries.
  3. Non- Banking Financial Intermediaries.Financial Intermediaries

1. Regulatory Bodies

Regulatory bodies of Financial Intermediaries are:

  1. Securities and Exchange Board of India (SEBI): The establishment of the Securities and Exchange Board of India (SEBI) was a land mark government measure to monitor and regulate capital market activities and to promote healthy development of the market. The SEBI was constituted in 1988 by a resolution of Government of India and it was made a statutory body by the Securities and Exchange Board of India Act. 1992.
  2. Insurance Regulatory and Development Authority (IRDA): The Insurance Regulatory and Development Authority Act, 1999 provides for the establishment of an Authority to protect the interests of insurance policy holders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith of incidental thereto. It also aims to amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the General Insurance Business Act, 1972 in order to end the monopoly of the Life Insurance Corporation of India and General Insurance Corporation and its subsidiaries.
  3. Reserve Bank of India (RBI): The Reserve Bank of India (RBI) is the Central bank of the country. It has been established as a body corporate under the Reserve Bank of India Act, Which came into effect from ist April, 1935. The Reserve Bank was started as share- holders bank with a paid-up capital of Rs.5 Crores. On establishment it took over the function of management of currency from the Government of India and power of credit control from the then Imperial Bank of India.

2. Banking Financial Intermediaries

Intermediaries supply only short term funds to individuals and corporate customers. They consist of

  1. Commercial Banks: Commercial banks comprising public sector banks, foreign banks and private sector banks represent the most important financial intermediary in the Indian financial system. The largest commercial bank in India, the State Bank of India, was set up in 1955 when the Imperial Bank was nationalized and merged with some banks of the princely states.
  2. Co-Operative Banks: Co-operative Banks came into existence with the enactment of the Co-operative Credit Societies Act of 1904 which provided for the formation of co-operative Credit Societies. The co-operative banks system supplement the efforts of the commercial banks in mobilizing savings and meeting the credit needs of the local population.

3. Non Banking Financial Intermediaries

  1. Industrial Finance Corporation of India (IFCI): The Industrial Finance Corporation of India was established in 1948 under the IFC Act, 1948. The main objectives of the corporation have been to provide medium and long-term credit to industrial concerns in India.
  2. Industrial Development Bank of India (IDBI): The industrial development bank of India was establishment under the Industrial Development Bank of India Act, 1964, as a wholly owned subsidiary of the Reserve Bank of India. The ownership of IDBI has since been transferred to Central Government from February 16, 1976.
  3. Industrial Reconstruction Bank of India (IRBI): In April 1971, the IDBI had set up, at the instance of the GOI, the Industrial Reconstruction Corporation of India (IRCI), as a joint-stock company, to provide reconstruction and rehabilitation assistance. The IFCI, ICICI, LIC, and public sector banks also had contributed to its share capital. The IRCI was reconstructed and renamed as IRBI in 1985 in terms of the IRBI Act.
  4. National Bank for Agriculture and Rural Development: RBI constituted a Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD) in 1979. Accordingly, the Indian Parliment passed the National Bank for Agriculture and Rural Development Act, in the year 1981. NABARD was established on 12 July 1982 with an intial capital of Rs. 100 crore. The capital is enhanced to Rs. 2000 crore subscribed by Government of India and Reserve Bank of India. NABARD took over the functions of the erstwhile Agricultural Credit Department (ACD) and Rural Planning and Credit cell of RBI, and Agricultural Refinance and Development Corporation (ARDC).
  5. Small Industries Development Bank of India (SIDBI): The SIDBI was set up in October 1989 under the Act of Parliment as a wholly-owned subsidiary of the IDBI. Its authorized capital is Rs. 250 crore with an enabling provision to increase it to Rs. 1000 crore.
  6. State Financial Corporation (SFCs): The State Financial Corporation Act was passed by the Government of India in 1951 with a view to provide financial assistance to small and medium scale industries which were beyond the scope of IFCI. According to this Act, a state government is empowered to establishment a financial corporation to operate within the state.