Development banks are those financial institutions engaged in the promotion and development of industry, agriculture and other key sectors. In the words of A.G. Kheradjou “A development bank is like a living organism that reacts to the social-economic environment and its success depends on reacting most aptly to that environment”. Kheradjou assigns an important task to the development banks. He feels that these banks should react to the socio-economic needs. They should satisfy the developmental needs of the economy and their success is linked to the satisfactory growth of the economy. In the views of William Diamond “A development bank has the opportunity to promote enterprises i.e. to conceive investment proposals and to stimulate others to pursue them or itself to carry them through, from ‘conception’ to ‘realization’. In principle, a development bank is well suited to assume this kind of role. Yet, enterprise creation is fraught with costs Continue reading
Financial Institutions
Industrial Development Bank of India (IDBI)
Industrial Development Bank of India was set up to accelerate the development of the country. A number of financial institutions came into existence after independence and were catering to a variety of needs of the industry. There was a lack of co-ordinating different institutions and it led to overlapping and duplication in their efforts. At the same time some gigantic projects of national importance were not getting required financial assistance. It was in response to this need that the Industrial Development Bank of India (IDBI) was established in 1964 as a wholly owned subsidiary of Reserve Bank of India. The bank was to act as an apex institution co-coordinating functions of all the financial institutions into a single integrated movement of development banking and supplementing their resources for industrial financing and as an agency for providing financial support to all worthwhile projects of national importance whose access to existing institutional Continue reading
Role and Functions of Reserve Bank of India (RBI)
The Reserve Bank of India is the central bank of India, was established on April 1, 1935 during the British-Raj in accordance with the provisions of the Reserve Bank of India Act, 1934. The Reserve Bank of India was set up on the recommendations of the Hilton Young Commission. The commission submitted its report in the year 1926, though the bank was not set up for nine years. The Central Office of the Reserve Bank was initially established in Kolkata, Bengal, but was permanently moved to Mumbai in 1937. Though originally privately owned, the RBI has been fully owned by the Government of India since nationalization in 1949. The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the Continue reading
Concept of Investment Banking
Investment banks are essentially financial intermediaries, who primarily help businesses and governments with raising capital, corporate mergers and acquisitions, and securities trade. In USA such banks are the most important participants in the direct market by bringing financial claims for sale. They help interested parties in raising capital, whether debt or equity in the primary market to finance capital expenditure. Once the securities are sold, investment bankers make secondary markets for the securities as brokers and dealers. In 1990, there were 2500 investment banking firms in USA doing underwriting business. About 100 firms are so large that they dominate the industry. In recent years some investment banking firms have diversified or merged with other financial institutions to become full service financial firms. Difference between Investment Banks and Commercial Banks Investment banks have often been thought to be as Commercial banks, and rightly so. However, both the terms have different connotations Continue reading
Offshore Banking
Origin of Offshore Banking The origin of offshore banking units can be traced to the growth of financial activity in tax havens. A “tax haven” is a place where non-residents can receive income or own assets without paying high taxes. Some such places are Bahamas, Bermuda, Hong Kong, the Netherlands, Panama and Switzerland. Some features of these tax havens are: Low rate or complete absence of income tax on foreign investment and income. High degree of economical and political stability and a political system, which directly or indirectly encourages and fosters business activity at the center. Strict and well enforced rules of banking secrecy. Absence of exchange control Availability of supporting infrastructure such as an efficient communications and transportation network. Presence of well developed legal system and professional accounting expertise. Investor’s confidence due to past credential. No incidence of violence or criminal activities. These features encourage various types of business Continue reading
Functions of Commercial Banks
The main functions of commercial banks are accepting deposits from the public and advancing them loans. However, besides these functions there are many other functions which these banks perform. Paul Samuelson has defined the functions of the Commercial bank in the following words: “The Primary economic function of a commercial bank is to receive demand deposits and a honor cheques drawn upon them. A second important function is to lend money to local merchants farmers and industrialists.” The major functions performed by the commercial banks are: 1. Accepting Deposits This is one of the primary functions of commercial banks. The commercial banks accept different types of deposits, the deposits may be broadly classified as demand deposits and time deposits. The former refer to the deposits which are repayable by the banks on demand by the depositors, while the time deposits are accepted by the banks for a fixed Continue reading