The nationalisation of banks altered the history of India's banking system.

At the time
of India's independence, all of the country's major banks were privately led, which
was a source of concern because people in rural areas were still reliant on money
lenders for financial assistance.To address this issue, the then-Government decided to
nationalise the banks. The Banking Regulation Act of 1949 was used to nationalise
these banks.
The Reserve Bank of India, on the other hand, was nationalised in 1949. Following
the formation of the State Bank of India in 1955, another 14 banks were
nationalised between 1969 and 1991. These were the banks with more than 50 crores
in national deposits. The 14 largest commercial banks were nationalised by then-
Prime Minister Indira Gandhi in 1969. Another six banks were nationalised in 1980,
bringing the total to twenty. Seven SBI subsidiaries were nationalised in 1959. The
government merged Punjab National Bank and New Bank of India in 1993. It was
the only merger between nationalised banks, which reduced the number of
nationalised banks from 20 to 19.
The following were the reasons for nationalisation of commercial banks

1. To assist agricultural sector - Banks favored big industries and businesses

while ignoring the rural sector. Nationalization was accompanied by a promise
to support the agricultural sector.
2. To grow India’s banking network - Nationalisation facilitated the
establishment of new branches, ensuring that banks were well-represented
throughout the country.

3. Financial Stability: Nationalizing banks can help stabilize the financial

system, especially during times of economic crisis. It can prevent bank failures
that might result from poor management or financial missteps in the private
sector.
4. Control Over Monetary Policy: Government control over banks can enhance
the ability to implement monetary policy effectively. By directing the flow of
credit and managing interest rates, the government can influence economic
activity more directly.
5. Promoting Economic Development: Governments may nationalize banks to
channel resources into strategic sectors of the economy, such as infrastructure
or industries that are deemed important for national growth and development.
6. Ensuring Public Access to Banking Services: Nationalization can aim to
provide wider access to banking services, especially in underserved or rural
areas. It ensures that banks serve the public interest rather than just profit
motives.
7. Preventing Exploitation and Reducing Inequality: By nationalizing banks,
governments can reduce practices perceived as exploitative or unfair. This can
include addressing issues such as high interest rates, excessive fees, or
discriminatory lending practices.
8. Safeguarding Depositors’ Interests: In cases where banks are facing severe
financial difficulties, nationalization can protect depositors' funds and ensure
the safety of savings, preventing a run on the banks.
 9. Restoring Confidence in the Banking System: During periods of banking
crises or when public trust is low, nationalizing banks can restore confidence
by signaling a commitment to stabilize and regulate the financial sector.
10. Reducing Risk of Financial Contagion: Nationalizing banks can help
prevent the spread of financial instability from one institution to others, which
is particularly important in a tightly interconnected financial system.

Narasimham Committee Recommendations

Banks are considered the backbone of any economy. In the late 1980s, Indian economy was
going through a series of economic crises, including the Balance of Payment crisis. From
near depletion in foreign reserves in mid-1991 to becoming the 3rd largest economy in the
world in 2011, India has come a long a way. One of the major contributions in that journey
has come from banks.

India has both public and private sector banks. As India liberalised its economy in 1991, it
was felt that banks were not performing efficiently. During the economic crises, it was
recognised that banks have a crucial role to play in the economy and, hence, the banking
sector had to be more competitive and effective. For that, Ministry of Finance under then
finance minister Dr Manmohan Singh set up Narasimham Committee to analyse India’s
banking sector and recommend reforms.

The Committee was set up under the chairmanship of Maidavolu Narasimham. He was the
13th governor of the Reserve Bank of India (RBI) from 2 May 1977 to 30 November 1977.
There was another Committee, this time under P Chidambaram as the finance minister,
headed by Narasimham, which was formed in 1998. The first Committee was set up in 1991
and is referred to as the Narasimham Committee- I, and the 1998 Committee is known as the
Narasimham Committee – II.

Major recommendations
Narasimham Committee- I
The first Narasimhan Committee made the following recommendations for the growth of the
banking sector.

1. A 4-tier hierarchy for the Indian banking system with 3 or 4 major public sector banks at
the top and rural development banks for agricultural activities at the bottom
2. A quasi-autonomous body under RBI for supervising banks and financial institutions
3. Reduction in statutory liquidity ratio
4. Reaching of 8% capital adequacy ratio
5. Deregulation of Interest rates
6. Full discloser banks’ accounts and proper classification of assets
7. Setting up Asset Reconstruction fund

Narasimham Committee- II
This Committee is also known as the Banking Sector Committee. The task of the Committee
was to review the progress of the implementation of reforms and to suggest a design for
further strengthening of the sector.
The major recommendations submitted by the Committee were:
1. Stronger banking system : The Committee recommended the merger of major public
sector banks to boost international trade. However, the Committee warned against merging
stronger banks with weaker banks.
2. Narrow Banking: Some of the public sector banks at that time had the problem of high
non-performing assets (NPAs). For successful rehabilitation of such banks, the Committee
recommended Narrow Banking Concept where the banks were allowed to put their funds in
short-term and risk-free assets.
3. Reform in the role of RBI: The Committee also recommended reforms in the role of the
RBI in the banking sector. The Committee felt that RBI being the regulator, it should not have
ownership in any bank.
4. Government ownership: It also recommended that government ownership of banks
should be reviewed as it hampers the autonomy of banks resulting in mismanagement.
5. NPAs: The Committee wanted the banks to reduce their NPAs to 3% by 2002. It also
recommended the formation of Asset Reconstruction Funds or Asset Reconstruction
Companies. The recommendations led to the introduction of Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
6. Capital Adequacy Ratio: It also proposed that the government should raise the Capital
Adequacy Ratio norms.
7. Consumer Protection and Transparency: The committee emphasized the need for greater
transparency in financial institutions, including improved disclosure norms to protect
consumers and investors. It recommended measures to enhance consumer protection in
financial services, ensuring fair treatment and redressal mechanisms
Commercial banks in India are classified by the RBI into scheduled and non-scheduled banks
from the angle of regulation. Bulk of the banks are scheduled whereas some banks like Local
Area Banks are non-scheduled. The scheduled commercial banks in India are classified under
different categories: Public Sector Banks (PSBs), private sector banks, foreign banks,
regional rural banks (RRBs), foreign banks, small finance banks and payment banks. As of
March 2023, there are:
1) Public Sector Banks (PSBs): Public Sector banks are owned by the government.
They have the largest share in India’s commercial banking system. PSBs consists of
Nationalised Banks and the SBI. The SBI is the largest bank in India, while the Punjab
National Bank is the second-largest among PSBs. In recent years, the government
merged several nationalised banks. Now there are only 12 public sector banks.
2) Private sector Banks (PVBs): The private sector banks are old private sector banks
and new private sector banks. These banks are performing well in terms of profit and
health. Their NPAs are low compared to that of the PSBs. The private sector banks,
including HDFC and ICICI etc, are very competitive and are providing a large variety
of products.
3) Foreign Banks: There are only 45 foreign banks in India. The foreign banks are
operating in branch mode and subsidiary mode.
4) Small Finance Banks: Small finance banks are private sector banks that offer limited
products to the customers. They are formed in 2016 after the RBI’s differentiated bank
licensing policy to further financial inclusion through tailored deposit products and for
providing credit to small business units, small and marginal farmers, micro and small
industries and other unorganized sector entities through technology led low-cost
operations. Most of the small finance banks operate in semi-urban areas. The SFBs
achieved a priority sector lending rate of 85% as of March end 2022.

5. Payment Banks: These are licensed by the RBI to perform payment services and
has only limited banking functions. PBs were set up as niche entities to facilitate
small savings and to provide payments and remittance services to migrant labour,
low-income households, small businesses and other unorganised sector entities. At
end-March 2022, 4 PBs were operational, of which only three managed to become
profitable in their operations. The Indian Postal Payment Bank (IPPB) is the first
scheduled payment bank. Income from remittance operations formed a major part of
income of PBs.

6.Regional Rural Banks: RRBs are promoted by the central government, state
government and the sponsoring scheduled commercial bank. The RRBs gives loans to
small and marginal farmers and other priority sectors. Their number is shrinking as
the RBI, and the government are trying for their consolidation.

7. Local Area Banks (LABs) as well. But they are non-scheduled banks and doesn’t
have much limelight because of their declining size. Local Area Banks (LABs) are
small private banks designed as low-cost banks to promote efficient and competitive
financial intermediation services in a limited area.

8. Non-Scheduled Banks: Non-Scheduled banks refer to those banks which are not
included in the Second Schedule of Reserve Bank of India Act, 1934.

ASSET STRUCTURE OF COMMERCIAL BANKS

The asset structure of commercial banks represents the composition of their assets and
provides insight into how banks allocate their resources to generate income and
manage risk. The key components of a typical commercial bank's asset structure:
1. Cash and Cash Equivalents
 Cash Reserves: Includes physical currency held by the bank.
 Balances with Central Bank: Required reserves and excess reserves held
with the central bank (e.g., Reserve Bank of India in India).
2. Investments
 Government Securities: Includes bonds and other debt instruments issued by the
government. These are considered low-risk and are often held to meet regulatory
requirements.
 Corporate Bonds: Debt securities issued by corporations. These carry higher risk
compared to government securities but offer higher returns.
 Equities: Shares of other companies that the bank may hold, often for investment
purposes.
  Other Investments: May include investments in mutual funds, venture capital,
and other financial instruments.
3. Loans and Advances
 Retail Loans: Loans provided to individual consumers, including personal loans,
home loans, auto loans, and credit card balances.
 Corporate Loans: Loans extended to businesses, including working capital loans,
term loans, and trade finance.
 Agricultural and Rural Loans: Specialized loans provided to farmers and rural
enterprises, often through schemes like those offered by Regional Rural Banks
(RRBs).
4. Fixed Assets
 Premises: Real estate owned by the bank, including branch buildings and
administrative offices.
 Furniture and Equipment: Office furniture, computer systems, ATMs, and other
equipment used in the bank's operations.
5. Other Assets
 Interbank Deposits: Deposits placed with other banks, typically for short-term
liquidity management.
 Accounts Receivable: Payments due to the bank from various sources, such as
accrued interest or fees.
 Deferred Tax Assets: Assets that arise from differences between accounting and tax
treatments, which will benefit the bank in the future.
6. Non-Performing Assets (NPAs)
 NPAs: Loans and advances that are in default or close to being in default. NPAs are a
crucial part of the asset structure as they impact the bank's profitability and require
provisions for potential losses.
7. Investments in Subsidiaries and Associates
 Equity in Subsidiaries: Ownership interests in subsidiary companies that the bank
controls.
 Investments in Associates: Ownership interests in companies where the bank has
significant influence but does not control.

Sources of funds
A commercial bank is a financial institution that offers business loans and trade financing in
addition to the more traditional deposit, withdrawal and transfer services. A commercial
bank’s main sources of funds come from the customers’ deposits, the issue of certificates of
deposit, the share capital contributed by the bank’s shareholders and the reserves from the
retained profits. The major source of funds of commercial banks is its deposits. Deposits are
the life and blood of commercial banks as they are the mainstay of bank funds and account
for about 90 percent of bank liabilities. Credit creation and deployment depend upon
deposits, which is very essential for the economic development of a country. The banks act as
intermediaries between the savers and users of funds. By pooling the savings together, banks
can make available funds to specialized institutions that finance different sectors of the
economy, which need capital for various purposes like agriculture, industries, housing etc.
Indian banks accept two main types of deposits-demand deposits and term deposits. The
growth of deposits of the banks depends upon various factors like increase in national
income, expansion of banking facilities in new areas and for new classes of people, increase
in bank credit, inflow of deposits from NRIs and increase in banking habit etc. Borrowing
from other banks is the other source of funds of commercial banks. Since the cost of these
funds will be more, they go for this source as an alternative for temporary adjustment. With
such a diverse business profile, the sources of funds in commercial banks are varied. Some of
them are given below: 1. Deposits: Deposits are the main source
1. Deposits: Deposits are the main source of funds for a commercial bank. The money
collected can go toward paying on interest-bearing accounts, completing customer
withdrawals and other transactions. During the year 2015-16, the total amount of
deposits 80 held at commercial banks in India totalled was ₹ 100926.51 Billion. This
allows banks to use the accounts' funds and still meet the withdrawal needs of the
customer.
Savings Deposits
 Description: Accounts where individuals and businesses can deposit money and earn
interest. These deposits are relatively stable and provide a reliable source of funds.
 Features: Generally have lower interest rates compared to other deposit types and
offer high liquidity.
b. Current Deposits
 Description: Non-interest-bearing accounts used primarily for transactional purposes.
Businesses and individuals use current accounts to manage day-to-day transactions.
 Features: Highly liquid and usually do not earn interest. They are a significant source
of funds due to their stability and volume.
c. Fixed Deposits (FDs)
 Description: Time deposits that offer a fixed interest rate over a specified term.
Customers deposit a lump sum amount for a fixed period, and the bank pays interest
at maturity or periodically.
 Features: Higher interest rates compared to savings and current deposits, but funds
are less liquid as they are locked in for a set period.
d. Recurring Deposits
 Description: Deposits where customers make regular monthly contributions over a
predetermined period. The bank pays interest on the accumulated amount.
 Features: Similar to fixed deposits but with regular contributions, offering a mix of
liquidity and fixed returns.

2. Reserve Funds: A commercial bank builds a reserve fund with deposits, so it can pay
interest on accounts and complete withdrawals. Ideally, a bank's reserve fund should
be equal to its capital. A bank builds its reserve fund by accumulating surplus profits
during healthy financial years so that the funds can be used in leaner times. During the
year 2015-16, the total amount of deposits held at commercial banks in India totaled
 was ₹ 9111.81 Billion. On average, a bank tries to accumulate approximately 12
percent of its net profit to build and maintain its reserve fund.
Description: Retained earnings and reserves accumulated from profits over time.
These include statutory reserves, general reserves, and surplus from retained earnings.
Features: Used to absorb losses and support the bank's capital base, ensuring
financial stability.
3. Retained Earnings: Commercial banks collected retained earnings through overdraft
fees, loan interest payments, securities and bonds. They also charge fees for providing
customers with services such as maintaining an account, offering overdraft protection
and also monitoring customers' credit scores. It is believed that the earned retained
earnings and fees by commercial banks are used to help fund their business.
4. Shareholders Capital: Apart from the above mentioned sources of commercial banks,
some commercial banks that trade on the stock exchange can use shareholders' capital
to receive the money it needs to stay in business. For example, if a company sells
shares on the market, it increases both its cash flow and its share capital. Each time a
bank makes a profit and it can generally make two choices that include paying
dividends to their shareholders or reinvesting the money back into the bank.
5. Borrowings from Other Banks: Borrowings from other banks is also another source of
funds for commercial banks. The commercial banks will borrow funds from other
commercial banks when they have the problem for funds to maintain cash reserve
ratio or to meet the temporary problem of liquidity due to more advances.
a. Interbank Borrowings
 Description: Funds borrowed from other banks, usually on a short-term basis. These
transactions often occur in the interbank market, including the call money market.
 Features: Typically used for short-term liquidity needs and managing day-to-day
operations.
b. Borrowings from Central Bank
 Description: Loans or credit facilities obtained from the central bank (e.g., Reserve
Bank of India) to meet liquidity needs or regulatory requirements.
 Features: Central bank borrowings can include repo transactions, reverse repos, and
emergency funding.
c. Term Loans
 Description: Loans obtained from other financial institutions or banks with specific
repayment terms and durations.
 Features: Used for longer-term funding needs and can be a source of substantial
capital.
Investment of funds
The investment of funds by banks is a crucial aspect of their operations, as it influences their
profitability, liquidity, and risk profile. Banks invest their funds in a variety of financial
instruments and assets to earn returns while managing risks and meeting regulatory
requirements. Here’s an overview of the primary types of investments made by banks:
1. Government Securities
  Treasury Bills (T-Bills): Short-term debt instruments issued by the government with
maturities ranging from a few days to one year. They are considered low-risk
investments and provide a safe place for banks to park their excess funds.
 Government Bonds: Long-term debt securities issued by the government, typically
with maturities ranging from several years to decades. These bonds provide periodic
interest payments and are highly liquid.
2. Corporate Bonds
 Investment-Grade Bonds: Bonds issued by corporations with high credit ratings.
These are less risky compared to lower-rated corporate bonds and offer higher returns
than government securities.
 High-Yield Bonds (Junk Bonds): Bonds issued by companies with lower credit
ratings. They offer higher returns to compensate for the higher risk of default.
3. Equity Investments
 Shares of Other Companies: Banks may invest in the equity of other companies,
either for strategic reasons or as a part of their investment portfolio. This includes
shares of companies they have a stake in or those that provide potential capital gains
and dividends.
 Mutual Funds: Banks may invest in mutual funds that pool money from multiple
investors to invest in a diversified portfolio of stocks, bonds, and other assets.
4. Loans and Advances
 Personal Loans: Loans provided to individuals for personal use, such as home loans,
auto loans, and consumer credit.
 Business Loans: Loans extended to businesses for various purposes, including
working capital, capital expenditures, and expansion.
 Trade Finance: Financing related to international trade, such as letters of credit and
trade-related loans.
5. Real Estate
 Property Investments: Banks may invest in commercial or residential real estate,
either directly or through real estate investment trusts (REITs). This can provide rental
income and capital appreciation.
 Office Space: Banks often invest in properties for their own branch and office use,
which can be a strategic investment as well as a cost-saving measure.
6. Structured Products
 Collateralized Debt Obligations (CDOs): Securities backed by a pool of loans or
other assets. They are often structured into different tranches with varying levels of
risk and return.
  Mortgage-Backed Securities (MBS): Investments backed by mortgage loans, where
investors receive payments derived from the underlying mortgages.
7. Derivative Instruments
 Forward Contracts: Agreements to buy or sell an asset at a specified future date and
price. Banks use these to hedge against various risks, such as interest rate or currency
fluctuations.
 Options and Futures: Financial contracts that give banks the right (options) or
obligation (futures) to buy or sell assets at predetermined prices. These are used for
hedging or speculative purposes.
8. Cash and Cash Equivalents
 Short-Term Investments: Investments that are highly liquid and have maturities of
less than one year, such as certificates of deposit (CDs) and commercial paper.
 Cash Reserves: Holdings of cash and near-cash instruments to meet liquidity
requirements and day-to-day operational needs.
9. Investments in Subsidiaries and Associates
 Equity in Subsidiaries: Investments in subsidiary companies where the bank has
control.
 Investments in Associates: Equity investments in companies where the bank has
significant influence but does not control.
Investment Strategies and Considerations
 Risk Management: Banks must manage investment risk carefully, balancing
potential returns with exposure to credit risk, market risk, interest rate risk, and
liquidity risk.
 Regulatory Compliance: Banks are subject to regulatory requirements regarding the
types and limits of investments they can hold. For example, Basel III sets out
requirements for capital adequacy and liquidity.
 Liquidity Management: Investments must be managed to ensure that the bank
maintains sufficient liquidity to meet its obligations and withdrawal demands.
In summary, the investment of funds by banks involves a diversified portfolio of financial
instruments, including government and corporate securities, equity investments, loans, real
estate, and derivatives. These investments are managed strategically to achieve returns,
manage risks, and comply with regulatory requirements.
STATE FINANCIAL CORPORATION
State Financial Corporations (SFCs) are specialized financial institutions set up by state
governments in India to promote industrial development, particularly among small and
medium-sized enterprises (SMEs) and to ensure balanced regional growth. The primary
functions of SFCs are as follows:
1. Financial Assistance to SMEs- SFC’s provide long-term loans for buying machinery,
setting up new projects, or expanding existing ones. The tenure of this loan ranges from 3-
15 years depending upon the nature of project and repayment capacity.
2. Working Capital: SFC’s Offer short-term loans and overdrafts for daily business needs like
buying raw materials and managing inventory.
3. Equity Participation - SFc’s Invest directly in businesses by buying shares or convertible
debentures, which helps companies grow without taking on debt. They also provide debt
that can later be converted into company shares. Thus they help in combining funding
with potential ownership.
4. Project Finance: SFc’s Fund big projects and infrastructure development with detailed
appraisals and risk assessments. They also help to develop infrastructure by supporting the
creation of facilities like industrial estates and parks. They also provide entrepreneurial
Support Assistance to Startups by Offering initial funding, business advice, and mentoring
for new entrepreneurs.
5. Provision of Training: Provide training programs to improve the skills of business
managers and entrepreneurs.
6. Regional Development- SFC’s focus on balanced growth to ensure industrial development
is spread across different regions, especially less developed areas. They fund projects that
create job opportunities and boost local economies.
7. Advisory Services: SFc’s evaluate the feasibility and financial health of projects seeking
funding. They help in Financial Planning by Offering advice on budgeting, cash flow, and
investments.
8. Risk Management- SFC’s help in assessing the risk involved in lending and investment
decisions. Collateral: Ensure that loans and investments are backed by appropriate
security.
9. Collaborations and Partnerships- SFC’s work with banks and other institutions to share
funding and risk. Implement and manage government programs to support industrial
growth and SMEs.
10. Monitoring and Evaluation - Regularly check how funded projects and businesses are
performing. Assess how SFC’s funding affects regional development and job creation.
In summary, SFCs help small and medium businesses by providing loans, investing in equity,
funding large projects, offering entrepreneurial support, and ensuring balanced regional
growth. They also manage risks, collaborate with other institutions, and monitor the impact of
their funding.

STATE INDUSTRIAL DEVELOPMENT CORPORATION

Their functions typically include:

1. Promotion of Industrialization: SIDCs work to stimulate industrial growth by

providing infrastructure, incentives, and support to businesses.
2. Facilitation of Investment: They help attract and facilitate investment by providing
information, assistance, and by acting as intermediaries between investors and the
government.
3. Infrastructure Development: SIDCs often develop and maintain industrial estates,
parks, and other necessary infrastructure to support industrial activities.
4. Financial Assistance: They may offer various forms of financial support, including
loans, grants, and subsidies to promote industrial development.
5. Project Development: SIDCs help in identifying and developing industrial projects,
including providing guidance on project feasibility and execution.
6. Technical Assistance: They offer technical support and advisory services to
entrepreneurs and businesses to enhance their operational efficiency.
7. Skill Development and Training: SIDCs may organize training programs and
workshops to develop the skills of the workforce and entrepreneurs.
8. Support for Small and Medium Enterprises (SMEs): They provide support
tailored to SMEs, including financial aid, infrastructure, and business development
services.
9. Regulatory Assistance: SIDCs help businesses navigate regulatory requirements and
procedures to ease the process of setting up and running an enterprise.
10. Economic and Market Research: They conduct research and analysis to understand
market trends and economic conditions that impact industrial development.
11. Coordination with Other Agencies: SIDCs often work in coordination with other
government departments, agencies, and institutions to align industrial development
efforts with broader economic policies.

By fulfilling these functions, SIDCs aim to boost industrial activity, create jobs, and
contribute to the overall economic development of their respective states.

LIFE INSURANCE CORPORATION

LIC is one of the financial institutions to be established in India after independence. The full
form of LIC is life insurance corporation and it was established in 1956. The main aim
behind the establishment was to spread the message of life insurance in the country. Also, it
was required to mobilize people’s savings. This was done particularly for various nation-
building activities. Key features of LIC are as follows -
1. Government Ownership: LIC is fully owned by the Government of India, which
adds a layer of trust and stability to its operations.
2. Wide Product Range: LIC offers a diverse portfolio of insurance products, including
life insurance policies, health insurance, pension plans, and investment-linked plans.
This caters to various needs, from risk protection to wealth accumulation.
3. Large Customer Base: LIC serves millions of policyholders across India, making it
one of the largest insurers in the country by both policy numbers and premium
income.
4. Extensive Network: LIC has an extensive network of branches, agents, and satellite
offices across urban and rural areas, ensuring widespread accessibility for customers.
5. Strong Financial Strength: LIC is known for its financial stability and strong
solvency ratio, which provides policyholders with confidence in the company’s ability
to meet its long-term obligations.
6. Long-Term Investment Focus: LIC is involved in long-term investment projects,
including infrastructure development and government securities, which aligns with its
role in providing long-term insurance coverage.
7. Various Policy Options: LIC offers various types of policies, including endowment
plans, term insurance, whole life plans, unit-linked insurance plans (ULIPs), and child
plans, allowing customers to choose based on their financial goals and needs.
8. Bonus and Profit Sharing: Many LIC policies offer bonuses and profit-sharing
benefits, where policyholders can receive additional amounts over their regular
premiums based on the company's performance.
9. Loan Facility: LIC provides loan facilities against the surrender value of its policies,
allowing policyholders to access funds in times of need without having to fully
surrender their policies.
10. Tax Benefits: Premiums paid for LIC policies qualify for tax deductions under
Section 80C of the Income Tax Act, and the maturity benefits are tax-free under
Section 10(10D), subject to certain conditions.
11. Customer Service and Support: LIC offers various customer service channels,
including online services, mobile apps, and customer care centers, to provide support
and facilitate policy management.
12. Claim Settlement Ratio: LIC maintains a high claim settlement ratio, reflecting its
commitment to honoring claims and providing financial support to policyholders and
their beneficiaries.
13. Regulatory Compliance: LIC is regulated by the Insurance Regulatory and
Development Authority of India (IRDAI), ensuring that it adheres to the standards and
regulations set for the insurance industry.
14. Social Initiatives: LIC is involved in various social welfare programs and initiatives,
including community development, health care, and education, contributing to the
broader societal good.
Functions of LIC
1. Financial Protection - LIC provides life insurance policies that offer financial protection
to individuals and their families against unforeseen events such as death, disability, and
illness. This helps ensure financial security and peace of mind for policyholders and their
dependents.
2. Investment Mobilization - LIC mobilizes savings from policyholders and channels them
into various investment avenues, including government securities, infrastructure projects, and
corporate bonds. This process helps in capital formation and supports economic growth and
development.
3. Long-Term Capital Provider - LIC is a major investor in long-term projects and
infrastructure development, including roads, power plants, and other critical sectors. By
investing in these projects, LIC supports national development and economic infrastructure.
4. Economic Stability - By maintaining a large corpus of funds and a stable financial
position, LIC contributes to the overall stability of the financial system in India. Its
investments in various sectors provide liquidity and support economic stability.
5. Insurance Coverage - LIC offers a wide range of life insurance products that cater to
various needs, including term insurance, endowment plans, and unit-linked insurance plans
(ULIPs). This diversity allows individuals to choose products that best meet their financial
goals and risk appetite.
6. Promotion of Savings- LIC encourages people to save regularly and invest in insurance
policies. This helps in promoting a culture of savings and financial planning among
individuals, contributing to personal financial stability.
7. Employment Generation- LIC's extensive network of branches and agents provides
significant employment opportunities across the country. Its operations support livelihoods
for thousands of employees and insurance agents.
8. Social Welfare Initiatives- LIC is involved in various social welfare programs, including
health care, education, and community development. It engages in corporate social
responsibility (CSR) activities that contribute to the well-being of society.
9. Claim Settlement - LIC plays a crucial role in ensuring timely and fair settlement of
insurance claims. Its high claim settlement ratio reflects its commitment to honoring
policyholder claims and providing financial support to beneficiaries.
with transparency and integrity, maintaining the trust of policyholders and stakeholders.
10. Support for SMEs and Agriculture -LIC provides insurance solutions tailored to small
and medium enterprises (SMEs) and agricultural sectors, helping them manage risks and
access financial products suited to their specific needs.
13. Educational Initiatives - LIC supports education through various programs and
scholarships, contributing to the development of human capital and promoting educational
opportunities for underserved communities.

MUTUAL FUNDS
A mutual fund is an investment vehicle that pools money from several investors to invest in a
mix of assets like stocks, bonds, government securities, and even gold. Mutual funds allow
investors to achieve portfolio diversification and professional management, with returns and
risks based on the performance of the fund’s investments.
The funds are managed by financial experts called fund managers. These professionals have
the skills to analyze and make investment decisions. To manage the fund, the AMC charges a
fee, known as the expense ratio. The gains generated from this fund investment are
distributed proportionately amongst the investors after deducting applicable expenses
1. Pooling Money: Investors buy shares or units of the mutual fund, contributing their
money to the fund. This collective pool of money is managed by professional fund
managers.
2. Investment Strategy: The fund manager uses the pooled money to buy a variety of
assets according to the fund’s investment objectives and strategy. For example, a stock
fund might invest in a range of companies, while a bond fund might invest in various
government or corporate bonds.
3. NAV Calculation: The Net Asset Value (NAV) is the value of one share or unit of the
mutual fund. It is calculated by dividing the total value of the fund’s assets minus any
liabilities by the number of outstanding shares or units. NAV changes daily based on
the performance of the fund’s investments.
4. Value Changes: As the prices of the assets within the fund fluctuate, the NAV also
changes. If the investments perform well, the NAV goes up; if they perform poorly,
the NAV goes down.
5. Returns to Investors: Investors can earn returns through capital gains (when the fund
sells investments at a profit) and income distributions (such as dividends or interest
from the fund’s holdings). These returns are typically reinvested or paid out to
investors, depending on the fund’s policies.
6. Buying and Selling: Investors can buy or redeem (sell) their mutual fund shares at the
NAV price at the end of each trading day. This means the value you receive when you
sell your shares is based on the NAV at that day’s market close.
7. Fees: Mutual funds charge fees for managing the investments. These fees can include
management fees, administrative costs, and sometimes exit load. It’s important to
understand these fees as they can affect your overall returns.
8. Tax Implications: Mutual fund returns are subject to capital gains tax (short-term and
long-term capital gains). When the fund generates capital gains, those gains are
distributed to investors, who then pay taxes on them.

Advantages of Mutual Funds

Mutual funds offer several advantages for investors, making them a popular choice for
diversifying investment portfolios and achieving various financial goals. Here are some key
advantages of mutual funds:
1. Diversification
  Spread of Risk: Mutual funds invest in a diversified portfolio of assets, such as
stocks, bonds, and other securities. This diversification helps reduce the risk of
significant losses since the performance of one investment is less likely to impact the
entire fund severely.
2. Professional Management
 Expertise: Mutual funds are managed by professional portfolio managers who have
the expertise to make informed investment decisions. They analyze market trends,
select securities, and adjust the portfolio as needed to achieve the fund’s objectives.
3. Accessibility
 Ease of Investment: Mutual funds are accessible to individual investors with varying
amounts of capital. Investors can buy shares of mutual funds with relatively low
minimum investments compared to directly investing in individual securities.
4. Liquidity
 Ease of Redemption: Most mutual funds allow investors to buy or sell shares on any
business day at the fund’s Net Asset Value (NAV). This provides investors with
liquidity and flexibility in accessing their investments.
5. Affordability
 Cost Efficiency: Mutual funds often offer lower transaction costs compared to
purchasing individual securities. Additionally, investors can benefit from economies
of scale, as the costs of buying and selling securities are spread across all fund
shareholders.
6. Automatic Reinvestment
 Compounding Growth: Many mutual funds offer automatic reinvestment of
dividends and capital gains. This reinvestment can enhance the compounding effect,
potentially increasing the overall growth of the investment.
7. Transparency
 Regular Reporting: Mutual funds provide regular reports on performance, holdings,
and expenses. This transparency helps investors stay informed about the status of their
investments and the fund’s management.
8. Variety of Investment Options
 Choice: Mutual funds come in various types, including equity, bond, balanced, and
money market funds. This variety allows investors to choose funds that align with
their specific investment goals, risk tolerance, and time horizon.
9. Tax Benefits
 Tax-Advantaged Accounts: In many jurisdictions, mutual funds can be held in tax-
advantaged accounts, such as retirement accounts (e.g., IRAs, 401(k)s), which offer
tax benefits like deferred taxation or tax-free growth.
10. Professional Research and Analysis
 Informed Decisions: Fund managers conduct extensive research and analysis on
potential investments. Individual investors benefit from this research without needing
to spend significant time and effort on their own investment analysis.
11. Investment Flexibility
 Adjustable Investment Strategies: Mutual funds can adjust their investment
strategies based on market conditions and fund objectives. Investors can choose from
funds with varying investment styles, such as aggressive growth or conservative
income.
12. Regular Income
 Dividends and Interest: Many mutual funds distribute regular income in the form of
dividends or interest payments. This can provide investors with a steady stream of
income, especially from income-oriented funds like bond funds.
13. Risk Management
 Managed Risk: Mutual funds often have risk management strategies in place to
mitigate potential losses. This includes diversification, asset allocation, and
professional oversight.
14. Ease of Administration
 Simplified Investment: Mutual funds handle administrative tasks such as record-
keeping, tax reporting, and regulatory compliance. This simplifies the investment
process for individual investors

EXIM BANK
The Indian economy opened up post liberalization and globalization, the import and export
industry became a huge sector in our economy. Even today India is one of the largest
exporters of agricultural goods. So to provide financial support to importers and exporters the
government set up the EXIM Bank. The Export and Import Bank of India, popularly known
as the EXIM Bank was set up in 1982. It is the principal financial institution in India for
foreign and international trade. It was previously a branch of the IDBI, but as the foreign
trade sector grew, it was made into an independent body.
The main function of the Export and Import Bank of India is to provide financial and other
assistance to importers and exporters of the country. And it oversees and coordinates the
working of other institutions that work in the import-export sector.
1. Export Credit Financing: EXIM Bank provides financial assistance to Indian
exporters in the form of pre-shipment and post-shipment credit. This helps businesses
manage their working capital and meet export-related expenses.
 2. Import Financing: The bank offers credit facilities for importing raw materials,
machinery, and other essential goods, helping Indian businesses acquire resources
needed for production and export.
3. Project Financing: EXIM Bank supports Indian companies involved in overseas
projects by providing long-term loans and financial assistance for executing projects
abroad. This includes financing infrastructure and development projects.
4. Export Promotion: The bank plays a key role in promoting Indian exports by
offering various financial products and services tailored to the needs of exporters.
This includes support for marketing and expansion into new markets.
5. Investment Facilitation: EXIM Bank supports Indian businesses in making
investments in foreign countries, including through joint ventures and strategic
partnerships, to enhance their global presence.
6. Risk Mitigation: The bank provides insurance and guarantee products to help Indian
exporters mitigate risks related to international trade, such as political and commercial
risks.
7. Advisory Services: EXIM Bank offers advisory services to businesses on
international trade, market opportunities, and investment strategies. This includes
providing information on global markets and trade regulations.
8. Capacity Building: The bank organizes training programs, workshops, and seminars
to build the capacities of Indian businesses in areas related to international trade and
finance.
9. Support for Small and Medium Enterprises (SMEs): EXIM Bank provides
specialized support to SMEs, including financial products and services tailored to
their needs, to help them participate effectively in international trade.
10. Collaboration with Other Institutions: The bank collaborates with other financial
institutions, both domestic and international, to enhance trade and investment
opportunities. This includes working with multilateral institutions and export credit
agencies.
11. Policy Support: EXIM Bank provides inputs and recommendations to the
government on policies related to international trade and export promotion,
contributing to the development of a supportive trade environment.
Through these functions, EXIM Bank aims to enhance India's international trade
performance, support the global expansion of Indian businesses, and contribute to the overall
economic growth of the country.

SIDBI
The Small Industries Development Bank of India (SIDBI) is a financial institution dedicated
to the promotion and development of small-scale industries (SSIs) in India. Established in
1990, SIDBI focuses on supporting and fostering the growth of small and medium-sized
enterprises (SMEs) across the country. Some key functions of SIDBI are as follows -
1. Financial Support: SIDBI provides financial assistance to small and medium
enterprises (SMEs) through various means, including term loans, working capital
loans, and equity support. It also offers refinance facilities to banks and financial
institutions that lend to SMEs.
2. Promotion of Small and Medium Enterprises (SMEs): SIDBI works to stimulate
the growth and development of SMEs by offering specialized financial products and
services tailored to their needs.
3. Infrastructure Development: The bank supports the development of infrastructure
necessary for the growth of SMEs, such as industrial estates and technology parks.
4. Technical and Managerial Assistance: SIDBI provides technical support and
managerial advice to SMEs to help them improve their operational efficiency, adopt
best practices, and enhance their competitiveness.
5. Support for Innovation and Technology: SIDBI promotes technological
advancements and innovation among SMEs by offering financial support for research
and development (R&D) and technology upgradation.
6. Capacity Building: It organizes training programs, workshops, and seminars to build
the capacities of entrepreneurs, managers, and other stakeholders involved in the SME
sector.
7. Credit Guarantee Schemes: SIDBI manages credit guarantee schemes that help
SMEs access financing by providing guarantees against default on loans, thus
reducing the risk for lenders.
8. Development of Financial Markets: The bank plays a role in developing and
nurturing financial markets for SMEs, including facilitating access to capital markets
and other financial instruments.
9. Policy Advocacy: SIDBI engages in policy advocacy to support the development of a
conducive environment for SMEs. This includes suggesting policy measures and
working with government bodies to address issues faced by small industries.
10. Coordination with Other Institutions: SIDBI collaborates with other financial
institutions, government agencies, and non-governmental organizations to implement
and promote programs aimed at the growth and development of the SME sector.
By fulfilling these roles, SIDBI aims to enhance the competitiveness, sustainability, and
growth potential of small and medium enterprises, contributing to overall economic
development and job creation in India.

NABARD
NABARD, or the National Bank for Agriculture and Rural Development, is an apex
development financial institution in India that focuses on supporting and developing the rural
sector. Established in 1982, NABARD plays a critical role in fostering economic
development and improving the quality of life in rural areas. Some of its key functions are as
follows
1. Financial Support: NABARD provides credit and financial support to agricultural
and rural development projects. This includes direct lending to state governments,
banks, and financial institutions involved in rural development.
2. Development of Rural Infrastructure: It supports the creation and enhancement of
infrastructure in rural areas, such as roads, irrigation systems, and rural markets, to
facilitate better economic activities and improve living conditions.
3. Promotion of Agricultural Development: NABARD assists in financing agricultural
activities, including crop production, livestock, and fisheries, to boost productivity
and sustainability.
4. Support to Rural Institutions: The organization provides financial assistance and
capacity-building support to rural cooperative banks, regional rural banks, and other
institutions that serve rural communities.
5. Microfinance: NABARD promotes and supports microfinance initiatives to enhance
access to credit for the poor and underserved populations in rural areas, encouraging
self-employment and small-scale enterprises.
6. Research and Development: It undertakes research and studies to address issues
related to rural development and agriculture, providing valuable insights and policy
recommendations.
7. Capacity Building: NABARD works on strengthening the capabilities of rural
institutions, including training and development programs for stakeholders involved
in rural development.
8. Policy Formulation: It assists in the formulation of policies related to agriculture and
rural development, advising the government on strategic measures for enhancing rural
economic activities.
9. Promotion of Sustainable Practices: NABARD encourages and supports sustainable
agricultural practices and rural development projects that aim to be environmentally
friendly and socially inclusive.
10. Coordination with Other Agencies: It collaborates with other governmental and
non-governmental organizations to align efforts and resources for effective rural
development.
By fulfilling these functions, NABARD aims to improve the overall economic stability and
quality of life in rural India, contributing significantly to the country's socio-economic
development.