Introduction 

In this article you will get information about "Financial Institutions In India : Its Importance And Functions ". But first of all lets know about the meaning of financial institutions . The term "Financial Institutions" refers to a diverse group of organization that conduct business within the financial services industry. They act as middleman, providing services to customers who are both savers and investors. These organizations include banks, insurance companies, post offices and many more. We can learn how to save money well by taking advantage of the services offered by different financial institutions. " Financial Intermediaries " is another name for financial institutions. 

Financial institutions play the role of intermediaries, which is essential to the efficient operation of the financial system. It takes deposits from one group of customers (savers) and then lends those money to another group of consumers ( borrowers) . It collects the savings generated by the excess units and invests them in productive activities that guarantee a higher rate of return. Additionally, seeking guidance on various issues, ranging from reorganization strategies to diversification plan recommendations. 




Importance Of Financial Institutions:

1. Promotional activities

Financial institutions facilitate innovation by providing venture capital, particular capital and seed capital to new and technically skilled entrepreneurs. 

2. Infrastructure facilities

Financial institutions also offer basic infrastructural facilities needed to develop and promote lucrative ventures. Infrastructural facilities create industrial estates, tech parks, roads and water etc. 

3. Balanced development

Expanding banking activities to rural and semi urban areas. The banks have enabled the transfer of surplus capital from the developed regions to the less developed areas where it is scarce and most needed. Allocation of funds between different parts promotes economic development in underdeveloped regions of the country . 

4. Employment generation

Channelizing the funds for investment, building industrial facilities, and accelerating industries generate employment for the educated and qualified people of the state. 


Functions Of Financial Institutions:

1. FI is an intermediary to convert a short term liability into a long term investment. 

Short term debt, also called current liabilities, are to be paid off within the year. Long term investment are stocks, bonds, and mutual funds. 

2. FI helps in the conversion of a risky investment into a risk free investment. 

In finance, risk is the possibility that an event or investment may yield less than expected. All investment carry some degree of risk. Namely stocks, bonds, and funds can loss value, which makes a risky investment. However, a risk free asset has an inevitable future return_ fixed deposit recurring deposit, and post office deposit. 

3. Financial institutions also provide a whole range of services to entities. 

Lenders can also ask for routine Management Information System (MIS) reporting to minimize credit risks. In this case the lender will ask the borrower to send predetermined financial statements regularly. The bank may monitor the borrowers current financial situation and capacity to repay the loan. 


Categories Of Various Financial Institutions:

Basically, these financial institutions were categorised  into two categories:-

1. Banking Institutions 

Under this central bank and commercial bank come. 

2. Non Banking Institutions 

Under this insurance companies come. 


Frequently Asked Questions

Question 1. What do you mean by financial institutions? 

Financial institutions, also called banking institutions are the business entities that provide services to customers who are both savers and investors . It plays the role of Financial Intermediaries, it takes deposits from one group of customers (savers) and lends those money to another group of consumers (borrowers). 

Question 2. What is the most common type of financial institutions? 

Banks are the most common financial institution because they offer most of the financial services to customers. 

Question 3. What is the role of the financial institutions? 

The primary role of financial institutions is to provide loan to the economy and allow a higher level of financial activities in economy. 

Question 4. What are the categories of financial institutions? 

Financial institutions are categorised in two categories, banking financial institutions and non - banking financial institutions.