FINANCIAL INSTITUTION An establishment that focuses on dealing with financial transactions, such as investments, loans and deposits. Conventionally, financial institutions are composed of organizations such as banks, trust companies, insurance companies and investment dealers. Almost everyone has deal with a financial institution on a regular basis. Everything from depositing money to taking out loans and exchange currencies must be done through financial institutions.Financial Institutions in Indiaare divided in two categories. The first type refers to the regulatory institutions and the second type refers to the intermediaries.

The regulators are assigned with the job of governing all the divisions of the Indian financial system. These regulatory institutions are responsible for maintaining the transparency and the national interest in the operations of the institutions under their supervision.

The regulatory bodies of the financial institutions in India are as follows:

Reserve Bank of India (RBI) Securities and Exchange Board of India (SEBI) Central Board of Direct Taxes (CBDT) Central Board of Excise & Customs

Regulations of Financial Institutions

The financial regulations are laid out for the purpose of creating a fair and customer-friendly environment in the financial market of a particular country, which is conducive for economic growth. Some of the examples of financial regulatory bodies are the Federal Reserve Bank (United States), Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), the Financial Services Authority (FSA) in the United Kingdom, the Securities and Exchange Commission (SEC) in the United States and many others.

The statutory objectives of the regulatory bodies of financial institutions include the following: Market confidence: Sustaining confidence in the financial markets is one of the most important objectives of the financial regulatory bodies Consumer protection: Ensuring the most suitable level of customer protection Public awareness: Encouraging public awareness about the financial market through imparting educational programs Eliminating financial crime: The financial regulations are designed for the purpose of reducing financial crimes and fraudsThe regulatory principles that are followed by the regulators of financial institutions include the following: Role of management: Regulatory measures on the senior management of the financial institutions so that they do not take decisions that are detrimental to the financial market Innovation: Innovation should be facilitated with restriction so that the financial products and services launched are compliant to the rules and regulations International aspects: Strict monitoring should be there to see whether the international standards are maintained or not Efficiency and economy: The financial resources of a country should be used in the most prudent and effective way Proportionality: The financial regulations that are imposed should be proportional to the advantages that are anticipated from the regulations

Functions of Financial InstitutionsThere are numbers of financial institutions in financial market like banks, credit unions, asset management pension providing institutions, risk management institutions, which serve some purposes as follows:1. Accepting Deposits2. Providing Commercial Loans3. Providing Real Estate Loans4. Providing Mortgage Loans5. Issuing Share Certificates

Commercial BankAcommercial bankis a financial institution that is authorized by law to receive money from businesses and individuals and lend money to them. Commercial banks are open to the public and serve individuals, institutions and businesses. A commercial bank is almost certainly the type of bank you think of when you think about a bank because it is the type of bank that most people regularly use.Banks are regulated by federal and state laws depending on how they are organized and the services they provide. Commercial banks are also monitored through the Federal Reserve System.

Functions of Commercial BankFunctionsA commercial bank is authorized to serve the following functions: Receive deposits - take money in from individuals and businesses (called depositors) Disburse payments - make payments upon the direction of its depositors (such as honoring a check) Collections - a bank will act as your agent to collect funds from another bank payable to you (such as when someone pays you by check drawn on an account from a different bank) Invest funds in securities for a return Safeguard money - banks are considered a safe place to store your wealth Maintain and service savings and checking accounts of its depositors Maintain custodial accounts - accounts controlled by one person but for the benefit of another person, such as a trust account Commercial banks provide loans and advances of various forms, including anoverdraftfacility, cash credit, bill discounting, money at call etc. They also give demand and demand and term loans to all types of clients against proper security. Credit creation is most significant function of commercial banks. While sanctioning a loan to a customer, they do not provide cash to the borrower. Instead, they open a deposit account from which the borrower can withdraw. In other words, while sanctioning a loan, they automatically create deposits, known as a credit creation from commercial banks.

Bank vsFinancial Institution The main difference between the two types of financial institutions is that banking financial institutions can accept deposit into various savings and demand deposit accounts, which cannot be done by a non-banking financial institution.

The primary purposes in depositing funds in banks are convenience, interest income, and safety. Whereas the primary purpose in investing funds in non-banking financial institutions is to gain additional income. Financial institutions can be divided into two types: banking financial institutions and non-banking financial institutions. Commercial banks have the ability to generate multiple expansion of credit. The non-bank intermediaries do not have such ability. They simply mobilize savings for investment. A bank is known as financial intermediaries that act as middlemen between depositors or suppliers of funds and lenders who are the users of funds.

The main tasks of a banking financial institution are to accept deposits and then to use those funds to offer loans to its customers.

There are also a number of non-banking financial institutions which include investment banks, leasing companies, insurance companies, investment funds, finance firms, etc. A non-banking financial institution offers a range of financial services.