Page 37 - Banking Finance July 2022

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nearer to the free market rates, the Government has taken was nationalized in 1948. It was followed by the
the following steps: nationalization of the Imperial Bank of India in 1956 by
The interest rates on company deposits are freed. renaming it as State Bank of India. In the same year, 245
Life Insurance Companies were brought under Government
The interest rates on 364 days Treasury Bills are
control by merging all of them into a single corporation called
determined by auctions and they are expected to reflect
Life Insurance Corporation of India.
the free market rates.
The coupon rates on Government loans have been
Starting of Unit Trust of India
revised upwards so as to be market oriented.
Another landmark in the history of development of our
The interest rates on debentures are allowed to be fixed
financial system is the establishment of new financial
by companies depending upon the market rates.
institutions to strengthen our system and to supply
The maximum rates of interest payable on bank deposits institutional credit to industries.
(fixed) are freed for deposits of above one year.
Establishment of Development Banks
Thus, all attempts are being taken to adopt a realistic
Many development banks were started not only to extend
interest rate policy so as to give positive return in real terms
credit facilities to financial institutions but also to render
adjusted for inflation. The proper functioning of any financial
advisory services.
system requires a good interest rate structure.
Institution for Financing Agriculture
Financial Instruments
In 1963, the RBI set up the Agricultural Refinance and
Financial instruments refer to those documents which
Development Corporation (ARDC) to provide refinance
represent financial claims on assets.
support to banks to finance major development projects such
Primary or direct securities.
as minor irrigation, farm mechanization,, land development,
Secondary or indirect securities.
horticulture, daily development, etc.
Primary Securities: These are securities directly issued by
Institution for Foreign Trade
the ultimate investors to the ultimate savers, e.g. shares
The Export and Import Bank of India (EXIM Bank) was set
and debentures issued directly to the public.
up on January 1, 1982 to take over the operations of
International Finance wing of the IDBI. Its main objective is
Secondary Securities: These are securities issued by some
to provide financial assistance to exporters and importers
intermediaries called financial intermediaries to the
ultimate savers, e.g. Unit Trust of India and mutual funds
issue securities in the form of units to the public and the Institution for Housing Finance
money pooled is invested in companies. The National Housing Bank (NHB) has been set up on July 9,

Development of Financial System in
India
Some serious attention was paid to the development of a
sound financial system in India only after the launching of
the planning era in the country. At the time of
Independence in 1947, there was no strong financial
institutional mechanism in the country.

Nationalisation of Financial Institution
As we know that the RBI is the leader of the financial system.
But, it was established as a private institution in 1935. It

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