What Is Financial Institution- GIC
Financial institution keep deposits for people, provide insurance, issue cash, and enable finance and economic activities. Continue Reading to learn more!
Izhar Ahmad6 Nov, 2023
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Financial institutions play a vital role in driving the economy by providing credit in various forms. They serve as middlemen between those with surplus funds (savers) and those in need of funds (borrowers). Their significance lies in facilitating transactions and enabling people and organizations to buy goods and services, meeting their requirements.
Financial institutions are often referred to as providers of liquidity to the economy through demand deposits and credit lines.Want to Learn Everything About Financial Institutions? Learn from an Expert!
Financial Institutions Meaning
A financial institution is an organization that engages in a wide range of monetary and financial activities such as currency exchange, loans, deposits, investments, etc. This industry consists of trust companies, brokerage firms, insurance companies, investment dealers and banks, to mention a few. Individuals in the developed economies need to have access to these financial services.Features of Financial Institutions
- Financial institutions are prohibited from obtaining loans from the general public, including deposits and other payable funds.
- Their primary function revolves around lending, encompassing personal loans and financing commercial transactions, among other activities.
- They significantly contribute to financial leasing, offering essential support in this area.
- Financial institutions offer a wide range of payment services, accessible through both online and offline platforms.
- Acting as guarantee providers, they deliver valuable services highly valued by contemporary businesses.
- Issuing shares is a fundamental aspect of any business, and financial institutions aid companies in this process by providing underwriting and collection services.
- These institutions operate within a licensing framework typically lasting for three months or 90 days.
Types of Financial Institutions
Different types of financial institutions serve various functions within the economy:Commercial Banks:
Commercial banks are institutions that offer a wide range of banking services to individuals and businesses. They provide services such as checking accounts, mortgage loans, and deposit services. Commercial banks are essential for everyday banking activities, including savings accounts, loans, and payment methods like wire transfers and currency exchange.Investment Banks:
In contrast to commercial banks, investment banks focus on services related to business operations. They assist businesses with activities like equity offerings, capital expenditure financing, and Initial Public Offerings (IPOs). Investment banks also offer brokerage services to investors, aiding in trading, acquisitions, mergers, and corporate restructuring.Insurance Companies:
Insurance companies, a common type of non-banking financial institution, provide insurance services to individuals and corporations. These insurance products protect against financial risks arising from unexpected accidents. Safeguarding assets through insurance is crucial for long-term economic growth and stability.Brokerage Firms:
Brokerage firms specialize in investment services, offering financial advisory and wealth management to clients. They facilitate investments in assets such as stocks and bonds, enabling individuals to grow their wealth and diversify their portfolios. These firms also deal in investment vehicles like exchange-traded funds (ETFs) and mutual funds, allowing investors to explore various investment opportunities.Looking for the Best Commerce Coaching?
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What is a General Insurance Corporation?
The General Insurance Corporation operates as a government-owned financial institution. A unique feature of GIC is that it served as the only reinsurance company in India until the market opened to foreign participants in 2016. Following this, numerous companies from Germany, Switzerland, and France entered the market. GIC's establishment is governed by the General Insurance Business (Nationalization) Act (GIBNA) of 1972.Facts About GIC
- Before General Insurance Corporation's nationalization, approximately 100 companies operated in the market.
- Upon nationalization, all these companies were merged into four subsidiaries under GIC:
- GIC's primary services include offering insurance coverage against various risks such as loss of physical assets, accidents, and personal sickness.
- When purchasing GIC's services, individuals acquire the service itself rather than a financial asset.
Functions of Financial Institutions
Financial institutions play a pivotal role in the economy and financial system by performing various essential functions:Intermediation:
Financial institutions act as intermediaries, connecting savers and borrowers. They gather funds from individuals and businesses as deposits and then lend these funds to borrowers for purposes like starting businesses or buying homes.Depository Services:
These institutions offer secure depository services by accepting deposits from individuals and businesses. They provide various accounts like checking and savings accounts where customers can safely store their money, some of which may earn interest.Credit Provision:
By lending and offering credit lines, financial institutions lend to individuals and businesses. They evaluate the creditworthiness of borrowers, determine interest rates and extend personal loans, mortgages, business loans, and working capital.Investment Services:
They offer investment services to help manage and grow wealth. These include access to investment products such as stocks, bonds, mutual funds, and securities. Additionally, they provide advisory services to guide clients in making informed investment decisions.Risk Management:
Financial institutions assist in managing financial risks by offering insurance products like life, health, property, and liability insurance. These products protect against potential losses and unforeseen events.Payment and Settlement Services:
They facilitate payment transactions between individuals and businesses. Services include electronic fund transfers, issuing credit and debit cards, and managing payment systems, ensuring smooth and secure transactions.Asset Management:
Asset management refers to the provision of financial services offered by asset-based financial institutions, which help in managing investment portfolios on behalf of their clients. They provide expertise on selecting investments, diversification of portfolios, and market conditions tracking to maximize returns towards achieving clients’ financial goals.Financial Advisory:
They provide financial advice to individuals and businesses, giving advice on financial planning, retirement, taxes and estate. They help the client in arriving at informed decisions about their money, given their needs and capacity to take risks.| Read Related Topics | |||
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What Is Financial Institutions- GIC FAQs
What is Liberalization?
Liberalization refers to economic reforms that promote free market principles and reduce government regulations in various sectors.
What is financial risk?
Financial risk is the potential loss or uncertainty in financial returns due to market fluctuations, credit default, or investment decisions.
What is financial year?
A financial year is a 12-month period used by businesses and governments for financial reporting and tax purposes, typically from April 1st to March 31st.
What is financial year salary?
Financial year salary refers to the total income earned by an individual or business within a specific financial year.
What is British financial year?
The British financial year follows the same April 1st to March 31st cycle, similar to many other countries.
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