Financial Institutions – Module 2 Vocabulary

Vocabulary flashcards covering key institutions, functions, instruments and terms from Module 2: Financial Institutions—ranging from commercial banks, NBFC categories, specialised and refinance institutions, to export credit bodies and insurance entities.

Financial Institution (FI)

A firm specializing in monetary activities such as deposits, loans, investments and currency exchange (e.g., banks, insurance companies, brokerages).

Commercial Bank

A financial institution that accepts deposits, offers checking and savings accounts, and extends loans to individuals and businesses.

Primary Functions of Commercial Banks

Core activities including accepting deposits, providing loans and advances, and creating credit by depositing loan proceeds in customer accounts.

Secondary Functions of Commercial Banks

Services such as discounting bills of exchange, providing overdrafts, buying/selling securities, locker facilities, and payment collection.

Private Sector Bank

A commercial bank whose majority shareholding is with private individuals or businesses (e.g., HDFC, ICICI, Yes Bank).

Public Sector Bank

A government-owned or nationalised commercial bank (e.g., SBI, Bank of Baroda).

Foreign Bank

A bank incorporated abroad that operates branches in India (e.g., Citi, HSBC, Standard Chartered).

Non-Banking Financial Company (NBFC)

A company registered under the Companies Act 1956 that offers financial services but cannot accept demand deposits like a bank.

Asset Finance Company (AFC)

An NBFC that provides finance for physical assets supporting productive activity (vehicles, machinery, equipment).

Investment Company (IC)

An NBFC whose principal business is acquiring and holding securities such as shares, bonds and debentures.

Loan Company (LC)

An NBFC primarily engaged in granting loans or advances that are not linked to asset financing.

Infrastructure Finance Company (IFC)

A specialised NBFC that deploys at least 75 % of total assets in infrastructure loans and maintains high net-owned funds.

Core Investment Company (CIC-ND-SI)

A non-deposit-taking, systemically important NBFC that holds at least 90 % of its assets in investments of group companies.

Infrastructure Debt Fund NBFC (IDF-NBFC)

An NBFC that channels long-term debt into infrastructure by issuing bonds with ≥ 5-year maturity.

NBFC-MFI

A micro-finance NBFC that must keep at least 85 % of net assets in qualifying micro-loans to low-income households.

NBFC-Factors

NBFCs specialising in factoring—financing receivables such as invoices—accounting for ≥ 50 % of assets and income.

Mortgage Guarantee Company (MGC)

An NBFC providing guarantees on housing loans; 90 % of business must be mortgage guarantees.

Non-Operative Financial Holding Company (NOFHC)

A financial holding company structure used by promoter groups to own a new bank and related entities.

NBFC-ND-SI

A non-deposit-taking NBFC with assets ≥ ₹500 crore considered systemically important for financial stability.

IDFC (Infrastructure Development Finance Company)

Institution set up in 1997 to finance long-term infrastructure; later converted to a universal bank (IDFC FIRST Bank).

Specialised Financial Institution (SFI)

A body providing medium-/long-term finance to specific sectors (industry, agriculture, exports, infrastructure).

IFCI

Industrial Finance Corporation of India (1948) offering medium- and long-term finance to industry.

IDBI

Industrial Development Bank of India (1964) created as apex development bank for industrial finance; now a universal bank.

ICICI

Industrial Credit and Investment Corporation of India (1955), initially a development finance institution; evolved into ICICI Bank.

SIDBI

Small Industries Development Bank of India (1990) focused on financing and promoting MSMEs.

EXIM Bank

Export-Import Bank of India (1982) that finances and promotes India’s international trade and overseas investment.

Lines of Credit (LOC) – EXIM

Credit extended by EXIM Bank to foreign governments/institutions to facilitate Indian exports.

India Venture Capital Fund (IVCF)

A joint EXIM-SIDBI fund (1999) providing equity to early-stage, export-oriented ventures.

ICICI Venture

Private-equity and venture-capital arm of ICICI, funding high-growth companies across sectors.

Tourism Finance Corporation of India (TFCI)

Specialised lender (1989) offering medium-/long-term finance to tourism and related infrastructure projects.

Life Insurance Corporation of India (LIC)

State-owned life insurer (1956) mobilising savings via premiums and investing in securities and infrastructure.

Unit Trust of India (UTI)

India’s first mutual fund (1964) set up to mobilise small investor savings and invest in diversified portfolios.

Specified Undertaking of UTI (SUUTI)

Entity holding legacy assets after UTI’s 2003 restructuring; separate from UTI Mutual Fund.

General Insurance Corporation of India (GIC Re)

National reinsurer created in 1972; now provides reinsurance to domestic and international insurers.

Refinance Institution

A body that provides funds to primary lenders (banks, RRBs, HFCs) so they can extend cheaper credit to priority sectors.

NABARD

National Bank for Agriculture and Rural Development (1982) apex refinance and development bank for rural credit.

RIDF (Rural Infrastructure Development Fund)

NABARD-managed fund financing rural infrastructure through state governments.

NHB

National Housing Bank (1988) apex housing finance institution providing refinance to HFCs and banks.

State Finance Corporation (SFC)

State-level institution (under 1951 Act) financing fixed assets and providing guarantees to small/medium enterprises.

State Industrial Development Corporation (SIDC)

State-owned corporation promoting medium/large industries and developing industrial infrastructure.

ECGC

Export Credit Guarantee Corporation of India, providing credit-risk insurance to exporters and banks.

Standard Policy – ECGC

ECGC insurance cover protecting exporters against credit risks on goods/services exports.

Deposit Insurance and Credit Guarantee Corporation (DICGC)

RBI subsidiary that insures bank deposits up to ₹5 lakh per depositor per bank.

Investment Bank

A financial intermediary offering capital-raising, M&A advisory, brokerage and market-making services.

Credit Creation

Process by which banks expand money supply by lending depositors’ funds and recording loans as deposits.

Discounting Bills of Exchange

Bank purchase of a bill before maturity at a discount, providing immediate funds to the holder.

Overdraft Facility

Bank permission for a customer to withdraw more than the balance in a current account up to a limit.

Factoring Service

Financing arrangement where receivables are sold to a factor (e.g., NBFC-Factor) for immediate cash.

Hire Purchase

Asset purchase arrangement where borrower uses the asset while paying instalments; ownership transfers after final payment.

Leasing

Contract in which an asset owner (lessor) permits another (lessee) to use the asset for periodic payments.

Mortgage Guarantee

Insurance or guarantee that compensates lenders if a borrower defaults on a home loan.

Microfinance

Provision of small, unsecured loans and financial services to low-income individuals, often via NBFC-MFIs.

Systemically Important NBFC

Non-banking company with asset size ≥ ₹500 crore whose failure could pose systemic risk.

Behest Lending

Politically influenced lending that often results in poor credit decisions and higher NPAs.

Non-Performing Asset (NPA)

A loan on which interest or principal is overdue for 90 days or more.

Infrastructure Project

Long-gestation public utility such as roads, power plants or ports, often financed by DFIs and IFCs.

Public-Private Partnership (PPP)

A cooperative arrangement between government and private sector to finance, build and operate projects.

Development Finance Institution (DFI)

An institution providing long-term finance to sectors underserved by commercial banks, especially infrastructure.

RIDF – Short Form

Rural Infrastructure Development Fund managed by NABARD to finance state-level rural projects.

Housing Finance Company (HFC)

A non-bank company specialising in housing loans; formerly regulated by NHB, now by RBI.

Capital Adequacy

The requirement that financial institutions maintain enough capital to absorb losses and protect depositors.

Credit Risk Insurance

Insurance that protects exporters or lenders against the possibility of non-payment by buyers or borrowers.

Lines of Credit (Banks)

Pre-approved loan limits allowing borrowers to draw funds as needed within a specified cap and tenure.

Mutual Fund

Investment vehicle pooling money from investors to buy a diversified portfolio of securities.

Universal Bank

A financial institution offering a broad range of services including commercial, investment and retail banking.

Overseas Investment Insurance

ECGC cover protecting Indian companies’ equity/loan investments in foreign joint ventures.

Small Finance Bank

A niche bank providing basic banking services and small-ticket loans to underserved segments; deposits insured by DICGC.

Credit Rating (ECGC)

Country/ buyer risk assessment published by ECGC to guide exporters on payment risk levels.

Capital Market Stabilisation

Role played by large investors like LIC who purchase securities to reduce market volatility.

Reinsurance

Insurance purchased by an insurance company (e.g., from GIC Re) to spread risk.

Micro-Enterprise

A very small business, often financed by microcredit through SIDBI, NBFC-MFIs or SFCs.

Underwriting

Commitment by a financial institution to subscribe to unsold shares or debentures during an issue.

RIDFC – Typo Clarification

Correct acronym is RIDF (Rural Infrastructure Development Fund), not RIDFC.

Capital First

NBFC that merged with IDFC Bank to form IDFC FIRST Bank in 2018.

Systemic Importance

The characteristic of a financial institution whose distress could disrupt the overall financial system.

Term Loan

A loan with set repayment schedule and maturity, often used for purchasing fixed assets.

Equity Participation

Investment by a financial institution in the shares of a company, sharing ownership and risk.

Entrepreneurial Training

Support service offered by SIDCs/SFIs to build managerial and technical skills among new entrepreneurs.

Industrial Estate

Planned area with infrastructure where SIDCs develop plots/sheds for manufacturing units.

Export Credit

Finance provided to exporters at pre- or post-shipment stages to fund production and shipment.

Buyer’s Credit

Loan extended to a foreign buyer by EXIM Bank to facilitate purchase of Indian goods/services.

Supplier’s Credit

Credit offered by an exporter to a foreign buyer, often guaranteed/financed by EXIM Bank.

Capital Adequacy Ratio (CAR)

Measure of a bank’s capital relative to risk-weighted assets; higher ratios indicate greater resilience.