4 Reasons Why Financial Institutions Like RBI, SIDBI and Others Are Important

By  //  November 12, 2021

Share on Facebook Share on Twitter Share on LinkedIn Share on Delicious Digg This Stumble This

No doubt, economic activity is a crucial element for every nation. That is why every nation on this planet has several financial institutions in the country. If we talk only about India, RBI, SIDBI, and many more financial institutions regulate the economy of the nation. Also, these institutions develop financial policies that boost the economic activities and industrial growth in our nation.

They are limited to policies and aware of industrialists and the government about alerts for the financial hazards. So, we have compiled a few reasons that will highlight essential reasons about the importance of financial institutions. Read them carefully.

Importance of financial institutions in India

1. Liquidity supply in the nation

Liquidity means cash, and not a single second country can run if there is no proper cash flow available. Money supply boosts the economy. In India, the Reserve Bank of India (RBI) regulates the repo rate, cash reserve ratio, business operations, or even introduces a moratorium period for loans.

As a result, there is no economic burden on any common citizen, and they can manage their daily finances. Not just individuals, every industrial sector keeps an eye on the RBI policies and reports. That is why RBI is an autonomous financial institution and carries years of credibility. After all, banks across the nation come under its regulation.

2. Banking services

Commercial banks, Public sector banks and NBFCs (Non Banking Financial Services) all follow RBI guidelines. These banking institutions provide banking services like accounts management, loans, financial products like credit cards, debit cards, overdrafts, and demand drafts. The list of banking services is plenty, but all things are regulated by RBI only.

The apex institution measures the efficiency of banks and tries to avoid NPA (Non Performing Assets). As we all know, banks are the backbone of the Indian economy. Thus, prompt actions and checking the financial health of every bank are required. Or else, the economy will collapse at any stage, which ultimately leads to a financial crisis.

3. Advising on investments

Individuals or businesses everyone looks for a good financial future. Therefore, proper advice is required to manage and get good returns on investment. Today, every banking institution introduces investment policies for organizations and individuals. Without any investment, there would be no capital, and no capital means no economic process will continue.

Thus, financial institutions provide investment schemes to individuals, SMEs, or big enterprises according to their financial portfolio. To check the return and activities on stock exchanges, SEBI is responsible, which is also a kind of financial institution.

Remember, investing in stocks also is a kind of investment, but the risk is also higher in it. That is why regulation is important in such an investment portfolio.

4. Pension Fund solutions

Several financial institutions and governments introduce pension scheme services for individuals to manage their finances after retirement. In India, one such investment option is NPS (National Pension Schemes). However, it is introduced by the government. But several banks also have pension schemes with a good return that individuals can enjoy after their retirement.

Remember that these pension schemes are also regulated by financial institutions. Therefore, the importance of financial institutions cannot be ignored at any level. Today, millions of adults are investing in these pension funds. Due to good returns with low financial risks, it is emerging as a popular investment plan.

The bottom line

Financial institutions are the synonym of the economy in the nation. So, their policies and schemes for the economic welfare of the nation. Thus, governments and individuals all rely on their financial policies and schemes.