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18.1 The two main activities covered under this 18.5 Financial intermediaries incur liabilities on
sector are banking and insurance which their own account on financial markets by
comprises of: borrowing funds which they lend on different
commercial banks; terms and conditions to other institutional
banking department of Reserve Bank of units. Thus, they intermediate between
India (RBI); lenders and borrowers by channeling funds
public non-banking financial from one to other, putting them at risk in
corporations; the process.
organised non-banking financial
companies engaged in trading in 18.6 Some financial intermediaries raise most of
shares, investment holdings, mutual their funds by taking deposits; others do so
funds, loan finance and the like by issuing bills, bonds or other securities.
activities; They lend funds by making loans or
unorganised non-banking financial advances, or by purchasing bills, bonds or
institutions/undertakings such as other securities. The pattern of their
professional money lenders and pawn financial assets is different from that of their
brokers; liabilities and in this way transform the funds
post office savings banks including they receive in ways more suited to the
operations concerning cumulative time requirements of borrowers. Financial
deposits and national saving intermediaries also provide auxiliary financial
certificates; services like currency exchange, advice
co-operative credit societies; and about investments, purchase of real estate
life and non-life insurance activities. or taxation. The output of such services is
valued on the basis of the fees or
18.2 Under the NIC 1998, this sector consists of commissions charged, in the same way as
codes 651-Monetary Intermediation, 659- other services. However, many financial
Other financial intermediation, 660- intermediaries do not charge explicitly for
Insurance and pension funding, except the intermediation services which they
compulsory social security, 671- Activities provide to their customers so that there may
auxiliary to financial intermediation, except be no receipts from sales (for example issue
insurance and pension funding, and 672- of cheque books) which can be used to value
Activities auxiliary to insurance and pension these services. Therefore, it becomes
funding. difficult to value the output of financial
intermediation for which no explicit charges
Methods of Estimation of GVA and are made and for which there are no sales
Sources of Data receipts. Such output is valued indirectly
through financial intermediation services
Estimates at Current Prices indirectly measured (FISIM). The financial
18.3 Annual Reports/Accounts of the public sector intermediaries are able to provide services
banks, companies and corporations like Life for which they do not charge explicitly by
Insurance Corporation (LIC), State Financial paying or charging different rates of interest
Corporations etc. are major sources of data. to borrowers and lenders. They pay lower
The budget documents of Department of rates of interest to those from whom they
Posts provide the necessary data in the case borrow and charge higher rates of interest
of post office savings and postal life from those whom they lend. The resulting
insurance. (Appendix 18.1) net receipts of interest are used to defray
their expenses and provide an operating
18.4 Banks: The gross output of banks and similar surplus. This scheme of interest rates avoids
financial institutions is estimated in two the need to charge their customers
components viz., actual service charges and individually for services provided. The total
the imputed service charges. The concept of value of FISIM is measured in the System of
imputed service charge and its methodology National Accounts as the total property
of estimation are discussed in the subsequent income receivable by financial intermediaries
paragraphs. The GDP from this sector is minus their total interest payable, excluding
estimated by income method using readily the value of any property income receivable
available source material for each of the from the investment of their own funds; as
sub-sectors. such income does not arise from financial
intermediation.
18.25 Life insurance: The annual Report and Quality and limitations of data base
Accounts published by the LIC give 18.30 The overall position regarding the availability
necessary details for preparation of the of data for this sector is satisfactory except in
estimates of GVA. However, as regards the case of unorganised non-banking financial
profits, the LIC declares every two years, enterprises and own-account money lenders.
surplus derived as the balance after However, for some of the sub-sectors
Appendix 18.1
SOURCE MATERIAL USED
Appendix 18.2
Item Indicators
1. Commercial banks, Estimates of GVA at current prices are deflated
by implicit GDP price deflator of commodity
producing sectors.
4. Non- banking financial companies and Total net receipts deflated by WPI.
corporations
5. Co-operative credit societies Average of indices of deposits (deflated) and
membership.
6. Life insurance corporation Average of deflated indices of change in life
fund and sum assured.
7. Postal life insurance Average deflated indices of life fund and sum
assured.
Appendix 18.3
(Rs. crore)
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