23818178 Development Banks in Indian Financial Sector

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DECLARATION

I Neha Agarwal. Student LAL BAHADYR SHASTRI INSTITUTE OF

MANAGEMENT OF TECHNOLOGY of semester 4th hereby declare that I have

completed this project report on Development banks in Indian Financial

Sector. In the academic year 20010-2012. The information submitted is True and

original to the best of my knowledge.

(Coordinator)

Development Banks In Indian Financial Sector 2



DEVELOPMENT BANKS

.







ACKNOWLEDGEMENT

On the event of the completion of this project, I take the opportunity to express

my deep sense of gratitude toward all those people without whose guidance,

inspiration and timely help this project would have never seen the light of day.

Any accomplishment requires the efforts of many people and this project is no

different.

I find great pleasure in expressing my project guide professor, whose guidance

and inspiration right from the conceptualization to the finishing stage proved to be

very essential and valuable in the completion of the project ..This played a key

role in the project. Lastly, I would like to thank all my classmates and friends for

their valuable suggestions and guidance for the project work.




ROLE OF DEVELOPMENT BANKS IN INDIAN FINANCIALSECTOR




TABLE OF CONTENTS

Introduction To Topic

Objectives of Study

Research Methodology

Introduction To Development BanksObjectives of Development Banks

Banks Under Study

IDBI

IFCI

SIDBI

Data Analysis

Suggestions

Conclusion

Limitation

Bibliography




INTRODUCTION TO TOPIC

⇒ TO INDIAN FINANCIAL SYSTEM

⇒ HISTORY OF DEVELOPMENT BANKS

INDIAN FINANCIAL SYSTEM:

Indian financial system is one of the world largest financial systems. Indianeconomy is world 4th biggest economy but this Indian financial system has under

gone through various changes or we can say that it has different stages since its

inception.

Basically Indian financial system can be divided into 3 categories:

Before independence

Pre- 1991 era

Post-1991 era

BEFORE INDEPENDENCE:

In British rule India first time seen the organized financial system, although all

that was meant for British but that provided us the layout for future course of

action i.e. to build our own financial system. At that time banks and other financial

institutions were at their infantry stage but the given a base to build the whole

system on them. That time can be considered as the preliminary stage of Indian

financial system and at that time there were no development banks as the motive

of colonial rule was to draw the wealth not to make country developing.

PRE 1991 ERA:




This era has seen the gradual rise in the economy of India. After independence

banks and other financial institutions to provide funds were established anddevelopment banks were also a part of them which were established specially to

provide financial aid to industrial sector and to promote entrepreneurship in India.

The financial system in this era was based on socialistic pattern of society and

the economy was of mixed type but basically it was public sector based

economy. The motive was to promote every sector of society to uplift and earn

for him self. Indian financial system continued with this pattern for about 40 years

but in true sense the economic growth never boosted up as there was so many

hindrances and lacks in system itself which taken country in such a crisis that it

has to borrow funds by pledging its gold that was called the crisis of 1991.

POST 1991 ERA:

To come out the crisis, India has to adopt the new policy regarding the financial

system to speed up the growth and to raise the economy and in order to perform

that a new policy of LIBERALIZATION-PRIVATIZATION- GLOBALIZATION i.e.

LPG was adopted. The basic motive was to reduce the government control over

the economy and to let it flourish itself. Indian financial system is currently

working on this policy and now the economic growth rate has also risen. Now the

development banks are working in accordance with the industry in order to satisfy

their need of funds and to provide every possible help required. Although the

growth is still slow in comparison with other countries but soon India will become

the strongest economy of world.




HISTORY OF DEVELOPMENT BANKS

The concept of development banking rose only after Second World War ,

Successive of the Great Depression in 1930s. The demand for reconstruction

funds for the affected nations compelled in setting up a worldwide institution for

reconstructions. As a result the IBRD was set up in 1945 as a worldwide

institution for development and reconstruction. This concept has been widened

all over the world and resulted in setting up of large number of banks around the

world which coordinating the developmental activities of different nations with

different objectives among the world.

The course of development of financial institutions and markets during the post-

Independence period was largely guided by the process of planned development

pursued in India with emphasis on mobilization of savings and channelizing

investment to meet Plan priorities. At the time of Independence in 1947, India

had a fairly well-developed banking system. The adoption of bank dominated

financial development strategy was aimed at meeting the sectorial credit needs,

particularly of agriculture and industry. Towards this end, the Reserve Bank

concentrated on regulating and developing mechanisms for institution building.

The commercial banking network was expanded to cater to the requirements of

general banking and for meeting the short-term working capital requirements of

industry and agriculture. Specialized development financial institutions (DFIs)

such as the IDBI, NABARD, NHB and SIDBI, etc., with majority ownership of the

Reserve Bank were set up to meet the long-term financing requirements of

industry and agriculture. To facilitate the growth of these institutions, a

mechanism to provide concessional finance to these institutions was also put in

place by the Reserve Bank.




The first development bank In India incorporated immediately after independence

in 1948 under the Industrial Finance Corporation Act as a statutory corporation topioneer institutional credit to medium and large-scale. Then after in regular

intervals the government started new and different development financial

institutions to attain the different objectives and helpful to five-year plans.

The early history of Indian banking and finance was marked by strong

governmental regulation and control. The roots of the national system were in the

State Bank of India Act of 1955, which nationalized the former Imperial Bank of

India and its seven associate banks. In the early days, this national system

operated along side of a large private banking system. Banks were limited in their

operational flexibility by the government’s desire to maintain employment in the

banking system and were often drawn into troublesome loans in order to further

the government’s social goals.

The financial institutions in India were set up under the strong control of both

central and state Governments, and the Government utilized these institutions for

the achievements in planning and development of the nation as a whole. The all

India financial institutions can be classified under four heads according to their

economic importance that are:

• All-India Development Banks

• Specialized Financial Institutions

• Investment Institutions

• State-level institutions

• Other institutions




OBJECTIVES OF STUDY

⇒ To find out the role of development banks in Indian financial system

⇒ To study the various development banks operating in India

⇒ To give glance at the working of development banks

⇒ To check the contribution of development banks in economic growth

⇒ To check the individual contribution of each development bank

⇒ To give check the current stature of Indian financial system

⇒ To make a comparative study among various development banks

⇒ To find out the weaknesses in financial system regarding with

development banks




RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem.

Why a research study has been undertaken, how a research problem has been

defined, in what way and why the hypothesis has been formulated, what data

have been collected and what particular method has been adopted, why

particular technique of analyzing data has been used and a host of similar other

questions are usually answered when we talk of research methodology

concerning a research problem or study.

RESEARCH DESIGN:

Research Design is needed because it facilitates the smooth sailing of the

various research operations thereby making research as efficient as possible

yielding maximum information with minimal expenditure of effort, time and

money.

I have adopted descriptive and conclusive research design. Descriptive

research is those studies, which are concerned with describing the

characteristics of a particular individual or a group.

Since the aim is to obtain the accurate information about the development

banks in terms of their role in Indian financial system, I have studied the various

data available in books, journals, magazines and on internet.




DATA SOURCES:

The researcher can gather primary data, secondary data or both.

Secondary data are data that were collected for another purpose and already

exist somewhere. Primary data are data specially gathered for a specific purpose

or for a specific research project. Since the study is based on already existing

facts and figures, so all the sources of data are secondary

SECONDARY DATA

The main source of information for the study was

Weakly magazines

RBI bulletin

Information available in form of articles

Information available on internet




INTRODUCTION TO DEVELOPMENT BANKS

DEVELOPMENT banks in India have had a chequered and not always a happy

history. Some have managed to come back from the brink by taking to universal

banking, or merging with a normal bank. In general, it may be said that

development banking has lost its charm. So much so that when an official was

shifted from the none-too-healthy Indian Bank to NABARD, a banking veteran

said that she deserved not congratulations but commiseration.

From the time of Independence, political interference in the functioning of banks

has been both overt and covert. For instance, loan Melas made many banks

sick. Even now, many villagers think that a loan from a government bank is a gift;

it need not be repaid. In spite of such impressive sounding institutions as Debt

Recovery Tribunals, it is still difficult for banks to recover in full the amounts due;

more often than not, banks have no option but write-off most of the dues.

Periodic concessions to borrowers ordered by the Reserve Bank of India have

made debt recovery quite difficult.

Though development banks did not have to suffer from loan Melas, they too were

subject to political pressure to fund projects of dubious value. For long years,

there was no culture of financial closure; many projects started more with hope

and hype than with calculated design, and with no clear idea of where the funds

would be found to complete them. Even if the project had been well conceived,

administrative delays made many projects unviable.

During the License Raj, getting a manufacturing license was an end in itself.

Licenses were obtained or bought merely because they were there and not

because they made economic sense. It was also possible to control a company

by investing no more than a small fraction of the total cost. It was not uncommon

in those days for not-so-scrupulous-businessmen to recover their entire




investment by extracting commissions. There was no competition to enforce

efficiency. Under such circumstances, the surprise is not that development banksperformed badly but that they survived at all.

Notwithstanding these handicaps, development banks made the situation worse

by a faulty appreciation of their role. Normally, bankers are cautious. They lend

only to the wealthy who can offer safe and substantial collateral. Bankers are not

ambitious: they are content charging a fixed interest even if the borrower makes

a killing and multiples the investment several times. They also accept as normal

the erosion of asset value by inflation.

Development banking is different: Loans are made not to those who have

accumulated wealth in the past but to those who show promise to become

wealthy in the future. Normal banking looks for safety in assets accumulated from

the past; in development banking, possible accumulation of assets in the future is

the true collateral. Thus, while in normal banking, the collateral is real and

tangible, in development banking, the collateral is a dream; it is intangible. In

normal banking, an interest default of more than 90 days becomes a non-

performing asset. In the case of development, growth is rarely smooth;

development happens in fits and starts; cash flows are subject to wild fluctuations

and become negative at times.

Hence, development banks need to have a longer perspective than three

months; they should show patience for years. Normal banks can afford to be

myopic; development banks should take the long view. For development banks, it

is the trend line and not the current surplus that is important. As one development

banker blithely explained: "When I see any risk, I take my money and run away."

But that is not development banking; development banks take risks that ordinary

banks will not.




As a token of their support for progress, development banks offer an interest

holiday for the gestation period, and then charge a suitably adjusted flat rate of interest. That does help new enterprises a little, but only a little. Interest holiday is

too crude a device to help new enterprises that, being babies, suffer from

unexpected (and periodic) teething problems.

There is some truth in the well-worn cliché that bankers lend when the borrower

does not need any money, and foreclose when the borrower is in distress.

Development bankers should be different; they should lend a helping hand in

moments of distress, and make up for the risk they take by extracting larger

returns when the borrower recovers.

For that reason, development banks should not operate on a fixed rate of

interest. They should evolve a mechanism which depends on the health of the

borrower. One possibility is to take a share of the profits. However, that is highly

risky. Profit-related investment is best left to venture capitalists. In risk taking,

development banks fall midway between safety-conscious traditional banks and

the daredevil venture capitalists. In seeking returns, they need to follow a via

media — neither be inflexible with a fixed rate of interest, nor be volatile and bet

on equity.

These two costs are linked to inflation and to national economic growth too.

Hence, however low the charge on these two items, it will, in due course,

overtake whatever fixed rate of interest one may consider as an alternative. In

initial years, the returns from such a charge will be low; even nil. In course of

time, whatever sacrifice is made in the teething (or difficult) years will always be

made good — unless the firm is incurable.




In other words, development banks should think differently, and should have a

long time horizon. They should acquire the expertise to assess the optimumwaiting period and fix the rate of charge on wage costs and rents paid

accordingly. Incidentally, this kind of charge is not only transparent; it will also

make firms cost-conscious. That is an added benefit, additional safety.

If development banks charge variable returns, they will need a complementary

deposit regime. Pensioners like to have constant real returns that are protected

against erosion by inflation. Hence, they need returns that rise with time. Thus,

development banks would do well to devise a Pension Fund with inflation-linked

returns. Then, they will have a matched programmed for assets and liabilities.

Traditional banking is lending to the real estate developer at a fixed rate of

interest. Venture funding is taking a share in his profits, but development banking

is the policy of placing a charge on the rents collected. That is not normal and

requires a change in the mindset, a new vision, which could give development

banks a new life.




Definition of a development bank:

Development banks are .the institutions engaged in the promotion and

development of industry, agriculture and other key sectors. "A development

bank is like a living organism that reacts to the social-economic

environment and its success depends on reacting most aptly to that

environment". These banks should react to the socio-economic needs. They

should satisfy the developmental needs of the economy and their success is

linked to the satisfactory growth of the economy. A development bank has the

opportunity to promote enterprises i.e. to conceive investment proposals and to

stimulate others to pursue or' itself to carry them through, from 'conception' to

'realization'. In principle, a development bank is well suited to assume this kind of

role. Yet, enterprise creation is fraught with costs and risks which development

bank cannot neglect. Development banks can prudently undertake them only

when they have the requisite financial strength, technical expertise and the

managerial skill to bank. ", In his views, a development bank is an institution

which takes up the job of developing industrial enterprises from its inception to

completion. This process involves costs as well as risks. The bank should have

sufficient financial sources and expertise to promote a new unit. "A development

bank may be defined as a financial institution concerned with providing all types

of financial assistance (medium as well as long-term) to business units. I the form

of loans, underwriting, investment and guarantee operations and development in

general and industrial

The role of a development bank has been emphasized in this definition. In this

view a development bank aims to provide financial and promotional facilities for

the overall development of a country.




Features of a development bank.

A development bank has the following features or characteristics:

It is a specialized financial institution which provides medium term and

long-term lending facilities.

Development banks primarily aim to accelerate the rate of growth. It helps

industrialization specific and economic development in general

The objective of these banks is to serve public interest rather than earning

profits.

Development banks react to the socio-economic needs of development.

It is a multipurpose financial institution. Besides providing financial help it

undertakes promotional activities also. It helps an enterprises from

planning to operational level.

It provides financial assistance to both private as well as public sector

institutions.

The role of a development bank is of gap filler. When assistance from

other sources is not sufficient then this channel helps. It does not compete

with normal channels of finance.

A development bank does not accept deposits from the public like

commercial banks and other financial institutions who entirely depend

upon saving mobilization.




GROWTH OF DEVELOPMENT BANKS

Development banks attracted great attention after World War II but there one

insurances or such institutions even much earlier, First development bank was

found in Belgium in 1822. The purpose of financing and promoting industry. It

was a joint stock bank which nursed funds through the sale of shares and bonds

in order to finance; commercial and industrial enterprises. This new technique of

banking got impetus only in 1852 when 'Credit Mobilize of France' was set up. It

mobilized resources through the sale of bonds and promissory notes and made

long-term investments particularly in public utility undertakings, railways,

insurance companies and banks. It set a model for similar investment banks

established in Germany, Austria, Belgium, Netherlands, Italy, Spain and

Switzerland. Throughout the 19th century, the Credit Mobilize provided a great

appeal to all countries which wanted to develop industries on a fast pace. In

1902, Industrial Bank of Japan was established for the purpose of financing her

industrial development. This bank undertook functions of an issue, a Commercial

Bank and mortgage institutions. Though the bank was helpful in

Financing industrialization but it could not strictly be called a development bank.

World War I, European countries developed specialized institutions to provide

industrial finance for reconstruction, modernization and development of war

regard industries. These banks were mainly mortgage banks which extended

long-term loans to industrial undertakings upon first mortgage of industrial

property. Among the important institutions were Bank of Finland Ltd., National

Hungarian Industrial Mortgage Institute Ltd., and National Economic Bank of

Poland. These banks were helpful in reviving the war shattered economies of

these countries. In the second phase of development banking a need for

financing small scale sector was recognized. The institutes created after great

depression carried out the functions of capital under writing and direct




subscription along with lending activities. The Industrial credit Company of

Ireland and Netherlands, company for Industrial Financing participated in sharecapital of industrial undertakings in addition to granting term loans.

In the next phase of development banking after World War II there was a trend to

combine montage lending with underwriting and equity participation.

Some institutions developed during this period were Industrial Development Bank

of Canada (1944), France Corporation for Industry Ltd. and industrial and

Commercial Finance Corporation Ltd., England (1945), Industrial Finance

Department of Common wealth Bank of Australia (1945). These institutions not

only provided term loans to industry but also participated in the share capital of

companies. The institutions in England even have the option to convert their

loans into preference or equity shares. Though English and Canadian institutions

could at best be described as finance corporations but that of Australia could be

called a development bank because it could assist in the establishment and

development of industrial undertakings. Despite the differences in the

organization, Scope and methods of various institutions the main thrust of all of

them was to access, those enterprises where sufficient help was not forthcoming

from traditional sources. They acted essentially as gap fillers in peculiar

circumstances of the pest-war years.

In the last 50 years developing countries have promoted many development

thanks. These banks have been developed with special purpose in mind. They

differ in ownership, organization, scope etc. Some' are exclusively owned by

government (Industrial Development Bank of Nepal, 1959, National Development

Bank of Brazil, 1965) others by private interests (Industrial Credit and Investment

Corporation of India, Industrial Finance Corporation of Thailand, etc.) Some other

Banks (Summer Bank of Turkey) are meant to promote and finance government '

undertakings only, some exclusively for private enterprises while some for both.

Some banks can only lend while some can lend and take equities besides




underwriting. Some are concerned with entire economy while some are for

specific sectors only. Some banks are regional, some are national while a feware inter-regional (Asian Development Bank) or international such as World

Bank, International Finance Corporation, International Development Association

etc. Some banks provide only local currency while some deal in both local and

foreign currencies, etc.

OBJECTIVES OF DEVELOPMENT BANKS

Every country felt the need to accelerate the rate of development in post world

war era. There was a need to set up such institutions which would take up

promotional activities besides financing. In this background developmental banks

were needed for the following reasons:

2. Fulfill capital Needs

1'nere was a dearth of capital needed to foster industrial growth in

underdeveloped countries. Owing to the low level of income of the people there

were no sufficient surpluses for capitalization. There was a need for institutions

which could meet this gap between demand and supply for capital.

3. Need for Promotional Activities

Besides capital needs, underdeveloped countries suffered from lack of expertise,

managerial and technical know-how. Developmental banks could take up the job

of and joint sectors and provide managerial and resources and skills and of

channeling them into approved fields under private auspices are needed in these

countries.




3. Lay Foundations for Industrialization

A number of countries got independence from colonial rule. Their economies

needed to be rehabilitated. Other underdeveloped and developing countries too

needed to accelerate the pace of industrialization. To lay a solid foundation for

growth, establishment of certain key industries such as cement, engineering,

machine making, chemicals, etc. is essential. Private entrepreneurs were not

forthcoming to invest in these vital' areas due to risk involved and long gestation

period in those industries. The governments of under developed countries set up

development and institutions to fill the vacuum.

4. Help Small and Medium Sectors'

The large scale was, to some extent, able to meet its needs. There was a need to

mitigate sufferings of small and medium size industries which form a sizeable

sector of the industrial economy. Despite the important role played by these

sectors they experience scarcity of capital owing to the apathy of investors to

invest their savings because of their credit worthiness and profitability. There was

a need for special institutions to help these sectors in playing vital role in the

industrialization of developing and under developed countries.




FUNCTIONS OF DEVELOPMENT BANKS

Development banks have been started with the motive of increasing the pace of

industrialization. The traditional financial institutions could not take up this

challenge because of their limitations. In order to help all round industrialization

development banks were made multipurpose institutions. Besides financing they

were assigned promotional work also. Some important functions of these

institutions are discussed as follows:

1. Financial Gap Fillers

Development banks do not provide medium-term and long-term loans only but

they help industrial enterprises in many other ways too. These banks subscribe

to the bonds and debentures of the companies, underwrite to their shares and

debentures and, guarantee the loans raised from foreign and domestic sources.

They also help 'undertakings to acquire machinery from with in and outside the

country.

2. Undertake Entrepreneurial Role

Developing countries lack entrepreneurs who can take up the job of setting up

new projects. It may be due to lack of expertise and managerial ability.

Development banks were assigned the job of entrepreneurial gap filling. They

undertake the task of discovering investment projects, promotion of industrial

enterprises, provide technical and managerial assistance, undertaking economic

and technical research, conducting surveys, feasibility studies etc. The

promotional role of development bank is very significant for increasing the pace

of industrialization.




3. Commercial Banking Business

Development banks normally provide medium and long-term funds to industrial

enterprises. The working capital needs of the units are met by commercial banks.

In developing countries, commercial banks have not been able to take up this job

properly. Their traditional approach in dealing with lending proposals and

assistance on securities has not helped the industry. Development banks extend

financial assistance for meeting working capital needs to their loan if they fail to

arrange such funds from other sources. So far as taking up of other functions of

banks such as accepting of deposits, opening letters of credit, discounting of bills,

etc. there is no uniform practice in development banks.

4. Joint Finance

Another feature of development bank's operations is to take up joint financing

along with other financial institutions. There may be constraints of financial

resources and legal problems (prescribing maximum limits of lending) which may

force banks to associate with other institutions for taking up the financing of some

projects jointly. It may also not be possible to meet all the requirements of a

concern by one institution, So more than one institution may join hands. Not only

in large projects but also in medium-size projects it may be desirable for a

concern to have, for instance, the requirements of a foreign loan in a particular

currency, met by one institution and under writing of securities met by another.

5. Refinance Facility

Development banks also extend refinance facility to the lending institutions. In

this scheme there is no direct lending to the enterprise. The lending institutions




are provided funds by development banks against loans extended' to industrial

concerns. In this way the institutions which provide funds to units are refinancedby development banks. In India, Industrial Development Bank of India provides

reliance against ('term loans granted to industrial 'concerns by state financial

corporations. commercial banks and state co-operative banks.

6. Credit Guarantee

The small scale sector is not getting proper financial facilities due to the clement

of risk since these units do not have sufficient securities to offer for loans, lending

institutions are hesitant to extend them loans. To overcome this difficulty many

countries including India and Japan have devised credit guarantee scheme and

credit insurance scheme. In India, credit guarantee scheme was introduced in

1960 with the object of enlarging the supply of institutional credit to small

industrial units by granting a degree of protection to lending institutions against

possible losses in respect of such advances. In Japan besides credit guarantee,

insurance is also provided. These schemes help small scale concerns to avail

loan facilities without hesitation.

7. Underwriting of Securities

Development banks acquire securities of industrial units through either direct

subscribing or underwriting or both. The securities may also be acquired through

promotion work or by converting loans into equity shares or preference shares.

So development banks may build portfolios of industrial stocks and bonds. These

banks do not hold these securities on a permanent basis. They try to disinvest in

these securities in a systematic way which should not influence market prices of

these securities and also should not lose managerial control of the units.




Development banks have become world wide phenomena. Their functions

depend upon the requirements of the economy and the state of development of the country. They have become well recognized segments of financial market.

They are playing an important role in the promotion of industries in developing

and underdeveloped countries.

LENDING PROCEDURES OF DEVELOPMENT BANKS

(OPERATIONAL ACTIVITIES)

Development banks follow a procedure for evaluating a proposal for a project.

The basic objective is to check whether the applicant fulfils various conditions

prescribed by the lending institution and the project is viable. The acceptance of

a wrong proposal will result in the wastage of scarce resources. These banks

adopt the following procedure for lending:

1. Project Appraisal and Eligibility of Applicant

Every financial institution serves a particular area of activity or there are certain

limits prescribed beyond which they cannot go. Before processing the

application, it is important to find out whether the applicant is eligible under the

norms of the institution or not. The second aspect which is looked into is to

determine whether the enterprise has fulfilled various conditions prescribed by

the government. In case some license is required from the government. It should

have been taken or an assurance is received from the licensing authority. After

satisfying these preliminary issues the project is appraised by a team of technical

financial and economic officers of the institutions from various discussions with

the promoters and clarifications sought on various points. The bank institution

considers financial assistance in the light of




(I) Guidelines for assistance to industries issued by the government or others

concerned from time to time(ii) Guidelines issued by the bank

(iii) Policy decisions of the Board of Directors of the bank.

2. Technical Appraisal

A technical appraisal involves the study of:

1) Feasibility and suitability of technical process in Indian conditions.

2) Location, of the project in relation to the availability of raw materials,

power: water. labour, fuel, transport, communication facilities and market

for finished products.

3) The scale of operations and its suitability for the planned project.

4) The technical soundness of the projects.

5) Sources of purchasing plant and machinery and the reputation of

suppliers. etc.

6) Arrangement for the disposal of factory affluent and use of bye products, if

any.

7) The estimated cost of the project and probable selling price of the product.

8) The programmer for completing the project.

3. Economic Viability

The economic appraisal will consider the national and industrial priorities of the

project export potential of the product employment potential, study of market.

4. Assessing Commercial Aspects




The examination of commercial aspects relates to the arrangements for the

purchase of raw materials and sale of finished products. If the concern has somearrangement for sale then the position of the party should be assessed.

5. Financial Feasibility

The financial feasibility of a new and an existing concern will be assessed

differently. The assessment for a new concern will involve:

1) The needs for fixed assets, working capital and preliminary expenses will

be estimated to find out its needs.

2) The financing plans will be studied in relation to capital structure,

promoters' contribution, debt-equity ratio.

3) Projected cash flow statements both during the construction and

.operation periods

4) Projected profitability and the like dividend in near future.

If a project is already in operation and is undertaking expansion or diversification,

the financial feasibility will be different. The analysis of existing capital structure,

contribution of owners, debt-equity ratio, past financial performance results

shown by profit and loss accounts and balance sheets, the sources of raising

funds, likely needs .of the concern, future debt-equity ratio (after extending

financial help), debt service coverage, internal rate .of return, in the financial

position of the concern and viability for

6. Managerial Competence

The success .of a concern depends up on the competence of management.

Proper application of various policies will determine the Success of an enterprise.




A lending institution would see the background, qualifications, business

experience of promoters and other persons associated with management.

7. National Contribution

Besides commercial profitability, national contribution .of the project is also taken

into account. The role of the project in the national economy and its benefits to

the society in the form of good quality products, reasonable prices, employment

generation, helpful in social infrastructure etc. should be assessed. Development

banks aim at the over all welfare of the society.

8. Balancing of Various Factors

Various factors should be balanced against each other. The circumstances .of

the individual project will help in weighing various factors. Some factors may be

strong as their in-depth analysis should be avoided. In case a project is

profitable, there will be no need to assess cash flow. Weaknesses located in

certain areas may be .off set by the good points in the .other. An experienced

management and sound economic outlook may compensate some weakness in

financial positions. The responsibility of lending bank lies in balancing judiciously

different considerations for arriving at a consensus.

9. Loan Sanction

After the appraisal report on the project is prepared by the bank's officers, it is

placed before the advisory committee consisting of experts drawn from various

fields of the particular industry. If the advisory committee is satisfied tile proposal

then it recommends the case to the Managing Director or board of Directors




along with its own report. When the assistance is sanctioned hen a letter to this

effect is issued to the pay giving details of conditions.

10. Loan Disbursement

The loan is disbursed after the execution of loan agreement. The execution of

documents of security or guarantee etc. should precede the disbursement of

loan. In case some property is pledged to the bank then title deeds of such

property are properly scrutinized. The fulfillment of various conditions proceeding

to disbursement will determine the time of paying the money to the party.

11. Follow up

The job of a lending bank does noted by disbursing the assistance. It has first to

see whether the construction .of the project is as per schedule decided earlier. In

case some delay is taking place in executing the plans then the reasons for it

should be determined. Later during operations, the result should be properly

followed. It should be seen whether the revenue earned by the concern will be

sufficient to meet its obligations or not so a proper follow up by the bank will

enable it to follow the progress of the unit.

DEVELOPMENT BANKING IN INDIA

The foreign rulers in India did not take much interest in the industrial

development of the country. They were interested to take raw materials to

England and bring back finished goods to India. The government did not show




any interest for securing up institutions needed for industrial financing. The

“recommendation for setting up industrial financing institutions was made in 1931by Central Banking Enquiry Committee but no concrete steps were taken. In

1949, Reserve Bank had undertaken a detailed study to find out the need for

specialized institutions. It was in 1948 that the first development bank i.e.

Industrial Finance Corporation of India (IFCI) was established. IFCI was assigned

the role of a gap-filler which implied that it was not expected to compete with the

existing channels of industrial finance. It was expected to provide medium and

long-term credit to industrial concerns only when they could not raise sufficient

finances by raising capital or normal banking accommodation. In view of the vast

size of the country and needs of the economy it was decided 10 set up regional

development banks to cater to the needs of the small and medium enterprises. In

1951, Parliament passed State Financial Corporation Act. Under this Act state

governments could establish financial corporations for their respective regions. At

present there are 18 State Financial Corporations (SFC's) in India.

The IFCI and state financial corporations served only a limited purpose. There

was a need for dynamic institutions which could operate as true development

agencies. National Industrial Development Corporation (NIDC) was established

in 1954 with the objective of promoting industries which could not serve the

ambitious role assigned to it and soon turned to be a financing agency restricting

itself to modernization and rehabilitation of and jute textile industries.

The Industrial Credit and Investment Corporation of India (ICICI) were

established in 1955 as a Joint Stock Company. ICICI was supported by

Government of India, World Bank, Common wealth Development Finance

Corporation and other, foreign institutions. It provides term loans and takes an

active part in the underwriting of and direct investments in the shares of industrial

units. Though ICICI was established in private sector but its pattern of




shareholding and methods of raising funds gives it the characteristic of a public

sector financial institution. .Another institution, Refinance Corporation for Industry Ltd. (RCI) was set up in

1958 by Reserve’ Bank of India, LIC and Commercial Banks. The purpose of RCI

was to provide refinance to commercial banks and SFC's against term loans

granted by them to industrial concerns in private sector. In 1964, Industrial

Development Bank of India (IOBI) was set up as an apex institution in the area of

industrial finance, RCI was merged with IDBI. IDBI was a wholly owned

subsidiary of RBI and was expected to co-ordinate the activities of the institutions

engaged in financing, promoting or developing industry.

However, it is no longer a wholly owned subsidiary of the Reserve Bank of India.

Recently, it made a public issue of shares to increase its capital. In order to

promote industries in the slate another type of institutions, namely, the State

Industrial Development Corporations (SIDC's) were established in the sixties to

promote medium scale industrial units. The state owned corporations have

promoted a number of projects in the joint sector and assisted sector. At present

there are 28 SIDC's in the country. The State Small Industries Development

Corporations (SSIDC's) were also set up to cater to the needs of industry at state

level. These corporations manage industrial estates, supply

raw materials, run common service facilities and supply machinery on hire

purchase basis. Some states have established their own institutions.

A number of other institutions also participate in industrial financing. The Unit

Trust of India (UTI) established in 1964, Life Insurance Corporation of India

(1956) and General Insurance Corporation of India (GIC) set up in 1973 also

finance industrial activities at all India level. Some more units have been set up to

provide help in specific areas such as

rehabilitation of sick units, export finance, agriculture and rural development.

Industrial Reconstruction Corporation of India Ltd. (RCI)' was set up in 1971 for

the rehabilitation of sick units. In 1982 the Export-Import Bank of India (Exim




Bank) was established to provide financial assistance to exporters and importers.

In order to meet credit needs of agriculture and rural sector, National' Bank for Agriculture and Rural Development (NABARD) was set up in 1982. It is

responsible for short term, medium term and long-term financing of agriculture

and allied activities. The institutions such as Film Finance

Corporation, Tea Plantation Finance Scheme, Shipping Development Fund,

Newspaper Finance Corporation, Handloom Finance Corporation, Housing

Development Finance Corporation also provide financial various areas.

PROMOTIONAL ROLE OF DEVELOPMENT BANKS IN INDIA

The pace of development cannot be accelerated by providing financial assistance

alone. There are factors which inhibit industrialization of an underdeveloped

country. It is essential to make a correct diagnosis of those factors and plan

things accordingly. The growth potential of different areas, the availability of

natural resources, demand conditions, infrastructure facilities, etc. should be

taken into account before deciding the pattern .of industrialization of various

places. The task of identification of growth potentialities and preparation of

feasibility studies is not an easy task. It requires huge finances and technical

expertise which is beyond the competence of entrepreneurs of under-developed

countries. It is in this area where development banks can play crucial role. In

addition to providing the traditional role of providing financial assistance,

development banks in India are undertaking promotional role also. Some of the

areas where these banks are participating are:

(1) Surveys of Backward Areas

Under the Industrial Development Bank of India, development institutions

conducted industrial potential surveys in June, 1970 with a view to identify




specific project ideas for implementation in those areas. These surveys studied

the availability of resources, demand potential and availability of infrastructuresfacilities. In 1982, Government .of India identified 83 districts in the country where

no medium or large scale industrial units existed. IOBI jointly with IFCI and ICICI

launched a programme for identifying industrial opportunities and needs for.

These project ideas were further screened and developed for arriving at some

firm decision about their implementation. IDBI conducted feasibility studies and

cleared projects for implementation.

(2) Inter-Institutional Groups (IIG's)

With a view to provide a forum to the national and state financial institutions, IDBI

constituted 23 IIG's in various states and union territories These groups aimed to

help accelerate the process of industrial development in a state with particular

emphasis on less developed areas, An attempt was also made to evolve suitable

strategies for industrial development within the framework of national and state

policies and local requirements. IDBI has been constantly reviewing the

functioning of these groups so as to evolve suitable measures for malting them

effective.

(3) Establishing Technical Consultancy Organizations (TCO's),

There is a need for technical consultancy at the time of selling up a new unit and

at the time of making change like modernization, expansion, diversification, etc.

The small and medium scale units cannot pay high fees of consultancy agencies.

With a view to help these entrepreneurs, financial institutions set up 17

consultancy organization for providing consultancy at nominal rates. These

organizations provide consultancy services to small and medium entrepreneurs,

commercial banks, state-level financial institutions and other agencies engaged

in industrial promotion and development. The consultancy services covered so




far include market surveys, preparation of feasibility and project reports,

entrepreneur ship development programmes, diagnostic studies andrehabilitation schemes for sick units, services for implementing projects on turn-

key basis. TCO's have been giving thrust to modernization small and medium

scale sectors also. In this respect they have undertaken in depth studies of

specific sub- sectors of small scale industry so as to identify their modernization

needs and prepare modernization programmes.

(4) Entrepreneurial Development Programmes (EPP's)

Industrial development of a country is directly influenced by the quality of

entrepreneurs it has produced, with a view to impart requisite training to

entrepreneurs. IDBI has been encouraging entrepreneurial development

programmes. It has mainly used the agency of TCO's for drawing up and

conducting these programmes to cater to the needs of entrepreneurs from small

and medium scale sectors. IDBI meets up to 50 per cent of the cost of such

programmes and the balance cost is met by state governments or other

sponsoring institutions.

Development banks have also been trying to strengthen the infrastructure for

conducting entrepreneurial development programmes. The main thrust has been

to institutionalize entrepreneurship activities, generating, sharpening and sharing

knowledge through research documentation and publication, developing a cadre

of professionals. A major step in this area was the setting up of Entrepreneurship

Development Institute of India, Ahmedabad in 1983. The objective of this

institution was to train EPP trainers, providing resource inputs running model

development programmes, conducting.

(5) Technological Improvements




Development banks, especially IDBI have been helping small and mediumsectors in developing and upgrading of their technology so that they arc able to

match the pace of development. These banks also encourage entrepreneurs to

adopt sophisticated technology with the help of academic and research institutes

and also to encourage entrepreneurship among science and technology

graduates. Development banks have done a good job in promoting industrial

activities in various parts of the country. The development of backward areas is a

gigantic task in India. Private entrepreneurs cannot measure to this task of their

own. So development banks are expected to play an important role in this regard.

These banks should help in setting up new projects by associating private

entrepreneurs so that their management is left to them. After a particular stage of

a project the development institutions should transfer the responsibility to private

sector and same resource should be used to develop more units. Development

banks, in co-operation with private sector, can certainly help in accelerating the

pace of industrial development.

ROLE OF DEVELOPMENT BANKS IN FINANCIAL SECTOR

Financial institutions provide means and mechanism of transferring resources

from those who have an excess of income over expenditure to those who can

make productive use of the same. The commercial banks and investment

institutions mobilize savings of people and channel them into productive uses.

Financial institutions provide all type of assistant required infrastructural facilities

Institutions e p economic persons who can take the development in the following

ways.

1. Providing Funds:-




The underdeveloped countries have low levels of capital formation. Due to low

incomes, people are not able to save sufficient funds which are needed for sensing up new units and also for expansion diversification and modernization of

existing units. The persons who have the capability of starting a business but

does not have requisite help approach to financial institutions for help. These

institutions help large number of persons for taking up some industrial activity.

The addition of new industrial units and increasing the activities of existing units

will certainly help in accelerating the pace of economic development. Financial

institutions have large inventible funds which are used for productive purposes

2. Infrastructural Facilities

Economic development of a country is linked to the availability of infrastructural

facilities. There is a need for roads, water, sewerage, communication facilities,

electricity etc. Financial institutions prepare their investment policies by keeping

national priorities in miner-The institutions invest in those aim is which can help in

increasing the development of the country. Indian industry and agriculture is

facing acute shortage of electricity. All India" institutions are giving priority to

invest funds in projects generating electricity. These investments will certainly

increase the availability of electricity. Small entrepreneurs cannot spare funds for

creating infrastructural facilities. To overcome this problem, institutions at state

level are developing industrial estates and provide sheds, having all facilities at

easy installments. So financial institutions are helping in the creation of all those

facilities which are essential for the development of a country

3. Promotional Activities

An entrepreneur faces many problems while setting up a new unit. One has to

undertake a feasibility report, prepare project report, complete registration

formalities, seek approval from various agencies etc. All these things require

time, money and energy. Some people are not able to undertake this exercise or




some do not even take initiative. Financial institutions are the expense and

manpower resources for undertaking the exercise of starting a new unit. So theseinstitutions take up this work on behalf of entrepreneurs. Some units may be set

up jointly with some financial institutions and in that case the formalities are

completed collectively. Some units may not have come up had they not received

promotional help from financial institutions. The promotional role of financial

institutions is helpful in increasing the development of a country.

4. Development of Backward Areas

Some areas remain neglected because facilities needed for setting up new units

are not available here. The entrepreneurs set up new units at those places which

are already developed. It causes imbalance in economic development of some

areas. In order to help the development of backward areas, financial institutions

provide special assistance to entrepreneurs for setting up new units in these

areas. IDBI, IFCI, ICICI give priority in giving assistance to units set up in

backward areas and even charge lower interest rates on lending. Such efforts

certainly encourage entrepreneurs to set up new units in backward areas. The

industrial units in these areas improve basic amenities and create employment

opportunities. These measures will certainly help in increasing the economic

development of backward areas.

5. Planned Development

Financial institutions help in planned development of the economy. Different

institutions earmark their spheres of activities so that every business activity is

helped. Some institutions like SIDBI, SFCI's especially help small scale sector

while IFCI and SIDC's finance large scale sector or extend loans above a certain

limit. Some institutions help different segments like foreign trade, tourism etc. In

this way financial institutions devise their roles and help the development in their

own way. Financial institutions also follow the development priorities set by




central and state governments. They give preference to those industrial activities

which have been specified in industrial policy statements and in five year plans.Financial institutions help in the overall development of the country

6. Accelerating Industrialization

Economic development of a country is linked to the level of industrialization there.

The setting up of more industrial units will generate direct and indirect

employment, make available goods and services in the country and help in

increasing the standard of living. Financial institutions provide requisite financial,

managerial, technical help for setting up new units. In some areas private

entrepreneurs do not want to risk their funds or gestation period His long but the

industries are needed for the development of the area. Financial institutions

provide sufficient funds for their development. Since 1947, financial institutions

have played a key role in accelerating the pace of industrialization. The country

has progressed in almost all areas of economic development.

7. Employment Generation

Financial institutions have helped both Direct and indirect employment

generation. They have employed many persons to man their offices. Besides

office staff, institutions need the services of experts which help them in finalizing

lending proposals. These institutions help in creating employment by financing

new and existing industrial units. They also help in creating employment

opportunities in backward areas by encouraging the setting

up of units in those areas, Thus financial institutions have helped in creating new

and better job opportunities.

ALL INDIA DEVELPOMENTS BANKS




In India, various financial institutions were set up after independence only. The

Government of India has taken sleeps to set up institutions which assist varioussectors of the economy. At present the country has 12 institutions at the national

level and 46 at the state level. The All India Financial Institutions comprise six:

All-India Development Banks, namely: Industrial Development Bank of India,

Industrial Finance Corporation of India Ltd., Industrial Credit and Investment

Corporation of India Ltd., Small Industries Development Investment Bank of

India, Industrial Reconstruction Bank of India and SCICI Ltd. Specialized

institutions comprise of Risk Capital and Technology Finance Corporation Ltd.,

Technology Development and Information Company of India Ltd. and Tourism

Finance Corporation of India Ltd. There are three investment institutions: Life

Insurance Corporation of India Ltd., Unit Trust of India and General Insurance

Corporation of India. At state level there are 18 State Finance Corporations and

18 state finance corporations and 28 state industry development corporations.

INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI)

At the same time raw industrial units were to be set up for industrializing the

country. Government of India came forward to set up the Industrial Finance

Corporation of India (IFCI) in July 1948 under a Special Act. The Industrial




Development Bank of India, scheduled banks, insurance companies, investment

trusts and co-operative banks are the shareholders of IFCI. The Government of India has guaranteed the repayment of capital and the payment of a minimum

annual dividend. Since July I, 1993, the corporation has been converted into a

company and it has been given the status of a Ltd. Company with the name

Industrial Finance Corporations of India Ltd. IFCI has got itself registered with

Companies Act, 1956. Before July I, 1993, general public was not permitted to

hold shares of IFCI, only Government of India, RBI, Scheduled Banks, Insurance

Companies and Co-operative Societies were holding the shares of IFCI.

Management of IFCI

The corporation has 13 members Board of Directors, including Chairman. The

Chairman is appointed by Government of India after consulting Industrial

Development Bank of India. He works on a whole time basis and has tenure of 3

years. Out of the 12 directors, four are nominated by the IDBI, two by scheduled

banks, two by co-operative banks and two by other financial institutions like

insurance companies, investment trusts, etc. IDBI normally nominates three

outside persons as directors who are experts in the fields of industry, labour and

economics, the fourth nominee is the Central Manager of IDBI. The Board meets

once in a month. It frames policies by keeping in view the interests of industry,

commerce and general public. The Board acts as per the instructions received

from the government and IDBI. The Central Government reserves the power up

to the Board and appoints a new one in its place.

The Board is assisted by the Central Committee which consists of the chairman,

two directors elected by nominated directors and the Board of directors elected

by the elected directors. This committee assists the Board in discharge of its

functions. It .can act on all matters under the competence of the Board, So this

committee practically transacts the entire business of the corporation. IFCI also




has Standing Advisory Committees one each for textile, sugar, jute, hotels,

engineering and chemical processes and allied industries. The experts indifferent fields appointed on Advisory Committees. The chairman is the ex-officio

member of all Advisory Committees. All applications for assistance are first

discussed by Advisory Committees before they go to Central Committees.

Financial Resources of IFCI

The financial resources of the corporation consist of share capital bonds and

debentures and borrowings.'

a) Share Capital:-

The IFCI was set up with an authorized capital of Rs. 10crores consisting

of 20,000 shares of Rs. 5,000 each. This capital was later on increased at

different times and by March, 2003 it was Rs. 1068 crores. The capital was

subscribed by Central Government, Reserve Bank of India, scheduled banks,

Life Insurance Corporation, investment trusts, co-operative banks are other

financial institutions. In 1964, the share capital held by the central government

and RBI was transferred to the Industrial Development Bank. The corporation

thus became a subsidiary of IDBI. The central government had guaranteed

the shares of the corporation both for repayment of the principal and for the

payment of a dividend at 2.5 per cent on the original issue and 4 per cent onthe additional issues. However, since July I, 1993IFC has been converted into

a limited company.

b) Bonds and Debentures:-




The corporation is authorized to issue bonds and debentures to

supplement its resources but these should not exceed ten times of paid-upcapital and reserve fund. The bonds and debentures stood at a figure of Rs.

57.69 crores 1971 and rose to Rs. 15366.5 crores as on 31st March 2003.

The bonds and debentures are also guaranteed by the central government for

both payment of interest at such rates as may be fixed at the time the bonds

and debentures are issued.

c) Borrowings:-

The corporation is authorized to borrow from government IDBI and

financial institutions. Its borrowings from IDBI and Govt. of India were Rs.

975.6 crore on March 31, 2003. Total assets of IFCI as on March 31, 2003

aggregated Rs. 22866 crore including investments of Rs. 3820.3 crore and

loans and advances of Rs. 13212.8crore.

Priority Criterion for Investment

IFCI plans its financing policies as per the priorities set by the government

through Industrial Policy Statements. The Industries which are in high priority are

given more importance. Following considerations are taken into account while

selecting a financial proposal:

i. Importance of the project for national economy.

ii. Employment-oriented and labour-intensive nature of the project.

iii. Export potential of the unit,

iv. Projects located in backward areas or 'no industry districts.

v. Projects initiated by new or technician entrepreneurs.

vi. Projects which will harness indigellously available technology, technical

know how and raw materials.

vii. Projects which will help rural areas.




viii. Projects which help in conserving energy or which manufacture renewable

energy systems or devices.ix. Projects to be set up in co-operative sector.

Eligibility for Assistance under Direct Financing

Following types of industrial concerns are eligible for direct finance under IFCI

Act, amended from time to time:

i. Limited companies incorporated in India, in private, public or joint Sector

ii. Co-operative societies registered in India, which are engaged or propose

to engage in any of the activities related to

a. Manufacture, preservation or processing of goods

b. Shipping

c. Mining

d. Hotel industry

e. Generation or distribution of electricity or any other form of power

f. Transport of passengers or goods.

g. Maintenance, repair or servicing of machinery or vehicles.

h. Assembling, repairing or packing of articles.

i. Development of contiguous area of land as an industrial estate.

j. Fishing or providing shore facilities for fishing.

k. Providing special or technical knowledge or other services for

promotion of industrial growth.

l. Research and Development of any process or product in relation to

any of the matters aforesaid.

Purpose of Direct Assistance:

IFCI provides direct financial assistance for the following causes:

a. Setting up of new industrial projects.




b. Expansion of existing units or for diversification into new lines of activity.

c. For renovation and modernization of existing units.

IFCI does not ordinarily provide funds for working capital purpose as this function

is left to commercial banks. It does not allow utilizing its assistance for meeting

existing liabilities of the industrial concerns. Similarly, foreign currency loans can

be used for purchasing capital goods only and not of raw material.

FUNCTIONS OF IFCI

IFCI is authorized to render financial assistance in one or more of the following

forms:

i. Granting loans or advances to or subscribing to debentures of industrial

concerns repayable within 25 years. Also it can convert part of such loans

or debentures into equity share capital at its option.

ii. Underwriting the issue of industrial securities i.e. shares, stock, bonds, 0r

debentures to be disposed off within 7 years.

iii. Subscribing directly to the shares and debentures of public limited

companies.

iv. Guaranteeing of deferred payments for the purchase of capital goods from

abroad or within India.

v. Guaranteeing of loans raised by industrial concerns from scheduled balls

or state co-operative banks.

vi. Acting as an agent of the Central Government or the World Bank in

respect of loans sanctioned to the industrial concerns.

IFCI provides financial assistance to eligible industrial concerns regardless of

their size. However, now-a-days, it entertains applications from those industrial

concerns whose project cost is about Rs. 2 crores because upto project cost of

Rs. 2 crores various state level institutions (such as Financial Corporations,




SIDCs and banks) are expected to meet the financial requirements of viable

concerns. While approving a loan application, IFCI gives due consideration to thefeasibility of the project, its importance to the nation, development of the

backward areas, social and economic viability, etc. The most of the assistance

sanctioned by IFCI has gone to industries of national priority such as fertilizers,

cement, power generation, paper, industrial machinery etc. The corporation is

giving a special consideration to the less developed areas and assistance to

them has been stepped up. It has sanctioned nearly 49 per cent of its assistance

for projects in backward districts. The corporation has recently been participating

in soft loan schemes under which loans on confessional rates are given to units

in selected industries. Such assistance is given for modernization, replacement

and renovation of plant and equipment.

IFCI introduced a scheme for sick units also. The scheme was for the revival of

sick units in the tiny and small scale sectors. Another scheme was framed for the

self-employment of unemployed young persons. The corporation has diversified

not merchant banking also. Financing of leasing and hire purchase companies,

hospitals, equipment leasing etc. were the other new activities of the corporation

in the last few years.

Promotional Activities

The IFCI has been playing very important role as a financial institution in

providing financial assistance to eligible industrial concerns. However, no less

important is its promotional role whereby it has been creating industrial

opportunities also. It has been taking up directly as well as indirectly; such steps

and activities are regarded necessary for the acceleration of the process of

industrialization in the country.

The promotional role of IFCI has been to fill the gaps, either in the institutional

infrastructure for the promotion and growth of industries, or in the provision of the

much needed guidance in project intensification, formulation, implementation and




operation, etc. to the new tiny, small-scale or medium scale entrepreneurs or in

the efforts at improving the productivity of human and material resources.(a) Development of Backward Areas: - The main thrust of all financial

institutions has been to remover regional imbalances by promoting

industrialization of backward areas. IFCI introduce a scheme of

confessional finance for projects set up in backward areas. The backward-

districts were divided into three categories depending upon the state of

development there. All these categories were eligible for concessional

finance. Nearly 50 per cent of total lending of IFCI has been to develop

backward areas.

(b) Promotional Schemes:- IFCI has been operating six promotional

schemes with the object of helping entrepreneurs to set up new units,

broadening the entrepreneurial base, encouraging the adoption of new

technology, tackling 'the problem of sickness and promoting opportunities

for self development and . self employment of unemployed persons etc.

These schemes are as such:

a. Subsidy for Adopting Indigenous Technology:- The projects

which use indigenously developed technology are entitled to a

concession in the form of subsidy covering interest payments due

to IFCI during the first three years of operations, extendable to five

years.

b. Meeting Cost of Market Studies: - The entrepreneurs setting up

medium sized industrial projects for the first time can avail 75 per

cent of the cost of market survey/study subject to a ceiling of Rs.

15,000 provided it is handled by Technical Consultancy

Organization. .

c. Meeting Cost of Feasibility Studies: - IFCI provides subsidy for

the fees paid for consultancy assignments relating to feasibility,

project reports etc. The amount allowable is 80 per cent of the fees




of Rs. 7,500 whichever is less. This limit is Rs. 8,500 or 100 per

cent of the total fees whichever is less for handicapped or scheduled caste persons.

d. Promoting Small Scale and Ancillary Industries: - For the

identification of products suitable for ancillary or further processing

in small scale sector and preparation of feasibility reports a subsidy

of Rs.0.1 million per annum for technical consultancy

organization is allowed.

e. Revival of Sick Units: - There is a subsidy to the extent of 80 per

cent or Rs. 5,000 (whichever is less) for the fees charged by a

technical consultancy organization for carrying out a diagnostic

study or for the implementation of rehabilitation programme. This

facility is allowed to tiny units or units in small scale sector.'

f. Self-development and Self employment Scheme: - An

unemployed person in the age group of 21 to 35 years may be

allowed a soft loan for providing margin money for getting a loan

from a bank or a financial institution. The soft loan at interest free

rate in first year and has confessional interest later on. The amount

available under this scheme is 25% of margin money subject to Rs.

5000.




INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI)

Industrial Development Bank of India was set up to accelerate the development

of the country. A number of financial institutions came into existence after independence and were catering to a variety of needs of the industry. There was

a lack of co-ordinating different institutions and it led to overlapping and

duplication in their efforts: At the same time some gigantic projects of national

importance were not getting required financial assistance. It was in response to

this need that the Industrial Development Bank of India (IDBI) was established in

1964 as a wholly owned subsidiary of Reserve Bank of India. The bank was to

act as an apex institution co-coordinating functions of all the financial institutions

into a single integrated movement of development banking and supplementing

their resources for industrial financing and as an agency for providing financial

support to all worthwhile projects of national importance whose access to existing

institutional sources is limited.




The ownership of IDBI was transferred to Central Government on February 16,

1976. It is now working as state owned autonomous corporation. IDBI providesdirect financial assistance to industrial units to bridge the gap between supply

and demand of medium and long term finance.

The IDBI Act was amended, in 1994, to permit public ownership upto 49 percent.

In 1995, it raised more than Rs. 20 billion through its first initial public offer (IPO)

of equity. It reduced the stake of the government to 72.14 percent. Further, in

June 2000, a pan of the equity shareholding of the government was convened

into preference share capital which was redeemed in March 2001, resulting into

further reduction of government stake to 58.47 percent.

Financial Resources of IDBI

a. Share Capital. IDBI was formed with an authorized capital of Rs. 50 crores

which was raised a number of times. In October, 1994, Government of

India's amended certain provisions of IDBI Act under which its authorised

capital has been increased to Rs. 2000 crore which can further be

increased to Rs. 5000 crore. A pan of equity capital (Rs. 253 crore) has

been convened into preference capital. IDBI has been permitted to issue

equity capital to public with a stipulation that at no time Government

holding will be less than 51 per cent. As on March 31,2003 the paid up

capital of IDBI stood at Rs. 652.8 crores and reserve funds at Rs. 6325.3

crore.

b. Borrowings. The bank is authorised to raise its resources through

borrowings from Government of India, Reserve Bank of India and other

fmancia1 institutions. On March 31, 2003, the bank had borrowings of Rs.

41798.0 crore by way of bonds and debentures, deposits of Rs. 4329.9

crore and borrowings of Rs. 5359.9 crore from Government of India and

other sources.




Management of IDBI

The management of IDBI is vested in a Board of Directors consisting of 22

persons including a full-time Chairman-cum-Managing Director appointed by the

Central Government. The other members of the Board comprise of a

representative of the RBI, a representative each of the all-India financial

institutions, two officials of the Central Government, three representative search

of he public sector banks and SFCs and five representatives having special

knowledge and experience of industry; The .Board has constituted an Executive

Committee consisting of ten directors. Ad-hoc committees of Advisers are also

constituted to advise it on. specific projects.

Recently, Government of India ha9 sought to repeal the IDBI Act. 1964. by

introducing The Industrial Development Bank.(Transfer of Undertaking and

Repeal) Bill 2002 is Lok Sabha. The Bill is aimed at convening IDBI into a

company under the Companies Act as also enabling it to undertake banking

business.

Functions of IDBI

The main functions of IDBI are as follows:

1) To co-ordinate the activities of other institutions providing term finance to

industry and to act as an apex institution.

2) To provide refinance to financial institutions granting medium and long-term loans to industry.

3) To provide refinance to scheduled banks or co-operative banks.

4) To provide refinance for export credit granted by banks and financial

institutions




5) To provide technical and administrative assistance for promotion

management or growth of industry.6) To undertake market surveys and techno-economic studies for the

development of industry.

7) To grant direct loans and advances to industrial concerns. IDBI is

empowered to finance all types of industrial concerns engaged or

proposed to be engaged in the manufacture, preservation or processing of

goods, mining, hotel, industry, fishing, shipping transport, generation or

distribution of power, etc. The bank can also assist concerns engaged in

the setting up of industrial estates or research and development of any

process or product or in providing technical knowledge for the promotion

of industries. Until recently IDBI also functioned as Expon Bank of the

country.

8) To render financial assistance to industrial concerns. IDBI operates

various schemes of assistance. e.g., Direct Assistance Scheme. Soft

Loans Scheme. Technical Development Fund Scheme, Refinance

Industrial Loans Scheme. Bill Re-discounting Scheme. Seed Capital

Assistance Scheme. Overseas Investment Finance Scheme. Development

Assistance Fund, etc.

OPERATIONS OF IDBI

Since its inception in 1964, IDBI has extended its operations to various areas of

industrial sector. It provides direct as well as indirect financial assistance for increasing the pace of industrial development. Aggregate assistance sanctioned

by March. 2003 amounted to Rs. 223932.1 crore and disbursements amounted

to Rs. 168166.5crores. The operation

1. Direct Assistance




Direct financial assistance includes project finance assistal1ce, soft-loan

assitace, assistance under technical development fund scheme and rehabilitationassistance for sick units. Various schemes under direct assistance are discussed

as follows:-

a) Project Finance Assistance: - Under project finance scheme. the IDBI

extends direct assistance to industrial concerns in the form of :

a. Project loans

b. Subscription to and/or underwriting of issues of shares and

debentures.

c. Guarantee for loans and deferred payments.

Financial assistance under this scheme is granted for setting up new projects as

well as for expansion and Modernization renovation of existing units. IDBI

normally extends assistance to public limited companies in the private, public,

joint sector and co-operative sectors. Bank's assistance is sought for projects

involving large capital outlay or sophisticated technology. Bank gives preference

to units set up by new entrepreneurs or projects located in backward areas. The

repayment period is settled by looking at the capacity of the enterprise. Normally,

repayment is spread over a period of 8-10 years with a grace period of 2-3 years.

These loans are usually secured by a first legal mortgage of the immovable

properties of the borrowing concern and floating charge on its other assets,

subject to a first charge on raw materials, stocks, etc. for working capital

borrowings.

The bank does not hold shares & debentures, taken over under legal obligation

for underwriting or taken over directly, for a longer period. As a matter of policy,

the bank places major emphasis on the long-term economic viability of the

projects rather than on the immediate sale ability of their products. In the case of




assistance in the form of guarantees of loans and deferred payments, the bank

charges a guarantee commission of 1 per cent in normal cases.There has been a constant increase in direct assistance. Upto March, 2003

cumulative assistance in the form of direct loans to industrial concerns and

.subscriptions came to Rs. 102601.8 crore. Most of this assistance was in priority

sector industries such as basic industrial chemicals, cement, fertilizers, Iron and

steel, electricity, fertilizer, sugar, textiles, paper and industrial machinery.

IDBI introduced special schemes for industrialization of backward areas. In a

scheme introduced in 1969 it offered concessional rates of interest, longer grace

periods for repayments, etc. These concessions were available to small and

medium units having project cost upto Rs. 3 crores. In collaboration With IFCI

and ICICI, the bank is also giving concessional rupee assistance upto Rs. 2

crores and underwriting assistance up to Rs.1crore. The assistance to backward

areas has also been increasing.

To achieve balanced regional growth and accelerate industrial development IDBI

initiated promotion and development activities. In co-operation with other

institutions the bank conducted industrial potential surveys in a number of states.

b) Soft Loan Scheme

IDBI introduced in 1976 the soft loan scheme to provide financial assistance to

product units in selected industries viz., cement, cotton, textiles. jute, sugar and

certain engineering industries to modernize. Financial replace and renovate their

plant and equipment so as to achieve higher and more economic levels of

production. This scheme is implemented by IDBI with .financial participation by

IFCI and ICICI. The basic criteria for assistance under the scheme are the

weakness or non-viability of industrial concerns arising out of mechanical

obsolescence. Industrial concerns which are not in a position 10 bear the normal

lending rate of interest of the financial institutions are provided on accessional




assistance to the full extent of the loan. In other cases the limit of concessional

assistance is 66 per cent of the loan.

c) Technical Development Fund Scheme

The Government of India introduced the Technical Development Fund (TDF)

Scheme in March. 1976 for issue of import licenses for import of small value

balancing equipment, technical know how, foreign consultancy services and

drawings and designs by industrial units to enable them to achieve fuller capacity

utilization, technological up gradation and higher exports. Some industrial units

found it difficult to take advantage of the import license issued under this scheme

for want of rupee resources. In January, 1977, IDBI introduced a scheme for

providing matching rupee loans to industrial units to enable them to utilize import

licenses issued under TDF scheme. The scheme which was started for six

specified industries now covers all industries as also import of any other input

needed by the industrial units for improving export capabilities. This scheme of

the bank has not been successful as only one-fourth of the units sought this

assistance.

Rehabilitation Assistance to Sick Units

The problem of growing industrial sickness in India is a cause of worry. It

adversely affects production, employment, generation of income and utilization of

productive resources. With a view to combat sickness, IDBI has devised the

Refinance Scheme for Industrial Rehabilitation. The units which have been

assisted by State Financial Corporation or State Industrial Development

Corporations and are classified as sick are eligible under this scheme. There

should be a possibility of the unit being revived in a reasonable time. The bank

provides for capital expenditure required for restarting the unit on viable level.

The need for margin money for additional term-loan and working




Capital, working capital term loan, payment of statutory liabilities, cash losses

during rehabilitation period etc. are met by the bank. The bank has also beentrying to bring merger of sick units with healthy units.

2. Indirect Assistance

IDBI cannot provide direct financial assistance to various industrial units situated

in different parts of tile country. It has adopted a strategy under which it extends

financial assistance directly to large and complicated industrial units involving

large capital outlays and sophisticated technology. It helps small scale in

industries indirectly through providing assistance to other financial institutions

which, in turn, help these industries. The indirect help of IDBI takes the form of

refinancing of industrial loans, rediscounting of bills, seed capital assistance and

financial support to 6ther institutions by way of subscribing to their shares,

debentures, bonds etc.

a) Refinance of Industrial Loans

IDBI provides refinance facility against term loans granted by the eligible

credit institutions to industrial concerns for setting up of industrial projects as

also for their expansion, modernization and diversification. IDBI provides

refinance to commercial banks, regional rural banks, state, co-operative

banks, state financial corporations, state industrial development corporations

or other institutions extending term loan assistance to industrial units.

Industrial units seeking term loan approach the eligible financial institutions

which, after sanctioning the loans, approach the IDBI for refinance facility.

The appraisal of loan application is done by primary institution by keeping in

view the guidelines issued by central government and the IDBI. The bank

relies in the appraisal done by the primary lending institutions that have to

bear primary responsibility for the loans granted by them. IDBI sanctioned a

sum of Rs. 20712.3 crores upto March 2003 under refinance of industrial




loans. Since 1967, IDBI has been extending indirect financial help to small

scale sector principally through its schemes of refinance of industrial loansand bills discounting.

b) Rediscounting of Bills

IDBI introduced another indirect financing' scheme in 1965, whereby

rediscounting facility of machinery bills was, introduced. This scheme was to

help indigenous machinery manufacturers and their purchases. The

purchaser of machinery accepts bills of exchange or promissory notes of the

seller and undertakes to take the payment in installments. The seller gets the

bills discounted with his banker who in turn rediscounts these bills with min.

The buyer is enabled to acquire the machinery on deferred payment terms

without going through the usual procedures involved in obtaining a project

loan. The usual deferred period is 5 years but in deserving cases it can be

extended upto 7 years. The scheme has been extended for expansion and

diversification of existing units also. The rediscounting facility has been made

available to imported machinery also where bills will be required to be drawn

by local agents of foreign firms.

c) Seed Capital Assistance:-

With a view to help first generation entrepreneurs who have the skills but lack

financial resources, IDBI started seed capital assistance scheme in

September, 1976. Under the first scheme, Financial

Corporations provide seed capital assistance to projects in

small scale sector from their special class of share capital

contributed by IDBI and the state government. The maximum amount of

assistance under this scheme is to meet the gap in the equity contribution

which is 20 per cent of the cost of the project.

SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA




(SIDBI)

SIDBI is a Principal Development Financial Institution for:-- Promotion

-- Financing and

-- Development of Industries in the small scale sector and

--Co-coordinating the functions of other institutions engaged in similar activities.

Provision of Charter

SIDBI was established on April 2, 1990. The Charter establishing it, The Small

Industries Development Bank of India Act, 1989 envisaged SIDBI to be "the

principal financial institution for the promotion, financing and development of

industry in the small scale sector and to co-ordinate the functions of the

institutions engaged in the promotion and financing or developing industry in the

small scale sector and for matters connected therewith or incidental thereto.

Business Domain of SIDBI

The business domain of SIDBI consists of small scale industrial units, which

contribute significantly to the national economy in terms of production,

employment and exports. Small scale industries are the industrial units in which

the investment in plant and machinery does not exceed Rs.10 million . About 3.1




million such units, employing 17.2 million persons account for a share of 36 per

cent of India's exports and 40 per cent of industrial manufacture. In addition,SIDBI's assistance flows to the transport, health care and tourism sectors and

also to the professional and self-employed persons setting up small-sized

professional ventures.

SIDBI among Top 30 Development Banks of the World

SIDBI retained its position in the top 30 Development Banks of the World in the

latest ranking of The Banker, London. As per the May 2001 issue of The Banker,

London, SIDBI ranked 25th both in terms of Capital and Assets

Mission

To empower the Micro, Small and Medium Enterprises (MSME) sector with a

view to contributing to the process of economic growth, employment generation

and balanced regional development

Vision

To emerge as a single window for meeting the financial and developmental

needs of the MSME sector to make it strong, vibrant and globally competitive, to

position SIDBI Brand as the preferred and customer - friendly institution and for

enhancement of share - holder wealth and highest corporate values through

modern technology platform

OBJECTIVES

Mandatory Objectives

Four basic objectives are set out in the SIDBI Charter. They are:

Financing

Promotion

Development

Co-ordination




For orderly growth of industry in the small scale sector, The Charter has provided

SIDBI considerable flexibility in adopting appropriate operational strategies tomeet these objectives. The activities of SIDBI, as they have evolved over the

period of time, now meet almost all the requirements of small scale industries

which fall into a wide spectrum constituting modern and technologically superior

units at one end and traditional units at the other.

Development Outlook

The major issues confronting SSIs are identified to be:

Technology obsolescence

Managerial inadequacies

Delayed Payments

Poor Quality

Incidence of Sickness

Lack of Appropriate Infrastructure and

Lack of Marketing Network

There can be many more similar issues hindering the orderly growth of SSIs.

Over the years, SIDBI has put in place financing schemes either through its direct

financing mechanism or through indirect assistance mechanism and special

focus programmes under its P&D initiatives. In its approach, SIDBI has struck a

good balance between financing and providing other support services.

SHAREHOLDING

The entire issued capital of Rs.450 crore has been divided into 45 crore shares of

Rs.10 each. Of the total Rs.450 crore subscribed by IDBI, while setting up of




SIDBI, 19.21% has been retained by it and balance 80.79% has been transferred

/ divested in favour of banks / institutions / insurance companies owned andcontrolled by the Central Government.

PRODUCTS AND SERVICES

DIRECT FINANCE

Objective:

SIDBI had been providing refinance to State Level Finance Corporations / State

Industrial Development Corporations / Banks etc., against their loans granted to

small scale units.

Since the formation of SIDBI in April, 1990 a need was felt/ representations were

made that SIDBI being the principal financial institution for the small sector,

should take up the financing of SSI projects directly on a selective basis.

So it was decided to introduce direct assistance schemes to supplement the

other available channels of credit flow to the small industries sector. Since then,

SIDBI has evolved itself into a supplier of a range of products and services to the

Small & Medium Enterprises [SME] sector.

BILLS FINANCE

Objectives:

Bills Finance Scheme involves provision of medium and short-term finance for the benefit of the small-scale sector. Bills Finance seeks to provide finance, to

manufacturers of indigenous machinery, capital equipment, components sub-

assemblies etc, based on compliance to the various eligibility criteria, norms etc

as applicable to the respective schemes.




To be eligible under the various bills schemes, one of the parties to the

transactions to the scheme has to be an industrial unit in the small-scale sector within the meaning of Section 2(h) of the SIDBI Act, 1989.

REFINANCE

Objective

Refinance scheme is introduced for catering to the need of funds of

Primary Lending Institutes for financing small-scale industries. Under the

scheme, SIDBI grants refinance against term loans granted by the eligible PLIs to

industrial concerns for setting up industrial projects in the small scale sector as

also for their expansion / modernization / diversification. Term loans granted by

the PLIs for other specified eligible activities / purposes are also eligible for

refinance.

INTERNATIONAL FINANCE

Objective

The main objective of the various International Finance schemes is to enable

small-scale industries to raise finance at internationally competitive rates to fulfill

their export commitments. The financial assistance is being offered in USD and

Euro currencies. Assistance in Rupees is also considered, independent of foreign

currency limits. SIDBI has a license to deal in foreign exchange as a "restricted"

Authorized Dealer (i.e. SIDBI confines its foreign exchange activities only to its

own exposures and to exposures for its customers. The Mumbai Head Office(MHO) of SIDBI operates as a Category 'A' branch that maintains foreign

currency positions.

PROMOTIONAL ACTIVITIES

Objective




As an apex financial institution for promotion, financing and development of

industry in the small scale sector, SIDBI meets the varied developmental needsof the Indian SSI sector by its wide-ranging Promotional and Developmental

(P&D) activities.

P&D initiatives of the Bank aim at improving the inherent strength of small scale

sector on one hand as also economic development of poor through promotion of

micro-enterprises.

In pursuance of its multifaceted P&D activity, synergistic with its business

activities aimed at development of the small industries, SIDBI looks forward to a

partnership with NGOs, associate financial institutions, corporate bodies, R&D

laboratories, marketing agencies, etc., for national level programmes.

SIDBI has identified the following thrust areas of P&D activities, which are being

undertaken in partnership with various institutions, agencies, and NGOs:

DATA ANALYSIS

Data analysis of IFCI in concern with various sectors as per the assistance

provided by it to them

IFCI AND INDUSTRIAL FINANCE:




The sanctions of IFCI went up to Rs. 6579.7 crore in 1995-96 from 32.3 crore in1985-86, but it declined to Rs. 778 crore by 2001-02. up to march 2003, total

sanctioned assistance was Rs. 45426.7 crore while disbursements were Rs.

44169.2 crore.

Year

1985-86

1986-87

1987-88

1988-89

1989-90

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-981998-99

1999-00

2000-01

2001-02

2002-03

total from 1970 to

2003

Sanctions

499.2

798.1

922.6

1635.5

1817

2429.8

2421.2

2347.9

3745.9

4327

6579.7

3952.2

5708.23622.8

2045.6

1417.9

778

2035.1

45426.7

Growth rate%

20.2

59.9

15.6

77.3

11.1

33.7

-0.4

-3

59.5

15.5

52.1

-39.9

44.4-36.5

-43.5

-30.7

-45.1

161.6

Disbursements

403.9

451.6

657.1

997.5

1121.8

1574.3

1604.4

1733.4

2163.1

2838.7

4586.5

5175.5

56154836.4

3374.3

2152.7

1069.9

1796.5

44169.2

Growth rate

48

11.8

45.5

51.8

12.5

40.6

1.9

8

24.2

32.4

61.6

12.5

8.5-13.9

-30.5

-36.9

-49

63.8

IFCI AND PRODUCT WISE ASSISTANCE

IFCI provides direct financial assistance for financing projects in terms of rupee

loans, foreign currency loans, and by underwriting and direct subscription to

shares, debentures and bonds.




Years

1998-99

1999-00

2000-01

2001-02

2002-03

up to march 2003

Sanctions

3129.6

1900.3

1371.2

721.4

2021.7

37122.6

Disbursements

4229.3

3027.4

2093.2

1065.6

1783.1

35926.4

IFCI AND PURPOSE WISE ASSISTANCE

In the purpose wise sanctions and disbursements, new projects got Rs. 15919.6

cr which is 35.17 % of total sanctions up to march 2003.

Serial no.

1

2

34

5

6

7

Purpose

New

Expansion

RehabilitationModernization

Working capital

Others

total

Sanctions

15919.6

6649.2

115.75459.8

837.5

16279.4

45261.1

Disbursements

15611.3

6547.5

114.25480.4

774.2

15476.1

44003.6

IFCI AND SECTOR WISE ASSISTANCE

The IFCI provided maximum assistance to private sector by giving Rs. 40660.9 cr as on march 2003. This constitutes over 89% of total assistance by IFCI. The

public sector got very little out of the total sanctions of IFCI.




Serial no.

12

3

4

5

Sector

PublicJoint

Cooperative

Private

total

Sanction

1541.12192

867,1

40660.9

45261.1

Disbursements

1539.12146

838.4

39480.1

44003.6

DATA ANALYSIS OF IDBI

The main objective of IDBI is to provide term finance and financial services for

establishment of new projects as well as the expansion, diversification,

modernization and technology up gradation of existing industrial enterprises. It is

one of the most important financial institutions which has provided lot of funds for

industrial activities in the country.

IDBI AND PURPOSE WISE ASSISTANCE




Serial no.

1

2

3

4

5

6

Purpose

New

Expansion

Rehabilitation

Modernization

Working capital

total

Year

1998-2003

1998-2003

1998-2003

1998-2003

1998-2003

Sanctions

67498.8

50627.3

12976.5

1415.8

44086.5

176604.9

IDBI AND SECTOR WISE ASSISTANCESerial no

1

2

3

4

5

Sectors

Public

Joint

Cooperative

Private

Trust

total

Amount

34963

11753.7

1802.2

169304.2

50

217873.3

Percentage

16.05

5.39

.83

77.71

.02

100

IDBI AND INSTITUTION WISE ASSISTANCE

Serial no.

1

2

Institutions

SFC

SIDC

Total

2000-01

129.8

233.2

363

2001-02

87.7

99.6

187.3

SIDBI AND FINANCIAL ASSISTANCE




The sanctions of SIDBI are generally given to those entrepreneurs who have

business of small scale and fulfill the criteria of SIDBI. It undertakes a largevariety of promotional and developmental activities in order to improve the

strength of small scale units, creating employment opportunities and new way for

economic development of poor.

Year

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

up to march

2003

Sanctions

295

1764.8

1820.4

3276.5

3008.1

2304.1

12459.7

Growth%

498.2

3.2

79.4

-7.9

-23.4

Disbursements

279

672.4

766.5

1506.2

949.3

4173.6

Growth

141.1

13.9

96.5

-37

CONCLUSION




Development bank plays a very important role in economic development of our

country. Since independence they have contributed a lot to the inception of industrialization and all other technological innovations. There basic objective is

to assist the development in country which perform by proving every kind of help

possible i.e. financial, advisory, technological etc.

This study helps in portraying the current picture of development banks in India

and shows their role in economy. It also helps in showing the various schemes

that banks have and their whole procedure to provide the assistance to people.

This study also shows the various lacks in the system of development banks due

which they fail in some sphere to achieve their set targets. There are various

drawbacks in our own financial system that hinderers the growth of these

development banks such as lack of funds with government, lack of project, lack

of efficient machinery,

In this study all the possible measure to remove these hindrances are described

through which we can move more speedily then other economies in world.

In this study four major development banks in India are taken into research work

i.e. IDBI, IFCI, SIDBI, and NABARD. All the schemes, assistances and programs

are studied and highlighted. Every bank differs from his objective with each other

so as the assistance provided by them.

Every bank has separate guidelines and management to take care of activities

which are performing and work areas are also different, although their main

motive is same which the development of country through balanced economic

growth.

This study throws light on the working of these development banks and how they

performed their activities in past.

LIMITATIONS OF STUDY




Although lots of care and efforts are made to ensure the fault free study but still

there remains certain limitations which possibly may occur such as Lack of time acted as constraint in study

Lack of development banks in near by areas also acts as constraint as it’s

not possible to get the real exposure.

Researcher limitations in knowledge are also the limitations of study.

The study is based on secondary data so any kind of discrepancy in that

will cause same in the study.

BIBLOGRAPHY

WEBSITIES

http: //www.idbi.com

http: //www.sidbi.com

http: //www.google.com

http: //www.banknetindia.com

NEWSPAPERS

Financial express

Business line

The economic times

Business standard

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