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UNIVERSITY OF MUMBAI
NCRD’S STERLING COLLEGE OF ART’S COMMERCE & SCIENCE NERUL, NAVI-MUMBAI
400706.
DEVELOPMENT BANKS IN INDIAN FINANCIAL SECTOR
SUBMITTED BY:Mr. NILESH J. CHIKANE
PROJECT GUIDE:PROF. MADHAVI DHOLE
COLLEGE CODE –552
Sterling College Of Arts Commerce And Science
DECLARATION
I Mr. Nilesh Joteeram Chikane student of NCRD’s STERLING COLLEGE OF
ART’s COMMERCE & SCIENCE NERUL of T.Y.B.M.S (Semester V) hereby
declare that I have completed this project report on Development banks in
Indian Financial Sector. In the academic year 2009-2010. The information
submitted is True and original to the best of my knowledge
Madhavi Dhole(Project Guide) (Coordinator)
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DEVELOPMENT BANKS
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. CERTIFICATE
I Mr. Nilesh Joteeram Chikane of NCRD’s STERLING COLLEGE OF ART’s
COMMERCE & SCIENCE NERUL of T.Y.B.M.S (Semester V) hereby certify that
I have completed this project report on Role of development bank in Indian
Financial Sector. In the academic year 2009-2010. The information submitted is
True and original to the best of my knowledge.
Student Name(Nilesh J. Chikane)
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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 would also like to
acknowledge the Finance Department of IDBI Bank. For their valuable time, data
and information, which they have provided. 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.
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ROLE OF DEVELOPMENT BANKS IN INDIAN FINANCIAL SECTOR
Submitted By:
NILESH JOTEERAM CHIKANE
ROLL NO. 04
T.Y.B.M.S. VTH SEMESTER
November - 2009
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TABLE OF CONTENTS
Introduction To Topic
Objectives of Study
Research Methodology
Introduction To Development BanksObjectives of Development Banks
Banks Under Study
IDBIIFCI
SIDBI
Data AnalysisSuggestions
Conclusion
Limitation
Bibliography
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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. Indian
economy 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.
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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 and
development 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.
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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
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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 to
pioneer 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
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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
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RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the research problem. It
may be understood as a science of studying how research is done scientifically.
In it we study the various steps that are generally adopted by a researcher in
studying his research problem along with logic behind him. 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:
A research design is the arrangement of conditions for collection and
analysis of in a manner and aims to combine relevance to the research purpose
with economy in procedure. In fact the research design is the conceptual
structure within which research I conducted. 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.
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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
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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.
Political interference and flawed industrial policy have been the main reasons
why development banks have fared badly. At the same time, it needs to be said
that some conceptual errors about the nature of development banking have
made matters worse.
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
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made debt recovery quite difficult. In consequence, ill health has dogged the
banks in India.
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 banks
performed 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
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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.
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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.
For development banks, a charge on the running costs of the firm could be that
via media, specifically two of them, (a) rents which include the cost of all
outsourcing of materials and services, and (b) wages. Then, a charge on the rent
and wage costs of the borrowing firm, a charge levied only when the firm has a
surplus to pay, could be the via media that development banks could adopt.
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.
An unsympathetic fixed interest burden often makes otherwise curable firms
mortally ill. A flexible charge will give a breather to recover to many firms that are
liable to become incurably sick in a fixed interest regime. Flexible charges reduce
risks for lending banks too: Because of inflation and growth, a charge on rents
and wages will sooner or later overtake any fixed rate of interest. With patience,
development banks can recover their sacrifices with little risk.
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In other words, development banks should think differently, and should have a
long time horizon. They should acquire the expertise to assess the optimum
waiting 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.
Sir Arthur Lewis won the Nobel for explaining how poor countries can develop
quickly by exploiting the surplus labour they have. On the same analogy, the
rural areas can develop rapidly by exploiting the cheap land they have in plenty.
The scheme PURA (Providing Urban amenities in Rural Areas) banks on that
idea. PURA starts with the construction of a ring road linking a loop of villages.
The moment the road is built, the value of land alongside increases. PURA goes
further. It runs frequent bus services on the ring road, at least once 10-15
minutes. With bus services in place, the ring road connects to large numbers of
customers. That connectivity will attract many new businesses, increasing land
values further. Every new business can become a magnet for yet another setting
into motion a virtuous cycle, and to rapid growth and development of newer and
newer businesses.
Then, a project like PURA is best funded by levying a charge on rising rents
rather than depending on a relatively high fixed rate interest. With fixed rate of
interest, compounded every three months, a project like PURA may not take off
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at all. A more patient, a more farseeing development bank can fund a competent
real estate developer and share - not his profits - but the rents he gets.
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. In the words of A.G.
Kheradjou "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". Kheradjou assigns an important task to the
development banks. He feels that 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. In the
views of William' Diamond" A development bank has the opportunity to promote
enterprises i.e. to conceive investment proposals and to stimulate others to
pursue tI1em 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 developl1!enLbank is an institution which takes up
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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. D.M. Mithani states that. "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:
1) A development bank does not accept deposits from the public like
commercial banks and other financial institutions who entirely depend
upon saving mobilization.
2) It is a specialized financial institution which provides medium term and
long-term lending facilities.
3) It is a multipurpose financial institution. Besides providing financial help it
undertakes promotional activities also. It helps an enterprises from
planning to operational level.
4) It provides financial assistance to both private as well as public sector
institutions.
5) 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.
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6) Development banks primarily aim to accelerate the rate of growth. It helps
industrialization specific and economic development in general
7) The objective of these banks is to serve public interest rather than earning
profits.
8) Development banks react to the socio-economic needs of development.
GROWTH OF DEVELOPMENT BANKS
Although 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
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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 share
capital 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.
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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 few
are 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. Some countries were directly involved in war while many others were
indirectly affected by it. There was a need for reconstructing economics at a
faster speed. The existing machinery for developmental activities was not
sufficient to the requirements of industry. 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:
1. Lay Foundations for Industrialization
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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.
2. Meet 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.
4. Help Small and Medium Sectors'
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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
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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
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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 refinanced
by 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,
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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:
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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.
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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 some
arrangement 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
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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
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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
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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 1931
by 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
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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
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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
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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 infrastructures
facilities. 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)
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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 and
rehabilitation 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)
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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 medium
sectors 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
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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
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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 these
institutions 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
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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
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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 various
sectors 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:
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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
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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 in
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different 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 on
the additional issues. However, since July I, 1993IFC has been converted into
a limited company.
b) Bonds and Debentures:-
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The corporation is authorized to issue bonds and debentures to
supplement its resources but these should not exceed ten times of paid-up
capital 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.
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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:
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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.
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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 the
feasibility 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
Development Banks In Indian Financial Sector 50
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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
Development Banks In Indian Financial Sector 51
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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.
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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
Development Banks In Indian Financial Sector 53
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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 provides
direct 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
Development Banks In Indian Financial Sector 54
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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
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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.
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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 rehabilitation
assistance 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,
Development Banks In Indian Financial Sector 57
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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.
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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.
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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 been
trying 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
Development Banks In Indian Financial Sector 60
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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 loans
and 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
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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.
Development Banks In Indian Financial Sector 62
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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
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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 to
meet 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
Development Banks In Indian Financial Sector 64
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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 and
controlled 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.
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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
Development Banks In Indian Financial Sector 66
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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 needs
of 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.
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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 in
1985-86, 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
Sanctions
499.2
798.1
922.6
1635.5
1817
2429.8
Growth rate%
20.2
59.9
15.6
77.3
11.1
33.7
Disbursements
403.9
451.6
657.1
997.5
1121.8
1574.3
Growth rate
48
11.8
45.5
51.8
12.5
40.6
Development Banks In Indian Financial Sector 68
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1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
total from 1970 to
2003
2421.2
2347.9
3745.9
4327
6579.7
3952.2
5708.2
3622.8
2045.6
1417.9
778
2035.1
45426.7
-0.4
-3
59.5
15.5
52.1
-39.9
44.4
-36.5
-43.5
-30.7
-45.1
161.6
1604.4
1733.4
2163.1
2838.7
4586.5
5175.5
5615
4836.4
3374.3
2152.7
1069.9
1796.5
44169.2
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
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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
3
4
5
6
7
Purpose
New
Expansion
Rehabilitation
Modernization
Working capital
Others
total
Sanctions
15919.6
6649.2
115.7
5459.8
837.5
16279.4
45261.1
Disbursements
15611.3
6547.5
114.2
5480.4
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.
1
2
3
4
5
Sector
Public
Joint
Cooperative
Private
total
Sanction
1541.1
2192
867,1
40660.9
45261.1
Disbursements
1539.1
2146
838.4
39480.1
44003.6
DATA ANALYSIS OF IDBI
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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 ASSISTANCE
Development Banks In Indian Financial Sector 71
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Serial 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 large
variety 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
Sanctions
295
1764.8
Growth%
498.2
Disbursements
279
Growth
Development Banks In Indian Financial Sector 72
Sterling College Of Arts Commerce And Science
1999-00
2000-01
2001-02
2002-03
up to march
2003
1820.4
3276.5
3008.1
2304.1
12459.7
3.2
79.4
-7.9
-23.4
672.4
766.5
1506.2
949.3
4173.6
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.
Development Banks In Indian Financial Sector 73
Sterling College Of Arts Commerce And Science
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.
Development Banks In Indian Financial Sector 74
Sterling College Of Arts Commerce And Science
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
Development Banks In Indian Financial Sector 75