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Development Banking in India
An overview
We Empower MSMEs
GSR Murthy
AGM, SIDBI, Bhubaneswar
29 - Aug 2010 @ ximb
(o) 239485423:33 1
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Banks are financialintermediaries
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What is a Bank?
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Different Banking Intermediaries
Commercial Banks
Public, Private, Foreign
Development Banks
Investment Institutions
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What are DevelopmentBanks
They supply
1. Capital
2. Knowledge
3. Enterprise
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Economic Growth coupled with just distribution ofbenefits
- To act as gap fillers in the capital market- Acceleration of pace of industrialisation- Rendering long term financial support andentrepreneurial and managerial assistance todeserving projects
Objectives of Development Banking
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World War- II & destructionofeconomoiesNeeded Reconstruction
Development ofeconomies ...need infrastructure
...lot ofcapital ..long term investments wereneeded. ...longgestation period....asset liability
mismatch....high risk
forlong term credit needs institutions withDevelopmental outlook were needed
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Genesis of Development Banking
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Commercial banks : lend whenborrower
doesnt need and take back when he needs it;
DFI - lend in distress and take when he can pay- ina lightervein
safety-------------------------------------------------------d aredevil(commbanks) (DFI) (venture cap)
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Philosophy of Development Banking
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first government sponsored DFI was created in Netherlands in 1822. InFrance, Credit Foncierand Credit Mobiliser, overthe period 1848-1852.
International BankforReconstruction &Development - IBRD (World Bank) 1944
World Bank's Mission Statement
toreduce poverty, and improve living standardsby
promoting sustainable growth and investment in people.
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First modern Development Bank in the world
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Fromfacilitatorofpost-warreconstructionanddevelopment to the present day mandate of
worldwide poverty alleviation
Reconstructionremains an important part ofWBwork. However, the global challenges in the world
compel them tofocus on poverty alleviation,
global issues like climate change, diseases, health,
trade, sustainable development etc.,
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Evolution of World Banks Mission
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MillenniumDevelopment Goals
Millennium Development Goals (MDGs) are 8
international development goals that all 192 UN
member states and at least 23 internationalorganisations have agreed to achieve by 2015.
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Evolution of World Banks Mission - 2
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Goal 1: Eradicate extreme poverty and hunger
Goal 2: Achieve universal primary education
Goal 3: Promote genderequality and empowerwomen
Goal 4: Reduce Child Mortality Rate
Goal 5: Improve maternal health
Goal 6:C
ombat HIV/AIDS, malaria, and otherdiseasesGoal 7: Ensure environmental sustainability
Goal 8: Develop aglobal partnership fordevelopment
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Evolution of World Banks Mission - 3
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At the time of independence in 1947, India's capitalmarket was relatively under-developed. Although
there was significant demand for new capital, there
was a dearth ofproviders. Merchant bankers and
underwriting firms were almost non-existent. Andcommercial banks were not equipped to provide
long-term industrial finance in significant manner.
Industrial Finance Corporation ofIndia (IFCI)the first Development BankofIndia in 1948.
State Financial Corporations (SFCs)SFCs Act, 1951
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Genesis of Development Banking in India
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DFI no where defined.
There is no specific use of the term DFI in either the RBI
Act, 1934 or the Companies Act, 1956 or various statutes
establishing DFIs. While the RBI Act defines the term
Financial Institution (FI), the Companies Act hascategorised certain institutions as Public Financial
Institutions (PFIs).
They are defined as public financial institution (PFI) - "an
institution promoted or assisted by Government mainly toprovide development finance to one or more sectors or sub-
sectors ofthe economy.
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Definition : Development Banking in India
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contd.,
Other Development BanksFinancial Institutions set up between 1948 and 1990
[1955] NATIONALSMALLINDUSTRIES CORPORATION -NSIC
[1955] INDUSTRIALCREDITAND INVESTMENT CORPORATIONOF INDIA-ICICI
[1956] LIFE INSURANCE CORPORATION -LIC
[1958] REFINANCE CORPORATION FORINDUSTRYLTD (merged with IDBI in 1964)[1964] INDUSTRIALDEVELOPMENT BANKOF INDIA - IDBI
[1964] UNITTRUSTOF INDIA -UTI
[1960s] STATE INDUSTRIAL DEVELOPMENT CORPORATIONS - SIDCs
[1960s] STATE SMALLINDUSTRIES DEVELOPMENT CORPORATIONS
[1971] INDUSTRIALRECONSTRUCTION CORPORATIONOF INDIA
[Converted into Industrial Reconstruction Bank ofIndia (1985)
Industrial Investment Bank ofIndia (1997)]
[1973] GENERALINSURANCE CORPORATION -GIC[1982] EXPORTIMPORTBANKOF INDIA -EXIM
[1982] NATIONALBANK FORAGRICULTURE AND RURALDEVELOPMENT -NABARD
[1986] SHIPPING CREDITAND INVESTMENT COMPANYOF INDIA
[merged with ICICI in 1986]
[1990] SMALLINDUSTRIES DEVELOPMENT BANKOF INDIA
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NetworkDevelopment Banks in India
ALLINDIA FINANCIALINSTITUTIONS - 15
COMPRISING
-ALLINDIADFIS 6- SPECIALISED INSTITUTIONS 6
- INVESTMENTINSTITUTIONS 3
IFCI, ICICI, IDBI, IIBI, EXIM, SIDBI
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Repositioning ofDevelopment Banks in India
towards universal banking
(cafeteria approach)
Narasimham committee 2 &SH Khan committee
recommendations
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Journey of ICICI Bank(formerly Industrial Credit and Investment Corporation ofIndia)
- 1955 Incorporated as aDFI
- 1994 Established abaking subsidiary ICICI Bank
- 2002 ICICI merged into ICICI Bank
Branch Network - 2,016branches (as on 31 March 2010)
ATM Network - 5,219 ATMs in India
Overseas presence - in 18 countries
the second largest bank in India
the largest private sectorbank in Indiaby market capitalization
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Journey of IDBI Bank(formerly Industrial Development Bank ofIndia)
- 1964 Incorporated as aDFI (as subsidiary ofRBI)
- 1976 Ownership transferred to Govt ofIndia
- 1994 Established abaking subsidiary IDBI Bank
- 2004 IDBI merged into IDBI Bank
leading public sectorbankand 4th largest Bank in
overall ratings
categorised IDBI as an "otherpublic sectorbank".
10th largest developmentbank in the world i
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Journey of IFCI
- 1948 Incorporated as afirst DFI
- 1993 Converted intoa company
- 1999 Became IFCI Limited
Showed some turnaroundbut still is in troubleSurvivingongovt life line
Consultant is beingappointed to show the growth path
IDBI, PNB not ready to take overthis FI
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Journey ofNABARD
- 1982 Established by an Act ofParliament
- 1993 Converted intoa company
- 1999 Became IFCI Limited
Toprovide focused and undivided attention to the developmentof rural India by facilitating credit flow for promotion of
agriculture and rural non farm sector.
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What is an MSME
Definition : investment in plant & and machinery
micro
enterprise
small
enterprise
medium
enterprise
serviceunit
upto Rs.10 lakh Rs.10 - 200 lakh Rs.200 - 500 lakh
manufacturin
g unitupto Rs.25 lakh Rs.25 - 500 lakh
Rs.500 - 1000
lakh
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How Important are MSMEs
Largest employment generating sector after agriculture
Provide employment to more than 4 crore persons
Employment potential at low capital cost Constitute 95% of industrial units
Total of 1.3 Crore registered / unregistered MSMEs
Key contributors to national economy
45% of manufacturing output
40% of total exports
7% of Gross Domestic Product
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Mandate for SIDBI
Promotion
Development
FinancingCo-ordination
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MISSION of SIDBI
To empower the Micro, Small and MediumEnterprises (MSME) for economic growth,
employment generation and balanced regional
development of our country.
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SIDBI Products & Services
SIDBI products & services are broadlygrouped into three groups
(i) Indirect Assistance
(ii) Direct Assistance
(iii) Development & Support Services
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Traditional Credit Products
Fund Based Non Fund Based
Term Loan WC limits INLC Guarantees
SIDBI/ BANK
WC Finance LC s Guarantees
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SIDBI : Operational Highlights
Particulars(Rs. Crore)
FY 2009 FY 2010 % Growth
Sanction 29188 35521 21.69%
Disbursement 28298 31918 12.79%
Total Income 2082 2540 22%
Profit before tax 749 865 15.48%
Net Profit 299 421 40.80%
Earning per share 6.65 9.36 40.75%
% of Net NPA to net portfoliooutstanding
0.08 0.18 (125%)
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SIDBIs
Cells, Subsidiaries & Associates
SVCL(1999)
CGTMSE(2000)
SMERA
(2005)
ISTSL(2005)
ISARC
(2008)
SMEFDP
SFMC
SFRC
Govt. Schemes
P & D
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Challenges before SIDBI
Strengths Weaknesses
Lean organisationTalent poolLarge balance sheet size
Lack of focus & strategyProcedural bottlenecks
Opportunities Threats
Retails lendingLarge marketD
evelopmental role
MarginalisedSFC bad portfolio
Competition
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Future outlook
Options before SIDBI
- To acquire a banking arm (or)- To merge with / get merged with a bank (or)
- To continue as a DFI (and)
- Expand market reach (and)
- Expand product reach