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UNIT IV
Evolution of Institutional Financing in India
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Financial Institutions
Play an indispensable role in development
Act as a channel for the transfer of resources from net
savers to net borrowers Can be broadly classified into :
National level institutions - cater to the diverse financial
requirements of the entrepreneurs
State level institutions - act as a catalyst for promotion
of investment and industrial development in the
respective states
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All India Financial Institutions
Industrial Development Bank of India (IDBI)
Industrial Finance Corporation of India (IFCI)
Export - Import Bank of India (Exim Bank)
Industrial Reconstruction Bank of India (IRBI) now(Industrial Investment Bank of India)
Industrial Credit and Investment Corporation of India(ICICI)
National Bank for Agriculture and Rural Development(NABARD)
National Housing Bank (NHB)
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All India Financial Institutions
Life Insurance Corporation of India (LIC)
General Insurance Corporation of India (GIC)
Unit Trust of India (UTI)
National Industrial Development Corporation (NIDC)
Shipping Credit and Investment Corporation of India
(SCICI)
Infrastructure leasing and Financial Services Ltd.(IL&FS)
Tourism Finance Corporation of India (TFCI)
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Classification of Financial Institutions
National Level Institutions
Development Financial Institutions Investment Institutions
Specialised Financial Institutions
State Level Institutions
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National Level Institutions
Development Financial Institutions
Overview of developmental banking
The concept was adopted after 2nd world war
1945 worldwide institution IBRD was set up forreconstruction and development
Financial development strategy aimed at meeting
sectoral credit needs
1948 First development bank of India was set up -
IFCI
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Development Financial Institutions
Features of Development Banks:
Provides medium and long term finance
They do not accept deposits from the public Primary object is promotion of investment and
entrepreneurial activity
Provides financial aid to public and private sector
undertakings
Works in the general interest of the nation
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Development Financial Institutions
Industrial Development Bank of India (IDBI)
Industrial Finance Corporation of India (IFCI)
Industrial Investment Bank of India (IIBI)
National Small Industries Corporation (NSIC)
Industrial Credit and Investment Corporation of India
(ICICI)
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Development Financial Institutions
National Bank for Agriculture and Rural Development
(NABARD)
National Industrial Development Corporation (NIDC)
Shipping Credit and Investment Corporation of India
(SCICI)
Infrastructure Leasing and Financial Services Ltd. (IL &
FS)
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Development Financial Institutions
Industrial Development Bank of India
It was established in 1964 by an Act of Parliament It is an apex institution in the field of industrial finance
Currently the 10th largest development bank in the
world
Is a member of Association of Development & Industrial
Banks in Asia the objective of which is to contribute to
economic development in Asia
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Development Financial Institutions
Industrial Development Bank of India
Also extends indirect finance through discounting long
term bills, refinancing term loans & subscribing to
resources of financial institutions such as SFC, IFCI, etc.
Objectives:
To provide credit, term finance & financial services for
new project establishment
To finance expansion, diversification, modernisation &
technology upgradation
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Development Financial Institutions
Industrial Development Bank of India
Functions:
Promoting industry by conceiving, preparing and
floating new projects
Co-ordinating functions of other development banks
Underwriting shares/debentures of industrial concerns
Undertaking market research & techno-economicstudies
Guaranteeing deferred payment on loan from
industry
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Development Financial Institutions
Industrial Development Bank of India
Post reforms:
E 1991 - It made its first public issue of bondsE It introduced instruments such as floating rate bonds,
flexibonds, and term money bonds to raise resources
E 1993 Introduced the practice of charging variableinterest rate linked to long-term PLR
E 1995 It made its first public issue of equity
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Development Financial Institutions
Industrial Finance Corporation of
India
July 1, 1948 IFCI was set up as
the first Development Financial
Institution in the country
Objective to provide medium &
long term credit to large industrialconcerns in the private, public, co-
operative & joint sector.
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Development Financial Institutions
Industrial Finance Corporation of India
It provides rupee and foreign currency loans
Aid to industry for modernization, export promotion,renovation, diversification
It has set up several subsidiaries and associates:
IFCI Financial Services
Asset Care Enterprise
IFCI Venture Capital Funds
IFCI Infrastructure Development Limited etc.
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Development Financial Institutions
Industrial Finance Corporation of India
Functions:
n To guarantee loans raised by industry
n To grant loans/advances or subscribe to debentures
of industrial concerns
n To underwrite stocks, shares, bonds, debentures of
industrial concernsn To guarantee deferred payment by importers
n To subscribe directly to shares of industrial concerns
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Development Financial Institutions
Industrial Finance Corporation of India
Post reforms:
F 1993 IFCI was changed from a statutory corporation
to a company under Cos. Act
F 1999 Its name was changed to IFCI Ltd.
F 2003 Principal shareholders were IDBI, Nationalized
banks, SBI & subsidiaries, LIC & GICF 2004 IFCI witnessed crisis and worked on a
restructuring package to prevent further deterioration
of health.
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Development Financial Institutions
Industrial Investment Bank of India
Formerly was IndustrialReconstruction Bank of India
IRBI was set up under IRBI Act,1984, for rehabilitation of sickunits
IIBI was incorporated in 1997under the Companies Act, 1956
This gave operational flexibilityand financial autonomy
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Development Financial Institutions
Industrial Investment Bank of India
Functions:
Providing project finance
Providing short term non-project asset-backed
financing
Through underwriting
Through direct subscription Deferred payment guarantee
Providing working capital/short term loans
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Development Financial Institutions
National Small Industries Corporation
1955 Established by the GOI
Functions:
Assist SSIs through promotional and financial aid
Procure machinery for SSI on hire-purchase Take part in exhibitions to ensure wider markets for
SSI products
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Development Financial Institutions
National Small Industries Corporation
Functions:
To provide marketing assistance to SSI through
government purchase programme
To provide training in technical trades through its
Prototype Development & Training Centre
To underwrite and guarantee loans to SSI from banks To supply raw material , spares and components to SSI
To provide pre and post shipment finance to Export
Oriented Units
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Development Financial Institutions
National Small Industries Corporation
Post reforms:
1995-96:Total assistance provided = 598 crore of which
Marketing = 579 crore
Equipment leasing = 17 crore Hire purchase = 2 crore
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Development Financial Institutions
Industrial Credit & Investment Corporation of India
1955 Established as a private sector developmentbank at the initiative of World Bank.
Functions: Provides consultancy services to units in
private sector
Renders facility such as equipment
leasing, project counselling and merchant
banking for NRIs
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Development Financial Institutions
Industrial Credit & Investment Corporation of India
Functions
Provides funds for purchase of capital assets
It provides long & medium term loans in various forms:
& Equity participation
&Contribution to preference shares and debentures
&Guaranteeing loans from other sources
&Underwriting new issues
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Development Financial Institutions
Industrial Credit & Investment Corporation of India
Provides financial services through specialised subsidiaries:
ICICI Banking Corporation
ICICI Securities nd Finance Company
ICICI Asset Management Company
ICICI Trust
ICICI Investors Services
ICICI Brokerage Services
ICICI Credit Corporation
ICICI Securities
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Development Financial Institutions
Industrial Credit & Investment Corporation of India
Post reforms:
\
1999: ICICI became the first Indian Company to getlisted on NYSE
\ 1998-99: Corporate finance constituted 36% of ICICIs
total lending portfolio
\ 1999-2000: The above percentage rose to 47%
\ 2002: Foreign Institutional Investors owned 38.4% of its
shares
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Development Financial Institutions
National Bank for Agricultural and
Rural Development
Set up as apex rural developmental
bank
Aim - to provide credit for
development of:
Agriculture Small Scale Industry
Cottage and village industry
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Development Financial Institutions
National Bank for Agricultural and Rural Development
Role:
Providing refinance to lending institutions in rural
areas Evaluating, monitoring and inspecting the client banks
Extends assistance to the government in mattersrelating to rural development
Offers training and research facilities for banksworking in the field of rural development
Helps the state governments in reaching their targetsof rural development
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Development Financial Institutions
National Bank for Agricultural and Rural Development
Role:
It provides short term refinance assistance for a period upto 18 months to SCBs, commercial banks, RRBs etc in theareas of production, trading, marketing and storage.
It also give long term loans (up to 25 yrs of maturity) toSCBs, SLDBs, RRBs etc.
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Development Financial Institutions
NABARD provides :
Long term refinance for minor irrigation, plantation,horticulture, land development, fisheries etc.
Short term loan assistance for financing of seasonalagricultural operations, marketing of crops, purchase ofagricultural inputs etc
Medium term loan facilities for approved agriculturalpurposes
Working capital refinance for handloom weavers
Refinance for financing government sponsored programs suchas, IRDP, Rozgar yojana etc.
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Development Financial Institutions
Resources : Credit from RBI
Loans from central government
World Bank International Development Association (IDA)
Aid agencies
Sale of bonds and debentures
Direct borrowings
Deposits
Gifts
Grants etc.
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Development Financial Institutions
National Industrial Development Corporation
1954 NIDC was set up as a statutory corporation owned
by GOI
Functions:
To formulate and execute projects for setting up new
industries
To provide consultancy services
To finance rehabilitation and modernisation.
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Development Financial Institutions
National Industrial Development Corporation
Services provided:
Industrial planning and management
Project engineering
Project management
Environmental engineering
Technical and quality audit
Social and industrial infrastructure
Human resource management
Software and IT development
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Development Financial Institutions
Shipping Credit and Investment Corporation of India
1986 Incorporated as a public limited company
Capital is contributed by ICICI, IDBI, IFCI, LIC,GIC, SBI etc.Objective:
To be a channel for providing development finance to
oceanic shipping, deep sea fishing, oil exploration, shiprepairing, offshore, coastal and intermediary water
services.
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Development Financial Institutions
Shipping Credit and Investment Corporation of India
Resources:
Share issue to public Bond issues
Institutional subscription to share capital
Unsecured loan from the government Long term foreign currency loans
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Development Financial Institutions
Infrastructure Leasing & Financial Services Ltd.
1988 IL&FS was set up jointly by :
RBI
UTI
HDFC
International Finance Corporation
ORIX Corporation from Japan Credit Commercial de France
SBI
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Development Financial Institutions
Infrastructure Leasing & Financial Services Ltd.
Assistance:
Financing large projects like highways, bridges, etc
Equipments leasing for infrastructure development,
pollution control, transportation and communication
Promotion of mutual funds and extension of venture
capital Participation as a member of stock exchange, focusing
on secondary market development
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Investment Institutions
Popular form of financial intermediaries
Cater to the needs of small savers and investors
Deploy their assets largely in marketable securities
Some of the prominent investment institutions in India
are:
Life Insurance Corporation (LIC)
General Insurance Corporation (GIC) Unit Trust of India (UTI)
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Investment Institutions
Life Insurance Corporation
1956 LIC was formed by theGovernment taking over all life
insurance companies in India Is an important saving-mobiliser
institution
Caters to the needs of
Government and corporate sector Invests heavily in Government
securities of the corporate sector
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Investment Institutions
General Insurance Corporation
\ Provides loans and invesment in the
capital market of the country
\ Invests in shares and debentures of
the corporate sector
\ Underwrites new issues of companies
\ Grants loans and advances to
corporates
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Investment Institutions
Unit Trust of India
1984 UTI was set up as a subsidiary
of RBI
Mobilises savings of low and middle
income groups
Invests such savings in equity and
preference shares and debentures
People induced to buy units due to
tax concession
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Specialised Financial Institutions
They are established as government undertakings
with majority ownership of RBI
Set up to serve the increasing financial needs of
commerce and trade; and overall development
Ensure overall development of the Indian financial
market
Set up with the exclusive objective of providing credit
to various sectors
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Specialised Financial Institutions
Important Specialized financial institutions in India are :
& Export Import Bank of India (EXIM)
& National Housing Bank (NHB)
& Board for Industrial and Financial Reconstruction (BIFR)
& Small Industries Development bank of India (SIDBI)
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Specialised Financial Institutions
Export Import Bank of India
1981 Set up according to an Act ofParliament
Is ranked highest among specialisedfinancial institutions of the country
Plays a key role in the promotion ofcross border trade
Coordinates the working ofinstitutions engaged in financinginternational trade
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Specialised Financial Institutions
Export Import Bank of India
Offers financial assistance to sectors like agriculture,
export, import, and film industry
Agriculture unique financial programmes like termfunding and shipment credit
Export Import - warehousing finance, funded (long term
working capital) and non-funded scheme (letter of
credit and guarantee)
Film Industry cash flow financing for production &
funds for exhibition in overseas markets
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Specialised Financial Institutions
EXIMBanks functions are segmented into small operating groups
like :
Corporate Banking Group handles a variety of financing
programmes for Export Oriented Units (EOUs), Importers, and
overseas investment by Indian companies.
Project Finance / Trade Finance Group handles the entire range of
export credit services such as supplier's credit, pre-shipment credit,
buyer's credit, finance for export of projects & consultancy services,guarantees, forfeiting, etc.
Lines of Credit (LOC) is a financing mechanism for the agricultural
sector.
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Specialised Financial Institutions
Export Import Bank of India
Small and Medium Enterprises Group : The group handles credit
proposals from SMEs under various lending programmes of the
Bank.
Export Services Group offers variety of advisory and value-
added information services aimed at investment promotion
Fee based Export Marketing Services Bank offers assistance to
Corporate Affairs.
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Specialised Financial Institutions
National Housing Bank
1988 NHB was established as
per guidelines of NHB Act, 1987
Objective: To accelerate the
growth of the Housing Financing
Institutions by providing them
with financial and otherassistance
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Specialised Financial Institutions
National Housing Bank
Functions:
= To promote a sound, healthy, viable and cost effective
housing finance system
= To promote a network of dedicated housing finance
institutions
= To make housing credit more affordable
= To encourage public agencies to emerge as
facilitators for housing
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Specialised Financial Institutions
Board for Industrial and Financial
Reconstruction
1987 BIFR was set up to advice for the
upgradation of sick units Sick Industrial Companies (Special
Provisions) Act, 1985 guides the activities
of the board
Board assesses the type of sickness
Eligibility criteria- Companies registered
under Companies Act 1956
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Specialised Financial Institutions
Small Industries Development Bank of
India
1990 SIDBI was set up to develop the
small scale industry in India
The bank offers financial assistance to
the small and medium scale industries
and coordinates the functioning of theother financial institutions that caters to
the need of the agro-industries in India.
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Specialised Financial Institutions
Small Industries Development Bank of
India
SIDBI offers financial assistance for
significant issues like infrastructuredevelopment, rehabilitation for sick
industrial units.
For the upgradation of the standard of
Indian women the bank offers twospecialized financial programs named as
marketing fund for the products
manufactured by women entrepreneurs
and Mahila Udhyam Nidhi
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State Level Institutions
Some of the institutions working at the State leveltowards development are;
State Finance Corporation (SFC)
State Industrial Development Corporation (SIDC)
State Industrial Investment Corporation (SIIC)
State Land Development Banks (SLDB) State Small Industries Development Corporation
(SSIDC)
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State Level Institutions
State Finance Corporation
o 1952 Under the provisions of SFC Act, SFCs were
set up in different states
o Their functions are similar to that of IFCI
o They provide term finance to small and medium scale
industries
o They are advised to take care towards dispersal of
industries
o They should support self-employment schemes
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State Level Institutions
State Industrial Development Corporation/StateIndustrial Investment Corporation
o They have been set up by state governments as
counterparts of NIDC
o They provide assistance in the form of;
Venture capital
Infrastructure development Consultancy services
Project management
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State Level Institutions
Functions:
Long term financial assistance towards industrialisation
To arrange for land
To put up industrial estates
To construct roads
To arrange for supply of water and electric power
To arrange for industrial licences
Deficiencies:
Insufficient and untrained staff
Default in payment of dues
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State Level Institutions
State Land Development Banks
o They provide long term resources for Farm
Mechanisation, land development, horticulture,
wasteland management, Rural housing, etc.
o They raise resources through floatation of debentures
o Such debentures are subscribed to by NABARD, the
concerned State Governments, GOI and other
financial institutions
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State Level Institutions
State Small Industries Development Corporation
1956 - Established in various states as state government
undertakings
Aim: to develop small, tiny and village industries
Functions: To provide seed capital assistance
& To produce and distribute scarce/imported raw material
& To supply machinery on hire-purchase& To construct and manage industrial estate
& To provide management & marketing assistance