NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT (NABARD) NABARD, an apex development bank, was set up on the recommendations of CRAFICARD Committee on July 12, 1982 under NABARD Act 1981 with a capital of Rs.100 crore contributed by Central Govt. and RBI, with its main office in Mumbai, by merging the Agriculture Credit Deptt and Rural Planning and Credit Cell of RBI and took over the entire functions of Agriculture Refinance and Development Corporation (ARDC). NABARD is managed by Board of Directors consisting of Chairman, Managing Director other directors. NABARD raises funds through National Rural Credit - Long Term operations, National Rural Credit-Establishment fund, through bonds and debentures guaranteed by Central Govt, borrowing from RBI, Central Govt. or any other organisation approved by Central Govt and funds from external sources. It credit functions include providing credit to agriculture, small and village and cottage industries through banks by way of refinance facilities to commercial banks, RRBs, Coop Banks, Land Development Banks and other Financial Institutions like KVIC. Its developmental functions are co-ordination of various institutions, acting as agent of Govt. and RBI, providing training and research facilities. The regulatory functions include inspection of RRBs and Coop Banks, receipt of returns and making of recommendations for opening new branches. EXPORT IMPORT BANK OF INDIA It is apex institution for co-ordinating the working of institutions in India engaged in financing exports and import of goods and services. With initial authorized capital of Rs. 200 crore (increased to Rs.500 and then to Rs.2000 crore) Exim Bank was established on Jan 01, 1982 (and started functioning wef March 01, 1982) under Export Import Bank of India Act 1982, which took over the export finance activities of IDBI. It raises funds by way of bonds and debentures, borrowing from RBI or other institutions, raising foreign deposits. It undertakes following kind of functions:-direct finance to exporter of goods. -direct finance to software exports and consultancy services. -finance for overseas joint ventures and turnkey construction project -finance for import and export of machinery and equipment on lease basis -finance for deferred payment facility -issue of guarantees -multi-currency financing facility to project exporters. -export bills re-discounting -refinance to commercial banks in India -guaranteeing the obligations. SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI) SIDBI was established under SIDBI Act 1988 and commenced its operations wef April 02, 1990 with head quarters in Lucknow and branches all over the country, as a subsidiary of IDBI. It took over the IDBI business relating to small scale industries including National Equity Scheme and Small Inds Development fund. The objective of establishment of SIDBI, in particular, is to strengthen and broad-base the existing institutional arrangement to meet the requirement of SSI and tiny industries. Its functions include: -administration of SIDF and NEF for development and equity support to small and tiny industry. -providing working capital through single window scheme -providing refinance support to banks/development finance institutions. -undertaking direct financing of SSI units. -coordination of functions of various institutions engaged in finance to SSI and tiny units. NATIONAL HOUSING BANK (NHB) NHB, the apex bank for Housing, was established on July 09, 1988 under NHB Act 1987, as a wholly owned subsidiary of RBI with head quarters in New Delhi. The bank was set up with the main purpose of setting up of an institution to operate as a principal agency to promote housing finance institutions and to provide financial and other support to these institutions. NHB can raise sources by issue of bonds and debentures, borrowing from RBI under short term loans and long term operations, borrowing from Central govt and other approved institutions. Its functions are: -promotion and development of housing finance institutions. -refinance to banks and other housing finance institutions for credit facilities granted by them for housing. -inspection of books of accounts of housing finance institutions -technical, administrative and advisory assistance to housing finance institutions. -providing underwriting and guarantee facilities to housing finance institutions. -arranging financing and resources for institutions engaged in housing facilities. -advising Central and other govt. in the matter of housing and housing finance. -collection and publication of information and data relating to housing finance. -maintaining control over corporate housing finance institutions. INDUSTRIAL INVESTMENT BANK OF INDIA (formerly IRBI) IIBI was initially set up as Industrial Reconstruction Corporation Limited during 1971 when it was renamed Indl Reconstruction bank of India wef Mar 20, 1985 under IRBI Act 1984 to take over the function of IRC. During 1997 the bank was converted to a joint stock company by naming it Industrial Investment Bank of India. Its earlier functions were to provide finance for industrial rehabilitation and revival of sick industrial units by way of rationalisation, expansion, diversification and modernisation and also to co-ordinate the work of other institutions for this purpose. agricultural and rural requirements. INDUSTRIAL FINANCE CORPORATION OF INDIA Ltd (IFCI)IFCI was established under IFCI Act 1948 during July 1948 as India’s first development bank. The main objective for which IFCI was established, are to make medium and long term credit available to the industrial undertakings and to assist them in creation of industrial facilities. Its functions include: -direct financial support (by way of rupee term loans as well as foreign currency loans) to industrial units for undertaking new projects, expansion, modernisation, diversification etc. -subscription and underwriting of public issues of shares and debentures. -guaranteeing of foreign currency loans and also deferred payment guarantees. -merchant banking, leasing and equipment finance During 1994, IFCI was converted into a joint-stock company and came out with a public issue of shares. It is managed by a Board of Directors. It floated institutions such as TFCI, ICRA etc. INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA (ICICI)ICICI was set up during 1955 as a private company with a view to provide support to industry in India by way of rupee and foreign currency loans, particularly the private international investment and World Bank funds to assist the industry in the country in private sector. It functions include: -assistance to industrial undertakings for new projects, expansion, modernisation, diversification etc. in the shape of rupee loans or foreign currency loans. -subscription and underwriting of capital issues -guaranteeing the payment for credits. -merchant banking, equipment leasing and project counselling. It floated a number of institutions successfully which include credit rating agency CRISIL, ICICI Banking Corporation, SCICI (since merged with it) a Mutual Fund etc. During Sept 1998 it changed its name to ICICI Ltd. Of late, it has started providing working capital support to industrial undertakings. INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI)IDBI is the apex institution in the area of long term industrial finance. It was established under the IDBI Act 1964 as a wholly owned subsidiary of RBI and started functioning on July 01, 1964. Under Public Financial Institutions Laws (Amendment) Act 1976, it was delinked from RBI. IDBI is engaged in direct financing of the industrial activities as well as in re-finance and re-discounting of bills against finance made available by commercial banks under their various schemes. The objectives of this institution are to create a principal institution for long term finance, to coordinate the institutions working in this field for planned development of industrial sector, to provide technical and administrative support to the industries and to conduct research and development activities for the benefit of industrial sector. It raises funds by way of market borrowing by way of bonds and deposits, borrowing from Govt. and RBI, borrowing abroad in foreign currency and lines of credit. Its functions include: -direct loans (rupee as well as foreign currency) to industrial undertakings as defined in the Act to finance their new projects, expansion, modernisation etc. -soft loans for various purposes including modernisation and under equipment finance scheme -underwriting and direct subscription to shares/debentures of the industrial companies. -sanction of foreign currency loans for import of equipment or capital goods. -short term working capital loans to the corporates for meeting their working capital requirements. -refinance to banks and other institutions against loans granted by them. Of late, with the reforms in the financial sector, IDBI has taken steps to re-shape its role from a development finance institution to a commercial institution. It has floated its own bank IDBI Bank as also a Mutual Fund. During the financial year 1999-2000 IDBI’s total sanctions were Rs.28308 cr (19.2% increase), the total assets were Rs.72169 cr, net worth at Rs.9025 cr, capital adequacy ratio of 14.5%, DER 6.8:1 and PBT Rs.1027 cr (1301 cr previous years). To meet emerging challanges, it has been introducing new products, setting up Mergers & Acquistions Divn, increasing fee based business such as corporate advisory services, credit syndication, debenture-trushtee ship etc., setting up of IT sector subsidiary-IDBI Intech Ltd, venture capital fund, joint ventures and transfer of not less than 51% of IDBI’s share capital in SIDBI to PSBs as a result of SIDBI (Amendment) Act 2000 effective from 27.03.2000.
Financial Institutions
Financial sector plays an indispensable role in the overall development of a country. The most important constituent of this sector is the financial institutions, which act as a conduit for the transfer of resources from net savers to net borrowers, that is, from those who spend less than their earnings to those who spend more than their earnings. The financial institutions have traditionally been the major source of long-term funds for the economy. These institutions provide a variety of financial products and services to fulfil the varied needs of the commercial sector. Besides, they provide assistance to new enterprises, small and medium firms as well as to the industries established in backward areas. Thus, they have helped in reducing regional disparities by inducing widespread industrial development.
The Government of India, in order to provide adequate supply of credit to various sectors of the economy, has evolved a well developed structure of financial institutions in the country. These financial institutions can be broadly categorised into All India institutions and State level institutions, depending upon the geographical coverage of their operations. At the national level, they provide long and medium term loans at reasonable rates of interest. They subscribe to the debenture issues of companies, underwrite public issue of shares, guarantee loans and deferred payments, etc. Though, the State level institutions are mainly concerned with the development of medium and small scale enterprises, but they provide the same type of financial assistance as the national level institutions.
National Level Institutions
A wide variety of financial institutions have been set up at the national level. They cater to the diverse financial requirements of the entrepreneurs. They include all India development banks like IDBI, SIDBI, IFCI Ltd, IIBI; specialised financial institutions like IVCF, ICICI Venture Funds Ltd, TFCI ; investment institutions like LIC, GIC, UTI; etc.
1. All-India Development Banks (AIDBs):- Includes those development banks which provide institutional credit to not only large and medium enterprises but also help in promotion and development of small scale industrial units.
§ Industrial Development Bank of India (IDBI):- was established in July 1964 as an apex financial institution for industrial development in the country. It caters to the diversified needs of medium and large scale industries in the form of financial assistance, both direct and indirect. Direct assistance is provided by way of project loans, underwriting of and direct subscription to industrial securities, soft loans, technical refund loans, etc. While, indirect assistance is in the form of refinance facilities to industrial concerns.
§ Industrial Finance Corporation of India Ltd (IFCI Ltd):- was the first development finance institution set up in 1948 under the IFCI Act in order to pioneer long-term institutional credit to medium and large industries. It aims to provide financial assistance to industry by way of rupee and foreign currency loans, underwrites/subscribes the issue of stocks, shares, bonds and debentures of industrial concerns, etc. It has also diversified its activities in the field of merchant banking, syndication of loans, formulation of rehabilitation programmes, assignments relating to amalgamations and mergers, etc.
§ Small Industries Development Bank of India (SIDBI):- was set up by the Government of India in April 1990, as a wholly owned subsidiary of IDBI. It is the principal financial institution for promotion, financing and development of small scale industries in the economy. It aims 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.
§ Industrial Investment Bank of India Ltd (IIBI):- was set up in 1985 under the Industrial reconstruction Bank of India Act, 1984, as the principal credit and reconstruction agency for sick industrial units. It was converted into IIBI on March 17, 1997, as a full-fledged development financial institution. It assists industry mainly in medium and large sector through wide ranging products and services. Besides project finance, IIBI also provides short duration non-project asset-backed financing in the form of underwriting/direct subscription, deferred payment guarantees and working capital/other short-term loans to companies to meet their fund requirements.
2. Specialised Financial Institutions (SFIs):- are the institutions which have been set up to serve the increasing financial needs of commerce and trade in the area of venture capital, credit rating and leasing, etc.
§ IFCI Venture Capital Funds Ltd (IVCF):- formerly known as Risk Capital & Technology Finance Corporation Ltd (RCTC), is a subsidiary of IFCI Ltd. It was promoted with the objective of broadening entrepreneurial base in the country by facilitating funding to ventures involving innovative product/process/technology. Initially, it started providing financial assistance by way of soft loans to promoters under its 'Risk Capital Scheme' . Since 1988, it also started providing finance under 'Technology Finance and Development Scheme' to projects for commercialization of indigenous technology for new processes, products, market or services. Over the years, it has acquired great deal of experience in investing in technology-oriented projects.
§ ICICI Venture Funds Ltd:- formerly known as Technology Development & Information Company of India Limited (TDICI), was founded in 1988 as a joint venture with the Unit Trust of India. Subsequently, it became a fully owned subsidiary of ICICI. It is a technology venture finance company, set up to sanction project finance for new technology ventures. The industrial units assisted by it are in the fields of computer, chemicals/polymers, drugs, diagnostics and vaccines, biotechnology, environmental engineering, etc.
§ Tourism Finance Corporation of India Ltd. (TFCI):- is a specialised financial institution set up by the Government of India for promotion and growth of tourist industry in the country. Apart from conventional tourism projects, it provides financial assistance for non-conventional tourism projects like amusement parks, ropeways, car rental services, ferries for inland water transport, etc.
3. Investment Institutions:- are the most popular form of financial intermediaries, which particularly catering to the needs of small savers and investors. They deploy their assets largely in marketable securities.
§ Life Insurance Corporation of India (LIC):- was established in 1956 as a wholly-owned corporation of the Government of India. It was formed by the Life Insurance Corporation Act,1956 , with the objective of spreading life insurance much more widely and in particular to the rural area. It also extends assistance for development of infrastructure facilities like housing, rural electrification, water supply, sewerage, etc. In addition, it extends resource support to other financial institutions through subscription to their shares and bonds, etc. The Life Insurance Corporation of India also transacts business abroad and has offices in Fiji, Mauritius and United Kingdom . Besides the branch operations, the Corporation has established overseas subsidiaries jointly with reputed local partners in Bahrain, Nepal and Sri Lanka.
§ Unit Trust of India (UTI):- was set up as a body corporate under the UTI Act, 1963, with a view to encourage savings and investment. It mobilises savings of small investors through sale of units and channelises them into corporate investments mainly by way of secondary capital market operations. Thus, its primary objective is to stimulate and pool the savings of the middle and low income groups and enable them to share the benefits of the rapidly growing industrialisation in the country. In December 2002, the UTI Act, 1963 was repealed with the passage of Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002, paving the way for the bifurcation of UTI into 2 entities, UTI-I and UTI-II with effect from 1st February 2003.
§ General Insurance Corporation of India (GIC) :- was formed in pursuance of the General Insurance Business (Nationalisation) Act, 1972(GIBNA ), for the purpose of superintending, controlling and carrying on the business of general insurance or non-life insurance. Initially, GIC had four subsidiary branches, namely, National Insurance Company Ltd , The New India Assurance Company Ltd , The Oriental Insurance Company Ltd and United India Insurance Company Ltd . But these branches were delinked from GIC in 2000 to form an association known as 'GIPSA' (General Insurance Public Sector Association).
State Level InstitutionsSeveral financial institutions have been set up at the State level which supplement the financial assistance provided by the all india institutions. They act as a catalyst for promotion of investment and industrial development in the respective States. They broadly consist of 'State financial corporations' and 'State industrial development corporations'.
State Financial Corporations (SFCs) :- are the State-level financial institutions which play a crucial role in the development of small and medium enterprises in the concerned States. They provide financial assistance in the form of term loans, direct subscription to equity/debentures, guarantees, discounting of bills of exchange and seed/ special capital, etc. SFCs have been set up with the objective of catalysing higher investment, generating greater employment and widening the ownership base of industries. They have also started providing assistance to newer types of business activities like floriculture, tissue culture, poultry farming, commercial complexes and services related to engineering, marketing, etc. There are 18 State Financial Corporations (SFCs) in the country:-
1. Andhra Pradesh State Financial Corporation (APSFC)
2. Himachal Pradesh Financial Corporation (HPFC)
3. Madhya Pradesh Financial Corporation (MPFC)
4. North Eastern Development Finance Corporation (NEDFI)
5. Rajasthan Finance Corporation (RFC)
6. Tamil Nadu Industrial Investment Corporation Limited
7. Uttar Pradesh Financial Corporation (UPFC)
8. Delhi Financial Corporation (DFC)
9. Gujarat State Financial Corporation (GSFC)
10. The Economic Development Corporation of Goa ( EDC)
11. Haryana Financial Corporation ( HFC )
12. Jammu & Kashmir State Financial Corporation ( JKSFC)
13. Karnataka State Financial Corporation (KSFC)
14. Kerala Financial Corporation ( KFC )
15. Maharashtra State Financial Corporation (MSFC )
16. Orissa State Financial Corporation (OSFC)
17. Punjab Financial Corporation (PFC)
18. West Bengal Financial Corporation (WBFC)
State Industrial Development Corporations (SIDCs) :- have been established under the Companies Act, 1956, as wholly-owned undertakings of State Governments. They have been set up with the aim of promoting industrial development in the respective States and providing financial assistance to small entrepreneurs. They are also involved in setting up of medium and large industrial projects in the joint sector/assisted sector in collaboration with private entrepreneurs or wholly-owned subsidiaries. They are undertaking a variety of promotional activities such as preparation of feasibility reports; conducting industrial potential surveys; entrepreneurship training and development programmes; as well as developing industrial areas/estates. The State Industrial Development Corporations in the country are:-
1. Assam Industrial Development Corporation Ltd (AIDC)
2. Andaman & Nicobar Islands Integrated Development Corporation Ltd (ANIIDCO)
3. Andhra Pradesh Industrial Development Corporation Ltd (APIDC)
4. Bihar State Credit and Investment Corporation Ltd. (BICICO)
5. Chhattisgarh State Industrial Development Corporation Limited (CSIDC)
6. Goa Industrial Development Corporation
7. Gujarat Industrial Development Corporation (GIDC)
8. Haryana State Industrial & Infrastructure Development Corporation Ltd. (HSIIDC)
9. Himachal Pradesh State Industrial Development Corporation Ltd. (HPSIDC)
10. Jammu and Kashmir State Industrial Development Corporation Ltd.
11. Karnataka State Industrial Investment & Development Corporation Ltd. (KSIIDC)
12. Kerala State Industrial Development Corporation Ltd. (KSIDC)
13. Maharashtra Industrial Development Corporation (MIDC)
14. Manipur Industrial Development Corporation Ltd. (MANIDCO)
15. Madhya Pradesh State Industrial Development Corporation Ltd. (MPSIDC)
16. Nagaland Industrial Development Corporation Ltd. (NIDC)
17. Orissa Industrial Infrastructure Development Corporation
18. Omnibus Industrial Development Corporation (OIDC), Daman & Diu and Dadra & Nagar Haveli.
19. Pudhucherry Industrial Promotion Development and Investment Corporation Ltd. (PIPDIC)
20. Uttar Pradesh State Industrial Development Corporation
21. Punjab State Industrial Development Corporation Ltd. (PSIDC)
22. Rajasthan State Industrial Development & Investment Corporation Ltd. (RIICO)
23. Sikkim Industrial Development & Investment Corporation Ltd. (SIDICO)
24. Tamil Nadu Industrial Development Corporation Ltd. (TIDCO)
25. State Infrastructure & Industrial Development Corporation of Uttaranchal Ltd. (SIDCUL)
26. Tripura Industrial Development Corporation Ltd. (TIDC)