DEVELOPMENT FINANCE INSTITUTIONS (DFIs)

The DFIs were set up and developed to meet specifically the requirements of industry for long-term finance and equity capital and foreign currency resources. The AIFI's constitute the most important source of funds after the commercial banks. With the progress in the deregulation of the financial sector, the Government has tried to tighten the prudential norms of the AIFI's by a number of measures.

The important measures are:
1. The NP A's limit has been reduced from 365 days to 180 days.
2. Now the AIFI's have to keep Commercial Papers (CPs) in dematerialized form
3. Industrial Finance Corporation of India (IFCI) has been restructured. Government of India subscribed Rs. 400 crore through 20 year convertible bonds to improve the capital adequacy ratio of IFCI. In addition, major shareholders of IFCI, viz., Industrial Development Bank of India (IDBI), SBI and UC agreed to extend assistance of Rs. 200 crore each share up the capital adequacy ratio.
4. The participation of AIFI's in the call money market has to be phased out.
The Industrial Credit and Investment Corporation of India (lCICI) expanded its corporate finance business by introducing long-term financing for captive/sole suppliers of large companies, where the financing was made contract-centric rather than client-centric. 

The Small industries Development Bank of India (SIDBI) in association with the Government of India launched a Credit Guarantee Fund for Small Indus- tries (CGFSI) to provide third party guarantee to SSIs.

Industrial Development Bank of India (IDBI)

1. It was established in 1964. It is primary and apex financial institution to provide credit facilities for development of big and small industries.
2. Earlier it was subsidiary part of R.B.I.
3. In 1976, it was delinked and made autonomous.

It has following functions:
(a) It grants direct assistance by way of project loans, underwriting of and direct subscription to industrial securities, soft loans, technical refund loans and equipment finance loans.
(b) It finances indirectly through other financial institutions like IFCI, SFCs; it can refinance export credit given by the scheduled banks and cooperatives and State cooperative banks.

4. It refinances IFCI and State Financial Corporations.
5. In 1986, Small Industrial Development fund was created in IDBI
6. It is the premier institute in the security market or capital market.
7. In 1988, the National Equity Fund Scheme for providing support, in the nature of equity to tiny and small industrial units engaged in manufacturing cost not exceeding Rs. 5 lakhs.
8. In 1989, SIDBI was established as a subsidiary of IDBI
9. The IDBI and IDBI Bank merged.
10. IDBI has been providing direct financial assistance to large industrial concerns
11. The IDBI has been providing direct financial assistance to large industrial concerns. Ag gregate assistance (provisional) sanctioned during 2004-05 amounted Rs 6,314 crore regis tering a rise of 120.8 per cent over the preceding year.
12. On the basis of the recommendations of S H Khan Panel, the function of IDBI has been diversified It has expanded the scope of its venture capital schemes and . has played an instrumental role in setting up the National Stock Exchange and has promoted Investor Ser-  vices Limited. The IDBI was transformed into IDBI Limited on 1 October 2004, a com pany under the Com- panies Act, 1956 and a Scheduled Bank (on 11th October 2004) under the RBI Act, 1934.

Industrial Credit and Investment Corporation of India (ICICI)

1. It was established in 1955.
2. It was setup as a "private sector" development Bank.
3. All its share capital was contributed by Banks, Insurance Companies and Foreign Institu tions (including the World Bank.
4. It had primarily two functions: (a) the development of underwriting facilities in the coun try. (b) the provision of "currency loans". Now the IDBI has taken over the former worker.
5. It provides term loans in Rupees and foreign currency for purchase of capital assets in the form of land, building and machinery.
6. CRISIL has been set up ICICI with the association of UTI.
7. TDICI has been promoted by ICICI to finance the transfer and upgradation of technol ogy and provide technology information.
8. Programme for the Advancement of Commercial Technology (PACT) was set up with the assistance of USAID.
9. Programme for Acceleration of Commercial Energy Research (PACER) was funded by USAID.

The Industrial Reconstruction Bank of India (IRBI)

1. Industrial Reconstruction Corporation of India was set up in April, 1971.
2. Its basic objective is to revive and revitalise sick industrial units in public or private sectors.
3. Its share capital has been subscribed by IDBI, IFCI, ICICI, UC and Nationalised Banks.
4. In August 1984, the Government of India passed an Act and converted the Industrial Reconstruction Corporation of India into Industrial Reconstruction Bank of India. It was functioning as the principal all-India credit and reconstruction agency for industrial revival.
5. In March 1995, the Industrial Reconstruction Bank of India into a company and renamed it as Industrial Investment Bank of India Limited (IIBI).

The Industrial Finance Corporation of India (IFCI)

1. First development bank of India, established on 1st July 1948. Now, it is subsidiary of IDBI.
2. IDB! has share of 50 per cent.
3. It provides financial assistance to large and medium sized limited companies in both the private and public sectors and to co-operative society.
4. It grants loans and advances to industrial-concerns and subscribes to the debentures floated by them.
5. It underwrites the issue of stocks, shares, bonds and debentures of industrial concerns.
6. It provides direct Rupees and foreign currency loans for setting up new industrial projects and for expansion and diversification, renovation and modernization and existing units.
7. IFCI set up in 1975 Risk Capital Foundation (RFC), which later named as Risk Capital and Technology Foundation Limited (RCTF) in 1998 and since 1998, RCTF has been renamed as IFCI Venture Capital Funds Limited (IVCF).

The State Financial Corporations (SFCs)

1. It was set up in 1951 and actually enforced in August, 1952.
2. IDB! has 50 per cent shares in it.
3. At present 18 SFCs are operational in 18 states.
4. It has increasingly important role in the development of medium and small industries.
5. It gives financial assistance in all the four 'major forms (1) loans and advances (2) shares and debentures (3) "underwriting" of new issue (4) guarantee of loans from third party.

Difference between SFCs and IFCI

(1) SFCs have smaller amounts of share capital between 50 lakhs and Rs. 5 crores.
(2) They are permitted to allot 25 per cent of their shares to private parties while the IFCI is not.
(3) The maximum period for which a State Corporation can lend or guarantee loans or subscribe to debentures is fixed by 20 years while the limit for IFCI is 25 years.
(4) The maximum amount of assistance which can be granted by the State Corporation has been fixed at Rs. 10 lakhs but the limit in the case of IFCI is Rs. 1 crore.

The State Industrial Development Corporation (SIDC)

1. Where as the SFCs are under the dual control of State Government and IDBI, the SIDC has been set up entirely by state governments.
2. At present in India there are 26 SIDC.

State Land Development Banks (SLDBs)

1. It has been effectively organized in 1929.
2. At present SLDBs are in 19 state.
3. The bulk of fund corne from deben subscribes to by NABARD, LIC and Commercial.
4. NABARD use to refinance it.

Small Industrial Development Bank of India (SIDBI)

» Founded 2nd April, 1990.
» Headquarter in Lucknow.
» It has 26 regional offices.
» It administers Small Industry Development Fund (SIDF) and National Equity Fund (NEF).
» To promote, finance and develop SSIs and to work for existing institution engaged in similar activities.
» To upgrade and modernize the existing units technically.
» The financial assistance of SIDBI to the small scale units scattered throughout the country is being channelised through the existing delivery mechanism comprising of SFCs, SIDCs, commercial Banks and Co-operative Banks and RRBs.
» The financial assistance sanctioned and disbursed aggregated to Rs 8,224 crore and Rs 4,413 crore, respectively, during 2003-04.

National Bank for Agricultural and Rural Development (NABARD)

Institutional credit refers to a fund made available by co-operative societies, commercial banks, and Regional Rural Banks (RRBs). National Bank for Agricultural and Rural Development (NABARD) was established in 1982. RBI has 50 per cent share and Government of India (GOI) has 50 per cent in it.

» It was established to provide credit for the promotion of the agriculture, SSI and Cottage and Village Industry
» It is an apex bank for agriculture.
Its finances are available to SLDBs, SCBs (State Co-operative Banks), Scheduled Commer cial banks, and RRBs
» It takes loans from GOI, World Bank, and Asian Development Bank (ADB)
» In 1995, Government created Rural Infrastructure Development Fund (RIDF). The com mercial banks deposit to RIDF has significantly increased .
» Use of tax-free bonds through the issue of capital gains bonds and priority sector bonds.
» NABARD has raised additional resources to the extent of Rs 6,280 crores during 2001-02 as compared to Rs 5,450 crores during 2000-01.
» NABARD cannot accept short-term public deposits. It has to spend on RBI's general line of credit. NABARD provides refinance to State Cooperative Banks and RRBs for their short- term and medium-term requirements. The total outstanding refinance to SCBs and RRBs amounted to Rs 6,590 crore by June 2002.

Regional Rural Banks (RRBs): » It was founded in 1975.

Import Bank of India (EXIM)
» Established in 1982
» It has taken over the export-finance function of the IDBI and acts as the apex institution relating to the financing of foreign trade.
» Provides help to exporters and importers as the principal financial institution.

National Housing Bank (NHB)

» Set up in July 1988 as a wholly owned subsidiary of the RBI
» Refinance to scheduled commercial banks for housing loans, housing finance companies, Housing and Urban Development Corporation (HUDCO), Cooperative Housing Financial Societies and SLDBs.
» It is getting loan from USAID (US Agency for International Development of Housing).
» NHB has launched a scheme called Home Loan Account Scheme (HLAS) to mobilise resources for construction of Houses and Flats.
» The bank monitors the performance of the Golden Jubliee Rural Housing Finance Scheme being implemented through Scheduled Banks, IFCs, and Co-operative Sector Institutions.

Courtesy: Mr. LS Mishra

Related Topics:

• Basic Economy

• Fiscal System

• Foreign Investment

• Monetary System

• Capital Market

• Inflation

• National Housing Bank - NHB