This article throws light upon the top eight financial institutions at national level. The financial institutions are: 1. Industrial Finance Corporation of India (IFCI) 2. Industrial Credit and Investment Corporation of India (ICICI) 3. State Financial Corporations (SFCs) 4. State Industrial Development Corporations (SIDC’S) 5. Industrial Development Bank of India (IDBI) 6. Industrial Investment Bank of India (IIBIL) and Others.
- Finance Corporation of India (IFCI)
- Industrial Credit and Investment Corporation of India (ICICI)
- State Financial Corporations (SFCs)
- State Industrial Development Corporations (SIDC’S)
- Industrial Development Bank of India (IDBI)
- Industrial Investment Bank of India (IIBIL)
- Unit Trust of India (UTI)
- Small Industries Development Bank of India (SIDBI)
Financial Institution # 1. Industrial Finance Corporation of India (IFCI):
The Industrial Finance Corporation of India was established in 1948 under the IFC Act, 1948. The main objective of the corporation has been to provide medium and long-term credit to industrial concerns in India.
The objective of the corporation as laid down in the preamble of the IFC Act, 1948, are ……………………………..”making medium and long-term credits more readily available to industrial concerns in India, particularly in circumstances where normal banking accommodation is inappropriate or recourse to capital issue methods is impracticable.”
The financial assistance of the corporation is available to limited companies or co-operative societies registered in India and engaged or proposing to engage in:
(a) Manufacture, preservation or processing of goods
(b) The mining industry;
(c) The shipping business;
(d) The hotel industry; and
(e) The generation or distribution of electricity or any other form of power.
Initially the authorised capital of the corporation was Rs. 10 crore which was divided in equities of Rs. 5,000 each. Later on the authorised capital was increased to Rs. 20 crore. Since July 1, 1993 this corporation has been converted into a company and it has been given the status of a limited company with the name Industrial Finance Corporation of India Ltd. IFCI has got its registration under Companies Act, 1956.
Before July 1, 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.
The financial resources of IFCI consist of paid-up capital, reserves, repayment of loans, market borrowings in the form of bonds/debentures, loans from Government of India, advances from the Industrial Development Bank of India and foreign currency loans.
Functions of IFCI:
The functions of the IFCI can be broadly classified into:
a. Financial Assistance, and
b. Promotional Activities.
a. Financial Assistance:
The IFCI is authorised 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, bonds, or debentures to be disposed off within 7 years.
(iii) Subscribing directly to the shares and debentures of public limited companies.
(iv) Guaranteeing of loans raised by industrial concerns from scheduled banks or state cooperative banks.
(v) Guaranteeing of deferred payments for the purchase of capital goods from abroad or within India.
(vi) Acting as an agent of the Central Government or the World Bank in respect of loans sanctioned to the industrial concerns.
Financial assistance is available from IFCI for the following purposes:
(i) For the setting up of new industrial undertakings.
(ii) For expansion or diversification of the existing concerns.
(iii) For the modernisation and renovation of the existing concerns.
(iv) For meeting existing liabilities or working capital requirement of industrial concerns in exceptional cases.
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 above Rs. 2 crores because up to 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.
b. 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. The corporation discovers the opportunities for promoting new enterprises.
It helps in developing small and medium scale entrepreneurs by providing them guidance through its specialised agencies in identification of projects, preparing project profiles, implementation of the projects, etc. It acts an instrument of accelerating the industrial growth and reducing regional industrial and income disparities.
Working of IFCI:
The cumulative financial assistance sanctioned by IFCI up to March, 2003 aggregated Rs. 45,426.7 crores against which disbursements amounted to Rs. 44,169.2 crores. During 2003-04, IFCI sanctioned and disbursed Rs. 1394.6 crore and Rs. 281.2 crore respectively.
However, no amount was sanctioned by IFCI during 2004-05 and disbursements also amounted to Rs. 91 crore only. The provisional disbursement for the year 2005-06 amounted to Rs. 187 crore only.
However, no amount was sanctioned by IFCI during 2004-05 and disbursements also amounted to Rs. 91 crores only. The disbursements for the year 2005-06 amounted to Rs. 187 crores only. The provisional figures of sanctions and disbursements for the year 2006-07 amounted to Rs. 1050 crores and Rs. 550 crores respectively.
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 concessional rates are given to units in selected industries. Such assistance is given for modernisation, 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 into 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.
Financial Institution # 2. Industrial Credit and Investment Corporation of India (ICICI):
The Industrial Credit and Investment Corporation of India (ICICI) were established in 1955 as a public limited company under the Indian Companies Act for developing medium and small industries of private sector.
Initially its equity capital was owned by companies, institutions and individuals but at present its equity capital is owned by public sector institutions like banks, LIC and GIC etc. It provides term loans in Indian and foreign currencies, underwrites issues of shares and debentures, makes direct subscription to these issues and guarantees payment of credit made by others.
Functions of ICICI:
The corporation has been established for the purpose of assisting industries in the private sector by undertaking the following functions:
(i) Assisting in the creation, expansion and modernisation of such enterprises.
(ii) Encouraging and promoting the participation of private capital, both internal and external.
(iii) Encouraging and promoting private ownership.
(iv) Expansion of investment market.
(v) Providing finance in the form of long or medium-term loans.
(vi) Underwriting issue of shares and debentures.
(vii) Making funds available for re-investment.
(viii) Furnishing managerial, technical and administrative services to Indian Industry.
(ix) To extend guarantee for deferred payments.
(x) To advance loans in foreign currency towards the cost of imported capital equipment.
The financial assistance sanctioned and disbursed by ICICI up to March 2002 amounted to Rs. 2,83,511 crore and Rs. 1,71,698 crore respectively. During 1998-99 alone it sanctioned Rs. 34,220 crore and disbursed Rs. 19,225 crore.
Loans sanctioned in foreign currency constitute important place in total sanctioned loans of the corporation. The assistance sanctioned and disbursed by ICICI during 2001-02 aggregated Rs. 35,589 crores and Rs. 25,050 crores respectively registering a growth of 36.2% and 20.9% respectively over the previous year.
Recently ICICI Ltd. (along with two its subsidiaries, ICICI Personal Finance Services Ltd., and ICICI Capital Services Ltd.,) has been merged with ICICI Bank Ltd., effective from May 3, 2002. The erstwhile DFI has thus ceased to exist.
Financial Institution # 3. State Financial Corporations (SFCs):
The State Financial Corporation Act was passed by the Government of India in 1951 with a view to provide financial assistance to small and medium scale industries which were beyond the scope of IFCI. According to this Act, a State Government is empowered to establish a financial corporation to operate within the State. At present, there are 18 such corporations functioning in the country.
These corporations are expected to be complementary to the Industrial Finance Corporation of India. While IFCI provides assistance only to large industrial concerns owned by public limited companies or co-operatives, the SFCs. render assistance to all kinds of industries, may be in the form of private limited companies, partnership firms or sole- trading concerns.
The capital structure of the State Financial Corporations has been left to be determined by State Government within the limits of Rs. 50 lakhs to Rs. 5 crores, 25 per cent of the capital can be subscribed by the public and the rest by the State Government, the Reserve Bank of India, insurance companies and other institutional investors in proportion to be determined by the State Government in consultation with the Reserve Bank of India.
Apart from share capital, the SFCs depend for financial resources on issue of bonds, borrowings from RBI, loans from State Government, refinancing of loans by IDBI, deposits from the public, repayment of loans and income from investments.
The main function of the SFCs is to provide loans to small and medium scale industries engaged in the manufacture, preservation or processing of goods, mining, hotel industry, generation or distribution of power, transportation, fishing, assembling, repairing or packaging articles with the aid of power, etc.
State Financial Corporations are authorised to grant financial assistance in the following forms:
(i) Granting of loans or advances to industrial concerns repayable within a period not exceeding twenty years.
(ii) Subscribing to the debentures of industrial concerns repayable within a period not exceeding twenty years.
(iii) Guaranteeing loans raised by industrial concerns repayable within twenty years.
(iv) Underwriting the issue of stocks, shares, bonds or debentures by the industrial concerns subject to their being disposed off within seven years.
(v) Guaranteeing deferred payments due from any industrial concern in connection with purchase of capital goods in India.
(vi) Acting as an agent of the Central Government or State Government or the Industrial Finance Corporation of India in respect of any business with an industrial concern in respect of loans sanctioned to them.
Financial Institution # 4. State Industrial Development Corporations (SIDC’S):
In order to accelerate industrial development various states have set up Industrial Development Corporations. Andhra Pradesh and Bihar were the first states to set up such corporations in 1960. Most of the states have set up such institutions at present. At present there are 28 such SIDCs working in the country.
Many of these corporations are registered under Companies Act and two have been set up under the statutes of legislative bodies. These corporations are wholly owned by state governments.
SIDCs perform the following functions:
(i) Grant of financial assistance.
(ii) Provision of industrial sheds or plots.
(iii) Promotion and management of industrial concerns.
(iv) Promotional activities such as identification of project idea, selection and training of entrepreneur, provision of technical assistance during project implementation.
(v) Providing risk capital to entrepreneur by way of equity participation and seed capital assistance.
Financial Institution # 5. Industrial Development Bank of India (IDBI):
The Industrial Development Bank of India was established under the Industrial Development Bank of India Act, 1964 as a wholly owned subsidiary of the Reserve Bank of India. The ownership of IDBI has since been transferred to Central Government from February 16, 1976.
The main object of establishing IDBI was to set up an apex institution to co-ordinate the activities of other financial institutions and to act as a reservoir on which the other financial institutions can draw. IDBI provides direct financial assistance to industrial units also to bridge the gap between supply and demand of medium and long term finance.
As on March 31, 1997, the paid up capital of IDBI stood at Rs. 659.4 crore and reserve funds at Rs. 6554 crore. The bank is also authorised to raise its resources through borrowings from Government of India, Reserve Bank of India and other financial institutions.
On 31st March, 1997, the bank had borrowings of Rs. 23,802 crore by way of bonds and debentures, deposits of Rs. 3694 crore and borrowings of Rs. 10,364 crore from RBI, Government of India and other sources.
The main functions of IDBI are as follows:
i. To co-ordinate the activities of other institutions providing term finance to industry and to act as an apex institution.
ii. To provide refinance to financial institutions granting medium and long-term loans to industry.
iii. To provide refinance to scheduled banks or co-operative banks.
iv. To provide refinance for export credits granted by banks and financial institutions.
v. To provide technical and administrative assistance for promotion, management or growth of industry.
vi. To undertake market surveys and techno-economic studies for the development of Industry.
vii. 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 Export-Import Bank of the country.
viii. 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.
Since its inception in 1964, IDBI has extended its operations to various areas of industrial sector. It provides direct loans, refinances industrial loans, rediscounts bills, underwrites shares and debentures, directly subscribes to shares and debentures of companies of industrial units etc.
Aggregate assistance sanctioned by March 2003 amounted to Rs. 2,23,932 crore and disbursements amounted to Rs. 1,68,167 crore. Assistance sanctioned during 2004-05 amounted to Rs. 10,799 crore and disbursements amounted to Rs. 6,183 crore in 2004-05. The provisional figures for the year 2005-06 amounted to Rs. 27,442 crore and Rs. 12,984 crore respectively.
Financial Institution # 6. Industrial Investment Bank of India (IIBIL):
Industrial Reconstruction Bank of India (IRBI):
IRBI was established on March 20, 1985 under Indian Industrial Reconstruction Bank Act, 1984 as a result of reconstituting Indian Industrial Reconstruction Corporation. The basic aim of establishing IRBI was to revive sick and closed industrial units and to act as prime loan and reconstruction agency.
IRBI has been rechristened as Industrial Investment Bank of India Ltd. (IIBIL) with effect from March 27, 1997. The authorised capital of IIBIL is Rs. 1,000 crore and its head office is situated at Calcutta. Now it acts as an autonomous development finance institution like IFCI, ICICI and IDBI. During 1999-2000, IIBIL sanctioned and disbursed Rs. 2338.08 crore and Rs. 1439.58 crore respectively.
The figures for the year 2000-01 amounted to Rs. 2102.3 crore and Rs. 1709.8 crore respectively; and for the year 2001-02, sanctions amounted to Rs. 1320.7 crore against disbursements of Rs. 1070 crore. The provisional figures for the year 2002-03 amounted to Rs. 12.06.4 crore and Rs. 1091.9 crore and for the year 2003-04 sanctions amounted to Rs. 2,412 crore against disbursements of Rs. 2,252 crore.
Financial Institution # 7. Unit Trust of India (UTI):
The Unit Trust of India was established on February 1. 1964 under the Unit Trust of India Act, 1963 with the following objectives:
(i) To stimulate and pool the savings of the middle and low income groups.
(ii) To enable unit holders to share the benefits and prosperity of the rapidly growing industrialisation in the country.
(iii) To sell units among as many investors as possible.
(iv) To invest the money raised from the sale of units and its own capital in corporate and industrial securities.
(v) To pay dividend to the unit holders.
With the amendment of UTI Act in April, 1986, UTI is now allowed to grant term loans, rediscount bills, undertake equipment leasing and bill purchase financing, provide housing and construction finance, provide merchant banking and portfolio management services and set up overseas funds. UTI mobilises saving funds from public by selling its units in various schemes.
The mobilised sources are invested by the Trust in shares and debentures of various well established companies.
UTI distributes its net profit amongst its unit holders as dividend. Presently UTI is the largest investor in Indian share market. As on July 31, 2002 UTI’s assets under management were valued at Rs. 47,787 crore. Financial assistance sanctioned and disbursed by UTI during 2000-01 stood at Rs. 6770 crore and Rs. 4600 crore respectively.
The head office of the UTI is situated at Mumbai and its regional offices are working at Mumbai, Calcutta, Chennai and New Delhi. 41 branches of UTI are working in various parts of the country. UTI has also established a private sector bank named UTI Bank Ltd.
Financial Institution # 8. Small Industries Development Bank of India (SIDBI):
The Small Industries Development Bank of India (SIDBI) was set up in 1990 under the SIDBI Act, 1990. The main objective of SIDBI has been to work as a principal financial institution for the promotion, financing and development of industries in the small-scale sector.
It is also expected to co-ordinate the functions of various financial institutions, such as, State Financial Corporations, State Small Industries Development Corporations. Scheduled Banks and State Co-operative Banks, etc. engaged in the financing, promotion and development of small-scale industries.
The financial resources of SIDBI mainly comprise contribution from the Industrial Development Bank of India (IDBI) in the form of share capital and loans, funds from the Reserve Bank of India, loans from the Government of India and the market borrowings. The authorised capital of SIDBI is Rs. 250 crores which may be increased to Rs. 1000 crores. It is also free to obtain loans in foreign currency from foreign institutions.
The Small Industries Development Bank of India began its operations in April 1990 by taking over the activities of the IDBI relating to the small-scale industrial sector. Since, then it has been providing very useful service to the small-scale industries. The other specialised financial institutions were generally providing assistance only to the big industrial units and hence SIDBI has filled this gap very well.
Total financial assistance sanctioned and disbursed by SIDBI till the end of March, 1999 stood at Rs. 45,137 crore and Rs. 32,985 crore respectively. During 2001-02 sanctions and disbursements made by SIDBI were Rs. 9,014 crore and Rs. 5,197 crore respectively.
In pursuance of SIDBI (Amendment) Act, 2000, 51% of shareholding in SIDBI hither to subscribed and held by IDBI, have been transferred to select public sector banks, LIC, GIC and other institutions owned or controlled by the Central Government.