Industrial Investment Bank of India (IIBI)

The IIBI was set up in 1971 under the name of the Industrial Reconstruction Corporation of India Ltd (IRCI) in Kolkata, West Bengal,. This entity was further given the status of a bank in 1985 with a view to creating a financial development institution and thus the Industrial Reconstruction Bank of India (IRBI) was born. A full-fledged banking organization was created in March of 1997 and was finally recognized as the Industrial Investment Bank of India (IIBI). Around 2012, the chairman of the bank, O.N. Singh confirmed to the press that the bank would be closing its operations shortly due to mounting debt and unviable functions.

The products and functions of IIBI

The IIBI was majorly entrusted with reinvigorating the small and failing industries in the country. It was originally touted as a financial development company however, since its establishment as a bank, it incorporated all industrial banking privileges and awarded them to suitable companies.

Although there is no record of the actual products used by the IIBI since its dissolution, listed below are the major functions of the bank.

1. Term finance – IIBL would periodically offer term-backed short term loans for the purpose of financing projects for companies. These loans would span between 6 months to 5 years
2. Short term loans – Many institutions need to maintain a regular cash flow or working capital. IIBL would provide short term loans as a means of maintaining working capital to a majority of firms in the 90s
3. Credit facility – A long term line of credit was extended to regular customers of the bank backed by their commitments in case of non-repayment of said loans. These loans would be periodically paid off and reinstate the original amount of credit issued. In sense, the companies could take money out and use it to their accord as long as periodic payments were in place.
4. Equipment loans – Loans were given out to companies to buy assets other than real estate for the functioning of their respective businesses. These loans were backed by repossession rights by the bank in case of non-payment of said equipment. They were low cost, easily dispensable products that the IIBL used to issue regularly.
5. Money market loans – Offering to buy debt from government bodies, banks, financial institutions, industrial investors and corporations were given out by the IIBL. These short term debt instruments would work for companies looking to make short term gains and raise interest for the firm through cash debts, stocks and bonds. These would include Deposit certificates, Bankers’ acceptance, treasury bills and stock options.
6. Accounts – All companies interacting with the IIBL would need to have their accounts with the bank itself. The bank would maintain, audit, advise and secure these accounts on behalf of the companies in addition to providing finance options.
7. Overdraft facilities – In return for maintaining a certain balance in their accounts, IIBL would issue a percentage of that balance as a credit facility to the account owners. This could be used as a rolling capital and fund short term requirements and projects for the companies.
8. Other facilities – Maintaining lockers, financial advisory, creating business relations, following banking and finance guidelines, auditing top firms to make sure they were aligned with government regulations, sharing goodwill of companies and providing business prospects with the government of India were some other facilities offered by the IIBL.

Why did the IIBI fail?

The main reason that the IIBL was not able to survive was due to its rigid banking practices. Banks at the time had access to cheaper resources to raise capital and also provide many different forms of credit facilities. Bifurcation of the banking industry meant that there were more players in the market and innovation was at play. The new-age banks were able to capitalize on instruments like demand deposits and debt bonds. This was never considered by IIBL and it failed to understand the requirements of the modern industrial world. The closure of IIBL paved the way for more exits in the banking industry. All major banks and industrial finance corporations started closing their doors once they understood the importance of change and innovation and were unable to cope with the changes and could not control their bad debts from increasing beyond control.

Conclusion

The world grows because of change. Innovation and transformation are the cornerstones of growth. If we fail to adapt to the changing needs of the market, we will not be able to deliver what the people need. In the banking industry, focussing on old models of finance and failure to understand the customer needs can be hazardous. Nowadays, banks focus on progressing every single aspect of their existence including vast impact on IT operations and security, renewed and focussed customer service, robust sales functions, digital marketing and even open banking wherein the involvement of the bank will be minimal and the customers can use the facilities without having to deal with lines or incompetent bankers. This recognition of facts and understanding of the market requirements will lead to success and long term stability.