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Banking and Financial Institutions With MCQs Development Banking IFCI By Navdeep Kaur
Development Banking In the Western countries, however, development banking had a long period of evolution. The origin of development banking may be traced to the establishment of 'Society General Pour Favoriser I' Industrie Nationale' in Belgium in 1822. But the notable institution was the 'Credit Mobiliser' of France, established in 1852, which acted as industrial financier In 1920, Japan established the Industrial Bank of Japan to cater to the financial needs of her industrial development. In the post-war era, the Industrial Development Bank of Canada (1944), the Finance Corporation for Industry Ltd. (FCI) and the Industrial and Commercial Finance Corporation Ltd. (ICFC) of England (1945), etc., were established as modern development banks to provide term loans to industry. In 1966, the U.K. Government set up the Industrial Reorganisation Corporation (IRC) In India, the first development bank called the Industrial Finance Corporation of India was established in 1948.
IFCI, previously Industrial Finance Corporation of India, is an Indian government owned development bank to cater to the long-term finance needs the industrial sector. It was the first development finance institution established by the Indiarn government after independence. Until the establishment of ICICI in 1991, IFCI remained solely responsible for implementation of the government's industrial policy initiatives. In 1993 it was reconstituted as a company to impart higher degree of operational flexibility. IFCI was allowed to access the capital markets directly.
At the time of independence in 1947, India's capital market was relatively under-developed. Although there was significant demand for new capital, there was a dearth of providers. Merchant bankers and underwriting firms were almost non-existent and commercial banks were not equipped to provide long-term industrial finance in any significant manner. It is against this backdrop that the government established The Industrial Finance Corporation of India (IFCI) on July 1, 1948, as the first Development Financial Institution in the country to cater to the long-term finance needs of the industrial sector. The newly-established DFI was provided access to low-cost funds through the central bank's Statutory Liquidity Ratio or SLR which in turn enabled it to provide loans and advances to corporate borrowers at concessional rates.
Liberalization conversion into company in 1993 By the early 1990s, it was recognized that there was need for greater flexibility to respond to the changing financial system. It was also felt that IFCI should directly access the capital markets for its funds needs. It is with this objective that the constitution of IFCI was changed in 1993 from a statutory corporation to a company under the Indian Companies Act, 1956. Subsequently, the name of the company was also changed to "IFCI Limited" with effect from October 1999.
Organisation and Management: The Head Office of the IFCI is in New Delhi. It has also established its Regional offices in Bombay, Chennai, Kolkata, Chandigarh, Hyderabad, Kanpur and Guwahati. The branch office of IFCl is located in Bhopal, Pune, Jaipur, Cochin, Bhubaneswar, Patna, Ahmedabad and Bangalore. The IFCI is managed by a Board of Directors, headed by a Chairman, who is appointed by the Government of India, in consultation with RBl. The chairman holds his position for a period of 3 years, subject to extension Of the 12 directors, 4 are nominated by the IDBI, three of whom are experts in the fields of industry, labour and economics and the fourth is the General Manager of the IDBl. The remaining 8 directors are nominated. Two directors are nominated for a term of 4 years by each of the following-scheduled banks, co-operative banks, insurance companies and investment companies making up eight directors.
Functions: (i) The corporation grants loans and advances to industrial concerns (ii) Granting of loans both in rupees and foreign currencies. (ii) The corporation underwrites the issue of stocks, bonds, shares etc (iv) The corporation can grant loans only to public limited companies and co-operatives but not to private limited companies or partnership firms.
Activities of the IFCI 1. Soft Loan Assistance: This scheme provides soft loan assistance to existing industries in small and medium sector for developing technology through in-house research and development. 2. Entrepreneur Development: IFCI provides financial support to EDPs (Entrepreneur Development Programmes) conducted by several agencies all-over India. In co-operation with Entrepreneurship Development Institute of India. 3. Industrial Development in Backward Areas: IFCI also take measures to promote industrial development in backward areas through a scheme of concessional finance.
4. Subsidised Consultancy: The IFCI gives subsidised consultancy for, (i) Small Entrepreneurs for Meeting the Cost of 5. Management Development: Project. (ii) Promoting Ancillary Industries (i) To do the Market Research (iv) Reviving Sick Units. (v) Implementing Modernisation (vi) Controlling Pollution in Factories. To improve the professional management the IFCI sponsored the Management Development Institute in 1973. It established the Development Banking Centre to develop managerial, manpower in industrial concern, commercial and development
Working of the IFCI: The working of the IFCI came in for a large measure of criticism. In the first place, the rate of interest which the corporation charged was extremely high. Secondly, there was a great delay in sanctioning loans and in making the amount of the loans available. Thirdly, the corporation's insistence on the personal guarantee of managing directors in addition to the mortgage of property was considered wrong In the last two decades the corporation had entered into new lines of activity, viz, underwriting debentures and shares and guaranteeing of deferred payment in respect of imports from abroad of plant an equipment by industrial concerns and subscribing to stocks and shares of industrial concerns directly Besides, the performance of IFCl together with the work of other public sector financial institutions has been extremely credit worthy in the last two decades.
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History Industrial Development bank of India (IDBI) was constituted under Industrial Development bank of India Act, 1964 as a Development Financial Institution (DFI) and came into being as on July 01, 1964 as a wholly owned subsidiary of RBl. In 1976, the ownership of IDBI was transferred to the Government of India and it was made the principal financial institution for coordinating the activities of institutions engaged in financing, promoting and developing industry in India. It was regarded as a Public Financial Institution in terms of the provisions of Section 4A of the Companies Act, 1956. It continued to serve as a DFI for 40 years till the year 2004 when it was transformed into a Bank. Industrial Development Bank of India Limited: In response to the felt need and on commercial prudence, it was decided to transform IDBl into a Bank. For the purpose, Industrial Development bank (transfer of undertaking and Repeal) Act, 2003 [Repeal Act] was passed repealing the Industrial Development Bank of India Act, 1964. In terms of the provisions of the Repeal Act, a new company under the name of Industrial Development Bank of India Limited (IDBI Ltd.) was incorporated as a Govt. Company under the Companies Act, 1956 on September 27, 2004. Thereafter, the undertaking of IDBI was transferred to and vested in IDBI Ltd. with effect from October 01, 2004. In terms of the provisions of the Repeal Act, IDBI Ltd. has been functioning as a Bank in addition to its earlier role of a Financial Institution.
Role of IDBI As an apex development bank, the IDBI's major role is to co-ordinate the activities of other development banks and term-financing institutions in the capital market of the country. Providing technical and administrative assistance for promotion, management and expansion of industry thus performing promotional and development functions Direct Assistance: The IDBI grants loans and advances to industrial concerns. The bank guarantees loans raised by industrial concerns in the open market from the State Co-operative Banks, the Scheduled Banks, the Industrial Finance Corporation of India (IFCI) and other notified, financial institutions. Indirect Assistance: Providing refinancing facilities to the IFCI, SFCs and other financial institutions approved by the government. IDBI subscribes to the shares and bonds of the financial institutions and thereby provide supplementary resources Coordinating the activities of financial institutions for the promotion and development of industries IDBI is the leader, coordinator and innovator in the field of industrial financing in our country. Its major activity is confined to financing, developmental, co-ordination and promotional functions. Planning, promoting and developing industries with a view to fill the gaps in the industrial structure by conceiving, preparing and floating new projects.
Capital: The authorised capital of the EXIM Bank is Rs. 200 crore and paid up capital is Rs. 100 crore, wholly subscribed by the Central Government. The bank can raise additional resources through (i) Loans/grants from Central Government and Reserve Bank of India; (ii) Lines of credit from institutions abroad; (ii) Funds raised from Euro Currency markets; (iv) Bonds issued in India.
5. Offering buyers' credit and lines of credit to the foreign governments and banks 6. Providing advance information and business advisory services to Indian exports in respect of multilaterally funded projects overseas. During the year 1994-95, the EXIM Bank introduced the 'Clusters of Excellence' programme for up-gradation of quality standards and obtaining ISO 9000 certification in various parts of the country. Signed MOU with EBRD The Bank also entered into framework cooperation agreement with European Bank for Reconstruction and Development (EBRD) for acquiring advance information on EBRD funded projects in order to enter into co-financing proposals with EBRD in Eastern Europe and CIS
SIDBI Mission History "To facilitate and strengthen credit flow to MSMEs and address both financial and developmental gaps in the MSME eco-system"April 2, 1990 under an Act of Small Industries Development Bank of India (SIDBI), set up on Indian Parliament, acts as the Principal Financial Institution for the Promotion, Financing and Development of the Micro, Small and Medium Enterprise (MSME) Vision To emerge as a single window for meeting the financial and developmental needs of the MSME sector to make it strong, vibrant and globally competitive, to position SIDBI Brand as the preferred and customer friendly institution and for enhancement of share holder wealth and highest corporate values through modern technology platform sector and for Co-ordination of the functions of the institutions engaged in similar activities.