Describe the main sources of industrial finance in India? How could India benefited from recent development in international finance?(CSE 2006)
The main sources of industrial finance in India are following:
INDUSTRIAL DEVELOPMENT BANK OF INDIA
IDBI provides credit and other facilities for industrial development in the country. IDBI provides long term finance for Greenfield project, as also for modernization, expansion and diversification. It has structured various products such as equipment finance, asset credit and corporate loans in order to cater to the diverse needs of the corporate clients.
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 corporate 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.
INDUSTRIAL FINANCE CORPORATION OF INDIA LTD. (IFCI)
IFCI’s operation principally comprise project finance, financial services and corporate advisory services. Through its subsidies /associate companies, IFCI provides custodial and investor services, rating and venture capital services.
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, modernization, 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 LTD. (ICICI LTD.)
It played a facilitating role in consolidate in various sectors of the Indian industry , by funding mergers and acquisitions. The ICICI Group’s financing and banking operations, both wholesale and retail, have been integrated into a single company effective May 2002.
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 INVESTMENT BANK OF INDIA LTD. (IIBI LTD.)
IIBI offers a variety of financial products such as project finance, short duration non-project asset- backed financing and working capital /other short-term loans to companies.
INDUSTRIAL INVESTMENT BANK OF INDIA (formerly IRBI)
IIBI was initially set up as Industrial Reconstruction Corporation Limited during 1971 when it was renamed Industrial Reconstruction bank of India w.e.f 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 rationalization, expansion, diversification and modernisation and also to co-ordinate the work of other institutions for this purpose. agricultural and rural requirement
INFRASTRUCTURE DEVELOPMENT FINANCE COMPANY LTD.
IDFC Ltd, incorporated in 1997, was conceived as specialized institution to facilitate the flow of private finance to commercially viable infrastructure projects through innovative products and processes. Energy, telecommunications, transportation, urban infrastructure and food and agri-business Infrastructure constitute the current areas of operation of IDFC.
SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)
SIDBI offers refinance, bills rediscounting, lines of credit and resource support mechanisms to route assistance to SSI sector through a network of banks and state level financial institutions. SIDBI also offers direct finance for meeting specific requirements of SSI Sector. SIDBI undertakes a wide range of promotional and developments activities for improving the inherent strengths of SSI units, creating employment opportunities and new avenues for economic development of rural poor.
SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)
SIDBI was established under SIDBI Act 1988 and commenced its operations w.e.f 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.
Apart from these industries also gather finance through IPOs, foreign investment.
