Overview of Development Banks (2)

8/6/2019 Overview of Development Banks (2)

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Overview of development banksOverview of development banks

and investment institutions inand investment institutions in IIndiandiaFinancial institution

Genesis of financial institutions in India

Objectives of financial institutionsPerformance of FI in India: An evaluation

Challenges of FI in India

Promotional role of Development Banks in INDIA


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Financial institutionFinancial institution

y The term financial institution includes all

kinds of organizations which intermediate

and facilitate financial transactions of both

individual and corporate customers.

y Thus financial institutions refers to all

kinds of financial systems which facilitate

financial transaction in financial market.


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Genesis of financial institutions inGenesis of financial institutions in

IndiaIndiay The need for financial institution in India was feltvery strongly immediately after the attainment ofindependence to fill the gaps in the capitalmarket.

y The Indian capital market at the time was illequipped for providing for the needs of long termindustrial finance.

y The central banking inquiry committee of 1929

also pinpointed the gap.y Towards the end of second word war attention

once again came to be focused on the problem ofindustrial finance in India.


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ContdContd....

y It received the attention of our govt. immediatelyafter liberation of the country.

y IFC(industrial finance corporation) was the firstspecial institution established in India 1948 with aview to making medium and long term capital.

y After this the SFC (state financial corporation)Act was passed in 1951.

y While the IFC limits financial helps to larger

industrial concerns the SFC are intended toextend financial help to smaller enterprises.


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ContdContd..

y In order to fill the gap another institution calledICICI(industrial credit and investment corporation ofIndia) was set up in Jan. 1955.

y Another milestone in the field of institutionalizationof the capital market was the formation of LIC.

y The IDBI (industrial development bank of India) wastherefore set up- it was wholly owned subsidiary ofthe RBI and under its direct control.

y in 1990 SIDBI(small industrial development bank ofIndia) was setup as a subsidiary of IDBI.


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y Three more specialised institutions were

organised

1. RCTC(risk and technology finance

corporation ltd.)

2. TDICI(technology development and

information company of India ltd.)

3. TFCI(tourism financial corporation ofIndia)


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Objectives of financial institutionsObjectives of financial institutions

1. To provide term lending facilities;

2. To subscribe to shares and debentures;

3. To provide indirect financial support to business

enterprises through guarantees, discounting andother facilities;

4. To provide lease financing;

5. To provide banking and non-banking financialfacilities;

6. To furnish managerial, technical andadministrative services to the Indian industry


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Performance of FI in India: AnPerformance of FI in India: An

evaluationevaluation

1. Foundation phase(1948-1958)

2. Expansion phase(1959-1968)

3. Growth with qualitative thrusts

phase(1968-1978)4. Intensified growth with diversification

phase(1978-1988)

5. Unprecedented proliferation with cosmicdiversification and productinnovativeness phase(1988-1998 andonwards)


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phase 1phase 1

This phase witnessed the

formation of four all Indian

financial corporation-IFCI,ICICI,LIC and RFCI and a

few financial corporartion at

state level.


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Phase 2Phase 2

y This period could be regarded as a

decade of growth with stability.

y The existing financial instititutions not

only increased lending business but also

expanded their business to assume to

role or investor , underwriter and

guarantor and made subscriptions to theshares and debentures of industrial

organizations.


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PhasePhase--33

y Tidy growth in operations of the extant

F.I. with qualitative ad innovative thrusts

resulting into the change in basic

character of the institutions to cope withdevelopment needs of the country were

the redeeming features of the decade.


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PhasePhase--44

y This decade can be categorised as a

decade of intensified growth with

diversifications in view of the substantial

expansion business of the financialinstitutions and concenetric

diversification.


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PhasePhase--55

y There has been metamorphic

transformation in the system of working

of FI in India both quantitative and

qualitative aspects of there operations.


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Challenges of FI in IndiaChallenges of FI in India

1. Lack of qualified personnel;

2. Lack of investor awareness;

3. Lack of specialization;

4. Lack of recent data availability;

5. Monopolistic market structure;

6.Dominance of development banks inindustrial financing;

7. Imprudent financial practices


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Development banksDevelopment banksFinancial institutions are those institutions who

provides funds to new and upcoming businesses by

providing equity capital and/or loan capital and also

provide technical and managerial advise.


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Functions

Economic

Growth

Providestechnical

help

Respondsto requests

forassistance

Promotesand

facilitatesspeculation

Regionaldevelopmen

t


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Promotional role ofPromotional role of

Development Banks in INDIADevelopment Banks in INDIA

1. Growth potential surveys of backward areas

y Financial institutions initiated industrial potential surveys ofbackward areas for the purpose of identifying specific projectideas for implementation in the next five to ten years in the

light of their resource endowments, demand potentials andthe availability of infrastructural facilities.

y These surveys are carried out by team of officials withexperience in project scrutiny.

y In the year 1982 government of India announced a list of 83districts in the country which have no medium or large scaleunits, indicated need for special attention.


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2. Project follow up As a result of surveys several project ideas was generated and

was identified. These ideas was further screened and developedfor further implementation. IDBI commissioned feasibility studies

for certain project ideas.


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3. Formation of the Inter Institutional Groups (IIGs)

With a view to give concrete shape to project ideas, an informal

forum of all the agencies concerned with industrial development

was constituted.The twin objectives of IIGs are: To help accelerate the process of industrial development in

state with particular emphasis on less developed areas.

To evolve suitable strategies for industrial development within

the framework of national and state policies and local

requirement.

4.Establishment of Technical Consultancy

Organization(TCOs)

So far 18 TCOs have been established, there main functions are: To identify industrial potential.

To prepare project profiles, feasibility reports.

To identify potential entrepreneurs.

To undertake market research.

To undertake project supervision.


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6.Entrepreneurship development

All India development banks mainly TCOs for drawing up and

conducting EDPs so as to cater the needs of entrepreneurs fromsmall and medium sector.

Another step in this direction is to provide support to

Entrepreneurship Development Institute Of India, set up as a

national resource organization with the basic objective of training

EDP trainers, providing resource inputs, carrying out research anddevelopmental programmes.

7. Support to Science and Technology parks(STEPs)

In order to encourage entrepreneurs to adopt sophisticated

technology with the help of academic and research institutions, to

encourage new class of science and technology entrepreneurs

and create technology culture in industry.eg-Birla institute of

technology STEPs, C.C.shroff Institute STEPs.etc


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8. Technological Development and Up gradation.

IDBI has also assisted in identification and adaptation of suitable

modern technologies. Significant among them are projects relatedto solar cookers, projects for development and testing prototype

plant for generating electricity from tidal waves in Orissa.

9. Promotional SchemesAssistance and guidance in modernization, marketing assistance,

control of pollution, improving productivity of material and human

resources.


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10. Other promotional assistance

IDBI provides support on sustaining basis to established

accredited voluntary agencies(VAs)working for physically/sociallydisadvantaged sections of the society in various parts of the

country with a view to generated self/wage employment in

industrial sector.

IDBI has sponsored conferences/seminars by extending assistance

up to Rs 56.2 laks.


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Overview of Development Banks (2)

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