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Overview of development banks and

investment institutions in India

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Financial institution

The term financial institution includes all kinds

of organizations which intermediate an

facilitate financial transactions of both

individual and corporate customers.

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 in

India The need for financial institution in India was felt very

strongly immediately after the attainment ofindependence to fill the gaps in the capital market.

The Indian capital market at the time was ill equippedfor providing for the needs of long term industrialfinance.

The central banking inquiry committee of 1929 alsopinpointed the gap.

Towards the end of second word war attention onceagain came to be focused on the problem of industrialfinance in India.

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Contd..

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

IFC(industrial finance corporation) was the first

special institutions established in India 1948 witha view to making medium and long term capital.

After this the SFC(state financial corporation) Actwas passed in 1951.

While the IFC limits financial helps to largerindustrial concerns the SFC are intended toextend financial help to smaller enterprises.

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Contd.

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

Another milestone in the field of institutionalization ofthe capital market was the formation of LIC.

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

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

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Three more specialised institutions were

organised

1. RCTC(risk and technology finance corporationltd.)

2. TDICI(technology development and

information company of India ltd.)

3. TFCI(tourism financial corporation of India)

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Objectives 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 financial

facilities;6. To furnish managerial,technical and

administrative services to the Indian industry

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Performance ofFI in India: An

evaluation

1. Foundation phase(1948-1958)

2. Expansion phase(1959-1968)

3. Growth with qualitative thrusts phase(1968-1978)

4. Intensified growth with diversificationphase(1978-1988)

5. Unprecedented proliferation with cosmicdiversification and product innovativenessphase(1988-1998 and onwards)

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phase 1

This phase witnessed the formation of

four all Indian financial corporation-

IFCI,ICICI,LIC and RFCI and a fewfinancial corporartion at state level.

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Phase 2

This period could be regarded as a decade of

growth with stability.

The existing financial instititutions not onlyincreased lending business but also expanded

their business to assume to role or investor ,

underwriter and guarantor and made

subscriptions to the shares and debentures of

industrial organizations.

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Phase-3

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 with development needs

of the country were the redeeming features of

the decade.

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Phase-4

This decade can be categorised as a decade of

intensified growth with diversifications in view

of the substantial expansion business of the

financial institutions and concenetric

diversification.

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Phase-5

There has been metamorphic transformation

in the system of working ofFI in India both

quantitative and qualitative aspects of there

operations.

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Challenges ofFI 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