Industrial Development Banks in India


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

In the field of industrial finance, the concept of development bank is of recent origin. In a country like India, the emergence of development banking is a post­-independence phenomenon.
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’ lndustrie 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.
Definition of Development Bank
There is no precise definition of development bank. William Diamond and Shirley Bosky consider industrial finance and development corporations as ‘development banks’ Fundamentally a development bank is a term lending institution.
Development bank is essentially a multi-purpose financial institution with a broad development outlook. A development bank may, thus, be defined as a financial institution concerned with providing all types of financial assistance (medium as well as long term) to business units, in the form of loans, underwriting, investment and guarantee operations, and promotional activities — economic development in general, and industrial development, in particular.
Features of a Development Bank
Following are the main characteristic features of a development bank:
1. It is a specialised financial institution.
2. It provides medium and long term finance to business units.
3. Unlike commercial banks, it does not accept deposits from the public.
4. It is not just a term-lending institution. It is a multi-purpose financial institution.
5. It is essentially a development-oriented bank. Its primary object is to promote economic development by promoting investment and entrepreneurial activity in a developing economy. It encourages new and small entrepreneurs and seeks balanced regional growth.
6. It provides financial assistance not only to the private sector but also to the public sector undertakings.
7. It aims at promoting the saving and investment habit in the community.
8. It does not compete with the normal channels of finance, i.e., finance already made available by the banks and other conventional financial institutions. Its major role is of a gap-filler, i. e., to fill up the deficiencies of the existing financial facilities.
9. Its motive is to serve public interest rather than to make profits. It works in the general interest of the nation.

As per RBI presently (March 2016) there are following Financial Institutions-
(i) Industrial Investment Bank of India Ltd. (IIBIL)
 (ii) National Bank for Agriculture and Rural Development (NABARD)
(iii) Export-Import Bank of India (Exim Bank)
(iv) Small Industries Development Bank of India (SIDBI)
(v) North Eastern Development Finance Corporation (NEDFC)

Major industrial development banks in India (many of them has been converted into universal banks) are as follows-

(i) IFCI
 
The IFCI was the 1st specialised financial institution setup in India to provide term finance to large industries in India. It was established on 1st July, 1948 under The Industrial Finance Corporation Act of 1948.

Objectives of IFCI

The main objective of IFCI is too provide medium and long term financial assistance to large scale industrial undertakings, particularly when ordinary bank accommodation does not suit the undertaking or finance cannot be profitably raised by the concerned by the issue of shares.

Functions of IFCI

1) For setting up a new industrial undertaking.
2) For expansion and diversification of existing industrial undertaking.
3) For renovation and modernisation of existing concerns.
4) For meeting the working capital requirements of industrial concerns in some exceptional cases.

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.
 
(ii) IDBI

 Industrial Development Bank of India (IDBI)
The Industrial Development Bank of India (IDBI) was established on 1 July 1964 under an Act of Parliament as a wholly owned subsidiary of the Reserve Bank of India. The main objective was to promote and finance the development of industries. In 16 February 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 the country. Although Government shareholding in the Bank came down below 100% following IDBI’s public issue in July 1995, the former continues to be the major shareholder.

IDBI continued to serve as a DFI for 40 years till the year 2004 when it was transformed into a Bank.

(iii) SIDBI

 Small Industries Development Bank of India is an independent financial institution aimed to aid the growth and development of micro, small and medium-scale enterprises in India. Set up on April 2, 1990 through an act of parliament, it was incorporated initially as a wholly owned subsidiary of Industrial Development Bank of India. Current shareholding is widely spread among various state-owned banks, insurance companies and financial institutions. It is the Principal Financial Institution for the Promotion, Financing and Development of the Micro, Small and Medium Enterprise (MSME) sector and for Co-ordination of the functions of the institutions engaged in similar activities.

SIDBI has taken the initiative to promote several institutions viz., Credit Guarantee Fund Trust for Micro and Small Enterprises, SIDBI Venture Capital, SME Rating Agency of India Ltd and India SME Technology Services Ltd., for the benefit of the MSME sector.


Micro Units Development & Refinance Agency (MUDRA) Bank, an initiative by Government of India to support non-corporate small business, is proposed to initiate it as a unit of SIDBI to benefit from SIDBI’s initiatives and expertise.
Other DFIs are as follows -
IIBI 
In a move towards winding up of Industrial Investment Bank of India (IIBI), its board in January 2008 decided to sell the entire loan book at one go. The directors on the IIBI board cleared the proposal to auction both the good and the bad assets of IIBI for cash in the past week. The company has also decided to appoint Deloitte & Touche to sell the loan book.



The government-owned IIBI started working towards winding its business way back in 2005 after the Industrial Development Bank of India rejected a government proposal to merge the Kolkata-based institution with itself.
High level of bad loans and poor capital was one of the key reasons why the government decided to close it down. As per RBI data, IIBI's capital adequacy ratio (CAR) was negative at 64%, while its bad loans stood at 13% for March 2006. It had a loan book of Rs 1,006 crore with Rs 874 crore of standard assets. The balance Rs 132 crore were sub-standard and doubtful assets as on March 2006. RBI indicated that IIBI is in the process of voluntary winding up.
History of IIBI
The Industrial Investment Bank of India was a 100% government of India-owned financial investment institution. It was established in 1971 by resolution of the Parliament of India . The bank was headquartered at Kolkata.
 The Industrial Reconstruction Corporation of India Ltd. was set up in 1971 for rehabilitation of sick industrial companies, was reconstituted as Industrial Reconstruction Bank of India in 1985 under the IRBI Act, 1984. With a view to converting the institution into a full-fledged development financial institution, IRBI was incorporated under the Companies Act 1956, as Industrial Investment Bank of India Ltd. (IIBI) in March 1997. IIBI offered a wide range of products and services, including term loan assistance for project finance, short duration non-project asset-backed financing, working capital/other short-term loans to companies, equity subscription, asset credit, equipment finance and investments in capital market and money market instruments.
In 2005, a merger of IIBI, IDBI and IFCI was considered, but IDBI refused and it was decided in 2006-2007 to close the bank. Deloitte and Touche was appointed to dispose of IIBI's Non-Performing assets.
LIC
In 1956, 245 Indian and foreign insurers and provident societies are taken over by the central government and nationalised. Life Insurance Corporation (LIC) was formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.
Today, LIC functions with 2048 fully computerized branch offices, 113 divisional offices, 8 Zonal offices, 1381 Satellite offices and the Corporate office.
Mission 
Ensure and enhance the quality of life of people through financial security by providing products and services of aspired attributes with competitive returns, and by rendering resources for economic development.
Vision
A trans-nationally competitive financial conglomerate of significance to societies and Pride of India.
Objectives of LIC -
- Spread Life Insurance widely and in particular to the rural areas and to the socially and economically backward classes with a view to reaching all insurable persons in the country and providing them adequate financial cover against death at a reasonable cost. 
- Maximize mobilization of people's savings by making insurance-linked savings adequately attractive. 
- Bear in mind, in the investment of funds, the primary obligation to its policyholders, whose money it holds in trust, without losing sight of the interest of the community as a whole; the funds to be deployed to the best advantage of the investors as well as the community as a whole, keeping in view national priorities and obligations of attractive return. 
- Conduct business with utmost economy and with the full realization that the moneys belong to the policyholders. 
- Act as trustees of the insured public in their individual and collective capacities.
- Meet the various life insurance needs of the community that would arise in the changing social and economic environment. 
Holding in Various Companies
In April 2016, LIC holds shares worth about Rs 2.33 lakh crore in all the Nifty companies put together.
Among the Nifty companies, LIC’s holding in terms of value is estimated to be highest in ITC (Rs 27,326 crore), followed by RIL (Rs 21,659 crore), ONGC (Rs 17,764 crore), SBI (Rs 17,058 crore), L&T (Rs 16,800 crore), and ICICI Bank (Rs 10,006 crore)

GIC
In 1972, the General Insurance Business (Nationalisation) Act, 1972 (GIBNA) nationalised the general insurance business in India with effect from 1st January 1973.
The Government of India (GOI), through Nationalisation took over the shares of 55 Indian insurance companies and the undertakings of 52 insurers carrying on general insurance business.
General Insurance Corporation of India (GIC) was formed in pursuance of Section 9(1) of GIBNA.
It was incorporated on 22 November 1972 under the Companies Act, 1956 as a private company limited by shares.
GIC was formed for the purpose of superintending, controlling and carrying on the business of general insurance.
As soon as GIC was formed, GOI transferred all the shares it held of the general insurance companies to GIC.
Simultaneously, the nationalised undertakings were transferred to Indian insurance companies.
After a process of mergers among Indian insurance companies, four companies were left as fully owned subsidiary companies of GIC
(i) National Insurance Company Limited.
(ii) The New India Assurance Company Limited.
(iii) The Oriental Insurance Company Limited.
(iv) United India Insurance Company Limited.
 Vision -To be a leading global reinsurance and risk solution provider.



Mission



- To achieve our vision by
- Building long-term mutually beneficial relationship with business partners
- Practicing fair business ethics and values
- Applying “state-of-art” technology, processes including enterprise risk management and innovative solutions.
- Developing and retaining highly motivated professional team of employees
- Enhancing profitability and financial strength befitting the global position



 GIC Re
As a sole reinsurer in the domestic reinsurance market, GIC Re provides reinsurance to the direct general insurance companies in the Indian market. GIC Re receives statutory cession of 5 % on each and every policy subject to certain limits. It leads many of domestic companies’ treaty programmes and facultative placements.
As GIC Re spreads its wings to emerge as an effective reinsurance solutions partner for the Afro-Asian region and has started leading the reinsurance programmes of several insurance companies in SAARC countries, South East Asia, Middle East and Africa. To offer its international clientele an easy accessibility, efficient service and tailor made reinsurance solutions; GIC has opened liaison/representative/branch offices in London and Moscow. GIC provides following capacities for Treaty and Facultative business on risk emanating from the international market based on merits of the business.



Subsidiary Company -  GIC Re South Africa Ltd - GIC Re India’s maiden 100% owned subsidiaryis now fully operational with smooth transition of sub-saharan business from Mumbai. GIC Re SA’s operations in Johannesburg havestarted underwriting business from Jan 1, 2015 with a mandate to write inward reinsurance and retrocession business emanating from Sub-Saharan Africa.



National Insurance Company Limited
The National Insurance Company Ltd was established during 1906 and its registered office is in Kolkata. After the General Insurance Business Nationalisation Act was passed in 1972, 11 Indian insurers and 21 international companies were merged into it. The insurer consequently became a part of the General Insurance Corporation of India (GIC), which was wholly owned by the Indian government.
National Insurance Company Limited is one of the top general insurers in the public sector of India. Its head offices are at Kolkata and it has almost 1000 offices across the country and operates in remote townships and rural areas as well as metros. The insurer has at least 16 thousand skilled employees and its foreign operations are executed from its Nepal office.
New India Assurance Company Limited
New India Assurance Co Ltd, today, is a 100 % Govt owned multinational general insurance company operating in 28 countries and headquartered at Mumbai, India. Founded by Sir Dorabji Tata in 1919, we have been market leaders in India in non-life business for more than 40 years.



Vision - To be the most respected, trusted and preferred Non-life Insurer in the Global markets we operate.



Mission



- To develop General Insurance Business in the best interest of the community.
- To provide Financial Security to Individuals, Trade, Commerce & all other segments of the Society by offering Insurance products & Services of High Quality at affordable Cost.
Oriental Insurance Company Limited
The headquarters of the company is located in New Delhi with 30 regional offices and more than 1800 active branches across the country. The company also has branches in Nepal, Kuwait, and Dubai. The company has recorded a gross premium of Rs. 7282.54 crores in the financial year 2013-2014.
United India Insurance Company Limited
United India Insurance Company Limited was incorporated as a Company on 18th February 1938. General Insurance Business in India was nationalized in 1972. 12 Indian Insurance Companies, 4 Cooperative Insurance Societies and Indian operations of 5 Foreign Insurers, besides General Insurance operations of southern region of Life Insurance Corporation of India were merged with United India Insurance Company Limited. After Nationalization United India has grown by leaps and bounds and has more than 1 Crore policy holders. The Company has variety of insurance products to provide insurance cover from bullock carts to satellites.



United India has been in the forefront of designing and implementing complex covers to large customers, as in cases of ONGC Ltd , GMR- Hyderabad International Airport Ltd, Mumbai International Airport Ltd Tirumala-Tirupati Devasthanam etc. It has been also the pioneer in taking Insurance to rural masses with large level implementation of Universal Health Insurance Programme of Government of India & Vijaya Raji Janani Kalyan Yojana , Tsunami Jan Bima Yojana, National Livestock Insurance and many such schemes.
Some Specialized Financial Institutions
 (i) IFCI Venture Capital Funds Ltd.
 IFCI Venture Capital Funds Ltd. (IFCI Venture) was established as a Risk Capital Foundation (RCF) in 1975 by the IFCI Ltd., a society to provide financial assistance to first generation professionals and technocrat entrepreneurs for setting up own ventures through soft loans, under the Risk Capital Scheme. 
In 1988, RCF was converted into a company, Risk Capital and Technology Finance Corporation Ltd. (RCTC), when it also introduced the Technology Finance and Development Scheme for financing development and commercialisation of indigenous technology. Besides, under Risk Capital Scheme, RCTC started providing financial assistance to entrepreneurs by way of direct equity participation. Based on IFCI Venture's credentials and strengths, Unit Trust of India (UTI), entrusted RCTC with the management of a new venture capital fund named Venture Capital Unit Scheme (VECAUS-III) in 1991. The size of VECAUS-III was Rs.80 Crores, contributed by UTI and IFCI. To reflect the shift in the company's activities, the name of RCTC was changed to IFCI Venture Capital Funds Ltd. (IFCI Venture) in February 2000.
In order to focus on Asset Management Activities, IFCI Venture discontinued Risk Capital and Technology Finance Scheme(s) in 2000-01 and continued managing VECAUS-III. In 2007, as UTI had ceased to carry out its activities and its assets vested with Specified Undertaking of the Unit Trust of India (SUUTI), the portfolio of VECAUS-III under management of IFCI Venture was transferred to SUUTI.
(ii) Technology Development and Information Company of India (TDICI)
 TDICI Ltd is the country's largest and oldest venture capital fund in India. Co-promoted by Industrial Credit & Investment Corporation of India (ICICI) and Unit Trust of India . The venture capital fund, floated in 1988, manages five funds aggregating Rs 800 crore.
 (iii) Infrastructure Leasing & Financial Services Limited (IL&FS)
 Infrastructure Leasing & Financial Services Limited (IL&FS) is one of India's leading infrastructure development and finance companies 
IL&FS was promoted by the Central Bank of India (CBI), Housing Development Finance Corporation Limited (HDFC) and Unit Trust of India (UTI). Over the years, IL&FS has broad-based its shareholding and inducted Institutional shareholders including State Bank of India, Life Insurance Corporation of India, ORIX Corporation - Japan and Abu Dhabi Investment Authority .
IL&FS has a distinct mandate - catalysing the development of infrastructure in the country. The organisation has focussed on the commercialisation and development of infrastructure projects and creation of value added financial services
From concept to execution, IL&FS houses the expertise to provide the complete array of services necessary for successful project completion: visioning, documentation, development, finance, management, technology and execution 
At IL&FS’s conception the development of skills in financial services was considered a critical ingredient to the commercialization of infrastructure. The Financial Services division took shape to cater to this need 
Over the last decade, this division has expanded its services to offer a suite of sophisticated financial services and today boasts of being one of the largest integrated financial services provider and a one-stop financial solution resource for its clients 
Our teams comprise top finance professionals with several years of experience. Continuously engaged in developing innovative, layered and competitive solutions, these professionals have demonstrated, time and again, that the key to unraveling full value for our customers is based on the fusion of ‘micro’ financial elegance and ‘macro’ enterprise-wide architecturing.
 The IL&FS Group’s financial expertise and capabilities vests in its wholly owned subsidiary IL&FS Financial Services Limited (IFIN). IFIN has emerged as India’s leading financial services house for structured products, project recourse financing and corporate infrastructure advisory 
 IFIN
IL&FS Financial Service Limited (IFIN) is one of India's leading Non- Banking Finance Company providing a wide range of financial and advisory solutions under one umbrella. IFIN is a 100% subsidiary of Infrastructure Leasing and Financial Services Limited (IL&FS)
(iv) Housing Development Finance Corporation Limited (HDFC)
 HDFC is India's premier housing finance company and enjoys an impeccable track record in India as well as in international markets. Since its inception in 1977, the Corporation has maintained a consistent and healthy growth in its operations to remain the market leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC has developed significant expertise in retail mortgage loans to different market segments and also has a large corporate client base for its housing related credit facilities. With its experience in the financial markets, strong market reputation, large shareholder base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian environment.
The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of RBI's liberalisation of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995. 
HDFC Bank's mission is to be a World Class Indian Bank. The objective is to build sound customer franchises across distinct businesses so as to be the preferred provider of banking services for target retail and wholesale customer segments, and to achieve healthy growth in profitability, consistent with the bank's risk appetite. The bank is committed to maintain the highest level of ethical standards, professional integrity, corporate governance and regulatory compliance. HDFC Bank’s business philosophy is based on five core values: Operational Excellence, Customer Focus, Product Leadership, People and Sustainability.
As on 31st March, 2015 the authorized share capital of the Bank is Rs. 550 crore. The paid-up share capital of the Bank as on the said date is Rs 501 crore.
 State Level Industrial Financial Institutions
  (i) State Finance Corporations (SFCs)
 The State Finance Corporations (SFCs) promote small and medium industries of the states. Besides, SFCs are helpful in ensuring balanced regional development, higher investment, more employment generation and broad ownership of industries.



Functions:



(i) The SFCs grant loans mainly for acquisition of fixed assets like land, building, plant and machinery.
(ii) The SFCs provide financial assistance to industrial units whose paid-up capital and reserves do not exceed Rs. 3 crore (or such higher limit up to Rs. 30 crore as may be specified by the central government).
(iii) The SFCs underwrite new stocks, shares, debentures etc., of industrial concerns.
(iv) The SFCs provide guarantee loans raised in the capital market by scheduled banks, industrial concerns, and state co-operative banks to be repayable within 20 years.

At present there are 19 state finance corporations (out of which 17 SFCs were established under SFC Act 1951).



 (ii) State Industrial Development Corporations (SIDCs)



The SIDCs/SIICs came on the scene much after the SFCs. The State Industrial Development Corporations have been set up by the State Governments as companies wholly owned by them. At present, 22 such SIDCs are functioning in India. SIDCs are not merely financing agencies, but are intended to act as instruments for accelerating the pace of industrialization in the respective States.
Besides providing financial assistance to industrial concerns by way of loans, guarantees and underwriting of or direct subscriptions to shares and debentures, the SIDCs undertake various promotional activities such as conducting techno-economic surveys, project identification, preparation of feasibility studies, selection and training of entrepre¬neurs. They also promote joint sector projects in association with private promoters. In such projects SIDCs take 26% private co-promoter takes 25% of the equity, and the rest is offered to the investing public.
SIDCs also undertake the development of industrial areas, construction of sheds and provision of infrastructural facilities .and also the development of new growth centers. They also administer various State Government incentive schemes.
The IDBI grants refinance to SIDCs also against the term loans provided by them. SIDCs also borrow by way of bonds and from the Government and ac¬cept deposits to augment their resources.

North Eastern Development Finance Corporation

The North Eastern Development Finance Corporation Ltd (NEDFi) is a Public Limited Company registered under the Companies Act 1956 on 9th August, 1995. It is notified as a Public Financial Institution under Section 4A of the said Act and was registered as an NBFC in 2002 with RBI. The shareholders of the Corporation are IDBI, SBI, LICI, SIDBI, ICICI, IFCI, SUUTI, GIC and its subsidiaries. The management of NEDFi has been entrusted upon the Board of Directors comprising representatives from shareholder institutions, DoNER, State Governments and eminent persons from the NE Region and outside having wide experience in industry, economics, finance and management.

NEDFi provides financial assistance to micro, small, medium and large enterprises for setting up industrial, infrastructure and agri-allied projects in the North Eastern Region of India and also Microfinance through MFI/NGOs. Besides financing, the Corporation offers Consultancy & Advisory services to the state Governments, private sectors and other agencies. We conduct sector or state specific studies under its Techno-Economic Development Fund (TEDF) and is the designated nodal agency for disbursal of Govt. of India incentives to the industries in the North-East India under North–East Industrial and Investment Promotion Policy 2007 (NEIIPP 2007). Our promotional activities include mentoring through BFC, Water Hyacinth Craft, NEDFi Convention Center, NEDFi Pavillion etc.

NEDFi is an ISO 9001:2008 certified company since 2001 and our mission is for the economic development of the North Eastern Region of India by identifying, financing and nurturing commercially and financially viable projects in the region.
 




Saturday, 02nd Apr 2016, 10:25:06 AM

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