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Development Financial Institutions

• Dhruv Ajmera (4) • Antriksh Bajaj (5) • Suveer Malhotra (28) • Kushal Mansukhani (30) • Vikramaditya Muralidharan (37) • Sharan Sanil (43) .

no. 1 2 Sub . 3 4 5 6 7 8 .Topic Development Financial Institutions Emergence of financial institutions in India Operating environment of DFIs: before and after Financial Sector Reforms Regulatory.Contents Sr. Supervisory and Related Issues Facilities Provided by DFIs Sources and funds in DFI Commercial Banks and DFIs Changing the Role of DFIs Slide no.

they also promote medium and small scale industries. the market fails to invest sufficiently. They insure investment in areas where otherwise. • • • . They play a crucial role in providing credit in the form of higher risk loans.DFI (Introduction) • DFI is a generic term used to refer to a range of alternative financial institutions including micro finance. equity positions and risk guarantee instruments to private sector investments. community development financial institutions and revolving loan funds. These can be classified into All India Institutions (National level) and State level Institutions.

National Level Institutions • Development banks that provide institutional credit to not only large and medium enterprises but also help promoting and developing SSI units. Some are mentioned below: - • • • • IDBI (Industrial Development Bank of India) IFCI Ltd (Industrial Finance Corporation Of India Ltd) SIDBI (Small Industries Development Bank of India) IIBI Ltd (Industrial Investment Bank Of India) . also known as AIDBs (All India Development Banks).

Types of such are as follows: - • • • IVCF Ltd. TFCI Ltd. (Tourism Finance Corporation of India) . etc are called Specialized Financial Institutions (SFI’s).• The institutions which serve the financial needs of commerce and trade in the ares of venture capital. (IFCI Venture Capital Funds) ICICI venture funds Ltd. credit rating and leasing.

They deploy their assets largely in marketable securities are called Investment Institutions.• Financial Intermediaries who cater to the needs of small savers and investors. Types of such are as follows: - • • • LIC (life Insurance Corporation of India) Unit Trust of India (UTI) GIC (General Insurance Corporation of India) .

g.State Level Institutions • These act as supplements to the financial assist provided by all indian institutions. Andhra Pradesh State Financial Corporation (APSFC) and Rajasthan Finance Corporation (RFC).g. Goa Industrial Development Corporation (GIDC) and Maharashtra Industrial Development Corporation (MIDC). SIDC’s (State Industrial Development Corporations) • e. . they act as catalyst for promotion of investment and industrial development. These involves the following: - • SFC’s (State Finance Corporations) • • e.

Consolidation and Innovation (1964 .Institutionalization (1948 . trade and agriculture.Expansion (1955 .Diversification and Change (1984 .Stability and Growth (1976 . with the principle objective of providing long term finance for fixed assets and services. these institutions were called Development Banks or Term-lending Financial Institution hence the term “Institutional Banking”.Reorientation (1992 onwards) .64) Phase 3 .Emergence of Financial Institutions in India • The government initiated a series of institutions to provide term finance to industry. The growth of DFI’s can be studied accordingly: - • • • • • • • Phase 1 .55) Phase 2 .84) Phase 5 . DFI’s evolved gradually 1948 onwards largely government owned.76) Phase 4 .92) Phase 6 .

• AFTER • • • • For deployment of funds they faced competition as banking system focused mainly on working capital finance. . supply of low cost funds was withdrawn. Access to Cheap funds from multilateral and bilateral agencies. This forced DFI’s to raise funds from the market at a higher rate. Access to long term operation funds from RBI. They faced competition in the areas of Term finance from banks offering at lower rates.Operating environment of DFI’s • BEFORE • • • Low cost funds were made available to DFI’s to avoid pressure.

• • • In 1995. RBI extended prudential norms relating to income recognition. RIB started periodical inspections of these DFI’s. Eg : IDBI. after setting up of the board for financial supervision. LIC etc.Regulatory Framework of DFI’s • • • • RBI started monitoring the activities of selected large size institutions. . Banks and FI’s. asset classification etc. IFCI. this brought out several serious irregularities in these security transactions. ICICI. Janakiraman Committee .Enquired into the security transactions of banks and FI’s. Since 1992. Financial Institutions Information System (FIIS) was introduced. A Quasi Autonomous Banking Supervisory Board was set-up by Narasimham Committee under RBI to regulate NBFC’s. UTI. RBI started issuing regulatory instructions to the FI’s. In 1994.

Soft loans schemes Risk capital Assistance Seed capital Assistance • • • • Rupee term loans etc Project Financing Foreign currency term loans Equipment financing etc. preference capital. . debentures and bonds.Facilities provided by DFI’s • • • • Underwriting of Equity capital.

Sources and use of funds in DFI’s Balance Sheet of IDBI .

• The major sources presently though are market borrowings by issuance of bonds and Foreign line of credit (commercial).Sources Of Funds • The major sources of funds that can be termed traditional (low cost) sources are Long term funds from RBI. cheap funds from multilateral/bilateral agencies and issue of bonds. .

Repayment of past borrowings. Interest on Investments . External Sources Bonds & Debentures . Short term borrowings.Sources of Funds The pattern of sources and deployment of funds may be classified as follows: Internal Sources  Increase in capital . Foreign Currency Loans /Grants . .

Repayment of Past Borrowings  Redemption of Bonds/ Debentures issued in the past .Deployment of Funds Fresh Disbursements New loans and advances . Loans to existing borrowers. New Investments . Repayment of Rupee and Foreign Currency interest payments .

.Commercial Banks and DFIs Concepts •Harmonization Of Role Of Banks And DFIs •The Main Areas Of Operations of DFIs and banks presently and how universilazation will change that role in future •The Area of conflict arising between banks and DFIs •The likely Gains From Universilazation •Requirement Of Cost Considerations in universalization.

. • With deregulation and commercial banks financing the medium and long term capital needs of the corporate sector and the DFIs have started extending short term capital.Changing Role Of Development Financial Institutions • The functions and the roles of DFIs over the years has changed. the finance sector is offering a wide range of new products. • With Globalization and entry of many players entering with strategic alliances with firms. this has intensified the competition.