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Ex No: 6 Date of Submission: 16.10.

2013 ROLE OF FINANCIAL INSTITUTIONS

Objective: i. ii. To learn about the roles of various financial institutions. To identify the roles of financial institutions such as TIIC, SIDBI, NSIC, KVIC, EXIM Bank. Step.1: We formed a group of 5 students to learn about the role of financial institutions. Step.2: All the group members collected data about the factors from magazines, websites, journals, newspapers and prepared the following report.

REPORT ON ROLE OF FINANCIAL INSTITUTIONS

INTRODUCTION: Financial System

The major constituents of financial institutions in India are: National level institutions o All India Development Banks. o Specialized Financial Institutions. o Investment institutions. State level institutions o State Financial Corporations. o State Industrial Development Corporations.

1. National level Financial Institutions: a. All-India Development Banks (AIDBs): It includes those development banks which provide institutional credit to not only large and medium enterprises but also help in promotion and development of small scale industrial units. It includes:o Industrial Development Bank of India (IDBI). o Industrial Finance Corporation of India Ltd (IFCI Ltd). o Small Industries Development Bank of India (SIDBI). o Industrial Investment Bank of India Ltd (IIBI). b. Specialized Financial Institutions: It has been set up to serve the increasing financial needs of commerce and trade in the area of venture capital, credit rating and leasing, etc. It includes:o IFCI Venture Capital Funds Ltd (IVCF). o ICICI Venture Funds Ltd. o Tourism Finance Corporation of India Ltd(TFCI). c. Investment Institutions: It is the most popular form of financial intermediaries, which particularly catering to the needs of small savers and investors. They deploy their assets largely in marketable securities. o Life Insurance Corporation of India (LIC). o Unit Trust of India (UTI).

2. State level Financial Institutions: They act as a catalyst for promotion of investment and industrial development in the respective States. It includes: State Financial Corporations (SFCs): This plays a crucial role in the development of small and medium enterprises in the concerned States. SFCs have been set up with the objective of catalyzing higher investment, generating greater employment and widening the ownership base of industries. There are 18 SFCs in the country. Eg: Tamil Nadu Industrial Investment Corporation Limited. Rajasthan Finance Corporation (RFC). State Industrial Development Corporations (SIDCs): They have been set up with the aim of promoting industrial development in the respective States and providing financial assistance to small entrepreneurs. They are also involved in setting up of medium and large industrial projects in the joint sector/assisted sector in collaboration with private entrepreneurs or wholly-owned subsidiaries. Eg: Tamil Nadu Industrial Development Corporation Ltd. (TIDCO).

ROLE OF TAMILNADU INDUSTRIAL INVESTMENT CORPORATION LIMITED (TIIC): The Tamilnadu Industrial Investment Corporation Limited (TIIC), a government company incorporated under the Companies Act 1913 and continues to be a government company under The Companies Act, 1956. The authorised share capital of the company is Rs.300 Crores and the paid up capital of the company is Rs.283.4956 Crores. TIIC has 6 Regional Offices, 25 regular Branch Offices and 5 Field Offices spread all over Tamilnadu. Functions of TIIC: TIIC as a State Level Financial Institution, offers long and medium term financial assistance to various industries including service sector in the following forms: Term Loans Term Loan and Working Capital Term Loans under the Single Window Scheme. Special types of assistance like Bill Financing Scheme, etc. Schemes Operated: a) SCHEME FOR ECONOMICALLY BACKWARD ENTREPRENEURS: Entrepreneurs Development Scheme (EDS) New scheme for the economically weaker section entrepreneurs. b) SCHEMES FOR MANUFACTURING ENTERPRISES General Scheme for New and Expansion Project Micro Small Enterprises Funding Scheme (MSEF) Single Window Scheme (SWS) Equipment Finance Scheme (EFS)

Restricted Technology Upgradation Fund Scheme (RTUF) for Textile Industry. Open Term Loan (OTL). Working Capital Term Loan (WCTL) for Rice Mills and Manufacturing and Processing Industries. Scheme for take-over of loans from other financial institutions. c) SCHEMES FOR SERVICE ENTERPRISES Information Technology Project. Hotel Project. Hospital Project (My Doctor / Doctor Plus). Commercial Complex. Marriage Hall / Community Centre / Convention Centre. Warehouse / Cold Storage. d) SCHEMES FOR POWER GENERATION Wind Power Project. Generator Loan. e) BILL FINANCING SCHEMES TNEB Contractors TWAD Contractors TNPL Contractors Contractors of Reputed Large Scale Private Sector Manufacturing Companies.

f) SCHEMES FOR PROFESSIONALS Doctors Growth Scheme IT Professionals Engineers / Chartered Accountants g) SCHEMES FOR TRANSPORT SECTORS Auto Rickshaw Loan Tourist Cabs Heavy Public Carriers (Lorries) Omni Bus Financial assistance under New Entrepreneur cum Enterprise Development Scheme (NEEDS) for Micro & Small Enterprises (MSEs) has been introduced by the State Government to enable educated youth to become first generation entrepreneurs. Financial assistance is provided through Banks / TIIC for eligible candidates under this scheme. Entrepreneurs are eligible for 25% capital subsidy and 3% interest subvention under the NEEDS. Quantum of Loan Assistance: TIIC provides Term Loan assistance normally upto a maximum of Rs.1500 lakhs to Proprietary and Partnership concern. In respect of Limited Companies normally a maximum term loan assistance of Rs.3000 lakhs can be considered. However higher loan assistance may also be considered for bigger projects on a case to case basis.

Appraisal of Project by TIIC: TIIC appraises the project for its technical feasibility, financial and economic viability while sanctioning loan. The applicant should satisfy TIIC regarding the scope for marketing and furnish the details of the cost of production, cash flow etc., to assess the payback period and for assessing the various financial ratios / norms. Subsidies from Government: TIIC is the implementing agency for various capital subsidies of State Government in respect of its assisted units. TIIC is also the nodal agency for select Central Government Subsidies like Credit Linked Capital Subsidy, Food Processing Subsidy, etc. in respect of its assisted units. TIIC gives subsidy bridge loans against eligible subsidies to the eligible units assisted by it, helping them to implement their projects on schedule. ROLE OF SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI): Small Industries Development Bank of India is an independent financial institution aimed to aid the growth and development of micro, small and mediumscale enterprises (MSME) 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. Beginning as a refinancing agency to banks and state level financial institutions for their credit to small industries, it has expanded its activities, including direct credit to the SME through 100 branches in all major industrial clusters in India. Besides, it has been playing the development role in several ways such as support to micro-finance institutions for capacity building and on lending. Recently it has opened seven

branches christened as Micro Finance branches, aimed especially at dispensing loans up to 5 lakh. 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 also floated several other entities for related activities. Credit Guarantee Fund Trust for Micro and Small Enterprises provides guarantees to banks for collateral-free loans extended to SME. SIDBI Venture Capital Ltd is a venture capital company focused at SME. SME Rating Agency of India Ltd. SMERA provides composite ratings to SME. Another entity founded by SIDBI is ISARC - India SME Asset Reconstruction Company in 2009, as specialized entities for NPA resolution for SME. Mr. Sushil Muhnot is the chairman of SIDBI since April 4, 2012. Functions and Roles of SIDBI: A. SIDBI disburses more long-term loan than other agencies. For testing the hypothesis the following variables are analysed: 1. Quantity of loan disbursed. 2. Type of loan disbursed. 3. Purpose of loan. B. The cost and terms of SIDBI loans are more attractive compared to loans from other sources. Using the following variables this hypothesis is tested: 1. Cost of borrowing

2. Rate of interest 3. Loan instalments 4. Gestation period of the loan 5. Opinion about gestation 3eriod 6. Sufficiency of long term loan 7. Sufficiency of short-term loan. C. Obtaining loans from SIDBI is less difficult compared to other sources: Following variables are used for testing the hypothesis: 1. Disparity in the amount applied and sanctioned. 2. Time lag between application and sanction. 3. Co-operation of the officials. 4. Difficulty experienced in obtaining the loan. D. SIDBI has created more impact on the development of SSI than other agencies: Variables analysed for testing the hypothesis are: 1. Average profit earned 2. Mean value added 3. Mean capacity utilised 4. Linkages created.

Loans are granted to borrowers for acquiring fixed assets like purchase of
land, construction of factory building, purchase of plant and machinery, equipment

etc. Loans are also given for working capital needs such as to meet cost of raw material, transportation expenses, maintenance of inventories, bill receivables, and book debts. Sometimes composite loans are issued to meet both the needs of fixed capital and working capital. SIDBI plays a significant role in promotion, financing and development of MSMEs and coordinating the functions of institutions engaged in similar activities. Its sphere of activities include (i) Direct Finance Operations to MSMEs and Service Sectors besides Infrastructure; (ii) Indirect Finance by way of resource support to Banks, NBFCs, SFCs, and other Central Financing/Development Agencies, Development of Micro Credit Institutions; (iii) Promotion of Associate Institutions like Venture Capital, Rating Agency, Credit Guarantee Fund, Asset Reconstruction Company and so on; and (iv) Nodal Agency for Government of India MSME Schemes like Technology Upgradation Fund Scheme (TUFS), Credit Linked Capital Subsidy Scheme (CLCSS), Integrated Development of Leather Sector Scheme, Development of Infrastructure Development Projects and a few. SIDBIs focus is on development of manufacturing, service and infrastructure sectors through the growth of MSMEs and their promotion. The importance of the study is evident from the fact that SIDBI gives fillip to MSMEs which play a significant role as the growth engines of the Indian Economy. In fact, MSMEs have been playing a critical role in the socio-economic development of the country, with main objectives of mass employment generation, low investment, import substitution and export promotion, labor intensive mode of production, capacity to develop indigenous technology and high contribution to domestic production. Since MSME sector has lot of significance and SIDBI is playing a greater role in developing the MSME sector, there is a greater need for doing this study.

ROLE OF NSIC ROLE OF KVIC ROLE OF EXIM BANK