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Development Bank A Development Bank is a polygonal development finance institution devoted to improving the social and monetary development

of its associate nations. Its main emphasis is the welfare of the people. For example the Asian Development Bank's overarching goal is to decrease poverty in Asia and the Pacific. It helps improve the value of people's lives by providing loans and scientific support for a broad variety of development activities. The world¶s second largest populated country, India, is the apple of the eye for the world now. The world economies are seeing it as their potential market. This has been going on since quite some time now, ever since 1991 reforms of liberalization, globalization and privatization. Indian markets in urban areas have grown appreciably and are on the verge of saturation, so corporates have started tapping rural markets, since more than 60 per cent of India¶s population lives in rural areas.

During this global meltdown and fall of exports, if the Fast Moving Consumer Goods (FMCG) sector has been able to show rising quarterly growths, it is because of the Rural Markets and their rising spending power, which have not been affected by this meltdown. If we look at the strategies followed by Rural Marketers in the FMCG sector, it is to sell many small sachets of Rs. 2 shampoo pouches, Rs. 5 Maggi packs and the Rs. 5 chota Pepsi, because here, the strength lies in volume sale, considering the large consumer base in these rural markets which won¶t spend altogether at once on buying large family packs of 500ml shampoo or super saver packs of Maggi or a Pepsi pet bottle of 2 litres.

Therefore, consumption trends followed by the rural Indian are considered to be the driver of future growth of companies. And this trend of tapping rural markets is visible across all sectors now, be it FMCG, IT, Banking,education etc. For example, today, India is in better state than China because our GDP is less dependent on exports as compared to them, where maximum revenues come from exporting to the European and US markets. Thus, tapping the rural markets is most important for us to be a self sustaining economy.

India has been considerably shielded from the global recession. Firstly, we are not very dependent on the exports for our GDP and have a good consumer base in India. Secondly, we are a saving prone economy, unlike western economies which are consumption prone. Thirdly, when banks across the world are falling like a pyramid of playing cards; we are safe, steady and strong, with our banks which have acted like a strong backbone of our economy during present turmoil. And just like thr FMCG sector, there is tremendous growth potential in the banking sector, because firstly, the rural masses have the habit of saving and spending only when needed. Secondly, their small credit requirements for agriculture, cottage industry and marriages etc.

According to researches carried out by the Reserve Bank of India (RBI), on an all India basis, 59 per cent of the adult population in the country has bank accounts and 41 per cent don¶t. In rural areas, the coverage of banks is 39 per cent, against 60 per cent in urban areas. There is only one bank for a population of13000.

Tapping the rural market by banks becomes all the more important, not only for the banking sector, but all other industrial sectors as well. If there is growth in the banking sector, it benefits the other sectors as well. By this, it is meant that in this sector, the trickledown theory of economic growth or top down approach works, if we keep the banks at the apex in India Inc. Reasons being, as banks promote savings in the economy, they speed up the capital formation and then become the source of finance of trade and credit for the industry. Then they provide credit to enable entrepreneurs in their ventures, which promotes production and employment. This production and employment generates income and consumption and supply and demand, by increasing the spending power of people. And a sum total of all these reduces poverty and better life styles.

But the problem is that banks have not been able to reach a vast majority of the rural population; the rural poor have limited access to organized, affordable and transparent financial services such as savings, loans, remittances and insurance services etc. It is important for them to have access to banking services, especially credit and insurance, to enlarge livelihood opportunities and to empower themselves to take charge of their lives.

self help groups and microfinance institutions is important. saving is more than 30% for 7 consecutive years. Project Financial Literacy of the RBI is one such initiative of dual purpose. First. financial inclusion of the rural poor and second. safe. farmers still go to traditional money lenders like zamindars for meager sums of a few hundred or thousand rupees and get into debt trap for their whole lives. the banks will not only be able to reach out to half of the population of India that is women. using development communication and increasing the habit of saving in rural poor. it is important to use technology as an enabler via mobile banking.The unorganized sector of lending is believed to be acting as a problem to the growth impetus in these sectors. In several villages. Because if in an economy. With above initiatives and reaching out to women. self help groups etc. because large numbers of Indians are using mobile phones. As a result.Its objective is to disseminate information about the central bank and general banking concepts to various target groups like children. but as these changes expand access to financial services for the low income segment and rural masses. the GDP doubles and India can¶t ignore the rural sector to increase our savings An improved rural banking under the umbrella of the RBI by the means of mobile banking. Here. which is a problem in rural areas and a major constraint in carrying out banking operations. It will also make it convenient. reliable and transparent. the effects can be measured in many ways. self help groups. which if had been done smartly would have helped in economic growth of their own self and economy. naxalism and political and social unrest and on top of it. bonded labor. not just in the volume of GDP growth. women. to tap the growth potential in rural markets by volume growth for banks through edutainment (education +entertainment). Using mobile phones for banking operations will cut costs by branchless banking. farmer suicides. poor financial management. . and microfinance institutions. as there is no need for physical infrastructure and human resources. using Information and Communication Technology (ICT) will help to create awareness for financial inclusion through banks and make it a success. The effective use of development communication..

by tapping the rural markets through banks. This will not only help corporate in fulfilling their social responsibilities. future development of India and the growth of India Inc. there are fortunes at the bottom of the pyramid. A development bank's policies or programs center on the following priorities: a) Economic Growth b) Human Development c) Gender and Development d) Good Governance e) Environmental Protection f) Private Sector Development g) Regional cooperation The main functions of a Development Bank: a) Increase loans and equity investments to its developing associate countries (DMCs) for their monetary and social development. better education for their children.but new jobs and income generations. b) Provides technical help for the planning and implementation of development projects and programs and for advisory services. . but is important for fuelling growth in other industries and to keep the economy growing and moving. greater personal safety for women. timelier health care for themselves and their empowerment Thus. c) Promotes and facilitates speculation of public and private capital for growth and development. lies in financial inclusion. Truly.

although long term lending continues to be their major activity. financial institutions also extend economic assistance by way of underwriting and direct contribution and by issuing guarantees. but also on a long term basis with their maturity period ranging from 10-15 years. Recently. which constituted main sources of their funds.d) Responds to requests for assistance in coordinating growth policies and plans of its increasing member countries. their operations were marked by near absence of competition. A large variety of economic institutions have come into existence over the years to perform a type of financial actions While some of them operate at all-India level. In order to perform their role. others are state level institutions. . Development Banks were extended funds in the shape of Long Term Operations (LTO) Fund of the Reserve bank of India and government guaranteed bonds. Formation of Development Banks in India: Development banks were set up in India at various points of time starting from the late 1940s to cater to the medium to long term financing requirements of industry as the capital market in India had not developed sufficiently. The endorsement of planned industrialization at the national level provided the critical enticement for organization of Development banks at both allIndia and state levels. Funds from these sources were not only available at concessional rates. some Development Banks have started extending short term/working capital finance. On the asset side. Besides providing direct loans.

IDBI has played a pioneering role in fulfilling its mission of promoting industrial growth through financing of medium and long-term projects. IDBI evolved an array of fund and fee-based services with a view to providing an integrated solution to meet the entire demand of financial and corporate advisory requirements of its clients. covering almost the entire spectrum of industrial activities. Over the years. IDBI also provides indirect financial assistance by way of refinancing of loans extended by State-level financial institutions and banks and by way of rediscounting of bills of exchange arising out of sale of indigenous machinery on deferred payment terms. Although Government shareholding in the Bank came down below 100% following IDBI¶s public issue in July 1995. In the wake of financial sector reforms unveiled by the Government since 1992.Industrial Development Bank of India (IDBI) The Industrial Development Bank of India (IDBI) was established on July 1. both in rupee and foreign currencies. balanced industrial growth through development of backward areas. In pursuance of this catalyzing broad based industrial development in the country in keeping with its Governmentordained µdevelopment banking¶ charter. IDBI¶s activities transcended the confines of pure long-term lending to industry and encompassed. among others. for green-field projects as also for expansion. In February 1976.47%). entrepreneurship development along with support services . IDBI has been instrumental not only in establishing a well-developed. in consonance with national plans and priorities. diversified and efficient industrial and institutional structure but also adding a qualitative dimension to the process of industrial development in the country. 1964under an Act of Parliament as a wholly owned subsidiary of the Reserve Bank of India. IDBI has enlarged its basket of products and services. modernization and diversification purposes. promoting and developing industry in the country. IDBI has played a pioneering role. particularly in the pre-reform era (1964-91). 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. During the four decades of its existence. modernization of specific industries. including manufacturing and services. employment generation. the former continues to be the major shareholder (current shareholding: 58. IDBI provides financial assistance.

. The Act provides for repeal of IDBI Act. subject to the approval of shareholders and other regulatory and .47%) and transformation into a commercial bank. current share: 58. IDBI diversified its business domain further by acquiring the entire shareholding of Tata Finance Limited in Tata Home finance Ltd. 1956 pursuant to the IDB (Transfer of Undertaking and Repeal) Act. signaling IDBI¶s foray into the retail finance sector. Government of India has decided to transform IDBI into a commercial bank without eschewing its secular development finance obligations. On July 29. following initiation of reforms since the early nineties. The fully-owned housing finance subsidiary has since been renamed µIDBI Home finance Limited¶. Towards this end. corporatization of IDBI (with majority Government holding. 2004 in terms of a Government Notification to this effect. In September 2003. the µAppointed Date¶ notified by the Central Government. incorporation and registration of Industrial Development Bank of India Ltd. The provisions of the Act have come into force from July 2. 2004. 1956 and a deemed Banking Company under the Banking Regulation Act 1949 and helped in obtaining requisite regulatory and statutory clearances. including those from RBI. technology platform and reorientation of its human capital to achieve a smooth transition. IDBI would commence banking business in accordance with the provisions of the new Act in addition to the business being transacted under IDBI Act. with its gateway to low-cost current. 1964 from October 1. including development of apposite institutional framework. as a company under the Companies Act. would help overcome most of the limitations of the current business model of development finance while simultaneously enabling it to diversify its client/ asset base. IDBI has firmed up the infrastructure. 2003 (53 of 2003). the Board of Directors of IDBI and IDBI Bank accorded in principle approval to the merger of IDBI Bank with the Industrial Development Bank of India Ltd.for creating a deep and vibrant domestic capital market. The migration to the new business model of commercial banking. The Notification facilitated formation. to be formed incorporated under the Companies Act. savings bank deposits. the IDB (Transfer of Undertaking and Repeal) Act 2003 was passed by Parliament in December 2003. 2004. In view of the signal changes in the operating environment.

IDBI¶s transformation into a commercial bank would provide a gateway to low-cost deposits like Current and Savings Bank Deposits. designed to suit the specific needs cash flow requirements of corporate and individuals. 2005. (These data are dynamic.statutory approvals. This would have a positive impaction the Bank¶s overall cost of funds and facilitate lending at more competitive rates to its clients. The new entity would offer various retail products. Industrial Credit and Investment Corporation of India ICICI Bank (formerly Industrial Credit and Investment Corporation of India) is a major banking and financial services organization in India. In addition. A mutually gainful proposition with positive implications for all stakeholders and clients. In particular. venture capital and asset management. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and specialization subsidiaries and affiliates in the areas of investment banking.016 branches (as on 31 March 2010) and about 5. It is the second largest bank in India and the largest private sector bank in India by market capitalization. ICICI Bank's . the merger process is expected to be completed during the current financial year ending March 31. The bank also has a network of 2.) ICICI Bank is also the largest issuer of credit cards in India. the new entity would also provide an array of wholesale and retail banking products. among others.219 ATMs in India and presence in 18 countries. In the emerging scenario. the new IDBI hopes to realize its mission of positioning itself as a one stop super-shop and most preferred brand for providing total financial and banking solutions to corporate and individuals. IDBI would continue to provide the extant products and services as part of its development finance role even after its conversion into a banking company. IDBI would leverage the strong corporate relationships built up over the years to offer customized and total financial solutions for all corporate business needs. life and non-life insurance. as well as some 24 million customers (at the end of July 2007). capitalizing on its intimate knowledge of the Indian industry and client requirements and large retail base on the liability side. single-window appraisal for term loans and working capital finance. strategic advisory and ³Hand-holding´ support at the implementation phase of projects. leveraging upon its existing relationship with retail investors under its existing Suvidha Flexi-bond schemes.

ICICI Bank. ICICI Bank is one of the Big Four Banks of India. ICICI Banking Corporation was later renamed as 'ICICI Bank Limited'.712. with the objective of creating a development financial institution for providing medium-term and long-term project financing to Indian businesses. Hong Kong and Sri Lanka. ICICI established Banking Corporation as a banking subsidiary. The Industrial Credit and Investment Corporation of India Limited (ICICI) was incorporated at the initiative of World Bank. into ICICI Bank. the Bank is targeting the NRI (Non-Resident Indian) population in particular. In 2001. 1943). Malaysia. . and representative offices in Bangladesh. In 1994. The Boards of Directors of ICICI and ICICI Bank approved the reverse merger of ICICI. After receiving all necessary regulatory approvals. Kolkata and Vadodara (formerly Baroda) . its ADR strade on the New York Stock Exchange (NYSE).shares are listed on the stock exchanges at BSE. along with State Bank of India. Russia and the UK (the subsidiary through which the HiSAVE savings brand is operated). the Government of India and representatives of Indian industry. Indonesia. car loans etc. In 2002.15% rise in net profit to 1. This includes wholly owned subsidiaries in Canada. In 1955. ICICI Personal Financial Services Limited and ICICI Capital Services Limited.21 crore on a 1. into a single entity. South Africa. credit cards.29% increase in total income to 9.014. branches and representatives offices in 19 countries. The bank's CASA ratio increased to 30% in 2008 from 25% in 2007. Punjab National Bank Bank of india and Canara Bank ² its main competitors. The Bank is expanding in overseas markets and has the largest international balance sheet among Indian banks. At the same time. China. and had acquired Chettinad Mercantile Bank (est. NSE. the United Arab Emirates and USA.31 crore in Q2 September 2008 over Q2 September 2007. Thailand. ICICI founded a separate legal entity. to undertake normal banking operations . ICICI Bank now has wholly owned subsidiaries. ICICI started its international expansion by opening representative offices in New York and London. branches in Belgium. Formerly known as Industrial Credit and Investment Corporation of India. ICICI integrated the group's financing and banking operations. 1933) and Illanji Bank (established 1904) in the 1960s.taking deposits. Overseas. ICICI acquired Bank of Madura (est. including an offshore unit in Mumbai. ICICI reported a 1. offshore banking units in Bahrain and Singapore. both wholesale and retail. an advisory branch in Dubai. In India. Bank of Madura was a Chettiar bank.

ICICI adopted a massive approach aims for cost control and cost cutting. a Russia bank with about US$4mn in assets.[9][10][11] On 18h October 2010. In addition to this. On 23 May ICICI Bank announced that it would merge with Bank of Rajasthan through a shareswap in a non-cash deal that values the Bank of Rajasthan at about 3. compensation to staff was not increased and no bonus declared for 2008-09. ICICI also established a branch in Frankfurt. . in Belgium. It also opened an Offshore Banking Unit (OBU) in Singapore and representative offices in Dubai and Shanghai. India and South Africa. Petersburg. which was headquartered in Sangli. an instant cross-border money transfer option for Non-Resident Indians (NRIs). In 2005. this time in St. With respect to the international sphere. In consequent of it. In 2008. ICICI Bank UK opened a branch in Antwerp. ICICI announced that the merger expand ICICI Bank's branch network by 25%. ICICI established a branch in Dubai International Financial Centre and in Hong Kong. ICICI opened subsidiaries in Canada and the United Kingdom (UK). ICICI renamed the bank ICICI Bank Eurasia. Also. in Maharashtra State. In 2009. ICICI amalgamated Sangli Bank. ICICI Bank Eurasia opened a second branch. Sangli Bank had been founded in 1916 and was particularly strong in rural areas. In 2007. This service will be available through the ICICI Bank's select partners in the Gulf Cooperation Council. In 2004. ICICI opened representative offices in Bangkok. and in the UK it established an alliance with Lloyds TSB. and with a branch in Moscow. The US Federal Reserve permitted ICICI to convert its representative office in New York into a branch. Also. In 2006. ICICI opened a representative office in Bangladesh to tap the extensive trade between that country. and which had 158 branches in Maharashtra and another 31 in Karnataka State. ICICI also received permission from the government of Qatar to open a branch in Doha. Jakarta. ICICI will inaugurate I-Express. ICICI made huge changes in its organization like elimination of loss making department and retrenching outsourced staff or renegotiate their charges in consequent to the recession.ICICI Bank bought the Shimla and Darjeeling branches that Standard Chartered Bank had inherited when it acquired Grind lays Bank. head office in Balabanovo in the Kaluga region. and Kuala Lumpur. In 2003. ICICI acquired Investitsionno-Kreditny Bank (IKB).000 crore.

56 :: Business Studies l discuss the objectives and function of Unit Trust of India (U. lRecall the meaning of µinvestment trust¶.) . As these institutions provide developmental finance. that is. Need for and importance of Specialised Financial Institutions (SFIs) SFIs are institutions set up mainly by the government for providing medium and long-term financial assistance to industry.Role of Specialised Financial Institutions Introduction Specialised financial institutions are also an important source of such finance. l Explain the objectives of Industrial Credit and Investment Corporation of India (ICICI) .T.I. These institutions receive funds for their financing operations primarily from the government or other public institutions. you will be able to :Explain the need for and importance of specialized financial institutions. Need for SFIs The need for establishing SFIs arose mainly because of the following reasons:1. Objectives After studying this lesson. state the functions of IDBI. they are also known as µdevelopment banks¶ or µdevelopment financial institutions¶. finance for investment in fixed assets. These institutions also raise funds from the capital market. l describe the functions of ICICI . identify the types of such institutions. ldiscuss the role and objectives of Industrial Development Bank of India (IDBI). It was difficult for industry in general to procure sufficient longterm . ldescribe the functions and objectives of Industrial Finance Corporation of India (IFCI) and State Financial Corporations (SFCs).

they have been . such as cotton and jute. (e) concerns requiring extra-ordinarily large amounts of finance with a long gestation period. which required funds for modernisation. SFIs were established to ensure that industry get sufficient long-term funds and in the desired sectors in accordance with planned priorities. Certain particular sections of the industry faced greater difficulties than others in procuring long-term finance. they have been called gap-fillers. Over a period of time. (d) concerns involved in innovation and new technological developments. These included (a) Small and medium sized concerns. SFIs were established to meet the long-term financial requirement of such concerns. and in the amount of loan sanctioned and distributed by SFIs. SFIs have played an important role in the development of (a) Small scale industry. Importance of SFIs The importance of SFIs may be attributed to the following: 1. (b) new concerns set up by new entrepreneurial groups. (c) specific industries. There were no other institutions to supply long-term finance to industry. there has been a steady growth in the number of industrial units assisted. only short term finance could be availed from commercial banks. 2.funds in the capital markets. 4. They constitute an important source of long-term finance to industry. and (b) Projects in backward areas. 3. They have helped new and small entrepreneurs in setting up industry. Role of specialised Financial Institutions :: 57 In general it can be said that the gap between the demand for and supply of industrial finance is sought to be filled through term loans by development financial institutions. Due to this role. (f) concerns in backward regions. on economic and social ground. Through their operations involving underwriting of and direct subscription to the issue of shares and debentures. Traditionally. 2.

They have also helped in identification. 5.important players in the capital market. Unit Trust of India (UTI) 2. evaluation and execution of new investment projects. Industrial Finance Corporation of India (IFCI) 4. Life Insurance Corporation of India (LIC) . Industrial credit and Investment corporation of India (ICICI) 5. (previously. have aided in better use of the available resources for the economic development of the country. State Industrial Development Corporations (SIDC) 3. National Bank for Agriculture and Rural Development (NABARD) 6. Industrial Investment Bank of India Ltd. State Financial Corporations (SFCs) 2. 7. These institutions have been helpful in the establishment of concerns which required extra-ordinarily large amounts of finance for their projects with a long gestation period. 6. Industrial Reconstruction Bank of India) (b) State-level Institutions 1. These operations have a favourable impact on the ability of industrial concerns to raise funds from capital market. State Industrial Investment Corporations (SIIC) (c) Investment institutions 1. Small Industries Development Bank of India (SIDBI) 3. Types of Specialised Financial Institutions Specialised financial institutions may be divided into the following types: (a) All India Development Banks 1. These institutions have improved the allocation of funds to industry and thus. SFIs have been a source of technical and managerial advice to the industry. Industrial Development Bank of India (IDBI) 58 :: Business Studies 2.

shipping and electricity generation and distribution. The objectives of the corporation are stated below. It was converted into a public limited company on July 1. 1948. Functions .I. Role of specialised Financial Institutions :: 59 (a) To provide long and medium-term credit to industrial concerns engaged in manufacturing. mining. 1993. This limit can be exceeded with the permission of the government under certain circumstances. (c) To grant credit to a single concern up to a maximum amount of rupees one crore. Its main object is to provide medium and long term credit to eligible industrial concerns in corporate sectors of the economy. IFCI Act. Over the years.C.) IFCI was established as a statutory corporation on 1st July 1948 by a special Act of Parliament. (e) underwrite and directly subscribe to shares and debentures issued by companies.3. particularly to those industries to which banking facilities are not available. (g) assist projects under co-operatives and in backward areas. (f) assist in setting up new projects as well as in modernisation of existing industrial concerns in medium and large scale sector. General Insurance Corporation (GIC) Objectives and Functions of Industrial Finance Corporations of India (I.F. (d) guarantee loans and deferred payments. the scope of activities of the corporation has widened. (b) The period of credit can be as long as 25 years and should not exceed that period. Objectives The primary role of IFCI is to provide µdirect financial assistance¶ on medium and long term basis to industrial projects in the corporate and co-operative sectors.

expansion. legal. iv) Guaranteeing credit purchase of capital goods. engineering goods. 67% of the total financial assistance distributed by IFCI was in the form of rupee term loans. under the soft loans scheme. State Financial Corporations (SFCs) Objectives and Functions .The main functions of I. vii) Providing equipment (imported or indigeneous) to the existing industrial concerns on lease under its µequipment leasing scheme¶. are as under:i) Granting loans and advances for the establishment. viii) Procuring and reselling equipment to eligible existing industrial concerns in corporate or co-operative sectors. etc.F. iii) Subscribing or underwriting the issue of shares and debentures by industries. Thus the two types of assistance accounted for a total of 84% of the total financial assistance by IFCI.I. guarantees and equipment leasing. diversification and modernisation of industries in corporate and co-operative sectors. both in rupees and foreign currencies. was in the form of underwriting. while foreign currency loans accounted for approximately 17% of total financial assistance. ix) Rendering merchant banking services to industrial concerns. imported as well as purchased within the country. direct subscription. v) Providing assistance. jute. In 1995-96. ii) Guaranteeing loans raised by industrial concerns in the capital market. cotton textiles. Such investment can be held up to 7 years. to selected industries such as cement. management and 60 :: Business Studies expansion of the industrial concern.C. marketing and administrative assistance to any industrial concern for the promotion. The remaining 16% of financial assistance. vi) Providing technical.

etc. Under the Act. setting up or development of an industrial area or industrial estate. preservation or processing of goods. (2) Provide long and medium-term loan repayable ordinarily within a period not exceeding 20 years. These may be from corporate or co-operative sectors as in case of IFCI or may be partnership. There are 18 SFCs at present. individual or joint hindu family business. transport undertakings. SFCs have been established by State governments to meet the financial requirements of medium and small sized enterprises. In any other case (partnership. (3) Grant financial assistance to any single industrial concern under corporate or co-operative sector with an aggregate upper limit of rupees Sixty lakhs. sole proprietorship or joint hindu family) the upper limit is rupees Thirty lakhs. 3 crore. empowering the State governments to establish development banks for their respective regions. the government of India passed the State Financial Corporation Act in 1951. To meet the financial needs of small and medium enterprises. ³industrial concern´ means any concern engaged not only in the manufacture. repairs and Role of specialised Financial Institutions :: 61 maintenance of machinery.IFCI was established to cater to the financial needs of industrial concerns in large scale corporate and co-operative sectors. Small and medium sized enterprises were outside the purview of IFCI. Objectives The objectives of state financial corporations are as under: (1) Provide financial assistance to small and medium industrial concerns. (4) Provide Financial assistance generally to those industrial concerns whose paid up share capital and free reserves do not exceed Rs. . hotel industry. but also mining. generation or distribution of electricity. Under SFCs Act.

IFCI or financial institution. IFCI or any other financial institution in the matter of grant of 62 :: Business Studies loan or business of IDBI. industrial concerns repayable within a period not exceeding 20 years. (8) Planning and assisting in the promotion and development of industries. (7) Providing technical and administrative assistance to any industrial concern or any person for the promotion. (5) Subscribing to. management or expansion of any industry.(5) To lay special emphasis on the development of backward areas and small scale industries. whichever is less. or 30 percent of paid up share capital and free reserve. bonds or debentures of an industrial concern subject to a maximum of 30 percent of the subscribed capital. State government. (3) Guaranteeing deferred payments due from an industrial concern for purchase of capital goods in India. Functions of State Financial Corporation (SFCs) The functions of SFCs include (1) Grant of loans and advances to or subscribe to debentures of. (2) Guaranteeing loans raised by industrial concerns which are repayable within a period not exceeding 20 years. bonds or debentures by industrial concerns.1 Which of the following statements are true and which are false ? (i) Specialised financial institutions provide medium and long-term financial assistance to industry. the stock. (4) Underwriting of the issue of stock. (6) Act as agent of the Central government. or purchasing of. shares. Intext Question 20. IDBI. with option of conversion into shares or stock of the industrial concern. shares. .

(ix) Loans granted by SFCs can be converted into shares of the industrial concern. However need was felt for a central coordinating agency to be ultimately concerned with all problems relating to long and medium term financing of industry and to act as an apex industrial financing and developmental agency. (vi) IFCI can grant long-term loans to industries in the co-operative sector.(ii) Small scale industries are not financed by any SFI. (viii) SFCs can guarantee loans of industrial concerns which are repayable within not more than 10 years. The purpose was to enable the new institution to benefit from the financial support and . The Industrial Development Bank of India was set up in July 1964 as a wholly owned subsidiary of the Reserve Bank of India. These institutions along with ICICI (discussed in the next section) met the financial needs of different sectors of industry. Role of specialised Financial Institutions :: 63 Industrial Development Bank of India (IDBI) You have already read about the functions of IFCI and SFCs. showed a steady growth in their operations and contributed substantially to the industrial development of the economy. (iii) IFCI can underwrite issue of shares but cannot subscribe to share issues. (vii) To set up a transport undertaking a businessman can get financial assistance from the SFC of the concerned state. (x) Financial assistance cannot be granted by SFCs to any proprietary concern. IFCI also guarantees foreign currency loans. (iv) Among other functions. (v) The maximum limit of credit which IFCI can sanction to a single concern is Rs 1 crore but it can be exceeded if permitted by government.

Objectives The main objectives of IDBI is to serve as the apex institution for term finance for industry in India. ICICI. (2) Supplementing the resources of other financial institutions and thereby widening the scope of their assistance. The purpose was to allow RBI to concentrate on its central banking function and allow IDBI to grow into a developmental agency. Function . assisting the development of such institutions and providing credit and other facilities for the development of industry.14%. it coordinates the working of other financial institutions. (4) It undertakes other activities for the development of industry. IDBI is now the principal financial institution for co-ordinating the working of institutions engaged in financing. (3) It provides credit to large industrial concerns directly. regulation and supervision of the working of other financial institutions such as IFCI . Government¶s shareholding in IDBI has been reduced to 72. it was delinked from RBI in 1976.experience of RBI. promotion and development of key industries and diversifications of industrial growth. LIC. After a decade of its working. promoting or developing industry. (3) Planning. Its objectives include64 :: Business Studies (1) Co-ordination. (2) It assists in the development of other financial institutions. After the public issue of equity shares and sale of a part of Government¶s shareholding in July 1995. when its ownership was transferred to the Government of India. Commercial Banks and SFCs. (4) Devising and enforcing a system of industrial growth that conforms to national priorities. Thus the role of IDBI may be stated as under: (1) As an apex financial institution. UTI.

Role of specialised Financial Institutions :: 65 (10) To guarantee loans raised by industrial concerns in the market or from institutions. (5) To underwrite or to subscribe to shares or debentures of industrial concerns. legal. (9) To guarantee deferred payment due from any industrial concern. (6) To subscribe to or purchase stock. state co-operative banks by way of refinancing of loans granted by such institution to industrial concerns for exports. (11) To provide consultancy and merchant banking services in or outside India. SFCs. marketing and administrative assistance to any industrial concern or person for promotion. etc. scheduled banks.The IDBI has been established to perform the following functions(1) To grant loans and advances to IFCI. (7) To grant line of credit or loans and advances to other financial institutions such as IFCI. SFCs or any other financial institution by way of refinancing of loans granted by such institutions which are repayable within 25 year. (13) Planning. (12) To provide technical. (14) To act as trustee for the holders of debentures or other securities. other institutions. shares. (4) To discount or rediscount bills of industrial concerns. (3) To grant loans and advances to IFCI. Subsidiaries . (2) To grant loans and advances to scheduled banks or state co-operative banks by way of refinancing of loans granted by such institutions which are repayable in 15 years. promoting and developing industries to fill up gaps in the industrial structure in India. bonds and debentures of other financial institutions. SFCs. management or expansion of any industry. (8) To grant loans to any industrial concern.

35450 crores. The total outstanding loans. subscribed and paid up share capital was Rs. Investment Trusts Meaning Investment Trusts are investment institutions which are formed to provide to investors. the benefits of diversified investment and skilled management in the sphere of investment in industrial securities.828. Loan funds were Rs. (v) The IDBI __________ and ____________ the shares and debentures of industrial concerns. investments and guarantee of IDBI stood at Rs. (ii) One of the functions of IDBI is to assist other financial institutions by ______________ of loans granted for exports.The following are the subsidiaries of IDBI. (1) Small Industries Development Bank of India (SIDBI) (2) IDBI Bank Ltd.2 Fill in the blanks with suitable words: (i) IDBI serves as the _____________ institution for term finance to industries. (iv) The IDBI can grant a _____________ or loans and advances to other financial institutions. _________and ___________ the working of other financial institutions like IFCI. 66 :: Business Studies (iii) The primary objective of IDBI is to __________. Issued. (4) IDBI Investment Management Company Capital Structure and Operations As on September 30.2000 crores.1996. Reserves were Rs. Intext Question 20. UTI.221 crore as on 31st March 1996. .6309 crores.76 crores. SFCs. (3) IDBI Capital Market Services Ltd. particularly smaller ones having small savings. the authorised Capital of IDBI was Rs.39.

interest on debentures.These institutions sell their shares or units to small investors to mobilise their savings. After meeting the management expenses. the income of the trust is distributed among the investors. bonds and loans of profit±making joint stock companies. The distinguishing characteristics of such trusts are (a) There is a definite arrangement under which the trust continuously offers to sell fresh shares or units at a price based on the net asset value of the underlying securities. using professional management skills. they are Role of specialised Financial Institutions :: 67 commonly known as µMutual funds¶. Types of Investment Trusts Investment trusts are basically of the following two types(1) µOpen-end¶ Investment Trusts In U. (b) There is also a definite arrangement under which the trust buys back its own shares or units at a price based on the net asset value of the underlying securities. debentures. that is. The investments are diversified. Thus the investment trusts.K. and on the other hand. made in securities of a sufficiently large number of companies. These savings are invested in shares. This reduces the investment risk and ensures reasonable income from the investments. generally from different industries. The trust receives income from investments by way of dividend on shares. enable joint stock companies to obtain financial resources from wider sources. such trusts are known as µUnit Trust¶ while in USA. (2) µClosed-end¶ Investment Trusts The distinguishing characteristics are as under - . (c) The income of the trust is divided among the unitholders or shareholders of the trust after meeting management expenses. on the one hand. bonds and loans and profit on sale of securities. enable small investors to participate in the industrial prosperity of the country.

. It mobilises the savings of people through sale of units.(a) These Trusts do not continuously sell their shares or units.. Nature of the Trust The Unit Trust of India is an investment trust..... (c) The shares or units of the trust are listed on stock exchanges and can be bought and sold like shares of any other company.... 1964..... Rs..... Rs. (e) Such institutions can also raise loans to make investments....5 crore Life Insurance Corporation .T..75 Lakhs 68 :: Business Studies Scheduled Banks and other financial institutions .75 Lakhs State Bank of India .....I) The Unit Trust of India is a statutory public sector investment institution established under the Unit Trust of India Act..1976... Rs. 1 crore With the amendment of the Public Financial Institutions Laws...5 crores contributed as follows Reserve Bank of India ... (b) They also do not buy back their shares or units. (d) The market value of shares or units of these trusts depends upon the market forces of demand and supply. It commenced its operations with an initial capital of Rs.. The savings as collected are invested in the shares and debentures of profit-making companies... the contribution made by RBI to the initial capital and the control exercised by it are vested in the IDBI with effect from 16th Feb.... The income received by the trust by way of interest and dividend is passed on to the unit holders by way of dividend after meeting management expenses of the trust...2.... (f) They may plough back a part of their profit Unit Trust of India (U. Investment through UTI results in lower risk of loss and higher return on ....... 1963.. It began functioning on Ist July. The small savers get benefit by participating in the investment schemes of UTI and thus in the industrial prosperity of the country... Rs...

debentures and bonds) is divided into smaller parts called µunits¶. (ii) To mobilise savings from the small savers. Objectives The main objectives of UTI are as under (i) To encourage savings of people belonging to middle and low income groups.I. . (iv) To underwrite the issue of shares and debentures. Intext Question 20. (iii) The UTI does not underwrite shares and debentures issued by companies. (ii) To invest the savings so mobilised in corporate securities such as shares and debentures.T.10 each. (i) Fresh shares or units of the µopen-end¶ investment trust are continuously offered for sale at their face value. What are units? The total investment made by UTI in industrial securities (shares.3 Write µR¶ against statements which are right and µW¶ against those which are wrong. Units have a face value of Rs. Functions The main functions of UTI are as follows Role of specialised Financial Institutions :: 69 (i) To mobilise the savings of the community through sale of units. (ii) A µclosed-end¶ investment trust does not buy back its shares or units. etc. The Unit Trust of India sell units under different schemes and also buys back its own units at the purchase price fixed by it from time to due to professional management by U. (iii) To channelise savings to industrial growth. (iv) To allow investors to participate in the prosperity of the industries. (iii) To serve unit holders along the length and breadth of the country.

Loans sanctioned generally go towards purchase of fixed assets . expansion and modernisation of industrial units in the private sector. 70 :: Business Studies Objectives The ICICI has been established to achieve the following objectives: (I) To assist in the formation. They together hold approximately 50% of the paid up share capital of ICICI. In pursuit of its objectives of promoting industrial development. insurance companies and foreign institutions including the World Bank. (iv) To assist in the development of the capital market through its underwriting activities. Its major shareholders now are Unit Trust of India. (ii) To stimulate and promote the participation of private capital (both Indian and foreign) in such industrial units. Its share capital was contributed by banks.(iv) Investment through UTI results in lower risk of loss and higher return. (v) The market value of shares or units of closed-end trusts depends on the market forces of demand and supply. Functions The primary function of ICICI is to act as a channel for providing development finance to industry. ICICI performs the following functions:(i) It provides medium and long-term loans in Indian and foreign currency for importing capital equipment and technical services. (iii) To furnish technical and managerial aid so as to increase production and expand employment opportunities. Life Insurance Corporation of India and General Insurance Corporation and its subsidiaries. Industrial Credit and Investment Corporation of India (ICICI) Industrial Credit and Investment Corporation of India was established as a joint stock company in the private sector in 1955.

Accordingly. ICICI seeks to encourage other financial institutions. (iv) It directly subscribes to shares and debentures. ICICI has disbursed a total financial assistance of Rs. (ii) It subscribes to new issues of shares. (iii) It guarantees loans raised from private sources including deferred payment. Role of specialised Financial Institutions :: 71 (viii) It provides merchant banking services. both Indian and land. any sole proprietary concern. In promoting industrial investment.4225 crores during the three months period from Ist April 1998 to 30th June 1998. In other words.5 lakhs is the minimum amount sanctioned by it to a single concern and normally it does not go beyond the maximum limit of Rupees one crore. showing . generally by underwriting them. (vi) It provides assets on lease to industrial concerns. Any company with limited liability. Normally it provides such assistance within the range of self imposed limits. Rs. public sector. (vii) It provides project consultancy services to industrial units for new projects. to collaborate in its lending operations. Financial assistance granted and disbursed by ICICI over the years have grown steadily. joint sector or co-operative sector. The corporation is empowered to provide any amount of financial assistance to any business unit in the private sector. partnership concern and any co-operative society may approach the corporation for assistance in financing a sound project. (v) It provides technical and managerial assistance to industrial units. assets are owned by ICICI but allowed to be used by industrial concerns for a consideration called lease rent.9135 crore. However no project is too large for ICICI to handle. building and machinery. ICICI has promoted the following institutions in recent years. The total amount sanctioned during this period is Rs.

(v) One of the many objectives of ICICI is to expand employment opportunities in the rural areas.4 Which of the following statements are true and which are false? (i) ICICI is not a government controlled organisation.widening scope of activities of ICICI: 1. ICICI Asset Management Co. Technology Development and Information Company of India Ltd. State Financial Corporation (SFCs) have been established by State . (TDICI) 7. ICICI Banking Corporations Ltd. 3. Programme for the Advancement of Commercial Technology. `Programme for Acceleration of Commercial Energy Research (PACER) 72 :: Business Studies Intext Questions 20. 4. Ltd. Ltd. (iii) Only industrial concerns in the private sector are eligible for grant of long-term finance by the ICICI. ICICI Investors Services Ltd. provides financial assistance to industrial concerns for a period not exceeding 25 years. (iv) Loans under deferred payment agreements are guaranteed by the ICICI. 5. It grants financial assistance to industrial concerns in the corporate and cooperative sectors. What you have learnt Financial Institutions : The IFCI which was established in 1948. ICICI Securities and Finance Co. (CRISIL) 6. It also guarantees loans raised by industrial concerns in the open market and underwrites issues of shares and debentures. (ii) Industrial concerns can secure project consultancy services from the ICICI. 2. 8. Credit Rating Information Services of India Ltd.

to regulate. But normally. 5 lakhs and Rs. The ICICI was formed in 1955 to provide assistance to industrial units in the private sector. The UTI was established in 1964 to stimulate and pool together the savings of people by selling its units to investors in different parts of the country. It invests its funds in shares and debentures of other industrial concerns and pays dividends to the holders of its units. 1 crore. The paid up share capital and free reserves of the industrial concern seeking financial assistance should not exceed Rs 3 crore. Define the terms: . it provides such assistance in the range of Rs. It guarantees loans and deferred payments. refinances loans granted by other financial institution. Most of the financial assistance is in the form of term loans. There are at present 18 SFCs. These corporations grant assistance to industrial concerns for a maximum period of 20 years. Maximum financial assistance that may normally be granted to a single industrial concern is Rs. It supplements the financial Role of specialised Financial Institutions :: 73 resources of other financial institutions. Financial assistance is granted to medium and small size concerns.governments under State Financial Corporation Act. It is empowered to provide any amount of financial assistance to business units. 1951. public sector as will as co-operative sector industrial units are eligible for financial assistance from ICICI. However the activities of ICICI have widened now in scope. The IDBI was established in 1964. It also provides loan directly to industrial concerns. 60 lakhs. promotes industries and provides merchant banking services. It discounts and rediscounts bills of industrial concerns. supervise and coordinate the activities of other financial institutions. Financial assistance can be granted to industrial concerns in corporate or co-operative sectors as well as sole proprietary or partnership concern. Joint sector. Terminal Exercises 1.

13 Answers to Intext Questions. (iii).(ii).4 True . (ii). (iv). False . Wrong . (vi). (x).2 (i) apex (ii) refinancing (iii) co-ordinate. (b) Investment trust 2 Name three all-India and three state-level financial institutions set up for providing medium and long-term finance to industrial concerns.(i). 20.1 (i).True (ii). (vii).(iii). supervise (iv) line of credit (v) underwrites. .False 20. (iii) 20. (viii).(a) Specialised financial institution. (v). regulate. (ix). (v). .3 Right . (v) . subscribes to 20. (iv). 3 Write notes on: (i) Importance of SFIs (ii) Objectives of IDBI (iii) Functions of UTI 4 State and explain the functions of IFCI 5 Enumerate the main objectives of ICICI 6 What are the functions of SFCs ? Discuss 74 :: Business Studies 20. (iv).(i).