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THE ROLE OF INDUSTRIAL DEVELOPMENT BANK OF INDIA IN INDUSTRIAL

PROMOTION OF INDIA.

Conference Paper · March 2007

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THE ROLE OF INDUSTRIAL DEVELOPMENT BANK OF INDIA IN
INDUSTRIAL PROMOTION OF INDIA.

Paper presented in the 30th Refresher Course in Economic, organized by Academic Staff
College, JNU, New Delhi.

Prepared by Prof. Upali Hettiarachchi

The Role of IDBI in industrial promotion of India

Introduction:

Development banks are of recent origin. The conclusion of World War - 11 saw the
ravages and destruction of many nations across the globe. This called for an urgent
rebuilding of such economies. Not only this, emergence of many independent nation
states during the 40's also called for their balanced development. These two events across
the globe called for setting up of development banks. India had the first experience of a
full-fledged development bank in 1948 with the setting up of Industrial Finance
Corporation of India (IFCA) in 1948. This was soon followed by the establishment of
State Financial Corporation (SFCs) in almost all the states of the union and a
development bank in the private sector i.e., Industrial Credit and Investment Corporation
of India (ICICI). As of now, a well-integrated structure of development financial
institutions and banks have evolved in the country over the years dedicating to the cause
of industrial promotion.

IDBI, a premier term-lending financial institution was set up in 1964 to coordinate the
activities of a plethora of development banks that came up in the country. Development
financial institutions including IDBI have played a vital and significant role in building
up of country's strong vibrant and varied industrial edifice. They have achieved
tremendous growth since independence.

IDBI provides financial assistance to industrial concerns primarily for the following three
reasons.

1. To set up new industrial units for any good or service.

2. For modernization and technological up gradation of the existing units.
3. For rehabilitation of the sick industrial units.

An analysis of functions of IDBI assumes significance in order to examine the pioneering

role in promoting industries. In short, an humble attempt is made to highlight the
activities of IDBI during the period 1990 - 2000.

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Objectives

The present study seeks to meet the following objectives.

(i) To assess teh quantum of financial assistance sanctioned by IDBI to industrial

concerns over a period of 10 years i.e., 1990 - 2000.
(ii) To access the degree of variability of financial assistance over the period
under study
(iii) To measure the regression coefficient that exists between the time period and
financial assistance sanctioned during the period.
(iv) To measure the compound rate of growth of financial assistance given by the
IDBI during the period under study.

The Hypotheses

The study seeks to test the following hypotheses

Time and financial assistance given by the IDBI to industrial concerns are directly related
and the corresponding co-efficient of determination is also positive i.e.,

Ho: (β < 0, R2 > 0)

Methodology

The data for the above-mentioned study have been collected from various secondary
sources and computer has been used to run the regression analysis. The amount of
assistance provided provided by the IDBI over the aforesaid years is presented in the
tabular form given below.

Table 1. Trend in Financial Assistance by IDBI during 1990 - 2000

Serial No. Year Assistance Annual growth rate

Sanctioned (Rs. in Millions)
1 1990 - 1991 62796 -
2 1990 - 1992 65612 4.48
3 1992 - 1993 93568 42.6
4 1993 - 1994 122036 30.42
5 1994 - 1995 183900 50.69
6 1995 - 1996 159887 -13.06
7 1996 - 1997 140019 -12.43
8 1997 - 1998 231890 65.6
9 1998 - 1999 237447 2.4
10 1999 - 2000 283079 19.22
Total 1580234
Average assistance 158023.4
Source: Operational Statistics, IDBI, IDBI Publication, Mumbai - 1999 - 2000

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The data reveal that on an average IDBI has provided financial assistance to the extant of
Rs. 158023.4 million during the period under study. However, wide fluctuations in
financial assistance given by IDBI to industrial unites are discernible. It is worth noting
that the volume of financial assistance to the industrial units has decelerated during the
years 1995-1996, 1996 - 1997 to extant of 13.06% and 12.43% respectively.

Furthermore, it is observe that financial assistance sanctioned by IDBI had a phenomenal

growth during 1997 - 1998 to the extent of 65.6 percent. In nutshell, barring two years
i.e., 1995 - 1996 and 1996 - 1997, financial assistance sanctioned by the IDBI has grown
substantially during the period of liberalization. The deceleration in financial assistance
during 1995 - 1996 and 1996 - 1997 may be attributed to recession that swept the
economy in the mid nineties.

Financial assistance sanctioned by the IDBI has witnessed wide fluctuations over the
decade to the extant of exhibiting a coefficient of S.D. of 0.45.

In order to study the extent of change in financial assistance sanctioned by IDBI to

industrial units over the decade, two-regression coefficient i.e, a linear and a quadratic
type have been fitted to the data. The linear analysis measures an intercept of 27792.23
and a regression coefficient of 23678.23. Furthermore, while running a non-linear
regression through the data set, we found that it has an intercept of 151918 and two
regression coefficient. The adjoining table shows both linear and non-linear trend to the
data set. Both the trends have been drawn following table.

Table 2 Linear and non-linear trend values for different years of financial assistance (in
million Rupees)

Year Linear trend (yt) Non - linear trend (yt*)

1990 - 1991 51476.54 60352
1991 - 1992 75148.95 78110
1992 - 1993 98827.36 97348
1993 - 1994 122505.77 118066
1994 - 1995 146184.18 140264
1995 - 1996 169862.59 175781
1996 - 1997 193541.00 189106
1997 - 1998 217219.41 215738
1998 - 1999 240897.82 243866
1999 - 2000 264576.23 273454
Source: Operational statistics, IDBI publication Mumbai, various issues. The following
figure shows the linear and non-linear trend in financial assistant sanctioned by IDBI

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A glance at the data set reveals that there exists a high degree of positive correlation to
the extend of 0.95 between the variables

Regression Statistics
Multiple R 0.948096
R Square 0.898885
Adjusted F 0.886246
Standard E 25502.91
ANOVA
df SS ms f Significance F
Regression 1 4.63E + 10 4.63 + 10 71.11801 2.98E-0.5
Resident 8 5.2E + 09 6.5E + 08
Total 9 5.15E + 10

Coefficient Stand and t-stat P value Lower Upper

Err 95% 95%
Intercept 27792.13 17421.81 1.59525 0.149323 -12382.6 67966.91
X variable 23678.41 2807.778 8.433149 2.98E-0.5 17203.66 30153.16

This fact is further supported by a positive and high degree of coefficient of

determination to the extent of 0.9.

Besides, the calculated value of t-statistics with 9 degree of freedom at 5% level of

significance is 1.6, which is fat less than its corresponding tabulated value, which stands
at 1.83. This strong suggests acceptance of null hypothesis of our studies.

Conclusion

Hence it is concluded that the financial distance sanctioned by IDBI over the decade to
the industrial units has shown a phenomenal growth and has strongly contributed to
industrial development of the country.

Y = a + bX Y = a + bx + cx2
y = Na + b ΣX ΣY = Na + b ΣX + c Σx2
Σxy = a Σx + b Σx2 Σxy = a Σx + b Σx2 + c Σx4
Σx2y = a Σx2 + b Σx3 + c Σx4
a = 27792.13 a = 151918
b = 23978.41 b = 11839
c = 185

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 Bibliography

1. Agarwala N., Indian Economics (2002), Wiley Eastern Limited, New Delhi.
2. Nurkse Ragnar: Problem of Capital Formation in Underdeveloped Countries,
OUP., London, 1962
3. Operational Statistics, IDBI, Publications Mumbai, Various issues.
4. RBI Bulletin, RBI Publications Mumbai, Various Issues.
5. Report on Development Banking, IDBI Publications Mumbai, Various Issues.

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