A

RESEARCH PROJECT ON

“ROLE AND GROWTH OF DEVELOPMENT BANK IN INDIA”

(Submitted in partial fulfillment of the requirement of degree of MASTERS OF BUSINESS ADMINISTRATION, KURUKSHETRA UNIVERSITY.KURUKSHETRA)

RESEARCH SUPERVISOR : SUBMITTED BY:MRS. MONIKA MEHTA HARISH KUMAR

CLASS ROLL No. 1460

University roll no.

Session 2009-2011

Department of management

SHRI ATMANAND JAIN INSTITUTE OF MANAGEMENT ANDTECHNOLOGY

AMBALA CITY

PREFACE

Research project is the bridge for the student that takes his theoretical knowledge world

to practical industrial world. The advantage of this sort of integration (research program),

which promotes guided student to corporate culture, functional, social and norms along

with formal teaching numerous. The main aim is :

To bridge the gap between theory and practical.

To help the student in developing the better understanding of concepts and

questions already raised or to be raised subsequently during the research period.

The present research report gives a detailed view of how the celebrity endorsements

make the advertisements effective and how do the customers perceive celebrities. In the

present scenario, the celebrities endorse the high value brands and add to the value of the

brands. .

ACKNOWLEDGMENT

The present report is an amalgamation of hard work and contribution of experience of

eminent personalities.

First of all, I would like to thank the supreme power the Almighty GOD who is the

obviously the one who has always directed me to work on the right path. With his grace

this project could be the reality.

I, express my sincere gratitude to Dr. S.C. AGGARWAL (Director) for their inspiration.

I am also very much thankful to Mrs. Monika Mehta (Faculty, AIMT, Ambala City) for

his guidance, regular counseling, keen interest and constant encouragement. Without

their guidance this project would not have a successful end.

(HARISH KUMAR)

DECLARATION

I, undersigned, hereby declare that this report entitled “ROLE AND GROWTH OF

DEVELOPEMENT BANK IN INDIA” is a genuine and benefited work prepared by

me and my original work. The empirical findings in report are based on data collected by

me. The matter presented in this report is not copied from any source. This report has not

been submitted in any of university.

The work is humbly submitted to AIMT, KURUKSHETRA UNIVERSTY for the

award of degree of master of business administration.

HARISH KUMAR

CERTIFICATE

This is to certify that Mr. HARISH KUMAR has performed under my supervision. His

research project report on “ROLE AND GROWTH OF DEVELOPEMENT BANK

IN INDIA”in the area of her specialisation MARKETING. The work embodied in this

report is original and is of standard expected of a master of business administration

student. The report has not been submitted in part or full to his university for the award of

any degree or diploma. She has completed all requirements or guidelines for research

project report and the work is fit for evaluation.

MONIKA MEHTA

TABLE OF CONTENTS

INTRODUCTION TO TOPIC

OBJECTIVES OF STUDY

RESEARCH METHODOLOGY

INTRODUCTION TO DEVELOPMENT BANKS

OBJECTIVES OF DEVELOPMENT BANKS

BANKS UNDER STUDY

IDBI

IFCI

SIDBI

NABARD

DATA ANALYSIS

SUGGESTIONS

CONCLUSION

LIMITATION

INTRODUCTION TO TOPIC

TO INDIAN FINANCIAL SYSTEM

HISTORY OF DEVELOPMENT BANKS

INDIAN FINANCIAL SYSTEM

Indian financial system is one of the world largest financial systems. Indian economy is

world 4th biggest economy but this Indian financial system has under gone through

various changes or we can say that it has different stages since its inception.

Basically Indian financial system can be divided into 3 categories:

Before independence

Pre- 1991 era

Post-1991 era

BEFORE INDEPENDENCE:

In British rule India first time seen the organized financial system, although all that was

meant for britishers but that provided us the layout for future course of action i.e. to build

our own financial system. At that time banks and other financial institutions were at their

infantry stage but the given a base to build the whole system on them. That time can be

considered as the preliminary stage of Indian financial system and at that time there were

no development banks as the motive of colonial rule was to draw the wealth not to make

country developing.

PRE 1991 ERA:

This era has seen the gradual rise in the economy of India. After independence banks and

other financial institutions to provide funds were established and development banks

were also a part of them which were established specially to provide financial aid to

industrial sector and to promote entrepreneurship in India.

The financial system in this era was based on socialistic pattern of society and the

economy was of mixed type but basically it was public sector based economy. The

motive was to promote every sector of society to uplift and earn for him self. Indian

financial system continued with this pattern for about 40 years but in true sense the

economic growth never boosted up as there was so many hindrances and lacks in syetm

itself which taken country in such a crisis that it has to borrow funds by pledging its gold

that was called the crisis of 1991

POST 1991 ERA:

To come out the crisis, India has to adopt the new policy regarding the financial system

to speed up the growth and to raise the economy and in order to perform that a new

policy of LIBERALIZATION-PRIVATIZATION- GLOBALIZATION i.e. LPG was

adopted. The basic motive was to reduce the government control over the economy and

to let it flourish itself. Indian financial system is currently working on this policy and now

the economic growth rate has also risen. Now the development banks are working in

accordance with the industry in order to satisfy their need of funds and to provide every

possible help required. Although the growth is still slow in comparison with other

countries but soon India will become the strongest economy of world.

HISTORY OF DEVELOPMENT BANKS

The concept of development banking rose only after Second World War , Successive of

the Great Depression in 1930s. The demand for reconstruction funds for the affected

nations compelled in setting up a worldwide institution for reconstructions. As a result

the IBRD was set up in 1945 as a worldwide institution for development and

reconstruction. This concept has been widened all over the world and resulted in setting

up of large number of banks around the world which coordinating the developmental

activities of different nations with different objectives among the world.

The course of development of financial institutions and markets during the post-

Independence period was largely guided by the process of planned development pursued

in India with emphasis on mobilisation of savings and channelising investment to meet

Plan priorities. At the time of Independence in 1947, India had a fairly well-developed

banking system. The adoption of bank dominated financial development strategy was

aimed at meeting the sectoral credit needs, particularly of agriculture and industry.

Towards this end, the Reserve Bank concentrated on regulating and developing

mechanisms for institution building. The commercial banking network was expanded to

cater to the requirements of general banking and for meeting the short-term working

capital requirements of industry and agriculture. Specialised development financial

institutions (DFIs) such as the IDBI, NABARD, NHB and SIDBI, etc., with majority

ownership of the Reserve Bank were set up to meet the long-term financing requirements

of industry and agriculture. To facilitate the growth of these institutions, a mechanism to

provide concessional finance to these institutions was also put in place by the Reserve

Bank.

The first development bank In India incorporated immediately after independence in

1948 under the Industrial Finance Corporation Act as a statutory corporation to pioneer

institutional credit to medium and large-scale. Then after in regular intervals the

government started new and different development financial institutions to attain the

different objectives and helpful to five-year plans.

The early history of Indian banking and finance was marked by strong governmental

regulation and control. The roots of the national system were in the State Bank of India

Act of 1955, which nationalized the former Imperial Bank of India and its seven associate

banks. In the early days, this national system operated along side of a large private

banking system. Banks were limited in their operational flexibility by the government’s

desire to maintain employment in the banking system and were often drawn into

troublesome loans in order to further the government’s social goals.

The financial institutions in India were set up under the strong control of both central and

state Governments, and the Government utilized these institutions for the achievements in

planning and development of the nation as a whole. The all India financial institutions

can be classified under four heads according to their economic importance that are:

All-India Development Banks

Specialized Financial Institutions

Investment Institutions

State-level institutions

Other institutions

OBJECTIVES OF STUDY

To study the various development banks operating in India

To give glance at the working of development banks

To find out the role of development banks in Indian financial system

To check the contribution of development banks in economic growth

RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. It may be

understood as a science of studying how research is done scientifically. In it we study the

various steps that are generally adopted by a researcher in studying his research problem

along with logic behind him. Why a research study has been undertaken, how a research

problem has been defined, in what way and why the hypothesis has been formulated,

what data have been collected and what particular method has been adopted, why

particular technique of analyzing data has been used and a host of similar other questions

are usually answered when we talk of research methodology concerning a research

problem or study.

RESEARCH DESIGN:

A research design is the arrangement of conditions for collection and analysis of in

a manner and aims to combine relevance to the research purpose with economy in

procedure. In fact the research design is the conceptual structure within which research I

conducted. Research Design is needed because it facilitates the smooth sailing of the

various research operations thereby making research as efficient as possible yielding

maximum information with minimal expenditure of effort, time and money.

I have adopted descriptive and conclusive research design. Descriptive research is

those studies, which are concerned with describing the characteristics of a particular

individual or a group.

Since the aim is to obtain the accurate information about the development banks in

terms of their role in Indian financial system, I have studied the various data available in

books, journals, magazines and on internet.

DATA SOURCES:

The researcher can gather primary data, secondary data or both. Secondary

data are data that were collected for another purpose and already exist somewhere.

Primary data are data specially gathered for a specific purpose or for a specific research

project. Since the study is based on already existing facts and figures, so all the sources of

data are secondary

SECONDARY DATA

The main source of information for the study was

Weakly magazines

RBI bulletin

Information available in form of articles

Information available on internet

Sampling

The study is limited to a sample of top 4 development bank.

1. INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI)

2. INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI)

3. NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT

(NABARD)

4. SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)

INTRODUCTION TO DEVELOPMENT BANKS

DEVELOPMENT banks in India have had a chequered and not always a happy history.

Some have managed to come back from the brink by taking to universal banking, or

merging with a normal bank. In general, it may be said that development banking has lost

its charm. So much so that when an official was shifted from the none-too-healthy Indian

Bank to NABARD, a banking veteran said that she deserved not congratulations but

commiseration.

Political interference and flawed industrial policy have been the main reasons why

development banks have fared badly. At the same time, it needs to be said that some

conceptual errors about the nature of development banking have made matters worse.

From the time of Independence, political interference in the functioning of banks has

been both overt and covert. For instance, loan melas made many banks sick. Even now,

many villagers think that a loan from a government bank is a gift; it need not be repaid.

In spite of such impressive sounding institutions as Debt Recovery Tribunals, it is still

difficult for banks to recover in full the amounts due; more often than not, banks have no

option but write-off most of the dues. Periodic concessions to borrowers ordered by the

Reserve Bank of India have made debt recovery quite difficult. In consequence, ill health

has dogged the banks in India.

Though development banks did not have to suffer from loan melas, they too were subject

to political pressure to fund projects of dubious value. For long years, there was no

culture of financial closure; many projects started more with hope and hype than with

calculated design, and with no clear idea of where the funds would be found to complete

them. Even if the project had been well conceived, administrative delays made many

projects unviable.

Development banking is different: Loans are made not to those who have accumulated

wealth in the past but to those who show promise to become wealthy in the future.

Normal banking looks for safety in assets accumulated from the past; in development

banking, possible accumulation of assets in the future is the true collateral. Thus, while in

normal banking, the collateral is real and tangible, in development banking, the collateral

is a dream; it is intangible. In normal banking, an interest default of more than 90 days

becomes a non-performing asset. In the case of development, growth is rarely smooth;

development happens in fits and starts; cash flows are subject to wild fluctuations and

become negative at times.

For that reason, development banks should not operate on a fixed rate of interest. They

should evolve a mechanism which depends on the health of the borrower. One possibility

is to take a share of the profits. However, that is highly risky. Profit-related investment is

best left to venture capitalists. In risk taking, development banks fall midway between

safety-conscious traditional banks and the daredevil venture capitalists. In seeking

returns, they need to follow a via media — neither be inflexible with a fixed rate of

interest, nor be volatile and bet on equity.

For development banks, a charge on the running costs of the firm could be that via media,

specifically two of them, (a) rents which include the cost of all outsourcing of materials

and services, and (b) wages. Then, a charge on the rent and wage costs of the borrowing

firm, a charge levied only when the firm has a surplus to pay, could be the via media that

development banks could adopt.

These two costs are linked to inflation and to national economic growth too. Hence,

however low the charge on these two items, it will, in due course, overtake whatever

fixed rate of interest one may consider as an alternative. In initial years, the returns from

such a charge will be low; even nil. In course of time, whatever sacrifice is made in the

teething (or difficult) years will always be made good — unless the firm is incurable.

An unsympathetic fixed interest burden often makes otherwise curable firms mortally ill.

A flexible charge will give a breather to recover too many firms that are liable to become

incurably sick in a fixed interest regime. Flexible charges reduce risks for lending banks

too: Because of inflation and growth, a charge on rents and wages will sooner or later

overtake any fixed rate of interest. With patience, development banks can recover their

sacrifices with little risk.

In other words, development banks should think differently, and should have a long time

horizon. They should acquire the expertise to assess the optimum waiting period and fix

the rate of charge on wage costs and rents paid accordingly. Incidentally, this kind of

charge is not only transparent; it will also make firms cost-conscious. That is an added

benefit, additional safety.

If development banks charge variable returns, they will need a complementary deposit

regime. Pensioners like to have constant real returns that are protected against erosion by

inflation. Hence, they need returns that rise with time. Thus, development banks would

do well to devise a Pension Fund with inflation-linked returns. Then, they will have a

matched programmed for assets and liabilities.

Sir Arthur Lewis won the Nobel for explaining how poor countries can develop quickly

by exploiting the surplus labour they have. On the same analogy, the rural areas can

develop rapidly by exploiting the cheap land they have in plenty. The scheme PURA

(Providing Urban amenities in Rural Areas) banks on that idea. PURA starts with the

construction of a ring road linking a loop of villages. The moment the road is built, the

value of land alongside increases. PURA goes further. It runs frequent bus services on the

ring road, at least once 10-15 minutes. With bus services in place, the ring road connects

to large numbers of customers. That connectivity will attract many new businesses,

increasing land values further. Every new business can become a magnet for yet another

setting into motion a virtuous cycle, and to rapid growth and development of newer and

newer businesses.

Traditional banking is lending to the real estate developer at a fixed rate of interest.

Venture funding is taking a share in his profits, but development banking is the policy of

placing a charge on the rents collected. That is not normal and requires a change in the

mindset, a new vision, which could give development banks a new life.

DEFINITATION OF A DEVELOPMENT BANK

Development banks are .the institutions engaged in the promotion and development of

industry, agriculture and other key sectors. In the words of A.G. Kheradjou "A

development bank is like a living organism that reacts to the social-economic

environment and its success depends on reacting most aptly to that environment".

Kheradjou assigns an important task to the development banks. He feels that these banks

should react to the socio-economic needs. They should satisfy the developmental needs

of the economy and their success is linked to the satisfactory growth of the economy. In

the views of William' Diamond" A development bank has the opportunity to promote

enterprises i.e. To conceive investment proposals and to stimulate others to pursue terms

itself to carry them through, from 'conception' to 'realization'. In principle, a development

bank is well suited to assume this kind of role. Yet, enterprise creation is fraught with

costs and risks which development bank cannot neglect. Development banks can

prudently undertake them only when they have the requisite financial strength, technical

expertise and the managerial skill to bank. ", In his views, a development bank is an

institution which takes up the job of developing industrial enterprises from its inception

to completion. This process involves costs as well as risks. The bank should have

sufficient financial sources and expertise to promote a new unit. D.M. Mithani states that.

"A development bank may be defined as a financial institution concerned with providing

all types of financial assistance (medium as well as long-term) to business units. I the

form of loans, underwriting, investment and guarantee operations and development in

general and industrial

FEATURES OF A DEVELOPMENT BANK

A development bank has the following features or characteristics:

1) A development bank does not accept deposits from the public like commercial

banks and other financial institutions who entirely depend upon saving

mobilization.

2) It is a specialized financial institution which provides medium term and long-term

lending facilities.

3) It is a multipurpose financial institution. Besides providing financial help it

undertakes promotional activities also. It helps an enterprise from planning to

operational level.

4) It provides financial assistance to both private as well as public sector institutions.

5) The role of a development bank is of gap filler. When assistance from other

sources is not sufficient then this channel helps. It does not compete with normal

channels of finance.

6) Development banks primarily aim to accelerate the rate of growth. It helps

industrialization specific and economic development in general

7) The objective of these banks is to serve public interest rather than earning profits.

8) Development banks react to the socio-economic needs of development.

OBJECTIVES OF DEVELOPMENT BANKS

Every country felt the need to accelerate the rate of development in post world war era.

Some countries were directly involved in war while many others were indirectly affected

by it. There was a need for reconstructing economics at a faster speed. The existing

machinery for developmental activities was not sufficient to the requirements of industry.

There was a need to set up such institutions which would take up promotional activities

besides financing. In this background developmental banks were needed for the following

reasons:

1. Lay Foundations for Industrialization

A number of countries got independence from colonial rule. Their economies needed to

be rehabilitated. Other underdeveloped and developing countries too needed to accelerate

the pace of industrialization. To lay a solid foundation for growth, establishment of

certain key industries such as cement, engineering, machine making, chemicals, etc. is

essential. Private entrepreneurs were not forthcoming to invest in these vital' areas due to

risk involved and Ibng gestation period in those industries. Moreover, it was beyond the

means and capacity of private individuals to take up these projects. They needed special

facilities from institutions which could extend long-tenn help. The governments of under

developed countries set up development and institutions to fill the vacuum.

2. Meet Capital Needs

1'nere was a dearth of capital needed to foster industrial growth in underdeveloped

countries. Owing to the low level of income of the people there were no sufficient

surpluses for capitalization. There was a need for institutions which could meet this gap

between demand and supply for capital.

3. Need for Promotional Activities

Besides capital needs, underdeveloped countries suffered from lack of expertise,

managerial and technical know-how. Developmental banks could take up the job of and

joint sectors and provide managerial and resources and skills and of channeling them into

approved fields under private auspices are needed in these countries.

4. Help Small and Medium Sectors

The large scale was, to some extent, able to meet its needs. There was a need to mitigate

sufferings of small and medium size industries which form a sizeable sector of the

industrial economy. Despite the important role played by these sectors they experience

scarcity of capital owing to the apathy of investors to invest their savings because of their

credit worthiness and profitability. There was a need for special institutions to help these

sectors in playing vital role in the industrialization of developing and under developed

countries.

FUNCTIONS OF DEVELOPMENT BANKS

Development banks have been started with the motive of increasing the pace of

industrialization. The traditional financial institutions could not take up this challenge

because of their limitations. In order to help all round industrialisation development

banks were made multipurpose institutions. Besides financing they were assigned

promotional work also. Some important functions of these institutions are discussed as

follows:

1. Financial Gap Fillers

Development banks do not provide medium-term and long-term loans only but they help

industrial enterprises in many other ways too. These banks subscribe to the bonds and

debentures of the companies, underwrite to their shares and debentures and, guarantee the

loans raised from foreign and domestic sources. They also help 'undertakings to acquire

machinery from with in and outside the country.

2. Undertake Entrepreneurial Role

Developing countries lack entrepreneurs who can take up the job of setting up new

projects. It may be due to lack of expertise and managerial ability. Development banks

were assigned the job of entrepreneurial gap filling. They undertake the task of

discovering investment projects, promotion of industrial enterprises, provide technical

and managerial assistance, undertaking economic and technical research, conducting

surveys, feasibility studies etc. The promotional role of development bank is very

significant for increasing the pace of industrialization.

3. Commercial Banking Business

Development banks normally provide medium and long-term funds to industrial

enterprises. The working capital needs of the units are met by commercial banks. In

developing countries, commercial banks have not been able to take up this job properly.

Their traditional approach in dealing with lending proposals and assistance on securities

has not helped the industry. Development banks extend financial assistance for meeting

working capital needs to their loan if they fail to arrange such funds from other sources.

So far as taking up of other functions of banks such as accepting of deposits, opening

letters of credit, discounting of bills, etc. there is no uniform practice in development

banks.

4. Joint Finance

Another feature of development bank's operations is to take up joint financing along with

other financial institutions. There may be constraints of financial resources and legal

problems (prescribing maximum limits of lending) which may force banks to associate

with other institutions for taking up the financing of some projects jointly. It may also not

be possible to meet all the requirements of a concern by one institution, So more than one

institution may join hands. Not only in large projects but also in medium-size projects it

may be desirable for a concern to have, for instance, the requirements of a foreign loan in

a particular currency, met by one institution and under writing of securities met by

another. In case of big projects where substantial financial assistance is needed, more

institutions may form a consortium to meet their needs. The members of the consortium

will undertake joint appraisal of projects and then decide the quantum of assistance to be

provided by each institution.

5. Refinance Facility

Development banks also extend refinance facility to the lending institutions. In this

scheme there is no direct lending to the enterprise. The lending institutions are provided

funds by development banks against loans extended' to industrial concerns. In this way

the institutions which provide funds to units are refinanced by development banks. In

India, Industrial Development Bank of India provides reliance against ('term loans

granted to industrial 'concerns by state financial corporations. commercial banks and state

co-operative banks.

6. Credit Guarantee

The small scale sector is not getting proper financial facilities due to the clement of risk

since these units do not have sufficient securities to offer for loans, lending institutions

are hesitant to extend them loans. To overcome this difficulty many countries including

India and Japan have devised credit guarantee scheme and credit insurance scheme. In

India, credit guarantee scheme was introduced in 1960 with the object of enlarging the

supply of institutional credit to small industrial units by granting a degree of protection to

lending institutions against possible losses in respect of such advances. In Japan besides

credit guarantee, insurance is also provided. These schemes help small scale concerns to

avail loan facilities without hesitation.

7. Underwriting of Securities

Development banks acquire securities of industrial units through either direct subscribing

or underwriting or both. The securities may also be acquired through promotion work or

by converting loans into equity shares or preference shares. So development banks may

build portfolios of industrial stocks and bonds. These banks do not hold these securities

on a permanent basis. They try to disinvest in these securities in a systematic way which

should not influence market prices of these securities and also should not lose managerial

control of the units.

Development banks have become world wide phenomena. Their functions depend upon

the requirements of the economy and the state of development of the country. They have

become well recognized segments of financial market. They are playing an important role

in the promotion of industries in developing and underdeveloped countries.

LENDING PROCEDURES OF DEVELOPMENT BANKS

OPERATIONAL ACTIVITIES

Development banks follow a procedure for evaluating a proposal for a project. The basic

objective is to check whether the applicant fulfils various conditions prescribed by the

lending institution and the project is viable. The acceptance of a wrong proposal will

result in the wastage of scarce resources. These banks adopt the following procedure for

lending:

1. Project Appraisal and Eligibility of Applicant

Every financial institution serves a particular area of activity or there are certain limits

prescribed beyond which they cannot go. Before processing the application, it is

important to find out whether the applicant is eligible under the norms of the institution

or not. The second aspect which is looked into is to determine whether the enterprise has

fulfilled various conditions prescribed by the government. In case some license is

required from the government. It should have been taken or an assurance is received from

the licensing authority. After satisfying these preliminary issues the project is appraised

by a team of technical financial and economic officers of the institutions from various

discussions with the promoters and clarifications sought on various points. The bank

institution considers financial assistance in the light of

(I) Guidelines for assistance to industries issued by the government or others concerned

from time to time

(ii) Guidelines issued by the bank

(iii) Policy decisions of the Board of Directors of the bank.

2. Technical Appraisal

A technical appraisal involves the study of:

1) Feasibility and suitability of technical process in Indian conditions.

2) Location, of the project in relation to the availability of raw materials, power:

water. labour, fuel, transport, communication facilities and market for finished

products.

3) The scale of operations and its suitability for the planned project.

4) The technical soundness of the projects.

5) Sources of purchasing plant and machinery and the reputation of suppliers. etc.

6) Arrangement for the disposal of factory affluent and use of bye products, if any.

7) The estimated cost of the project and probable selling price of the product.

8) The programme for completing the project.

9) The sources of supplying various inputs and marketing arrangements.

10) Details of any technical collaboration and its practical aspects. The technical

appraisal determines the suitability of the project.

3. Economic Viability

The economic appraisal will consider the national and industrial priorities of the project

export potential of the product employment potential, study of market.

4. Assessing Commercial Aspects

The examination of commercial aspects relates to the arrangements for the purchase of

raw materials and sale of finished products. If the concern has some arrangement for sale

then the position of the party should be assessed.

5. Financial Feasibility

The financial feasibility of a new and an existing concern will be assessed differently.

The assessment for a new concern will involve:

1) The needs for fixed assets, working capital and preliminary expenses will be

estimated to find out its needs.

2) The financing plans will be studied in relation to capital structure, promoters'

contribution, debt-equity ratio.

3) Projected cash flow statements both during the construction and .operation

periods

4) Projected profitability and the like dividend in near future.

If a project is already in operation and is undertaking expansion or diversification, the

financial feasibility will be different. The analysis of existing capital structure,

contribution of owners, debt-equity ratio, past financial performance results shown by

profit and loss accounts and balance sheets, the sources of raising funds, likely needs .of

the concern, future debt-equity ratio (after extending financial help), debt service

coverage, internal rate .of return, in the financial position of the concern and viability for

6. Managerial Competence

The success .of a concern depends up on the competence of management. Proper

application of various policies will determine the Success of an enterprise. A lending

institution would see the background, qualifications, business experience of promoters

and other persons associated with management.

7. National Contribution

Besides commercial profitability, national contribution .of the project is also taken into

account. The role of the project in the national economy and its benefits to the society in

the form of good quality products, reasonable prices, employment generation, helpful in

social infrastructure etc. should be assessed. Development banks aim at the over all

welfare of the society.

8. Balancing of Various Factors

Various factors should be balanced against each other. The circumstances .of the

individual project will help in weighing various factors. Some factors may be strong as

their in-depth analysis should be avoided. In case a project is profitable, there will be no

need to assess cash flow. Weaknesses located in certain areas may be .off set by the good

points in the .other. An experienced management and sound economic outlook may

compensate some weakness in financial positions. The responsibility of lending bank lies

in balancing judiciously different considerations for arriving at a consensus.

9. Loan Sanction

After the appraisal report on the project is prepared by the bank's officers, it is placed

before the advisory committee consisting of experts drawn from various fields of the

particular industry. If the advisory committee is satisfied tile proposal then it

recommends the case to the Managing Director or board of Directors along with its own

report. When the assistance is sanctioned hen a letter to this effect is issued to the pay

giving details of conditions.

10. Loan Disbursement

The loan is disbursed after the execution of loan agreement. The execution of documents

of security or guarantee etc. should precede the disbursement of loan. In case some

property is pledged to the bank then title deeds of such property are properly scrutinized.

The fulfillment of various conditions proceeding to disbursement will determine the time

of paying the money to the party.

DEVELOPMENT BANKING IN INDIA

The foreign rulers in India did not take much interest in the industrial development of the

country. They were interested to take raw materials to England and bring back finished

goods to India. The government did not show any interest for securing up institutions

needed for industrial financing. The “recommendation for setting up industrial financing

institutions was made in 1931 by Central Banking Enquiry Committee but no concrete

steps were taken. In 1949, Reserve Bank had undertaken a detailed study to find out the

need for specialized institutions. It was in 1948 that the first development bank i.e.

Industrial Finance Corporation of India (IFCI) was established. IFCI was assigned the

role of a gap-filler which implied that it was not expected to compete with the existing

channels of industrial finance. It was expected to provide medium and long-term credit to

industrial concerns only when they could not raise sufficient finances by raising capital or

normal banking accommodation. In view of the vast size of the country and needs of the

economy it was decided 10 set up regional development banks to cater to the needs of the

small and medium enterprises. In 1951, Parliament passed State Financial Corporation

Act. Under this Act state governments could establish financial corporations for their

respective regions. At present there are 18 State Financial Corporations (SFC's) in India.

The IFCI and state financial corporations served only a limited purpose. There was a

need for dynamic institutions which could operate as true development agencies. National

Industrial Development Corporation (NIDC) was established in 1954 with the objective

of promoting industries which could not serve the ambitious role assigned to it and soon

turned to be a financing agency restricting itself to modernization and rehabilitation of

and jute textile industries.

The Industrial Credit and Investment Corporation of India (ICICI) were established in

1955 as a Joint Stock Company. ICICI was supported by Government of India, World

Bank, Common wealth Development Finance Corporation and other, foreign institutions.

It provides term loans and takes an active part in the underwriting of and direct

investments in the shares of industrial units. Though ICICI was established in private

sector but its pattern of shareholding and methods of raising funds gives it the

characteristic of a public sector financial institution. .

Another institution, Refinance Corporation for Industry Ltd. (RCI) was set up in 1958 by

Reserve’ Bank of India, LIC and Commercial Banks. The purpose of RCI was to provide

refinance to commercial banks and SFC's against term loans granted by them to industrial

concerns in private sector. In 1964, Industrial Development Bank of India (IOBI) was set

up as an apex institution in the area of industrial finance, RCI was merged with IDBI.

IDBI was a wholly owned subsidiary of RBI and was expected to co-ordinate the

activities of the institutions engaged in financing, promoting or developing industry.

However, it is no longer a wholly owned subsidiary of the Reserve Bank of India.

Recently, it made a public issue of shares to increase its capital. In order to promote

industries in the slate another type of institutions, namely, the State Industrial

Development Corporations (SIDC's) were established in the sixties to promote medium

scale industrial units. The state owned corporations have promoted a number of projects

in the joint sector and assisted sector. At present there are 28 SIDC's in the country. The

State Small Industries Development Corporations (SSIDC's) were also set up to cater to

the needs of industry at state level. These corporations manage industrial estates, supply

raw materials, run common service facilities and supply machinery on hire purchase

basis. Some states have established their own institutions.

A number of other institutions also participate in industrial financing. The Unit Trust of

India (UTI) established in 1964, Life Insurance Corporation of India (1956) and General

Insurance Corporation of India (GIC) set up in 1973 also finance industrial activities at

all India level. Some more units have been set up to provide help in specific areas such as

rehabilitation of sick units, export finance, agriculture and rural development. Industrial

Reconstruction Corporation of India Ltd. (RCI)' was set up in 1971 for the rehabilitation

of sick units. In 1982 the Export-Import Bank of India (Exim Bank) was established to

provide financial assistance to exporters and importers. In order to meet credit needs of

agriculture and rural sector, National' Bank for Agriculture and Rural Development

(NABARD) was set up in 1982. It is responsible for short term, medium term and long-

term financing of agriculture and allied activities. The institutions such as Film Finance

Corporation, Tea Plantation Finance Scheme, Shipping Development Fund, Newspaper

Finance Corporation, Handloom Finance Corporation, Housing Development Finance

Corporation also provide financial various areas.

Role of development banks in financial system

Financial institutions provide means and mechanism of transferring resources from those

who have an excess of income over expenditure to those who can make productive use of

the same. The commercial banks and investment institutions mobilize savings of people

and channel them into productive uses. Financial institutions provide all type of assistant

required infrastructural facilities Institutions e p economic persons who can take the

development in the following ways.

1. Providing Funds:-

The underdeveloped countries have low levels of capital formation. Due to low incomes,

people are not able to save sufficient funds which are needed for sensing up new units

and also for expansion diversification and modernization of existing units. The persons

who have the capability of starting a business but does not have requisite help approach

to financial institutions for help. These institutions help large number of persons for

taking up some industrial activity. The addition of new industrial units and increasing the

activities of existing units will certainly help in accelerating the pace of economic

development. Financial institutions have large inventible funds which are used for

productive purposes

2. Infrastructural Facilities

Economic development of a country is linked to the availability of infrastructural

facilities. There is a need for roads, water, sewerage, communication facilities, electricity

etc. Financial institutions prepare their investment policies by keeping national priorities

in miner-The institutions invest in those aim is which can help in increasing the

development of the country. Indian industry and agriculture is facing acute shortage of

electricity. All India" institutions are giving priority to invest funds in projects generating

electricity. These investments will certainly increase the availability of electricity. Small

entrepreneurs cannot spare funds for creating infrastructural facilities. To overcome this

problem, institutions at state level are developing industrial estates and provide sheds,

having all facilities at easy installments. So financial institutions are helping in the

creation of all those facilities which are essential for the development of a country.

3. Promotional Activities

An entrepreneur faces many problems while setting up a new unit. One has to undertake a

feasibility report, prepare project report, complete registration formalities, seek approval

from various agencies etc. All these things require time, money and energy. Some people

are not able to undertake this exercise or some do not even take initiative. Financial

institutions are the expense and manpower resources for undertaking the exercise of

starting a new unit. So these institutions take up this work on behalf of entrepreneurs.

Some units may be set up jointly with some financial institutions and in that case the

formalities are completed collectively. Some units may not have come up had they not

received promotional help from financial institutions. The promotional role of financial

institutions is helpful in increasing the development of a country.

4. Development of Backward Areas

Some areas remain neglected because facilities needed for setting up new units are not

available here. The entrepreneurs set up new units at those places which are already

developed. It causes imbalance in economic development of some areas. In order to help

the development of backward areas, financial institutions provide special assistance to

entrepreneurs for setting up new units in these areas. IDBI, IFCI, ICICI give priority in

giving assistance to units set up in backward areas and even charge lower interest rates on

lending. Such efforts certainly encourage entrepreneurs to set up new units in backward

areas. The industrial units in these areas improve basic amenities and create employment

opportunities. These measures will certainly help in increasing the economic

development of backward areas.

5. Planned Development

Financial institutions help in planned development of the economy. Different institutions

earmark their spheres of activities so that every business activity is helped. Some

institutions like SIDBI, SFCI's especially help small scale sector while IFCI and SIDC's

finance large scale sector or extend loans above a certain limit. Some institutions help

different segments like foreign trade, tourism etc. In this way financial institutions devise

their roles and help the development in their own way. Financial institutions also follow

the development priorities set by central and state governments. They give preference to

those industrial activities which have been specified in industrial policy statements and in

five year plans. Financial institutions help in the overall development of the country

6. Accelerating Industrialization

Economic development of a country is linked to the level of industrialization there. The

setting up of more industrial units will generate direct and indirect employment, make

available goods and services in the country and help in increasing the standard of living.

Financial institutions provide requisite financial, managerial, technical help for setting up

new units. In some areas private entrepreneurs do not want to risk their funds or gestation

period His long but the industries are needed for the development of the area. Financial

institutions provide sufficient funds for their development. Since 1947, financial

institutions have played a key role in accelerating the pace of industrialization. The

country has progressed in almost all areas of economic development.

7. Employment Generation

Financial institutions have helped both Direct and indirect employment generation. They

have employed many persons to man their offices. Besides office staff, institutions need

the services of experts which help them in finalizing lending proposals. These institutions

help in creating employment by financing new and existing industrial units. They also

help in creating employment opportunities in backward areas by encouraging the setting

up of units in those areas, Thus financial institutions have helped in creating new and

better job opportunities.

ALL INDIA DEVELPOMENTS BANKS

In India, various financial institutions were set up after independence only. The

Government of India has taken sleeps to set up institutions which assist various sectors of

the economy. At present the country has 12 institutions at the national level and 46 at the

state level. The All India Financial Institutions comprise six: All-India Development

Banks, namely: Industrial Development Bank of India, Industrial Finance Corporation of

India Ltd., Industrial Credit and Investment Corporation of India Ltd., Small Industries

Development Investment Bank of India, Industrial Reconstruction Bank of India and

SCICI Ltd. Specialized institutions comprise of Risk Capital and Technology Finance

Corporation Ltd., Technology Development and Information Company of India Ltd. and

Tourism Finance Corporation of India Ltd. There are three investment institutions: Life

Insurance Corporation of India Ltd., Unit Trust of India and General Insurance

Corporation of India. At state level there are 18 State Finance Corporations and 18 state

finance corporations and 28 state industry development corporations.

INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI)

At the same time raw industrial units were to be set up for industrializing the country.

Government of India came forward to set up the Industrial Finance Corporation of India

(IFCI) in July 1948 under a Special Act. The Industrial Development Bank of India,

scheduled banks, insurance companies, investment trusts and co-operative banks are the

shareholders of IFCI. The Government of India has guaranteed the repayment of capital

and the payment of a minimum annual dividend. Since July I, 1993, the corporation has

been converted into a company and it has been given the status of a Ltd. Company with

the name Industrial Finance Corporations of India Ltd. IFCI has got itself registered with

Companies Act, 1956. Before July I, 1993, general public was not permitted to hold

shares of IFCI, only Government of India, RBI, Scheduled Banks, Insurance Companies

and Co-operative Societies were holding the shares of IFCI.

Management of IFCI

The corporation has 13 members Board of Directors, including Chairman. The Chairman

is appointed by Government of India after consulting Industrial Development Bank of

India. He works on a whole time basis and has tenure of 3 years. Out of the 12 directors,

four are nominated by the IDBI, two by scheduled banks, two by co-operative banks and

two by other financial institutions like insurance companies, investment trusts, etc. IDBI

normally nominates three outside persons as directors who are experts in the fields of

industry, labour and economics, the fourth nominee is the Central Manager of IDBI. The

Board meets once in a month. It frames policies by keeping in view the interests of

industry, commerce and general public. The Board acts as per the instructions received

from the government and IDBI. The Central Government reserves the power up to the

Board and appoints a new one in its place.

The Board is assisted by the Central Committee which consists of the chairman, two

directors elected by nominated directors and the Board of directors elected by the elected

directors. This committee assists the Board in discharge of its functions. It .can act on all

matters under the competence of the Board, So this committee practically transacts the

entire business of the corporation. IFCI also has Standing Advisory Committees one each

for textile, sugar, jute, hotels, engineering and chemical processes and allied industries.

The experts in different fields appointed on Advisory Committees. The chairman is the

ex-officio member of all Advisory Committees. All applications for assistance are first

discussed by Advisory Committees before they go to Central Committees.

Financial Resources of IFCI

The financial resources of the corporation consist of share capital bonds and debentures

and borrowings.'

a) Share Capital:-

The IFCI was set up with an authorised capital of Rs. 10crores consisting of

20,000 shares of Rs. 5,000 each. This capital was later on increased at different times

and by March, 2010 it was Rs. 1001 crores. The capital was subscribed by Central

Government, Reserve Bank of India, scheduled banks, Life Insurance Corporation,

investment trusts, co-operative banks are other financial institutions. In 1964, the

share capital held by the central government and RBI was transferred to the Industrial

Development Bank. The corporation thus became a subsidiary of IDBI. The central

government had guaranteed the shares of the corporation both for repayment of the

principal and for the payment of a dividend at 2.5 per cent on the original issue and 4

per cent on the additional issues. However, since July I, 1993 IFCI has been

converted into a limited company.

b) Bonds and Debentures:-

The corporation is authorized to issue bonds and debentures to supplement its

resources but these should not exceed ten times of paid-up capital and reserve fund.

The bonds and debentures stood at a figure of Rs. 57.69 crores 1971 and rise to Rs.

4704.04 crores as on 31st March 2010. The bonds and debentures are also guaranteed

by the central government for both payment of interest at such rates as may be fixed

at the time the bonds and debentures are issued.

c) Borrowings:-

The corporation is authorized to borrow from government IDBI and financial

institutions. Its borrowings from IDBI and Govt. of India were Rs. 975.6 crore on

March 31, 2003. Total assets of IFCI as on March 31, 2003 aggregated Rs. 22866

crore including investments of Rs. 3820.3 crore and loans and advances of Rs.

13212.8crore.

Priority Criterion for Investments

IFCI plans its financing policies as per the priorities set by the government through

Industrial Policy Statements. The Industries which are in high priority are given more

importance. Following considerations are taken into account while selecting a financial

proposal:

i. Importance of the project for national economy.

ii. Employment-oriented and labour-intensive nature of the project.

iii. Export potential of the unit,

iv. Projects located in backward areas or 'no industry districts.

v. Projects initiated by new or technician entrepreneurs.

vi. Projects which will harness indigellously available technology, technical know

how and raw materials.

vii. Projects which will help rural areas.

viii. Projects which help in conserving energy or which manufacture renewable energy

systems or devices.

ix. Projects to be set up in co-operative sector.

Eligibility for Assistance under Direct Financing

Following types of industrial concerns are eligible for direct finance under IFCI Act,

amended from time to time:

i. Limited companies incorporated in India, in private, public or joint Sector

ii. Co-operative societies registered in India, which are engaged or propose to

engage in any of the activities related to

a. Manufacture, preservation or processing of goods

b. Shipping

c. Mining

d. Hotel industry

e. Generation or distribution of electricity or any other form of power

f. Transport of passengers or goods.

g. Maintenance, repair or servicing of machinery or vehicles.

h. Assembling, repairing or packing of articles.

i. Development of contiguous area of land as an industrial estate.

j. Fishing or providing shore facilities for fishing.

k. Providing special or technical knowledge or other services for promotion

of industrial growth.

l. Research and Development of any process or product in relation to any of

the matters aforesaid.

Purpose of Direct Assistance

IFCI provides direct financial assistance for the following causes:

a. Setting up of new industrial projects.

b. Expansion of existing units or for diversification into new lines of activity.

c. For renovation and modernization of existing units.

IFCI does not ordinarily provide funds for working capital purpose as this function is left

to commercial banks. It does not allow utilizing its assistance for meeting existing

liabilities of the industrial concerns. Similarly, foreign currency loans can be used for

purchasing capital goods only and not of raw material.

FUNCTIONS OF IFCI

IFCI is authorized to render financial assistance in one or more of the

following forms:

i. Granting loans or advances to or subscribing to debentures of industrial concerns

repayable within 25 years. Also it can convert part of such loans or debentures

into equity share capital at its option.

ii. Underwriting the issue of industrial securities i.e. shares, stock, bonds, 0r

debentures to be disposed off within 7 years.

iii. Subscribing directly to the shares and debentures of public limited companies.

iv. Guaranteeing of deferred payments for the purchase of capital goods from abroad

or within India.

v. Guaranteeing of loans raised by industrial concerns from scheduled balls or state

co-operative banks.

vi. Acting as an agent of the Central Government or the World Bank in respect of

loans sanctioned to the industrial concerns.

IFCI provides financial assistance to eligible industrial concerns regardless of their size.

However, now-a-days, it entertains applications from those industrial concerns whose

project cost is about Rs. 2 crores because upto project cost of Rs. 2 crores various state

level institutions (such as Financial Corporations, SIDCs and banks) are expected to meet

the financial requirements of viable concerns. While approving a loan application, IFCI

gives due consideration to the feasibility of the project, its importance to the nation,

development of the backward areas, social and economic viability, etc. The most of the

assistance sanctioned by IFCI has gone to industries of national priority such as

fertilizers, cement, power generation, paper, industrial machinery etc. The corporation is

giving a special consideration to the less developed areas and assistance to them has been

stepped up. It has sanctioned nearly 49 per cent of its assistance for projects in backward

districts. The corporation has recently been participating in soft loan schemes under

which loans on confessional rates are given to units in selected industries. Such assistance

is given for modernization, replacement and renovation of plant and equipment.

IFCI introduced a scheme for sick units also. The scheme was for the revival of sick units

in the tiny and small scale sectors. Another scheme was framed for the self-employment

of unemployed young persons. The corporation has diversified not merchant banking

also. Financing of leasing and hire purchase companies, hospitals, equipment leasing etc.

were the other new activities of the corporation in the last few years.

Promotional Activities

The IFCI has been playing very important role as a financial institution in providing

financial assistance to eligible industrial concerns. However, no less important is its

promotional role whereby it has been creating industrial opportunities also. It has been

taking up directly as well as indirectly; such steps and activities are regarded necessary

for the acceleration of the process of industrialization in the country.

The promotional role of IFCI has been to fill the gaps, either in the institutional

infrastructure for the promotion and growth of industries, or in the provision of the much

needed guidance in project intensification, formulation, implementation and operation,

etc. to the new tiny, small-scale or medium scale entrepreneurs or in the efforts at

improving the productivity of human and material resources.

(a) Development of Backward Areas: - The main thrust of all financial

institutions has been to remover regional imbalances by promoting

industrialization of backward areas. IFCI introduce a scheme of confessional

finance for projects set up in backward areas. The backward-districts were divided

into three categories depending upon the state of development there. All these

categories were eligible for concessional finance. Nearly 50 per cent of total

lending of IFCI has been to develop backward areas.

(b) Promotional Schemes:- IFCI has been operating six promotional schemes

with the object of helping entrepreneurs to set up new units, broadening the

entrepreneurial base, encouraging the adoption of new technology, tackling 'the

problem of sickness and promoting opportunities for self development and . self

employment of unemployed persons etc. These schemes are as such:

a. Subsidy for Adopting Indigenous Technology:- The projects

which use indigenously developed technology are entitled to a concession

in the form of subsidy covering interest payments due to IFCI during the

first three years of operations, extendable to five years.

b. Meeting Cost of Market Studies: - The entrepreneurs setting up

medium sized industrial projects for the first time can avail 75 per cent of

the cost of market survey/study subject to a ceiling of Rs. 15,000 provided

it is handled by Technical Consultancy Organization. .

c. Meeting Cost of Feasibility Studies: - IFCI provides subsidy for

the fees paid for consultancy assignments relating to feasibility, project

reports etc. The amount allowable is 80 per cent of the fees of Rs. 7,500

whichever is less. This limit is Rs. 8,500 or 100 per cent of the total fees

whichever is less for handicapped or scheduled caste persons.

d. Promoting Small Scale and Ancillary Industries: - For the

identification of products suitable for ancillary or further processing in

small scale sector and preparation of feasibility reports a subsidy of

Rs.0.1 million per annum for technical consultancy organization is

allowed.

e. Revival of Sick Units: - There is a subsidy to the extent of 80 per cent

or Rs. 5,000 (whichever is less) for the fees charged by a technical

consultancy organization for carrying out a diagnostic study or for the

implementation of rehabilitation programme. This facility is allowed to

tiny units or units in small scale sector.'

f. Self-development and Self employment Scheme: - An

unemployed person in the age group of 21 to 35 years may be allowed a

soft loan for providing margin money for getting a loan from a bank or a

financial institution. The soft loan at interest free rate in first year and has

confessional interest later on. The amount available under this scheme is

25% of margin money subject to Rs. 5000.

DATA ANALYSIS OF IFCI

Data analysis of IFCI in concern with various sectors as per the assistance provided by it

to them.

TOTAL INCOME & EXPENDITURE (crores)rs.

performance 2009 2010

total income 1484 1679

total expenditure 888 1012

profit before tax 1010 1115

profit after tax 667 671

0200400600800

10001200140016001800

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befo

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profit

afte

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res(

rs.)

APPROVALS & DISBURSEMENT (crores)rs.

YEAR APPROVALS DISBURSEMENT

2008 2550.49 2280.09

2009 4014.88 3311.45

2010 6765.55 6053.82

0

2000

4000

6000

8000

crores(rs.)

2008 2009 2010

APPROVALS DISBURSEMENT

INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI)

Industrial Development Bank of India was set up to accelerate the development of the

country. A number of financial institutions came into existence after independence and

were catering to a variety of needs of the industry. There was a lack of co-ordinating

different institutions and it led to overlapping and duplication in their efforts: At the same

time some gigantic projects of national importance were not getting required financial

assistance. It was in response to this need that the Industrial Development Bank of India

(IDBI) was established in 1964 as a wholly owned subsidiary of Reserve Bank of India.

The bank was to act as an apex institution co-coordinating functions of all the financial

institutions into a single integrated movement of development banking and

supplementing their resources for industrial financing and as an agency for providing

financial suppon to all worthwhile projects of national importance whose access to

existing institutional sources is limited.

The ownership of IDBI was transferred to Central Government on February 16, 1976. It

is now working as state owned autonomous corporation. Besides acting as a reservoir on

which other financial institutions can draw, IDBI provides direct financial assistance to

industrial units to bridge the gap between supply and demand of medium and long term

finance.

The IDBI Act was amended, in 1994, to permit public ownership up to 49 percent. In

1995, it raised more than Rs. 20 billion through its first initial public offer (IPO) of

equity. It reduced the stake of the government to 72.14 percent. Further, in June 2000, a

pan of the equity shareholding of the government was convened into preference share

capital which was redeemed in March 2001, resulting into further reduction of

government stake to 58.47 percent.

Financial Resources of IDBI

a. Share Capital. IDBI was formed with an authorized capital of Rs. 50 crores which

was raised a number of times. In October, 1994, Government of India's amended

certain provisions of IDBI Act under which its authorised capital has been

increased to Rs. 2000 crore which can further be increased to Rs. 5000 crore. A

pan of equity capital (Rs. 253 crore) has been convened into preference capital.

IDBI has been permitted to issue equity capital to public with a stipulation that at

no time Government holding will be less than 51 per cent. As on March 31,2003

the paid up capital of IDBI stood at Rs. 652.8 crores and reserve funds at Rs.

6325.3 crore.

b. Borrowings. The bank is authorised to raise its resources through borrowings

from Government of India, Reserve Bank of India and other fmancia1 institutions.

On March 31, 2003, the bank had borrowings of Rs. 41798.0 crore by way of

bonds and debentures, deposits of Rs. 4329.9 crore and borrowings of Rs. 5359.9

crore from Government of India and other sources.

Management of IDBI

The management of IDBI is vested in a Board of Directors consisting of 22 persons

including a full-time Chairman-cum-Managing Director appointed by the Central

Government. The other members of the Board comprise of a representative of the RBI, a

representative each of the all-India financial institutions, two officials of the Central

Government, three representative search of he public sector banks and SFCs and five

representatives having special knowledge and experience of industry; The .Board has

constituted an Executive Committee consisting of ten directors. Ad-hoc committees of

Advisers are also constituted to advise it on. specific projects.

Recently, Government of India ha9 sought to repeal the IDBI Act. 1964. by introducing

The Industrial Development Bank.(Transfer of Undertaking and Repeal) Bill 2002 is Lok

Sabha. The Bill is aimed at convening IDBI into a company under the Companies Act as

also enabling it to undertake banking business.

Functions of IDBI

The main functions of IDBI are as follows:

1) To co-ordinate the activities of other institutions providing term finance to

industry and to act as an apex institution.

2) To provide refinance to financial institutions granting medium and long-term

loans to industry.

3) To provide refinance to scheduled banks or co-operative banks.

4) To provide refinance for export credit granted by banks and financial institutions

5) To provide technical and administrative assistance for promotion management or

growth of industry.

6) To undertake market surveys and techno-economic studies for the development of

industry.

7) To grant direct loans and advances to industrial concerns. IDBI is empowered to

finance all types of industrial concerns engaged or proposed to be engaged in the

manufacture, preservation or processing of goods, mining, hotel, industry, fishing,

shipping transport, generation or distribution of power, etc. The bank can also

assist concerns engaged in the setting up of industrial estates or research and

development of any process or product or in providing technical knowledge for

the promotion of industries. Until recently IDBI also functioned as Expon Bank

of the country.

8) To render financial assistance to industrial concerns. IDBI operates various

schemes of assistance. e.g., Direct Assistance Scheme. Soft Loans Scheme.

Technical Development Fund Scheme, Refinance Industrial Loans Scheme. Bill

Re-discounting Scheme. Seed Capital Assistance Scheme. Overseas Investment

Finance Scheme. Development Assistance Fund, etc.

OPERATIONS OF IDBI

Since its inception in 1964, IDBI has extended its operations to various areas of industrial

sector. It provides direct as well as indirect financial assistance for increasing the pace of

industrial development. Aggregate assistance sanctioned by March. 2003 amounted to

Rs. 223932.1 crore and disbursements amounted to Rs. 168166.5crores. The operation

1. Direct Assistance

Direct financial assistance includes project finance assistal1ce, soft-loan assitace,

assistance under technical development fund scheme and rehabilitation assistance for sick

units. Various schemes under direct assistance are discussed as follows:-

1) Project Finance Assistance: - Under project finance scheme. the IDBI

extends direct assistance to industrial concerns in the form of :

a. Project loans

b. Subscription to and/or underwriting of issues of shares and debentures.

c. Guarantee for loans and deferred payments.

Financial assistance under this scheme is granted for setting up new projects as well as

for expansion and Modernization renovation of existing units. IDBI normally extends

assistance to public limited companies in the private, public, joint sector and co-operative

sectors. Bank's assistance is sought for projects involving large capital outlay or

sophisticated technology. Bank gives preference to units set up by new entrepreneurs or

projects located in backward areas. The repayment period is settled by looking at the

capacity of the enterprise. Normally, repayment is spread over a period of 8-10 years with

a grace period of 2-3 years. These loans are usually secured by a first legal mortgage of

the immovable properties of the borrowing concern and floating charge on its other

assets, subject to a first charge on raw materials, stocks, etc. for working capital

borrowings.

The bank does not hold shares & debentures, taken over under legal obligation for

underwriting or taken over directly, for a longer period. As a matter of policy, the bank

places major emphasis on the long-term economic viability of the projects rather than on

the immediate sale ability of their products. In the case of assistance in the form of

guarantees of loans and deferred payments, the bank charges a guarantee commission of

1 per cent in normal cases.

There has been a constant increase in direct assistance. Upto March, 2003 cumulative

assistance in the form of direct loans to industrial concerns and .subscriptions came to Rs.

102601.8 crore. Most of this assistance was in priority sector industries such as basic

industrial chemicals, cement, fertilizers, Iron and steel, electricity, fertilizer, sugar,

textiles, paper and industrial machinery.

IDBI introduced special schemes for industrialization of backward areas. In a scheme

introduced in 1969 it offered concessional rates of interest, longer grace periods for

repayments, etc. These concessions were available to small and medium units having

project cost upto Rs. 3 crores. In collaboration With IFCI and ICICI, the bank is also

giving concessional rupee assistance upto Rs. 2 crores and underwriting assistance up to

Rs.l crore. The assistance to backward areas has also been increasing.

To achieve balanced regional growth and accelerate industrial development IDBI

initiated promotion and development activities. In co-operation with other institutions the

bank conducted industrial potential surveys in a number of states.

2) Soft Loan Scheme

IDBI introduced in 1976 the soft loan scheme to provide financial assistance to product

units in selected industries viz., cement, cotton, textiles. jute, sugar and certain

engineering industries to modernize. Financial replace and renovate their plant and

equipment so as to achieve higher and more economic levels of production. This scheme

is implemented by IDBI with .financial participation by IFCI and ICICI. The basic

criteria for assistance under the scheme are the weakness or non-viability of industrial

concerns arising out of mechanical obsolescence. Industrial concerns which are not in a

position 10 bear the normal lending rate of interest of the financial institutions are

provided on accessional assistance to the full extent of the loan. In other cases the limit of

concessional assistance is 66 per cent of the loan. Assistance under this scheme is based

on the requirements of individual cases. As such, no minimum or maximum limit of'1m!\

11tas been prescribed. The repayment period extends up to 15 years with a moratorium

period of 3-5 years. The loans under his scheme are secured as a first charge on fixed

assets. The bank may insist on personal or other guarantees also.

3) Technical Development Fund Scheme

The Government of India introduced the Technical Development Fund (TDF)

Scheme in March. 1976 for issue of import licenses for import of small value balancing

equipment, technical know how, foreign consultancy services and drawings and designs

by industrial units to enable them to achieve fuller capacity utilization, technological up

gradation and higher exports. Some industrial units found it difficult to take advantage of

the import license issued under this scheme for want of rupee resources. In January,

1977, IDBI introduced a scheme for providing matching rupee loans to industrial units to

enable them to utilize import licenses issued under TDF scheme. The scheme which was

started for six specified industries now covers all industries as also import of any other

input needed by the industrial units for improving export capabilities. This scheme of the

bank has not been successful as only one-fourth of the units sought this assistance.

DATA ANALYSIS OF IDBI

The main objective of IDBI is to provide term finance and financial services for

establishment of new projects as well as the expansion, diversification, modernization

and technology up gradation of existing industrial enterprises. It is one of the most

important financial institutions which has provided lot of funds for industrial activities in

the country.

INVESTMENT & SAVINGS

YEAR INVESTMENT SAVINGS

2005 32.7 32.2

2006 32.3 32.1

2007 35.5 34.4

2008 37.7 36.4

2009 34.9 32.5

28

30

32

34

36

38

40

2005 2006 2007 2008 2009

per

cen

atag

e(%

)

INVESTMENT

SAVINGS

SACTORAL GROWTH

GOODS 2009 2010basic goods 2.6 7.1

capital goods 7.3 19.2intermediate goods -1.9 13.6consumer goods 4.7 7.4

general 2.8 10.4

-5

0

5

10

15

20

25

basic

good

s

capit

al goo

ds

inter

med

iate g

oods

cons

umer

goo

ds

gene

ral

per

cen

tag

e(%

)

2009

2010

NATIONAL BANK FOR AGRICULTURE AND RURAL

DEVELOPMENT (NABARD)

NABARD is set up as an apex Development Bank with a mandate for facilitating credit

flow for promotion and development of agriculture, small-scale industries, cottage and

village, industries, handicrafts and other rural crafts. It also has the mandate to support all

other allied economic activities in rural areas, promote integrated and sustainable rural

development and secure prosperity of rural areas. In discharging its role as a facilitator

for rural prosperity NABARD is entrusted with

1. Providing refinance to lending institutions in rural areas

2. Bringing about or promoting institutional development and

3. Evaluating, monitoring and inspecting the client banks

Besides this pivotal role, NABARD also:

Acts as a coordinator in the operations of rural credit institutions

Extends assistance to the government, the Reserve Bank of India and other

organizations in matters relating to rural development

Offers training and research facilities for banks, cooperatives and organizations

working in the field of rural development

Helps the state governments in reaching their targets of providing assistance to

eligible institutions in agriculture and rural development

Acts as regulator for cooperative banks and RRBs

GENESIS AND HISTORICAL BACKGROUND

The Committee to Review Arrangements for Institutional Credit for Agriculture and

Rural Development (CRAFICARD) set up by the RBI under the Chairmanship of

Shri B Sivaraman in its report submitted to Governor, Reserve Bank of India on

November 28, 1979 recommended the establishment of NABARD. The Parliament

through the Act 61 of 81 approved its setting up.

The Committee after reviewing the arrangements came to the conclusion that a new

arrangement would be necessary at the national level for achieving the desired focuses

and thrust towards integration of credit activities in the context of the strategy for

Integrated Rural Development. Against the backdrop of the massive credit needs of rural

development and the need to uplift the weaker sections in the rural areas within a given

time horizon the arrangement called for a separate institutional set-up. Similarly The

Reserve Bank had onerous responsibilities to discharge in respect of its many basic

functions of central banking in monetary and credit regulations and was not therefore in a

position to devote undivided attention to the operational details of the emerging complex

credit problems. This paved the way for the establishment of NABARD.

CRAFICARD also found it prudent to integrate short term, medium term and long-term

credit structure for the agriculture sector by establishing a new bank. NABARD is the

result of this recommendation. It was set up with an initial capital of Rs 100 crore, which

was enhanced to Rs 2,000 crore, fully subscribed by the Government of India and the

RBI.

MISSION

Promoting sustainable and equitable agriculture and rural development through effective

credit support, related services, institution building and other innovative initiatives

In pursuing this mission, NABARD focuses its activities on:

Credit functions, involving preparation of potential-linked credit plans annually

for all districts of the country for identification of credit potential, monitoring the

flow of ground level rural credit, issuing policy and operational guidelines to rural

financing institutions and providing credit facilities to eligible institutions under

various programmes.

NABARD's credit functions cover planning, dispensation and monitoring of credit.

This activity involves:

Framing policy and guidelines for rural financial institutions

Providing credit facilities to issuing organizations

Preparation of potential-linked credit plans annually for all districts for

identification of credit potential

Monitoring the flow of ground level rural credit

Development functions concerning reinforcement of the credit functions and

making credit more productive

Credit is a critical factor in development of agriculture and rural sector as it enables

investment in capital formation and technological up gradation, Hence strengthening of

rural financial institutions, which deliver credit to the sector, has been identified by

NABARD as a thrust area. Various initiatives have been taken to strengthen the

cooperative credit structure and the regional rural banks, so that adequate and timely

credit is made available to the needy.

In order to reinforce the credit functions and to make credit more productive, NABARD

has been undertaking a number of developmental and promotional activities such as:-

• Help cooperative banks and Regional Rural Banks to prepare development actionsplans

for them

• Enter into MoU with state governments and cooperative banks specifying their

respective obligations to improve the affairs of the banks in a stipulated timeframe

• Help Regional Rural Banks and the sponsor banks to enter into MoUs specifying their

respective obligations to improve the affairs of the Regional Rural Banks in a stipulated

timeframe

• Monitor implementation of development action plans of banks and fulfillment of

obligations under MoUs

• Provide financial assistance to cooperatives and Regional Rural Banks for establishment

of technical, monitoring and evaluations cells

• Provide organization development intervention (ODI) through reputed training institutes

like Bankers Institute of Rural Development (BIRD), Lucknow www.birdindia.com,

National Bank Staff College, Lucknow www.nbsc.in and College of Agriculture

Banking, Pune, etc.

• Provide financial support for the training institutes of cooperative banks

• Provide training for senior and middle level executives of commercial banks, Regional

Rural Banks and cooperative banks

• Create awareness among the borrowers on ethics of repayment through Vikas Volunteer

Vahini and Farmer’s clubs

• Provide financial assistance to cooperative banks for building improved management

information system, computerization of operations and development of human resources

Supervisory functions ensuring the proper functioning of cooperative banks and

regional rural banks

As an apex bank involved in refinancing credit needs of major financial institutions in the

country engaged in offering financial assistance to agriculture and rural development

operations and programmes, NABARD has been sharing with the Reserve Bank of India

certain supervisory functions in respect of cooperative banks and Regional Rural Banks

(RRBs).

As part of these functions, it

• Undertakes inspection of Regional Rural Banks (RRBs) and cooperative banks (other

than urban/primary cooperative banks) under the provisions of Banking Regulation Act,

1949.

• Undertakes inspection of State Cooperative Agriculture and Rural Development Banks

(SCARDBs) and apex non-credit cooperative societies on a voluntary basis

• Undertakes portfolio inspections, systems study, besides off-site surveillance of

cooperative banks and Regional Rural Banks (RRBs)

• Provides recommendations to Reserve Bank of India on opening of new branches by

State Cooperative Banks and Regional Rural Banks (RRBs)

• Administering the Credit Monitoring Arrangements in SCBs and CCBs.

Core Functions

NABARD has been entrusted with the statutory responsibility of conducting inspections

of State Cooperative Banks (SCBs), District Central Cooperative Banks (DCCBs) and

Regional Rural Banks (RRBs) under the provision of the Banking Regulation Act, 1949.

In addition, NABARD has also been conducting periodic inspections of state level

cooperative institutions such as State Cooperative Agriculture and Rural Development

Banks (SCARDBs), Apex Weavers Societies, Marketing Federations, etc. on a voluntary

basis.

Objectives of Inspection

• To protect the interest of the present and future depositors

• To ensure that the business conducted by these banks is in conformity with the

provisions of the relevant Acts/Rules, regulations/Bye-Laws, etc

• To ensure observance of rules, guidelines, etc. formulated and issued by

NABARD/RBI/Government

• To examine the financial soundness of the banks

• To suggest ways and means for strengthening the institutions so as to enable them to

play more efficient role in rural credit

Instruments of Supervision

• Periodic on-site inspection of 31 SCBs, 366 DCCBs, 20 SCARDBs and 102 RRBs and

other Apex level Cooperative institutions

• Supplementary Appraisal

• Off-site Surveillance System ( OSS )

• Portfolio inspection/System study

• CMA returns

Supervisory Strategy

In the wake of the banking sector reforms, new set of international norms/practices

were made applicable to Commercial Banks (CBs) to make them more competitive and

sustainable in the changing scenario. The co-operative banks and RRBs were also to

function in the general banking environment, emerging out of the financial sector

reforms, introduced by the GOI/RBI. Accordingly, the prudential norms were extended to

them in phases. While the capital adequacy norm has not yet been made applicable to

these banks, the other prudential norms viz. income recognition, asset classification and

provisioning, which were made applicable by RBI to the commercial banking sector had

been extended to cover RRBs in 1995-96, SCBs and DCCBs in 1996-97 and to

SCARDBs in 1997-98. NABARD, through a concrete and time-bound supervision

strategy, facilities these banks to adjust to the new financial discipline so as to internalize

prudential norms stipulated.

Current Focus

Under the revised strategy, a sharper focus of the NABARD’s inspection was given on

the core areas of the functioning of banks pertaining to Capital Adequacy, Asset Quality,

Management Earnings, Liquidity and Systems Compliance (CAMELSC). Thus,

NABARD’s focus in its statutory ‘on-site’ inspections is on core assessments leaving the

collateral appraisals to supplementary inspections. The micro level aspects are to be

taken care of by the banks themselves by way of internal inspections or by other agencies

such as auditors. In this direction, through a series of workshops and meetings held with

the Chief Executives and the Chief Auditors of cooperative banks, NABARD attempted

to ensure that the other areas, particularly relating to the internal checks and controls,

revenue and income realization by way of interest on loans and deposits and other routine

features of carrying out general banking transactions were suitably taken care of by the

respective banks and their concurrent/statutory audit systems.

Off-site Surveillance

As a part of the new strategy of supervision, a system of `Off-site Surveillance' has

been introduced as a supplementary tool to the on-site inspection. Its objectives are to

obtain and analyze critical data on a continuous basis, to identify areas of supervisory

concern and to identify early warning signals and risky areas requiring further probe. The

system basically envisages desk scrutiny of operations of cooperative banks and RRBs

through a set of statutory and non-statutory returns. While the periodical statutory on-site

inspections attempt an overall evaluation of the performance of the banks with a

stipulated period, off-site surveillance envisages continuous supervision supplementing

the on-site inspections with additional instruments of supervision.

BOARD OF SUPERVISION (for SCBs, DCCBs and RRBs)

Board of Supervision (for SCBs, DCCBs and RRBs) has been constituted by NABARD

under Section 13(3) of NABARD Act, 1981 as an Internal Committee to the Board of

Directors of NABARD.

The broad powers and functions of the Board of Supervision are:

• Giving directions and guidance in respect of policies and on matters relating to

supervision and inspection, reviewing the inspection findings, suggesting appropriate

measures

• Reviewing the follow-up action taken by Department of Supervision (DoS) on matters

of frauds and internal checks and control

• Identifying the emerging supervisory issues in the functioning of cooperative

banks/RRBs such as NPAs recovery, investment portfolio, credit monitoring system,

management practices, frauds, etc.

• Suggesting necessary follow-up measures

• Recommending appropriate training for Inspecting Officers of NABARD for imparting

necessary skills and knowledge

• Suggest measures for strengthening of DoS

• Recommend issue of directions by RBI

• Oversee the quality of inspections carried out and the reports issued

• Review the information generated through off-site surveillance and other supplementary

vehicles, action taken thereon

• Undertake any other functions entrusted from time to time by the Board of Directors of

NABARD

The Board of Supervision, since its formation on 20 November 1999 , has held 31

meetings till 1 0 January 2007 and reviewed the financial position of Cooperative Banks

and RRBs. Based on the observations of BoS, authorities concerned have been apprised

of the weaknesses.

Other Initiatives

• The day-to-day functioning of the supervised banks is being monitored through various

statutory returns prescribed by the RBI/NABARD including OSS returns

• Periodic coordination Meets are conducted with RPCD, RBI to discuss the policy and

operational matters relating to supervision

• State level groups comprising RCS, Apex bank, Cooperation and Finance Department,

State Government, Director of Audit and non-compliant banks have been

constituted/convened for preparing/discussing suitable strategy for Section 11 non-

compliant banks and monitoring the progress of Action Plan prepared by them to

facilitate them recompliance with the provision

• Periodic discussions are held with the MD, Apex Banks, RCS, and State Government

etc. to discuss the supervisory concerns.

OBJECTIVES

NABARD was established in terms of the Preamble to the Act, "for providing credit for

the promotion of agriculture, small scale industries, cottage and village industries,

handicrafts and other rural crafts and other allied economic activities in rural areas with a

view to promoting IRDP and securing prosperity of rural areas and for matters connected

therewith in incidental thereto".

The main objectives of the NABARD as stated in the statement of objectives while

placing the bill before the Lok Sabha were categorized as under:

1. The National Bank will be an apex organization in respect of all matters relating to

policy, planning operational aspects in the field of credit for promotion of Agriculture,

Small Scale Industries, Cottage and Village Industries, Handicrafts and other rural crafts

and other allied economic activities in rural areas.

2. The Bank will serve as a refinancing institution for institutional credit such as long-

term, short-term for the promotion of activities in the rural areas.

3. The Bank will also provide direct lending to any institution as may approve by the

Central Government.

4. The Bank will have organic links with the Reserve Bank and maintain a close link with

in.

MAJOR ACTIVITIES

• Preparing of Potential Linked Credit Plans for identification of exploitable potentials

under agriculture and other activities available for development through bank credit.

• Refinancing banks for extending loans for investment and production purpose in rural

areas.

• Providing loans to State Government/Non Government Organizations

(NGOs)/Panchayati Raj Institutions (PRIs) for developing rural infrastructure.

• Supporting credit innovations of Non Government Organizations (NGOs) and other

non-formal agencies.

• Extending formal banking services to the unreached rural poor by evolving a

supplementary credit delivery strategy in a cost effective manner by promoting Self Help

Groups (SHGs)

• Promoting participatory watershed development for enhancing productivity and

profitability of rain fed agriculture in a sustainable manner.

• On-site inspection of cooperative banks and Regional Rural Banks (RRBs) and iff-site

surveillance over health of cooperatives and RRBs.

ROLE AND FUNCTIONS OF NABARD

• NABARD is an apex institution accredited with all matters concerning policy, planning

and operations in the field of credit for agriculture and other economic activities in rural

areas.

• It is an apex refinancing agency for the institutions providing investment and production

credit for promoting the various developmental activities in rural areas

• It takes measures towards institution building for improving absorptive capacity of the

credit delivery system, including monitoring, formulation of rehabilitation schemes,

restructuring of credit institutions, training of personnel, etc.

• It co-ordinates the rural financing activities of all the institutions engaged in

developmental work at the field level and maintains liaison with Government of India,

State Governments, Reserve Bank of India and other national level institutions concerned

with policy formulation.

• It prepares, on annual basis, rural credit plans for all districts in the country; these plans

form the base for annual credit plans of all rural financial institutions

• It undertakes monitoring and evaluation of projects refinanced by it.

• It promotes research in the fields of rural banking, agriculture and rural development

DATA ANALYSIS OF NABARD

It is responsible for short term, medium term and long-term financing of agriculture and

allied activities. The institutions such as Film Finance Corporation, Tea Plantation

Finance Scheme, Shipping Development Fund, Newspaper Finance Corporation,

Handloom Finance Corporation, Housing Development Finance Corporation also provide

financial various areas. Here the various financial activities of NABARD are given and

analyzed in accordance with each other.

With its effective overseeing and monitoring of the implementation of the

Government of India's programme to double the flow of credit to agriculture over

a three-year period from 2004-2005, the total disbursement of credit reached Rs

1,25,309 during 2004-2005. Ground level credit flow to agriculture and allied

activities reached Rs 1,57,480 crore in 2005-2006.

Refinance disbursement to commercial banks, state cooperative banks, state

cooperative agriculture and rural development banks, RRBs and other eligible

financial institutions aggregated Rs 8,622.37 crore.

As on 31 January 2007 through the Rural Infrastructure Development Fund

(RIDF), Rs,59,795.35 crore have been sanctioned for 2,31,702 projects covering

irrigation, rural roads and bridges, health and education, soil conservation,

drinking water schemes, etc. Developing among hosts of other infrastructures,

RIDF will create 20971 schools, 6239 primary health centers and provide

drinking water supply in 7267 villages

Watershed Development Fund, with cumulative sanctions of Rs.578.95 crore for

427 projects in 124 districts of 14 states, has created a People’s Movement in

rural India.

Farmers now enjoy financial access and security through 582.50 lakh

Kisan Credit Cards that have been issued through a vast rural banking network.

District Rural Industries Project (DRIP) has generated employment for 23.34 lakh

persons with 10.95 lakh units in 105 districts.

AGENCY WISE DISBURSEMENTAGENCY WISE 2008 SHARESCARBD 1950.58 21.56

SCB 826.55 9.14COMMERCIAL BANKS 3951.73 43.68

RRB 2313.99 25.58

PUCB/ADFC 3.42 0.04

TOTAL 9046.27 100

2008

22%

9%

43%

26% 0%

SCARBD

SCB

COMMERCIALBANKS

RRB

PUCB/ADFC

AGENCY WISE DISBURSEMENT

AGENCY WISE 2009 SHARESCARBD 1986.54 18.86

SCB 801.51 7.61COMMERCIAL BANKS 5867.19 55.69RRB 1879.04 17.83

PUCB/ADFC 1.01 0.01TOTAL 10535.29 100

2009

19%

8%

55%

18% 0%

SCARBD

SCB

COMMERCIALBANKS

RRB

PUCB/ADFC

AGENCY WISE DISBURSEMENT

AGENCY WISE 2010 SHARESCARBD 2221.3 18.5

SCB 1251.95 10.43COMMERCIAL BANKS 6057.19 50.44

RRB 2457.46 20.46

PUCB/ADFC 21.18 0.17

TOTAL 12009.08 100

2010

18%

10%

51%

21% 0%

SCARBD

SCB

COMMERCIALBANKS

RRB

PUCB/ADFC

SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)

SIDBI is a Principal Development Financial Institution for:

-- Promotion

-- Financing and

-- Development of Industries in the small scale sector and

--Co-coordinating the functions of other institutions engaged in similar activities.

Provision of Charter

SIDBI was established on April 2, 1990. The Charter establishing it, The Small Industries

Development Bank of India Act, 1989 envisaged SIDBI to be "the principal financial

institution for the promotion, financing and development of industry in the small scale

sector and to co-ordinate the functions of the institutions engaged in the promotion and

financing or developing industry in the small scale sector and for matters connected

therewith or incidental thereto.

Business Domain of SIDBI

The business domain of SIDBI consists of small scale industrial units, which contribute

significantly to the national economy in terms of production, employment and exports.

Small scale industries are the industrial units in which the investment in plant and

machinery does not exceed Rs.10 million. About 3.1 million such units, employing 17.2

million persons account for a share of 36 per cent of India's exports and 40 per cent of

industrial manufacture. In addition, SIDBI's assistance flows to the transport, health care

and tourism sectors and also to the professional and self-employed persons setting up

small-sized professional ventures.

SIDBI among Top 30 Development Banks of the World

SIDBI retained its position in the top 30 Development Banks of the World in the latest

ranking of The Banker, London. As per the May 2001 issue of The Banker, London,

SIDBI ranked 25th both in terms of Capital and Assets

Mission

To empower the Micro, Small and Medium Enterprises (MSME) sector with a view to

contributing to the process of economic growth, employment generation and balanced

regional development

Vision

To emerge as a single window for meeting the financial and developmental needs of the

MSME sector to make it strong, vibrant and globally competitive, to position SIDBI

Brand as the preferred and customer - friendly institution and for enhancement of share -

holder wealth and highest corporate values through modern technology platform

OBJECTIVES

Mandatory Objectives

Four basic objectives are set out in the SIDBI Charter. They are:

Financing

Promotion

Development

Co-ordination

For orderly growth of industry in the small scale sector, The Charter has provided SIDBI

considerable flexibility in adopting appropriate operational strategies to meet these

objectives. The activities of SIDBI, as they have evolved over the period of time, now

meet almost all the requirements of small scale industries which fall into a wide spectrum

constituting modern and technologically superior units at one end and traditional units at

the other.

Development Outlook

The major issues confronting SSIs are identified to be:

Technology obsolescence

Managerial inadequacies

Delayed Payments

Poor Quality

Incidence of Sickness

Lack of Appropriate Infrastructure and

Lack of Marketing Network

There can be many more similar issues hindering the orderly growth of SSIs.

Over the years, SIDBI has put in place financing schemes either through its direct

financing mechanism or through indirect assistance mechanism and special focus

programmes under its P&D initiatives. In its approach, SIDBI has struck a good balance

between financing and providing other support services.

SHAREHOLDING

The entire issued capital of Rs.450 crore has been divided into 45 crore shares of Rs.10

each. Of the total Rs.450 crore subscribed by IDBI, while setting up of SIDBI, 19.21%

has been retained by it and balance 80.79% has been transferred / divested in favour of

banks / institutions / insurance companies owned and controlled by the Central

Government.

PRODUCTS AND SERVICES

1. DIRECT FINANCE

SIDBI had been providing refinance to State Level Finance Corporations / State

Industrial Development Corporations / Banks etc., against their loans granted to small

scale units.

Since the formation of SIDBI in April, 1990 a need was felt/ representations were made

that SIDBI being the principal financial institution for the small sector, should take up the

financing of SSI projects directly on a selective basis.

So it was decided to introduce direct assistance schemes to supplement the other

available channels of credit flow to the small industries sector. Since then, SIDBI has

evolved itself into a supplier of a range of products and services to the Small & Medium

Enterprises [SME] sector.

2. BILLS FINANCE

Bills Finance Scheme involves provision of medium and short-term finance for the

benefit of the small-scale sector. Bills Finance seeks to provide finance, to manufacturers

of indigenous machinery, capital equipment, components sub-assemblies etc, based on

compliance to the various eligibility criteria, norms etc as applicable to the respective

schemes.

To be eligible under the various bills schemes, one of the parties to the transactions to

the scheme has to be an industrial unit in the small-scale sector within the meaning of

Section 2(h) of the SIDBI Act, 1989.

3. REFINANCE

Refinance scheme is introduced for catering to the need of funds of Primary

Lending Institutes for financing small-scale industries. Under the scheme, SIDBI grants

refinance against term loans granted by the eligible PLIs to industrial concerns for setting

up industrial projects in the small scale sector as also for their expansion /

modernization / diversification. Term loans granted by the PLIs for other specified

eligible activities / purposes are also eligible for refinance.

INTERNATIONAL FINANCE

The main objective of the various International Finance schemes is to enable

small-scale industries to raise finance at internationally competitive rates to fulfil their

export commitments. The financial assistance is being offered in USD and Euro

currencies. Assistance in Rupees is also considered, independent of foreign currency

limits. SIDBI has a license to deal in foreign exchange as a "restricted" Authorised Dealer

(i.e. SIDBI confines its foreign exchange activities only to its own exposures and to

exposures for its customers. The Mumbai Head Office (MHO) of SIDBI operates as a

Category 'A' branch that maintains foreign currency positions, nostro account with

foreign correspondent banks and provides cover to other branches (Category 'B'

branches) that carry out forex business.

PROMOTIONAL ACTIVITIES

As an apex financial institution for promotion, financing and development of industry in

the small scale sector, SIDBI meets the varied developmental needs of the Indian SSI

sector by its wide-ranging Promotional and Developmental (P&D) activities.

P&D initiatives of the Bank aim at improving the inherent strength of small scale sector

on one hand as also economic development of poor through promotion of micro-

enterprises.

In pursuance of its multifaceted P&D activity, synergistic with its business activities

aimed at development of the small industries, SIDBI looks forward to a partnership with

NGOs, associate financial institutions, corporate bodies, R&D laboratories, marketing

agencies, etc., for national level programmes.

SIDBI has identified the following thrust areas of P&D activities, which are being

undertaken in partnership with various institutions, agencies, and NGOs:

DATA ANALYSIS OF SIDBI

SMALL INDUSTRY DEVELOPMENT BANK OF INDIA

SIDBI has some eligibility criteria for industries to seek any kind of assistance or funding

and from the recent times SIDBI has raised it eligibility criteria for every institution to

gain financial assistance. Here follows the change in the criteria of SIDBI

SANCTION & DISBURSEMENT(crores)rs.

YEAR SANCTION DISBURSEMENT

2007 11102 10225

2008 16164 15087

2009 29188 28298

2010 32521 31918

0

5000

10000

15000

20000

25000

30000

35000

2007 2008 2009 2010

cro

res(

rs.)

SANCTION

DISBURSEMENT

INCOME & PROFIT(crores) rs. YEAR INCOME PROFIT

2007 1187 298

2008 1638 198

2009 2082 299

2010 2540 421

0

500

1000

1500

2000

2500

3000

2007 2008 2009 2010

cro

res(

rs.)

INCOME

PROFIT

CONCLUSION

Development bank plays a very important role in economic development of our country.

Since independence they have contributed a lot to the inception of industrialization and

all other technological innovations. There basic objective is to assist the development in

country which perform by proving every kind of help possible i.e. financial, advisory,

technological etc.

This study helps in portraying the current picture of development banks in India and

shows their role in economy. It also helps in showing the various schemes that banks

have and their whole procedure to provide the assistance to people.

This study also shows the various lacks in the system of development banks due which

they fail in some sphere to achieve their set targets. There are various drawbacks in our

own financial system that hinderers the growth of these development banks such as lack

of funds with government, lack of project, lack of efficient machinery,

In this study all the possible measure to remove these hindrances are described through

which we can move more speedily then other economies in world.

In this study four major development banks in India are taken into research work i.e.

IDBI, IFCI, SIDBI, and NABARD. All the schemes, assistances and programs are

studied and highligtened. Every bank differs from his objective with each other so as the

assistance provided by them.

Every bank has separate guidelines and management to take care of activities which are

performing and work areas are also different, although their main motive is same which

the development of country through balanced economic growth.

This study throws light on the working of these development banks and how they

performed their activities in past.

LIMITATIONS OF STUDY

Although lots of care and efforts are made to ensure the fault free study but still there

remains certain limitations which possibly may occur such as

Lack of time acted as constraint in study

Lack of development banks in near by areas also acts as constraint as it’s not

possible to get the real exposure.

Researcher limitations in knowledge are also the limitations of study.

The study is based on secondary data so any kind of discrepancy in that will cause

same in the study.