Development Banks– Term Lending Financial Institutions Focus To provide credit for development of industry To develop backward regions, small, medium and large enterprises. Important Institutions IFCI – Industrial Finance Corporation of India ICICI– Industrial Credit and Investment Corporation of India IDBI– Industrial Development Bank of India SIDBI– Small Industries Development Bank of India State Finance Corporations NABARD– National Bank for Agriculture and Rural Development EXIM Bank– Export and Import Bank of India

Development Banks– Term Lending Financial Institutions Industrial Finance Corporation of India Set up in 1948 by GOI. To provide only long term and medium term loans. Mainly concentrating on financing Public Sector and Public Limited Companies. The constitution of IFCI was changed as a company in 1993 from a statutory corporation. Renamed as IFCI Limited in 1999

Development Banks– Term Lending Financial Institutions Industrial Development Bank of India (IDBI) Set up in 1964 as a subsidiary of RBI. Became independent in 1975 under Public Financial Institutions Act. Became the apex special financial institution of the country. Became Public in 1995 when GOI reduced its share holding to 58.47%. Major focus of IDBI Apart from term lending, to strengthen the financial resources of financial institutions including banks. IDBI became a limited company in the year In 2004, it became a scheduled bank and renamed as IDBI bank

Development Banks– Term Lending Financial Institutions Industrial Credit and Investment Corporation of India (ICICI) Formed in 1955, a private sector development bank. At the initiative of World bank, GOI and representatives of Indian industry. As a private sector owned focusing on financing private sector projects. In 1994, floated ICICI Bank. Subsequently ICICI merged with ICICI Bank

Development Banks– Term Lending Financial Institutions Exim Bank of India -- promoted by GOI in focuses on financing foreign trade -- it provides the following assistance -- direct finance to exporters -- indirect finance through commercial banks -- extends lines of credit to foreign buyers of Indian goods -- procures lines of credit for Indian importers -- marketing support for Indian exporters -- consultancy services -- extends guarantee on behalf of Indian exporters -- extending finance for project exports How Development Banks extend assistance to Industry?

Development Banks– Term Lending Financial Institutions How Development Banks extend assistance to Industry? Extending medium term and long term loans Medium term generally represents a period of 3 to 7 years and long term represents period beyond 7 years. These loans are granted for capital expenditure mainly consisting of -- development of land -- construction of factory building -- purchase of machinery -- import of technology Other term loans are for infrastructure projects What is an infrastructure project?

Development Banks– Term Lending Financial Institutions What is an infrastrucutre project? A project that provides communication facility benefiting large number of population. Construcutin of telecommunication facilities, high way roads, Ports, Airports, Railways, power generation etc are some of the infrastructure projects. These projects are generally of long term in nature and with large gestation period. They also involve large capital cost. These projects are generally financed through consortium or syndication. What is meant by consortium lending or credit syndication?

Development Banks– Term Lending Financial Institutions What is meant by consortium lending or credit syndication? When more than one institution join together in financing a particular project, under common terms and conditions and common documentation it is called as consortium lending. Consortium lending is generally resorted to in case of very large projects where financing by one institution fully is beyond prudential exposure. What are the advantages of consortium lending? -- Any lending is a risk taking activity by the lending institution. In case the lending is made only by one Institution, the entire risk is borne by the particular institution. Whereas in the case of consortium, the risk is spread amongst all the lenders. -- It enables smaller institutions to take share in a business which it can not afford to do independently. -- Since the project is anlaysed by more than one institution the advantages of broad expertise are derived. -- It is advantageous for the borrower also as he is able to avail finance from a larger number of resources.

Development Banks– Term Lending Financial Institutions Syndication This is also a process wherein more than one institution finances a project. But differs from consortium as under: In a consortium, the borrower approaches all the consortium lenders for finance. The lending institutions agree to finance under consortium and enter in to a formal arrangement between them and elect one among them as leader who will take care of certain functions. Syndication is a process by which the borrower provides mandate to an institution to present his project to the prospective lenders and arrange to obtain finance from them under common terms and conditions. The mandate holding institution accordingly arranges for finance from the lenders. The mandate holding institution may or may not join the syndicate for financing the project.

Development Banks– Term Lending Financial Institutions Other types of services extended by development institutions Refinancing What is meant by refinancing? When an institution lends to another institution against its lending to its borrowers, it is called as refinancing. It is an indirect lending for the refinancing institution. In India, IDBI, SIDBI, NABARD and Exim Bank extend refinance facility to banks and other institutions. It is a developmental role. What are the advantages of refinancing facility?

Development Banks– Term Lending Financial Institutions What are the advantages of refinancing facility? It encourages banks and other institutions to lend liberally to certain types of industry. Sine the lending are refinanced, the cash flow of the banks is strengthened and they are able to lend more. Since the refinancing institution is imposing certain terms and conditions for refinancing, there is more discipline at the level of lending by the banks and other institutions. Follow up and recovery of loans are also more disciplined. What are the other services offered by them?

Development Banks– Term Lending Financial Institutions Promotional role IDBI acts as coordinator for promoting industries. It coordinates the working of institutions engaged in financing industries. Consultancy, technological up gradation and conducting entrepreneurial development programmes. Merchant banking activities Both IFCI and ICICI have promoted a number of companies for undertaking merchant banking activities like syndication, custodial services, advisory services etc Credit rating ICICI promoted CRISIL—Credit Rating Information Services of India Limited IFCI promoted ICRA—Investment Information and Credit Rating Agency of India Limited IDBI promoted CARE—Credit Analysis and Research Limited

Development Banks– Term Lending Financial Institutions Funding pattern for the institutions IFCI– being Government sponsored, mainly funded by GOI through capital, lending, subscription through GOI controlled institutional share holders. IDBI– funding by RBI and market borrowing through issue of bonds. ICICI– funding by private capital and market borrowing through issue of bonds. With the onset of universal banking, the broad distinction between term lending institutions and commercial banks has become blurred. While ICICI and IDBI have now become banks, IFCI because of large NPAs has been restructured and recapitalised. It is now undertaking various fee based services also to improve its bottom line.