Module-3 Financial Environment Industrial Finance; Industrial Financial Institutions; Their significance in Indian economy; IDBI, SIDBI, ICICI, IFCI. 1 1

Importance of finance Finance is life blood of business; It is a pre requisite to mobilize resources for organizing industrial production. It is also vital for trade: retail, wholesale, export, import; It is also necessary for developing infrastructure of any country – roads, railways, electricity, ports, residential & commercial constructions etc. Finance is also needed in agriculture (called agriculture finance): for purchasing seeds, fertilizers, farm equipment, storage capacities etc. 2

It is the finance required by the industry for: - Industrial finance It is the finance required by the industry for: - Putting in place fixed assets (land, building, plant, machinery, equipment etc.); and Working capital (money needed to operate the business – pay for raw materials, wages, rent other operating expenses, debtors etc.). 3

Industrial Financial Institutions (IFIs) Are also called ‘Development Financial Institutions’; Soon after independence the Govt. of India set up a series of IFIs for financing private sector industries; IFCI was the first to be set up (1948), followed by State Financial Corporations (SFCs). ICICI (1955), LIC (1956), IDBI (1964), UTI (1964), SIDBI (1990). These institutions provide finance to industry by: - Subscribing to their shares and debentures; Giving Loans; and Underwriting new issues. 4

Industrial Financial Institutions (IFIs) continued - These institutions mobilise resources mainly from public through capital market by floating bonds and units; Therefore, IFIs are those institutions which are set up mainly by the government for providing medium and long-term financial assistance to industry. Since they are instrumental in development of Industry, they are also known as ‘development banks’ or ‘development financial institutions’. Their initial equity capital is provided by the Govt., RBI or PSU Banks, and other Public Sector IFIs. Subsequently they raise funds from the capital market. 5

Role of industrial financial institutions 1. They constitute an important source of long-term finance to industry. 2. They play an important role in the development of (a) Small scale industry, and (b) Projects in backward areas. 3. They help new and small entrepreneurs in setting up industry. 4. Through their operations of underwriting of and direct subscription to the issue of shares and debentures, they act as important players in the capital market. These operations have a favourable impact on the ability of industrial concerns to raise funds from capital market. 6

Role of industrial financial institutions 5. These institutions have improved the allocation of funds to industry and thus, have aided in better use of the available resources for the economic development of the country. 6.They have been a source of technical and managerial advice to the industry. They have also helped in identification, evaluation and execution of new investment projects. 7. These institutions have been helpful in the establishment of concerns which required extra-ordinarily large amounts of finance for their projects with a long gestation period. 7

Industrial Development Bank of India (IDBI) . IDBI was established in 1964 by the Indian government under the Industrial Development Bank of India Act,1964. According to the IDBI’s corporate mission, IDBI strategic objective is to position itself as India’s premier wholesale bank through a full range of wholesale products-lending, capital, market advisory, and risk management. 8

The strength of IDBI lies on: 1. Diversified portfolio 2 The strength of IDBI lies on: 1.Diversified portfolio 2.Long standing business relationships with major industrial houses. 3.Proven core competency. 4.Large balance sheet and sound financials. 5. capacity to take large single party exposure. 6. capacity to leverage. 7. long term funds. 8. Fairy good retail network with a large investor base. 9.Intellectual capital. 9

Subsidiary organizations. 1 Subsidiary organizations. 1. SIDBI-Small industrial Development Bank of India. 2. IDBI Capital-A stock broking company started in 1993. 3. IDBI Bank-Started in 1994, it provides high technology based. 4. INTECH-It is based on the business prospects for the IT sector. 10

SIDBI The small Industrial Development Bank of India Act, 1989, under which the SIDBI was established on April 2,1990. It is 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. 11

Objectives : Financing, Promotion, Development, Co-ordination Objectives : Financing, Promotion, Development, Co-ordination. Financial Assistance: Equity, Term Loan, Working capital requirement, for raw material through finance against bills receivables. Promotional Orientation: Enterprise Promotion, Human resource Development,Technology upgradation. 12

Promotion and Development activities of SIDBI. 1 Promotion and Development activities of SIDBI. 1. SIDBI foundation for Micro credit. 2. Mahila Vikas Nidhi. 3. Rural Industries programmes. 4.Entrepreneurship Development programmes. 13

ICICI: The industrial credit and Investment corporation of India Limited, which was merged with the ICICI bank in 2001, was founded by World Bank, the government of India and representatives of private industry on January 5, 1955 to encourage and assist industrial development and investment in India. 14

Objectives: 1. Provide assistance in the creation, expansion, and modernization of industrial enterprise. 2.Encouraging and promoting the participation of private capital. 3. Encouraging and promoting industrial investment and the expansion of investment markets. 4. Comprehensive financial services. 5. Provides Brokerage service, advisory services. 15

IFCI: Industrial Finance Corporation of India IFCI: Industrial Finance Corporation of India. Established in 1948, under the IFCI act, and incorporated in 1993. Principal Activities: Project Finance, Financial services, lending Services. 16

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