Financial sector plays an indispensable role in the overall development of a country. The most important constituent of this sector is the financial institutions, which act as a conduit for the transfer of resources from net savers to net borrowers, that is, from those who spend less than their earnings to those who spend more than their earnings. The financial institutions have traditionally been the major source of long-term funds for the economy. These institutions provide a variety of financial products and services to fulfil the varied needs of the commercial sector. Besides, they provide assistance to new enterprises, small and medium firms as well as to the industries established in backward areas. Thus, they have helped in reducing regional disparities by inducing widespread industrial development.
The Government of India, in order to provide adequate supply of credit to various sectors of the economy, has evolved a well developed structure of financial institutions in the country. These financial institutions can be broadly categorised into
All India institutions and State level institutions, depending upon the
geographical coverage of their operations. At the national level, they
provide long and medium term loans at reasonable rates of interest. They
subscribe to the debenture issues of companies, underwrite public issue
of shares, guarantee loans and deferred payments, etc. Though, the State
level institutions are mainly concerned with the development of medium
and small scale enterprises, but they provide the same type of financial
assistance as the national level institutions.
National Level Institutions
A wide variety of financial institutions have been set up at the national level. They cater to the diverse financial requirements of the entrepreneurs. They include all India development banks like IDBI, SIDBI, IFCI Ltd, IIBI; specialised financial institutions like IVCF, ICICI Venture Funds Ltd, TFCI ; investment institutions like LIC, GIC, UTI; etc.
- All-India Development Banks (AIDBs):- Includes those development banks which provide institutional credit to not only large and medium enterprises but also help in promotion and development of small scale industrial units.
Specialised Financial Institutions
(SFIs):- are the institutions which have been set up to serve the increasing
financial needs of commerce and trade in the area of venture capital,
credit rating and leasing, etc.
Development Bank of India (IDBI):- was established in July 1964
as an apex financial institution for industrial development in the country.
It caters to the diversified needs of medium and large scale industries
in the form of financial assistance, both direct and indirect. Direct
assistance is provided by way of project loans, underwriting of and
direct subscription to industrial securities, soft loans, technical
refund loans, etc. While, indirect assistance is in the form of refinance
facilities to industrial concerns.
Finance Corporation of India Ltd (IFCI Ltd):- was the first development
finance institution set up in 1948 under the IFCI Act in order to pioneer
long-term institutional credit to medium and large industries. It aims
to provide financial assistance to industry by way of rupee and foreign
currency loans, underwrites/subscribes the issue of stocks, shares,
bonds and debentures of industrial concerns, etc. It has also diversified
its activities in the field of merchant banking, syndication of loans,
formulation of rehabilitation programmes, assignments relating to amalgamations
and mergers, etc.
Industries Development Bank of India (SIDBI):- was set up by the
Government of India in April 1990, as a wholly owned subsidiary of IDBI.
It is the principal financial institution for promotion, financing and
development of small scale industries in the economy. It aims 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.
Investment Bank of India Ltd (IIBI):- was set up in 1985 under the
Industrial reconstruction Bank of India Act, 1984, as the principal
credit and reconstruction agency for sick industrial units. It was converted
into IIBI on March 17, 1997, as a full-fledged development financial
institution. It assists industry mainly in medium and large sector through
wide ranging products and services. Besides project finance, IIBI also
provides short duration non-project asset-backed financing in the form
of underwriting/direct subscription, deferred payment guarantees and
working capital/other short-term loans to companies to meet their fund
are the most popular form of financial intermediaries, which particularly
catering to the needs of small savers and investors. They deploy their
assets largely in marketable securities.
Venture Capital Funds Ltd (IVCF):- formerly known as Risk Capital
& Technology Finance Corporation Ltd (RCTC), is a subsidiary of
IFCI Ltd. It was promoted with the objective of broadening entrepreneurial
base in the country by facilitating funding to ventures involving innovative
product/process/technology. Initially, it started providing financial
assistance by way of soft loans to promoters under its 'Risk
Capital Scheme' . Since 1988, it also started providing finance
Finance and Development Scheme' to projects for commercialisation
of indigenous technology for new processes, products, market or services.
Over the years, it has acquired great deal of experience in investing
in technology-oriented projects.
Venture Funds Ltd:- formerly known as Technology Development & Information Company of India Limited (TDICI), was founded in 1988
as a joint venture with the Unit Trust of India. Subsequently, it
became a fully owned subsidiary of ICICI. It is a technology venture
finance company, set up to sanction project finance for new technology
ventures. The industrial units assisted by it are in the fields of
computer, chemicals/polymers, drugs, diagnostics and vaccines, biotechnology,
environmental engineering, etc.
- Tourism Finance Corporation of India
Ltd. (TFCI):- is a specialised financial institution set up by the Government
of India for promotion and growth of tourist industry in the country.
Apart from conventional tourism projects, it provides financial assistance
for non-conventional tourism projects like amusement parks, ropeways,
car rental services, ferries for inland water transport, etc.
Insurance Corporation of India (LIC):- was established in 1956 as
a wholly-owned corporation of the Government of India. It was formed
by the Life
Insurance Corporation Act,1956 , with the objective of spreading
life insurance much more widely and in particular to the rural area.
It also extends assistance for development of infrastructure facilities
like housing, rural electrification, water supply, sewerage, etc. In
addition, it extends resource support to other financial institutions
through subscription to their shares and bonds, etc. The Life Insurance
Corporation of India also transacts business abroad and has offices
in Fiji, Mauritius and United Kingdom . Besides the branch operations,
the Corporation has established overseas subsidiaries jointly with reputed
local partners in Bahrain, Nepal and Sri Lanka.
- Unit Trust of India (UTI):- was set
up as a body corporate under the UTI Act, 1963, with a view to encourage
savings and investment. It mobilises savings of small investors through
sale of units and channelises them into corporate investments mainly
by way of secondary capital market operations. Thus, its primary objective
is to stimulate and pool the savings of the middle and low income groups
and enable them to share the benefits of the rapidly growing industrialisation
in the country. In December 2002, the UTI Act, 1963 was repealed with
the passage of Unit Trust of India (Transfer of Undertaking and Repeal)
Act, 2002, paving the way for the bifurcation of UTI into 2 entities,
UTI-I and UTI-II with effect from 1st February 2003.
Insurance Corporation of India (GIC) :- was formed in pursuance
of the General
Insurance Business (Nationalisation) Act, 1972(GIBNA ), for the
purpose of superintending, controlling and carrying on the business
of general insurance or non-life insurance. Initially, GIC had four
subsidiary branches, namely, National
Insurance Company Ltd , The New India
Assurance Company Ltd , The
Oriental Insurance Company Ltd and United
India Insurance Company Ltd . But these branches were delinked from
GIC in 2000 to form an association known as 'GIPSA' (General Insurance
Public Sector Association).
State Level Institutions
Several financial institutions have
been set up at the State level which supplement the financial assistance
provided by the all India institutions. They act as a catalyst for promotion
of investment and industrial development in the respective States. They
broadly consist of 'State financial corporations' and 'State industrial
- State Financial Corporations
(SFCs) :- are the State-level financial institutions which play
a crucial role in the development of small and medium enterprises in the
concerned States. They provide financial assistance in the form of term
loans, direct subscription to equity/debentures, guarantees, discounting
of bills of exchange and seed/ special capital, etc. SFCs have been set
up with the objective of catalysing higher investment, generating greater
employment and widening the ownership base of industries. They have also
started providing assistance to newer types of business activities like
floriculture, tissue culture, poultry farming, commercial complexes and
services related to engineering, marketing, etc. There are 18 State Financial
Corporations (SFCs) in the country:-
State Industrial Development Corporations (SIDCs)
:- have been established under the Companies Act, 1956, as wholly-owned
undertakings of State Governments. They have been set up with the aim
of promoting industrial development in the respective States and providing
financial assistance to small entrepreneurs. They are also involved in
setting up of medium and large industrial projects in the joint sector/assisted
sector in collaboration with private entrepreneurs or wholly-owned subsidiaries.
They are undertaking a variety of promotional activities such as preparation
of feasibility reports; conducting industrial potential surveys; entrepreneurship
training and development programmes; as well as developing industrial
areas/estates. The State Industrial Development Corporations in the country
Pradesh State Financial Corporation (APSFC)
Pradesh Financial Corporation (HPFC)
Pradesh Financial Corporation (MPFC)
Eastern Development Finance Corporation (NEDFI)
Finance Corporation (RFC)
Nadu Industrial Investment Corporation Limited
Pradesh Financial Corporation (UPFC)
Financial Corporation (DFC)
State Financial Corporation (GSFC)
Economic Development Corporation of Goa ( EDC)
Financial Corporation ( HFC )
& Kashmir State Financial Corporation ( JKSFC)
State Financial Corporation (KSFC)
Financial Corporation ( KFC )
State Financial Corporation (MSFC )
State Financial Corporation (OSFC)
Financial Corporation (PFC)
Bengal Financial Corporation (WBFC)
Industrial Development Corporation Ltd (AIDC)
& Nicobar Islands Integrated Development Corporation Ltd (ANIIDCO)
Pradesh Industrial Development Corporation Ltd (APIDC)
State Credit and Investment Corporation Ltd. (BICICO)
State Industrial Development Corporation Limited (CSIDC)
Industrial Development Corporation
Industrial Development Corporation (GIDC)
State Industrial & Infrastructure Development Corporation Ltd. (HSIIDC)
Pradesh State Industrial Development Corporation Ltd. (HPSIDC)
and Kashmir State Industrial Development Corporation Ltd.
State Industrial Investment & Development Corporation Ltd. (KSIIDC)
Kerala State Industrial Development Corporation Ltd. (KSIDC)
Industrial Development Corporation (MIDC)
Manipur Industrial Development Corporation Ltd. (MANIDCO)
Industrial Development Corporation Ltd. (NIDC)
Industrial Infrastructure Development Corporation
Industrial Development Corporation (OIDC), Daman & Diu and Dadra
& Nagar Haveli.
Industrial Promotion Development and Investment Corporation Ltd. (PIPDIC)
Pradesh State Industrial Development Corporation
State Industrial Development Corporation Ltd. (PSIDC)
State Industrial Development & Investment Corporation Ltd. (RIICO)
Industrial Development & Investment Corporation Ltd. (SIDICO)
Nadu Industrial Development Corporation Ltd. (TIDCO)
Infrastructure & Industrial Development Corporation of Uttaranchal
Industrial Development Corporation Ltd. (TIDC)