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Financial Institutions

Financial sector plays an indispensable role in the overall development of a country. The most importantconstituent of this sector is the financial institutions, which act as a conduit for the transfer of resourcesfrom net savers to net borrowers, that is, from those who spend less than their earnings to those who spendmore than their earnings. The financial institutions have traditionally been the major source of long-termfunds for the economy. These institutions provide a variety of financial products and services to fulfil thevaried needs of the commercial sector. Besides, they provide assistance to new enterprises, small andmedium firms as well as to the industries established in backward areas. Thus, they have helped in reducingregional disparities by inducing widespread industrial development.

The Government of ndia, in order to provide ade!uate supply of credit to various sectors of the economy,has evolved a well developed structure of financial institutions in the country. These financial institutions canbe broadly categorised into "ll ndia institutions and #tate level institutions, depending upon thegeographical coverage of their operations. "t the national level, they provide long and medium term loans atreasonable rates of interest. They subscribe to the debenture issues of companies, underwrite public issue ofshares, guarantee loans and deferred payments, etc. Though, the #tate level institutions are mainlyconcerned with the development of medium and small scale enterprises, but they provide the same type offinancial assistance as the national level institutions.

National Level Institutions

" wide variety of financial institutions have been set up at the national level. They cater to the diversefinancial re!uirements of the entrepreneurs. They include all ndia development banks like $B , # $B , F%&td, B ' specialised financial institutions like (%F, % % (enture Funds &td, TF% ' investment institutionslike & %, G %, )T ' etc.

*. All-India Development Banks (AIDBs):- ncludes those development banks which provideinstitutional credit to not only large and medium enterprises but also help in promotion anddevelopment of small scale industrial units.

Industrial Development Bank of India (IDBI) +- was established in uly * / as anape0 financial institution for industrial development in the country. t caters to thediversified needs of medium and large scale industries in the form of financial assistance,both direct and indirect. $irect assistance is provided by way of project loans, underwritingof and direct subscription to industrial securities, soft loans, technical refund loans, etc.1hile, indirect assistance is in the form of refinance facilities to industrial concerns.

Industrial Finance Corporation of India Ltd (IFCI Ltd) +- was the first developmentfinance institution set up in * /2 under the F% "ct in order to pioneer long-terminstitutional credit to medium and large industries. t aims to provide financial assistance toindustry by way of rupee and foreign currency loans, underwrites3subscribes the issue ofstocks, shares, bonds and debentures of industrial concerns, etc. t has also diversified itsactivities in the field of merchant banking, syndication of loans, formulation of rehabilitationprogrammes, assignments relating to amalgamations and mergers, etc.

Small Industries Development Bank of India (SIDBI) +- was set up by the Governmentof ndia in "pril * 4, as a wholly owned subsidiary of $B . t is the principal financialinstitution for promotion, financing and development of small scale industries in theeconomy. t aims to empower the 5icro, #mall and 5edium 6nterprises 75#568 sector witha view to contributing to the process of economic growth, employment generation andbalanced regional development.

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Industrial Investment Bank of India Ltd (IIBI) +- was set up in * 29 under thendustrial reconstruction Bank of ndia "ct, * 2/, as the principal credit and reconstruction

agency for sick industrial units. t was converted into B on 5arch *:, * :, as a full-fledged development financial institution. t assists i ndustry mainly in medium and largesector through wide ranging products and services. Besides project finance, B alsoprovides short duration non-project asset-backed financing in the form ofunderwriting3direct subscription, deferred payment guarantees and working capital3othershort-term loans to companies to meet their fund re!uirements.

;. Specialised Financial Institutions (SFIs):- are the institutions which have been set up to servethe increasing financial needs of commerce and trade in the area of venture capital, credit ratingand leasing, etc.

IFCI enture Capital Funds Ltd (I CF):- formerly known as

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+nit #rust of India (+#I) +- was set up as a body corporate under the +#I Act& ' *, ,with a view to encourage savings and investment. t mobilises savings of small investorsthrough sale of units and channelises them into corporate investments mainly by way ofsecondary capital market operations. Thus, its primary objective is to stimulate and poolthe savings of the middle a nd low income groups and enable them to sh are the benefits ofthe rapidly growing industrialisation in the country. n $ecember ;44;, the )T "ct, * @was repealed with the passage of +nit #rust of India (#ransfer of +ndertakin$ and

!epeal) Act& .. , paving the way for the bifurcation of )T into ; entities, )T - and)T - with effect from *st February ;44@.

/eneral Insurance Corporation of India (/IC) +- was formed in pursuance of the/eneral Insurance Business (Nationalisation) Act& ' 0 (/IBNA 8, for the purpose ofsuperintending, controlling and carrying on the business of general insurance or non-lifeinsurance. nitially, G % had four subsidiary branches, namely, National InsuranceCompan% Ltd , #"e Ne1 India Assurance Com pan% Ltd , #"e 2riental InsuranceCompan% Ltd and +nited India Insurance Compan% Ltd . But thes e branches weredelinked from G % in ;444 to form an association known as >G C#"> 7General nsuranceCublic #ector "ssociation8.

State Level Institutions

#everal financial institutions have been set up at the #tate level which supplement the financial assistanceprovided by the all ndia institutions. They act as a catalyst for promotion of investment and industrialdevelopment in the respective #tates. They broadly consist of >#tate financial corporations> and >#tateindustrial development corporations>.

State Financial Corporations (SFCs) :- are the #tate-level financial institutions which play acrucial role in the development of small and medium enterprises in the concerned #tates. Theyprovide financial assistance in the form of term loans, direct subscription to e!uity3debentures,guarantees, discounting of bills of e0change and seed3 special capital, etc. #F%s have been set upwith the objective of catalysing higher investment, generating greater employment and wideningthe ownership base of industries. They have also started providing assistance to newer types ofbusiness activities like floriculture, tissue culture, poultry farming, commercial comple0es and

services related to engineering, marketing, etc. There are *2 #tateb

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