List of top four institutional banks that operate in India:- 1. NABARD 2. SIDBI 3. IRBI (Now Known as IIBI) 4. IFCI (Industrial Finance Corporation of India).
Institutional Bank # 1. NABARD:
The National bank for Agriculture and Rural Development was established in the year of 1982 (12th July 1982) by an Act of Parliament. The NABARD Act 1981 replaced The Agricultural Credit Department (ACD) of RBI and Rural Planning and Credit cell (RPCC) and Agricultural Refinance and Development Corporation (ARDC). After its establishment it became an apex institute to provide credit in rural areas.
In fact NABARD is helping rural credit and development by providing refinancing to State Co-Operative Agricultural and Rural Development Banks (SCARDRs), State Cooperative Banks (SCBs), Regional Rural Banks (RRBs), Commercial banks and other financial institutions approved by Reserve Bank of India.
It provides investment credit to individuals, partnership firms, companies, state owned corporations and co-operative societies but production credit is afforded generally to individuals only.
NABARD was established to play a vital role in rural development with a mandate for arranging credit flow for promotion and development of, Agriculture, Cottage and Village industries. For easy and planned flow of funds NABARD set up a special fund know as Rural Infrastructure Development Fund popularly known as RIDF.
With the help of this fund many rural development projects were financed including irrigation, rural roads, bridges, health, education, soil conservation and water schemes etc. Another fund know as Rural Innovation fund of NABARD was started to support innovative, risk friendly, unconventional experiments with a view to promote livelihood opportunities and employment in rural areas.
For this purpose financial help is provided to Individuals, Non- Government Organisations, Co-operative Societies, Self Help Groups, and Panchyatiraj institutions who have some experience and also willingness to implement innovative ideas for improving the quality of life in rural areas.
Institutional Bank # 2. SIDBI (Small Industries Development Bank of India):
SIDBI was established under the Small Industries Development Bank of India Act,1989. The bank became operational w.e.f. 2nd April, 1990. The Act establishing the SIDBI envisaged it to be the principal financial institution for the promotion, financing and development of industry under the small scale sector and to co-ordinate the functions of institutions engaged in these fields.
As it was established as a wholly owned subsidiary of IDBI, it took over the IDBI’s business relating to small scale industries, National Equity Scheme and small industrial development Fund. SIDBI was delinked from IDBI w.e.f 27th March 2000. In fact small scale industries play a very important role in development of Industrial growth, Export and national economy.
A small scale industry is a unit which defined as follows:
“Small scale industry units means, any industrial undertaking engaged in manufacturing, processing, preservation of goods, mining and quarrying, servicing and repairing of certain specified type of machinery/equipment custom agro service units, in respect of which, an affidavit has been furnished by the owners OR other parties entitled to act for that undertaking, or a certificate has been furnished by the credit institution to the effect that the investment whether held on ownership OR by lease OR by hire purchase in PLANT & MACHINARY is not in excess of Rs. 100 lacs. It is also applicable when the industry undertaking is an ancillary unit.”
The SIDBI therefore plays a very important role in development of national economy.
It is therefore the charter establishing SIDBI also provided for its Mandatory objectives which are:
3) Development, and
Small scale industries have been facing many problems like lack of advanced technology, Managerial inadequacies, Delayed payments, poor quality, non-availability of Raw Material, sickness, lack of proper infrastructure and marketing network etc. It is therefore considerable flexibility was provided in the charter enabling SIDBI to design and adopt such strategies which can meet these objectives.
Over the period SIDBI has been successful to achieve its objectives and has popularized its products and services particularly in following ways:
(A) Direct Financial Assistances By SIDBI:
For the development of Industrial infrastructure for SSIs:
1. Venture capital/development scheme,
2. Equipment Finance Scheme,
3. Integrated Infrastructural Development Scheme,
4. Project Finance Scheme,
5. Schemes related to Marketing of SSI’s Product,
6. ISO 9000 Scheme,
7. Micro credit financing scheme,
8. Short term & long term loan schemes,
9. Direct Discounting of bill,
10. TDMF Schemes,
11. Factoring scheme,
12. Pre & Post shipment financial assistance scheme, and
13. Export bill financing scheme & so on.
B) Indirect Finance by SIDBI:
I) Refinance Assistance:
a) Composite loan scheme for cottage, Village & tiny Industries,
b) Scheme for women entrepreneurs Mahila Udyam Nidhi,
c) SEMFEX Scheme,
d) Single window scheme,
e) RTDM Scheme,
f) RISO-9000 Scheme,
g) NEF Scheme,
h) RSR Scheme,
i) Scheme for SRTOs,
j) Scheme for ST/SC & Physically Challenged, and
k) Other General Schemes.
II) Scheme for Rediscounting of bills:
a) For equipments.
b) For Inland supply bills.
III) Other support through various institutions:
a) SFC’s, SIDC SSIDC, Bank to Intermediacies.
b) To leasing/hire purchase companies.
c) To factoring companies.
d) To special corporate entities and institutions which are engaged in the business of development of SSIs.
Institutional Bank # 3. IRBI (Now Known as IIBI):
The Industrial Reconstruction Bank of India is an institute which has taken many carnations. Initially Government of India set up “The Industrial Reconstruction Corporation of India Ltd. in 1971 for rehabilitation of sick industrial companies. The Corporation was reconstitute in 1985 under the IRBI Act of 1984.
The main object of this bank was to function as principal credit and reconstruction agency for industrial revival by undertaking modernization, expansion, re-organisation, diversification or re-construction of industries and by coordinating similar works of other institutions engaged therein.
Under the main functions the bank include granting loans Term loan or working capital, to provide guarantee to commercial banks, state finance corporations for the loans disbursed to Industries. Issuing guarantees, Deferred payment guarantees, indemnity bonds for the purpose of revival or re constructions of sick and ailing industries.
With a view for improving and further strengthening the working of IRBI, it was decided to convert this bank into a full-fledged development financial institution and was therefore converted into a joint stock company in 1997 and was renamed as Industrial Investment Bank of India.
Its main functions include, for the purpose of industrial rehabilitation and revival of sick units, providing financial assistance or processing such proposal for term loans, working capital, short term loans, equipment financing etc.
As it was engaged in financing mostly sick units the quantum of its non-performing assets (bad debts) went on increasing. Although large part of NPAs was inherited from previous institutions but state of affairs was not satisfactory arid certain structural and financial problems adversely affected its viability. The Govt. of India therefore approved a proposal to merge this bank with IDBI which was rejected by IDBI in 2005.
State Financial Corporations:
A Central Industrial Finance Corporation was set up under the Industrial Finance Corporation Act, 1948 in order to provide medium and long term credit to Industrial undertakings which fall outside the normal activities of commercial banks. The State Governments expressed their desire that similar corporations be set up in states to supplement the work of Industrial Finance Corporation.
State governments also expressed that the State Corporations be established under special statute in order to make it possible to incorporate in the Constitution necessary provisions in regard to majority control by the Government, guaranteed by the State Government in regard to the payment of principal.
In order to implement the views expressed by the state governments the State Financial Corporation Bill was introduced in the Parliament and passed as State Financial Corporation Act in 1951.
Statement of Objects and Reasons:
In order to provide medium and long term credit to industrial undertakings, which fall outside the normal activities of commercial banks, a Central Industrial Finance Corporation was set up under the Industrial Finance Corporation Act, 1948. The State Governments wish that similar corporations be set up in the states also.
The intension is that the State Corporations will continue their activities to financing medium and small scale industries and will as far as possible, consider only such cases as outside the scope of the Industrial Finance Corporation.
The state governments also consider that the State Corporations should be established under a special statute in order to make it possible to incorporate in the Constitution necessary provisions in regard to majority control by Government guaranteed by State Government in regard to the repayment of principal, and payment of a minimum rate of dividend on the shares, restrictions on distribution of profits and special powers for the enforcement of its claims and recovery of dues.
Since the incorporation, regulation and winding up of such Corporations fall within the preview of Parliament, the state Governments have requested the Government of India to enact the necessary enabling legislation which is sought to effected by this bill.
The Main Features of the Bill:
a) The Bill provides that the State Govt. may, by notification in the Official Gazette, establish a financial corporation for the State.
b) The share capital shall be fixed by the State Government but shall not exceed Rs. 2 crores. The issue of shares to the public will be limited to 25 per cent, of the share capital and the rest will be held by the State Government, The Reserve Bank of India, Scheduled Banks, Insurance Companies, Investment trusts, Co-operative Banks and other financial institutions.
c) Shares of Corporation shall be guaranteed by the State Governments as to the re-payment of principal and the payment of minimum dividend to be prescribed in consultation with the central government.
d) The Corporation shall be authorized to issue bonds and debentures for amount which together with contingent liabilities of the corporation shall not exceed five times amount of paid up share capital and reserve fund of the corporation. These bonds and debentures shall be guaranteed as to payment of principal and payment of interest at such rate as may be fixed by State Corporation.
e) The Corporation may accept deposits from public re-payable after 5 years subject to maximum not exceeding the paid up capital
f) The Corporation will be managed by a Board consisting majority of Directors nominated by State Government, Reserve Bank of India Industrial Corporation.
Institutional Bank # 4. IFCI (Industrial Finance Corporation of India):
The IFCI was established on 1st July 1948 under the Industrial Finance Corporation Act 1948(IFCI ACT). It was incorporated immediately after our country became independent in 1947 with the sole objective of developing industrial sector in the country which needed imminent solution and assistance for the proper growth in a planned manner. It was first development financial institution in India.
Keeping in view the necessity of such institutions and on the analogy of this institution another Act was passed in 1951 known as State Financial Corporation Act. The main functions of IFCI were to make medium and long term credit available to industrial undertakings and assist them in their growth, diversification, expansion and modernizing.
IFCI provides direct loans also to industrial units both in Indian as well as Foreign currencies.
Mainly its function may include:
A) Project Financing:
Under project financing IFCI provides loans for New Projects, Expansion, diversification, modernization of existing projects.
B) Financial services:
Fore foreign loans it provides guarantee and deferred payment guarantees, Merchant banking services, Leasing and hire-purchase, equipment financing etc..
C) Consultancy and guidance:
IFCI has developed a system of providing guidance to small scale and medium scale units in project identification, formulation, implementation and operation of the units. In fact IFCI is now a fully grown up financial intermediary and is all set up for business expansion into brokering, custodial services and registrar services.
As per Quarterly Financial results as on 30-06-2010 the paid-up equity share capital (with face value of Rs.10/- each) is Rs. 737.84 Crores and profit after tax is Rs.118.00 Crors.