Financial Institutions
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 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 can
be broadly categorised into "ll ndia institutions and #tate level institutions, depending upon the
geographical coverage of their operations. "t 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 #tate 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
" wide variety of financial institutions have been set up at the national level. They cater to the diverse
financial 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 institutions
like &%, G%, )T' etc.
*. All-India Development Banks (AIDBs):- ncludes 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.
Industrial Development Bank of India (IDBI)+- was established in ,uly *-./ as an
ape0 financial institution for industrial development in the country. t caters to the
diversified 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, underwriting
of 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 development
finance institution set up in *-/2 under the F% "ct in order to pioneer long-term
institutional credit to medium and large industries. t aims to provide financial assistance to
industry by way of rupee and foreign currency loans, underwrites3subscribes the issue of
stocks, shares, bonds and debentures of industrial concerns, etc. t 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.
Small Industries Development Bank of India (SIDBI)+- was set up by the Government
of ndia in "pril *--4, as a wholly owned subsidiary of $B. t is the principal financial
institution for promotion, financing and development of small scale industries in the
economy. t aims to empower the 5icro, #mall and 5edium 6nterprises 75#568 sector with
a view to contributing to the process of economic growth, employment generation and
balanced regional development.
Industrial Investment Bank of India Ltd (IIBI)+- was set up in *-29 under the
ndustrial reconstruction Bank of ndia "ct, *-2/, as the principal credit and reconstruction
agency for sick industrial units. t was converted into B on 5arch *:, *--:, as a full-
fledged development financial institution. t assists industry mainly in medium and large
sector through wide ranging products and services. Besides project finance, B also
provides short duration non-project asset-backed financing in the form of
underwriting3direct subscription, deferred payment guarantees and working capital3other
short-term loans to companies to meet their fund re!uirements.
;. Specialised Financial Institutions (SFIs):- are the institutions which have been set up to serve
the increasing financial needs of commerce and trade in the area of venture capital, credit rating
and leasing, etc.
IFCI enture Capital Funds Ltd (ICF):- formerly known as <isk %apital = Technology
Finance %orporation &td 7<%T%8, is a subsidiary of F% &td. t was promoted with the
objective of broadening entrepreneurial base in the country by facilitating funding to
ventures involving innovative product3process3technology. nitially, it started providing
financial assistance by way of soft loans to promoters under its >!isk Capital Sc"eme> .
#ince *-22, it also started providing finance under >#ec"nolo$% Finance and
Development Sc"eme> to projects for commercialisation of indigenous technology for new
processes, products, market or services. ?ver the years, it has ac!uired great deal of
e0perience in investing in technology-oriented projects.
ICICI enture Funds Ltd+- formerly known as Technology $evelopment = nformation
%ompany of ndia &imited 7T$%8, was founded in *-22 as a joint venture with the )nit
Trust of ndia. #ubse!uently, it became a fully owned subsidiary of %%. t 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, chemicals3polymers, drugs,
diagnostics and vaccines, biotechnology, environmental engineering, etc.
Tourism Finance %orporation of ndia &td. 7TF%8+- is a specialised financial institution set
up by the Government of ndia for promotion and growth of tourist industry in the country.
"part 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.
@. Investment Institutions:- 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.
Life Insurance Corporation of India (LIC)+- was established in *-9. as a wholly-owned
corporation of the Government of ndia. t was formed by t"e Life Insurance
Corporation Act&'()* , with the objective of spreading life insurance much more widely
and in particular to the rural area. t also e0tends assistance for development of
infrastructure facilities like housing, rural electrification, water supply, sewerage, etc. n
addition, it e0tends resource support to other financial institutions through subscription to
their shares and bonds, etc. The &ife nsurance %orporation of ndia also transacts business
abroad and has offices in Fiji, 5auritius and )nited Aingdom . Besides the branch
operations, the %orporation has established overseas subsidiaries jointly with reputed local
partners in Bahrain, Bepal and #ri &anka.
+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 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. 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 of
superintending, controlling and carrying on the business of general insurance or non-life
insurance. nitially, G% had four subsidiary branches, namely, National Insurance
Compan% Ltd , #"e Ne1 India Assurance Compan% Ltd , #"e 2riental Insurance
Compan% Ltd and +nited India Insurance Compan% Ltd . But these branches were
delinked from G% in ;444 to form an association known as >GC#"> 7General nsurance
Cublic #ector "ssociation8.
State Level Institutions
#everal financial institutions have been set up at the #tate level which supplement the financial assistance
provided by the all ndia institutions. They act as a catalyst for promotion of investment and industrial
development in the respective #tates. They broadly consist of >#tate financial corporations> and >#tate
industrial development corporations>.
State Financial Corporations (SFCs) :- are the #tate-level financial institutions which play a
crucial role in the development of small and medium enterprises in the concerned #tates. They
provide 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 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 comple0es and
services related to engineering, marketing, etc. There are *2 #tate
b
