Relevance of Development financial institution in Indian Financial System.

Prepared by: Avrohit Gupta Lalit Aggrawal Ananya Nigam Ram Pandey Ritesh

Development Finance Institutions (DFIs) are government-controlled institutions that invest in sustainable private sector projects with the twofold objective of spurring development in developing countries while themselves remaining financially viable.

Ex: International Bank for reconstruction and Development (IBRD) also known as World Bank & International Monetary Fund (IMF)

There is generally a lack of availability of long-term finance for infrastructure and industry, finance for agriculture and small and medium enterprises (SME) development and financial products for certain sections of the people.

The role of development finance is to identify the gaps in institutions and markets in a country’s financial sector and act as a ‘gap-filler’.

Industrial Finance Corporation of India Ltd. (IFCI)

Industrial Development Bank of India (IDBI) Industrial Investment Bank of India Ltd.

(IIBI) Small Industrial Development Bank of India

(SIDBI) Export Import Bank of India (EXIM) National Bank For Agriculture & Rural

Development (NABARD)

Set-up in 1948 to provide institutional credit to medium and large industries.

Project financing: Medium/Long term credit for setting up new project, expansion schemes, financial assistance by way of rupee loans, loans in foreign currencies, underwriting of direct subscription of shares/debentures.

Financial Services and corporate advisory services.

1) For setting up a new industrial undertaking.

2) For expansion and diversification of existing industrial undertaking.

3) For renovation and modernisation of existing concerns.

4) For meeting the working capital requirements of industrial concerns in some exceptional cases.

Established in 1964 for coordinating the working of institutions at national level and state levels engaged in financing, promoting and developing industries.

Provides merchant banking & corporate advisory services as a part of its fee based activities.

Provide advice & services for issue management, private placement of equity/debt instrument, project evaluation, corporate restructuring etc.

Direct assistance: helps the industrial sector by granting project loans, underwriting of and direct subscription to the industrial securities (shares and debentures), soft loans, and technical development funds.

Coordinating functions: coordinates the functions of financial institutions such as ICICI, IFCI, LIC and GIC, with respect to industrial development.

Indirect assistance to small and medium enterprises by granting loans. It also refinances industrial loans of the SFC's, SIDCs, commercial banks and RRBs, along with the billing related to the sale of the indigenous machinery.

Raising funds from the international money markets.

Set up in 1990, the principal financial institution for the promotion, financing and development of industries in the small sector and to co-ordinate the functions of other institutions engaged in similar activities.

An apex institution, SIDBI makes use of the network of the banks and state financial institutions.

Financial Products- Micro finance, venture capital, project finance, assistance for technology development, export finance etc.

Credit Guarantee Fund Trust for Micro and Small Enterprises  provides guarantees to banks for collateral-free loans extended to SME. 

SIDBI Venture Capital Ltd. is a venture capital company focussed at SME. 

SME Rating Agency of India Ltd. (SMERA) provides composite ratings to SME. 

Another entity founded by SIDBI is ISARC - India SME Asset Reconstruction Company in 2009, as specialized entities for NPA resolution for SME

An apex institution which promotes foreign trade.

Creating export capability by arranging competitive financing at various stages of export cycle.

Bank provides export credit on deferred payment terms on exports of Indian machinery, manufactured goods and technology services.

i) Financing of exports and imports of goods and services, not only of India but also of the third world countries;

(ii) Financing of exports and imports of machinery and equipment on lease basis;

(iii) Financing of joint ventures in foreign countries;

(iv) Providing loans to Indian parties to enable them to contribute to the share capital of joint ventures in foreign countries;

(v) To undertake limited merchant banking functions such as underwriting of stocks, shares, bonds or debentures of Indian companies engaged in export or import.

(vi) To provide technical, administrative and financial assistance to parties in connection with export and import.

NABARD is the apex institution in the country which looks after the development of the cottage industry, small industry and village industry, and other rural industries.

Co-ordinates the rural financing activities of all institutions engaged in developmental work at the field level and maintains liaison with Government of India, State Governments, Reserve Bank of India (RBI) and other national level institutions concerned with policy formulation

Undertakes monitoring and evaluation of projects refinanced by it.

NABARD refinances the financial institutions which finances the rural sector.

The institutions which help the rural economy, NABARD helps develop.

NABARD also keeps a check on its client institutes.

It regulates the institution which provides financial help to the rural economy.

It provides training facilities to the institutions working the field of rural upliftment.

It regulates the cooperative banks and the RRB’s.

First development bank in the world to be set up in the private sector

Objective is to provide medium-term & long-term financing to Indian business.

ICICI Securities & Finance Co. Ltd. ICICI Venture Funds Management Co. Ltd. ICICI Prudential Life Insurance ICICI Home Finance Co. Ltd. ICICI Investment Management Co. Ltd.