Bba(bi) 112


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Bba(bi) 112

  1. 1. Indian Banking System BBA (Banking & Insurance) Paper Code: 112
  2. 2. <ul><li>Unit-I </li></ul><ul><li>Development Banking </li></ul>
  3. 3. Development Banking <ul><li>National Bank for Agriculture and Rural Development (NABARD) </li></ul><ul><li>Industrial Financial Corporation of India (IFCI) </li></ul><ul><li>Industrial Development Bank of India (IDBI) </li></ul><ul><li>Small Industrial Development Bank of India (SIDBI) </li></ul>
  4. 4. NABARD (1982) National Bank for Agricultural and rural Development <ul><li>Demand for agriculture credit in India </li></ul><ul><li>Widening the role of bank credit (from agricultural development to rural credit) </li></ul><ul><li>More focus on credit problems arising out of integrated rural development </li></ul><ul><li>Established in July, 1982 by a special act in the parliament as an “apex bank and refinancing institution” </li></ul>
  5. 5. Resources <ul><li>Rs. 100 crores contributed equally by Govt. of India and RBI </li></ul><ul><li>Raised funds from govt. of India, The World Bank, other agencies, market and also from National Agricultural Fund </li></ul><ul><li>Rs. 6280 crores in 2001-02 and Rs. 5790 crores only in 2002-03 </li></ul>
  6. 6. Functions <ul><li>Dual role to play: </li></ul><ul><li>As an Apex Bank (inherited its apex role from RBI) </li></ul><ul><li>As a Refinance Institution (refinance function performed by ARDC) </li></ul>
  7. 7. Functions <ul><li>It serves as a refinancing institution for all kinds of production and investment credit to agriculture, small scale industries, handicrafts and rural crafts etc. </li></ul><ul><li>Short term and long term credit to State Cooperative Banks, RRBs and other financial institutions approved by RBI </li></ul><ul><li>It grants long term loans to state Govt. to help Cooperative Credit Societies </li></ul>
  8. 8. Functions <ul><li>Provides long term loans to any institute (approved by the Central Govt.) that contributes to the share capital of any institute concerned with the agriculture and rural development </li></ul><ul><li>Coordinates the activities of Central and State Govts., The Planning Commission and others entrusted with the development of small scale industries, village and cottage industries and rural craft etc. </li></ul>
  9. 9. Functions <ul><li>It has a responsibility to inspect RRBs and Cooperative Banks </li></ul><ul><li>Maintains a research and development fund to promote research in agriculture and rural development to formulate and design new programmes and activities </li></ul>
  10. 10. IFCI <ul><li>Established in July, 1948 (under a special act) </li></ul><ul><li>To finance the large scale industries. </li></ul><ul><li>To cope up with the change (i.e. Modernization) </li></ul>
  11. 11. Resources <ul><li>Earlier RBI, Central Bank & other public sector banks and financial institute. </li></ul><ul><li>It can issue Bonds and Debentures up to certain limit in the open market. </li></ul><ul><li>It can borrow from RBI and also from World Bank (for foreign currency) </li></ul><ul><li>It also accepts deposits from public. </li></ul>
  12. 12. Functions <ul><li>It grants loans and advances to industrial concerns (both in rupee and foreign currency). </li></ul><ul><li>Grants loans to Public Limited Co. (long and medium term to manufacturing, mining, shipping and generation & distribution of electricity) </li></ul><ul><li>Works as a guarantor of industrial concerns. </li></ul><ul><li>As an underwriter for stocks, shares, bonds debentures of industrial undertakings. </li></ul><ul><li>It subscribes to the shares of any concern. </li></ul><ul><li>Supplements Commercial banks in providing loans. </li></ul>
  13. 13. “IFCI a sick company” <ul><li>Causes: </li></ul><ul><li>It is used by the politicians and Finance Ministry of India to finance many doubtful and financially weak enterprises. </li></ul><ul><li>Lent extensively to Textile mill sector that soon become sick. </li></ul><ul><li>Heavy accumulation of NPA’s </li></ul>
  14. 14. Steps <ul><li>It was converted into Public Limited Company under the Indian Companies Act, 1956. </li></ul><ul><li>Given freedom to function as a Public Limited Company from July, 1993. </li></ul>
  15. 15. Results <ul><li>It raised capital of Rs. 600 crores through public issue of equity shares. </li></ul><ul><li>The Govt. of India also subscribed Rs. 400 crores through 20-year convertible funds. </li></ul><ul><li>IDBI, SBI and LIC also assisted with Rs. 600 crores (Rs. 200 crores each). </li></ul><ul><li>None of these measures worked and IFCI gone bad to worse. </li></ul><ul><li>Finally Govt. of India agreed to merge it with PNB in January, 2004. </li></ul>
  16. 16. IDBI (1964) (Industrial Development Bank of India) <ul><li>In 1964 wholly owned subsidiary of RBI </li></ul><ul><li>Taken over by Govt. of India in 1976 </li></ul><ul><li>To provide long term finance or assistance to industry </li></ul><ul><li>Like IFCI, State Financial Corporations and ICICI </li></ul><ul><li>Inadequacy of above in providing the same </li></ul><ul><li>Needs of rapid industrialization </li></ul><ul><li>Coordinating other agency’s activities in providing finance to industries </li></ul>
  17. 17. Functions <ul><li>Direct Assistance: </li></ul><ul><li>Project Loans </li></ul><ul><li>Soft Loans </li></ul><ul><li>Technical Development Fund Loans </li></ul><ul><li>Equipment Finance Loans </li></ul><ul><li>Direct Subscription to and Underwriting of industrial securities (Shares & debentures) </li></ul><ul><li>(Project loans more than Rs. 3 crores on the basis of consortium with other financial institutions and commercial banks) </li></ul>
  18. 18. Functions <ul><li>Indirect Assistance: </li></ul><ul><li>refinance of industrial loans granted by SFCs, SIDCs, Commercial Banks, Cooperative Banks and RRBs </li></ul><ul><li>rediscounting of bills arising out of sale of indigenous machinery on deferred payment basis </li></ul><ul><li>seed capital assistance to new enterprises through SFCs and SIDCs </li></ul>
  19. 19. Functions <ul><li>Special Assistance: “Development Assistance Fund” for those undertakings unable to secure finance due to heavy investment and/or low rate of return </li></ul>
  20. 20. Functions <ul><li>General Assistance: </li></ul><ul><li>Promotional Activities (like research, surveys and techno-economic studies) </li></ul><ul><li>Technical and administration assistance for promotion, management and expansion </li></ul><ul><li>Helping industrialization by planning, promoting & developing new industries </li></ul>
  21. 21. Functioning of IDBI <ul><li>Direct Assistance </li></ul><ul><li>Assistance to backward areas </li></ul><ul><li>Refinance of Industrial Loans </li></ul><ul><li>Assistance to small scale units </li></ul><ul><li>Balanced Regional Development </li></ul><ul><li>Soft loan Schemes </li></ul><ul><li>Foreign Currency Requirement </li></ul>
  22. 22. Reconstructing the IDBI <ul><li>Bureaucrats in Finance Ministry wanted direct control on IDBI </li></ul><ul><li>To make IDBI independent </li></ul><ul><li>Not an effective development bank </li></ul><ul><li>Unable to accelerate the process of industrialization </li></ul><ul><li>RBI and IDBI having common BoDs </li></ul><ul><li>Govt. and Dy. Governors were incapable of shouldering the responsibilities cast on them </li></ul><ul><li>The management of RBI and IDBI made them slaves of procedures </li></ul>
  23. 23. SIDBI (1990) (Small Industries Development Bank of India) <ul><li>Wholly owned subsidiary of IDBI </li></ul><ul><li>To promote, finance and develop small scale industries </li></ul><ul><li>Coordinates existing institutions engaged in similar activities </li></ul><ul><li>Taken over the responsibility of Small Industries Development Fund and National Equity Fund </li></ul><ul><li>It uses the existing institutions (SFCs, SIDCs, Commercial Banks, Cooperative Banks and RRBs) to extend its help to small scale industries throughout the nation </li></ul>
  24. 24. Functions <ul><li>Refinancing of loans and advances by primary lending institutions </li></ul><ul><li>Discounting and rediscounting of bills </li></ul><ul><li>Extension of seed capital/ soft loans </li></ul><ul><li>Granting direct assistance for exporting products manufactured by small scale industries </li></ul>
  25. 25. Functions <ul><li>Providing services like leasing and factoring to industrial concerns </li></ul><ul><li>Extending financial support to State Small Industries Development Corporations (for raw materials and marketing finished products) </li></ul><ul><li>Financial support to National Small Industries Corporations (leasing, hire-purchase and marketing support) </li></ul>