RBI Governor C Rangarajan, have long argued that closing down term finance institutions was a mistake and that we need to revive these in order to facilitate long term financing (given that bond markets have not taken off).

1. CLOSING DOWN OF TERM
FINANCE INSTITUTIONS
WAS A MISTAKE IN
INDIA.
- By Ashwathy nair

2. PRESENTATION
FRAMEWORK
Key talking
points
- The Issue?
- Knowing the Basics (Term Finance & DFIs)
- Role of development finance
- List of major DFIs in India
- Learning from past mistake

3. RBI Governor C Rangarajan, have
long argued that closing down term
finance institutions was a
mistake and that we need to revive
these in order to facilitate long term
financing (given that bond markets
have not taken off). Closing
down term finance
Institutions was a
mistake in India.

4. KNOWING
THE BASICS
What is term finance?
Long-term finance can be defined as any
financial instrument with maturity exceeding one
year (such as bank loans, bonds, leasing, and
other forms of debt finance), and public and
private equity instruments.

5. What are DFIs?
Development Financial Institutions (DFIs) were
established with the Government support for
underwriting their losses as also the
commitment for making available low cost
resources for lending at a lower rate of interest
than that demanded by the market for risky
projects.

6. Development
Financial
Institutions
(DFIs) in India –
Role of
Development
Role of development finance may be evaluated in
following ways:
(i) It is supposed to identify the gaps in efficacy of institutions
and markets and act as a ‘gap-filler’.
(ii) It makes up for the failure of financial markets and
institutions to provide certain kinds of finance to economic
agents who are really interested to improve the working of
economy.
(iii) It targets at economic activities or agents, which are rationed
out of market. It motivates the agent to take risky business with
venture finance.
(iv) It helps the funds seekers by providing concessional funds at
lower rate of return. Social return of DFIs is quite high. Keeping
these facts in mind central banking system also supports
development financial institutions.
(v) It is specialized in nature and involved long term finance. It is
exclusively meant for infrastructure and industry, finance for
agriculture and small and medium enterprises (SME) development
and financial products for certain sections of the people who
needs funds for development perspectives.

7. Development
Financial
Institutions
(DFIs) in India –
List of major
DFIs
List of Major Development Financial Institutions in
India:
(i) Industrial Finance Corporation of India (IFCI Ltd.)
(ii) Industrial Credit and Investment Corporation
(ICICI)
(iii) Industrial Development Bank of India (IDBI)
(iv) Industrial Investment Bank of India Ltd. (IIBI)
(v) Infrastructure Development Finance Company
Ltd. (IDFC)

8. Learning from past mistake:Learning from past mistake:Learning from past mistake:
Why India still needs developmentWhy India still needs developmentWhy India still needs development
financial institutions?financial institutions?financial institutions?
The three main development financial institutions or DFIs (ICICI, IDBI and IFCI) in creating a foundation for Indian manufacturing
sector as well as the financial services infrastructure. Institutions such as NSE, NSDL, SHCIL, CARE, EXIM Bank, SIDBI, SCICI,
CRISIL, HDFC, TDICI and TFCI were promoted by these institutions.
All the three institutions suffered huge NPAs in the 1990s due to a variety of reasons, especially capacity creation in
commodities like steel, fertiliser, textile becoming unviable.
There is no doubt that today India is standing at the threshold of an industrial revolution of its own. If the
present trend continues, we may soon see the share of manufacturing in the national income rising
materially.The fear, however, is that the current trend may reverse abruptly, just like it did in the mid-1990s,
and we may remain stuck in the lower 5-6 percent growth orbit.
In the past two decades, some significant structural changes have taken place in the Indian economy.
The external trade profile of India has seen a material transformation in the past decade.Manufactured engineering goods
have become a major source of export income. Electronics has become a major import item.

9. Thank you.