This article throws light upon the top four types of non-banking financial institutions in India. The non-banking institutions are: 1. Industrial Finance Corporation of India 2. Industrial Credit and Investment Corporation of India 3. Industrial Development Bank of India 4. State Financial Corporation’s.
Non-Banking Financial Institution Type # 1. Industrial Finance Corporation of India (IFCI):
The IFCI is the pioneer among India’s financial institutions. It was set-up on July 1, 1948.
Types of Assistance:
The functions of the IFCI are:
(a) guaranteeing loans raised by industrial concerns which are repayable within a period not exceeding 25 years and are floated in public interest;
(b) underwriting the issue of stocks, shares, bonds of debentures by guaranteeing loans or advances to or subscribing to debentures of industrial concerns repayable within a period not exceeding 25 years;
(c) extending guarantees in respect of deferred payments by importers who are able to make such arrangements with foreign manufacturers;
(d) acting as agent for the Central Government and/or with its approval, from the World Bank in respect of loans sanctioned by them to industrial concerns.
Later on the scope of its operations was widened to include guaranteeing loans raised by industrial concerns from scheduled banks or state co-operative banks; deferred payments due from industrial concerns in connection with their purchase of capital goods, at home or from abroad.
The IFCI was empowered to subscribe directly to the stocks or shares of an industrial concern and also to convert, at its option, the loans granted or debentures subscribed by it into stocks or shares of the concern.
The general purpose of IFCI is defined as “one of making medium and long-term credit more readily available to industrial concerns in India, particularly in circumstances where normal banking accommodation is inappropriate or recourse to capital issue methods is impracticable.”
Its main object is to provide “medium and long-term loans to large industrial concerns in the private sector. However, now the units from the co-operative, joint and public sector also have been made eligible for its assistance.
It provides direct rupee and foreign currency loans for setting up new industrial projects and for expansion, diversification, renovation, and modernisation of existing units. It also underwrites and directly subscribes to industrial securities, provides financial guarantees, merchant banking services, and lease finance.”
Since inception, till March 31, 1997 the IFCI had sanctioned aggregate assistance of Rs. 39,682 crores for 4,983 projects and disbursed Rs. 25,107 crores.
Non-Banking Financial Institution Type # 2. Industrial Credit and Investment Corporation of India (ICICI):
It was set up on March 1, 1953 as a joint venture of the World Bank. It advances funds to both private sector and joint sector, i.e., projects jointly owned by private and public sectors. One of the main objectives of ICICI is to meet the long-term needs of private industry for both domestic and foreign capital.
For achieving these objectives, ICICI attempts to encourage and promote participation of private capital, both internal and external, in assisted enterprises and projects.
ICICI provides finance in the form of long-or-medium-term loans (maximum period of repayment being 15 years} or equity participation, sponsors and underwrites new issues of shares and securities, guarantees loans from other private sources, and makes funds available for re-investment by revolving investments as quickly as possible. It mainly finances the purchase of capital assets.
Some types of assistance provided are:
(a) Underwriting of issues;
(b) Direct subscriptions;
(c) rupee loans;
(d) Loans in foreign currency and
(e) Guarantee of repayments.
The types of assistance and scope of activities of ICICI are more or less similar to those of the IFCI. However, till a few years back, it was the only institution which was providing foreign currency loans. Even now, its foreign currency loan business is conducted on a much larger scale than that of other financial institutions. It has pioneered the development of institutional financial services in various ways.
It was one of the earliest organisations to start merchant banking services in India through its merchant banking division; it has developed the field of lease finance and instalment sales: it has played an important role in setting up institutions such as Over-the-Counter Exchange, TDICI, SCICI, CRISIL, and venture capital funds, through which it provides a wide range and variety of financial services.
Non-Banking Financial Institution Type # 3. Industrial Development Bank of India (IDBI):
Like the IFCI the IDBI was set up in 1964 to provide long-term industrial funds to Indian industries. Two major components of IDBI’s assistance are: direct and indirect.
Direct assistance consists of:
(1) Project loans.
(2) Underwritings plus direct subscription to industrial enterprises.
(3) Soft loans for modernisation of selected industries such as cotton textiles, jute, cement, sugar and engineering.
(4) Technical development fund assistance for import of equipment and technical know-how, foreign consultancy services, drawing and designs.
Indirect assistance includes:
(a) Refinancing of loans granted by banks, financial institutions, including IFCI and SFCs;
(b) Rediscounting of bills/promissory notes originating from sales of indigenous manufacturing industries, both in private as well as public sectors, including electricity undertakings, transport corporations and motor vehicles, trucks, jeeps and passenger buses;
(c) Subscription to the shares and bonds of financial institutions, both at the Centre and in States; and
(d) Seed capital assistance to new and deserving units to start new ventures. The IDBI is now the central or apex institution in the field of industrial finance.
It functions as a development financing agency in its own right, in addition to its work of coordinating, supplementing, and monitoring the operations of other term-lending institutions in the country.
Apart from providing direct assistance of the types offered by IFCI and ICICI, it provides indirect assistance in the form of discounting/ rediscounting long-term bills/promissory notes, refinancing of loans given by SFCs, banks and so on, and subscribing to resources of other financial institutions such as SFCs, IFCI, ICICI, and so on.
It also takes us various promotional activities such as balanced regional development, entrepreneurship development, technology development and so on. The resources of the IDBI are more or less’ similar to those of the IFCI.
Non-Banking Financial Institution Type # 4. State Financial Corporation’s (SFCs):
SFCs, which are State counterpart of IFCI, also provide finance to industry. At present there are 18 such corporations in India.
A State Finance Corporation can:
(1) Guarantee loans raised by industrial concerns, which are repayable within a period not exceeding 20 years and are floated in the public market, though no such limitation is applicable if the loans are received from scheduled or state cooperative banks;
(2) Guarantee such deferred payments of any industrial concern as are in connection with the purchase of capital goods within India;
(3) Underwrite the issue of stocks, shares, bonds or debentures by industrial concerns;
(4) Act as an agent of the Central Government, State Government, the IFCI or any other financial institutions for grant of loans or advances, or subscription of debentures by them to an industrial concern; and
(5) Grant loans or advances to an industrial concern, repayable within a period not exceeding 20 years or subscribe to its debentures.