Indian Industrial Financial Institutions part 13

 Okay, here are the comprehensive notes from the Telugu lecture on Indian Industrial Financial Institutions, covering all the key points mentioned:

Topic: Indian Industrial Financial Institutions (భారత పారిశ్రామిక విత్త సహాయక సంస్థలు)

1. Introduction

• Recap: Previous lecture discussed India's largest industries.

• Current Topic: Financial institutions supporting industries in India. Specifically, institutions providing financial assistance (విత్త సహాయక సంస్థలు).

• Core Function: Provide long-term loans (దీర్ఘకాలిక రుణాలు) to industries. These are crucial for industrial development.

• Importance: Mobilizing capital (మూలధనం) is essential for establishing and running industries. These institutions play a key role.

• Exam Relevance: This area is important for exams, questions can be expected.

2. Need for Industrial Finance & The Capital Market

• Industrial Growth: Requires significant capital investment.

• Source of Funds: Industries need ways (మార్గాలు) to raise capital.

• Role of these Institutions: Provide large sums as loans, often long-term, which is essential for industrial sector growth and national development.

• Capital Market (మూలధన మార్కెట్):

  • This is the market where long-term funds are raised and provided, primarily for industries.

  • The institutions discussed operate within the Capital Market.

  • They facilitate development by providing long-term financial support and assistance (సహాయ సహకారాలు).

• Money Market (ద్రవ్య మార్కెట్):

  • Contrasted with Capital Market.

  • Deals with short-term funds.

  • Includes regular commercial banks (like SBI) that serve the general public's immediate financial needs (ద్రవ్య అవసరాలు).

  • Provides short-term (స్వల్పకాలిక), medium-term (మధ్యకాలిక) loans.

• Banks vs. Industrial Financial Institutions:

  • Regular Banks: Give loans to the public (short/medium term). They provide long-term loans only to the agricultural sector, NOT the industrial sector. (Generally, bank loans have a limit, e.g., speaker mentioned 7 years, except agriculture).

  • Industrial Financial Institutions: Specifically designed to provide long-term loans to the industrial sector.

  • Key Distinction: Commercial banks (వాణిజ్య బ్యాంకులు), Cooperative banks (సహకార బ్యాంకులు), Regional Rural Banks (ప్రాంతీయ గ్రామీణ బ్యాంకులు) give long-term loans to Agriculture & Housing, but NOT to Industries.

3. Example Question (Illustrating the Concept)

• Question: Which of the following is NOT part of the financial system providing long-term loans to industries / NOT part of the Capital Market?

  • Options: IFCI, IDBI, SBI, SIDC(s)

  • Answer: SBI (State Bank of India) - It's a commercial bank operating primarily in the Money Market, not providing long-term industrial finance directly like the others listed.

4. Specific Industrial Financial Institutions

A. IFCI (Industrial Finance Corporation of India)

• Full Name: Initially Indian Industrial Finance Corporation of India.

• Established: 1948 (through the IFCI Act, 1948). It was a statutory corporation.

• Purpose: To provide medium and long-term finance to industries. Initially focused on the public sector.

• Funding: Raised funds by issuing bonds in the market. Lent this money to industries at a higher interest rate.

• Challenges: Post-1991 reforms, many Public Sector Undertakings (PSUs) faced difficulties and defaulted on loans, leading to large Non-Performing Assets (NPAs - మొండి బకాయిలు) for IFCI.

• Transformations:

  • 1993: IFCI Act was repealed. IFCI was registered as a company under the Companies Act, 1956. Came under more direct Central Government oversight.

  • 2013 onwards: Functioning primarily as a Non-Banking Finance Company (NBFC).

  • Current Focus: Shifted from direct industrial lending to financing infrastructure projects (roads, railways etc.) undertaken on behalf of the government.

• Telugu Name: భారత పరిశ్రమల విత్త సహాయక సంస్థ.

B. SFCs (State Financial Corporations - రాష్ట్ర ఆర్థిక సంస్థలు)

• Act: State Financial Corporations Act, 1951 (A Central Act enabling states to establish their own SFCs).

• Purpose: Provide long-term finance to small and medium-scale industries at the state level.

• Establishment:

  • First SFC: Punjab (1953).

  • APSFC (Andhra Pradesh): Established 1956.

  • TGSFC (Telangana): Post-bifurcation (2014), operates as a wing within APSFC, not fully separated yet (as per lecture context).

• Number: Around 18 SFCs exist in different states.

• Key Role: Fills the gap for long-term finance for smaller industries within states, which commercial banks don't cater to.

• Exception: Tamil Nadu SFC was established under a state-specific act.

C. ICICI (Industrial Credit and Investment Corporation of India)

• Established: 1955 (Note: Speaker didn't explicitly state year, but placed it chronologically here).

• Purpose: To provide long-term credit and investment support, focusing primarily on the private sector industries (complementary to IFCI's public sector focus).

• Funding: Likely through bonds, foreign loans, and government support initially.

• Transformations:

  • Post-1991: Permitted to transform into a bank, leveraging its 10+ years of experience in the financial sector (a requirement then).

  • ICICI Bank: Formed in 1994. (Speaker mentioned '93/'94).

  • Universal Bank: Now offers a wide range of financial services (banking, insurance, mutual funds etc.), operating in both Money and Capital markets.

• Telugu Name: భారత పరిశ్రమల పరపతి పెట్టుబడుల సంస్థ.

D. SIDCs (State Industrial Development Corporations)

• Established: Around the 1960s.

• Purpose: Promote medium and large-scale industries at the state level. They also provide financial assistance and support services (like procuring machinery/inputs) even to small-scale industries.

• Scope: Broader than SFCs (which focus mainly on finance for small/medium). SIDCs focus on overall development, infrastructure, and finance for larger units, plus support for smaller ones.

• Funding: State Governments.

E. IDBI (Industrial Development Bank of India)

• Established: 1964, initially as a wholly-owned subsidiary of the Reserve Bank of India (RBI).

• Purpose: Acted as the apex institution for industrial finance, coordinating activities of other institutions, providing refinance, and also direct assistance.

• Autonomy: Separated from RBI and made autonomous in 1976.

• Transformations:

  • 2004: Converted into a commercial bank (IDBI Bank Ltd.) under the Companies Act.

  • 2019: Life Insurance Corporation of India (LIC) acquired a majority stake (over 51%).

  • Current Status: Classified as a Private Sector Bank by RBI for regulatory purposes due to LIC's majority holding (even though LIC is government-owned).

F. UTI (Unit Trust of India)

• Established: 1964 (by an Act of Parliament).

• Purpose: To mobilize savings from small and low-income groups and channel them into productive investments in the capital market. Essentially, India's first mutual fund.

• Mechanism: Sold "Units" instead of shares, making investment accessible (e.g., minimum 100 units @ ₹10 = ₹1000). Invested this pooled money in various companies' shares/bonds.

• Target: Attracted investors wary of direct stock market risks.

• Transformations:

  • Faced crisis (US-64 scheme issue).

  • 2003: Restructured and split into:

    • SUUTI (Specified Undertaking of UTI): Managed older, problematic assets, government-backed.

    • UTI Mutual Fund (UTI AMC Ltd): New SEBI-regulated entity, sponsored by SBI, PNB, BoB, LIC.

  • UTI Bank: Established separately in 1994 (sponsored by the original UTI). Renamed Axis Bank in 2007. (Speaker linked UTI Bank formation more directly to UTI's transformation).

G. IRCI / IRBI / IIBI (Industrial Reconstruction Corporation/Bank/Investment Bank of India)

• IRCI (1971): Established to revive and rehabilitate sick industrial units (companies making losses for consecutive years, eroding net worth).

• IRBI (1985): IRCI converted into a statutory corporation, the Industrial Reconstruction Bank of India. Function shifted towards providing loans for reconstruction.

• IIBI (1997): IRBI converted into a company, the Industrial Investment Bank of India. Focus shifted towards investment banking.

• Merger Attempt: Plan to merge IIBI with IFCI did not materialize.

• Closure (2012): Due to continued losses and non-viability, IIBI was officially wound up by the government.

H. SIDBI (Small Industries Development Bank of India)

• Established: 1990.

• Purpose: Principal financial institution for the promotion, financing, and development of the Micro, Small, and Medium Enterprise (MSME) sector. Also coordinates functions of institutions engaged in similar activities.

• Role: Primarily a refinance institution (provides funds to banks/SFCs that lend to MSMEs), development activities, regulation, and coordination for the MSME sector.

• Regulation: Works under the Ministry of Finance, regulated by RBI.

• Headquarters: Lucknow.

• Distinction: While crucial for industrial finance, it's an apex development and refinance bank for MSMEs, not a direct long-term lender in the capital market like the initial DFIs. It's one of the 4 All India Financial Institutions regulated by RBI (along with NABARD, NHB, EXIM Bank).

5. Components of the Capital Market (Brief Overview)

• Development Finance Institutions (DFIs): IFCI, ICICI, SFCs, SIDCs, IDBI (initially).

• Government Securities Market.

• Industrial Securities Market (Shares, Debentures, Bonds).

• Financial Intermediaries: Mutual Funds, Venture Capital Funds, Leasing Companies etc.

6. Conclusion

• These specialized institutions were established to cater to the specific long-term financial needs of the Indian industrial sector, playing a vital role in its development, distinct from the functions of commercial banks. Many have transformed over time due to economic reforms and changing needs.