Development banking

PROJECT REPORT ON
DEVELOPMENT BANKING
UNIVERSITY OF MUMBAI

BACHELOR OF COMMERCE
(BACHELOR IN BANKING AND INSURANCE)
SEMESTER V
2011-12

SUBMITTED BY
POOJA JAISWAL

PROJECT GUIDE
PROF.POOJA NAGDEV

K.P.B HINDUJA COLLEGE OF COMMERCE

315, New Charni Road, Mumbai- 400 004

Development banking

BACHELOR IN BANKING AND INSURANCE

5th SEMESTER

DEVELOPMENT BANING

SUBMITTED BY
POOJA JAISWAL

ROLL. NO: - 12

Development banking

CERTIFICATE

This is to certify that Ms. POOJA JAISWAL of (B.Com) Bachelor in

Banking and Insurance 5th [2010-2011] has successfully completed the
Project on DEVELPOMENT BANKING under the guidance of PROF
MS POOJA NAGEV.

Project Guide

________________

Course Coordinator

________________

Internal Examiner

________________

External Examiner

________________

Principal

________________
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Development banking

DECLARATION
I Ms. POOJA JAISWAL the student of B.Com- Bachelor in Banking and
Finance, 5th semester (2010-2011), hereby declare that I have complete the
project on DEVELOPMENT BANKING
The information submitted is true and original copy to the best of our
knowledge.

(Signature)
POOJA JAISWAL

Development banking

ACKNOWLEDGEMENT
The project on DEVELOPMENT BANKING is a result of cooperation, hard work and good wishes of many people. I student of K.P.B.
HINDUJA COLLEGE OF COMMERCE would like to thank the project
guide PROF MS POOJA NAGDEV. for her involvement in my project
work and timely assessment that provided me inspiration and valued
guidance throughout my study.

I own my debt to PROF. POOJA NAGDEV Course co-ordinator for her

friendly guidance & constant encouragement.

I also take this opportunity to express my sincere gratitude to the library

staff, which provided me with right information and right material at right
time.

I express my deep gratitude to all my college friends and my family

members whose efforts and creativity has helped me in giving the final
structure to the project work.

Development banking

DEVELOPMENT BANKING

A Project Submitted To
THE UNIVERSITY OF MUMBAI
For The degree of
BACHELOR OF BANKING AND INSURANCE
In the partial fulfillment of requirement of the
course
BY
POOJA RAMNARESH JAISWAL
UNDER THE SUPERVISION OF
Ms. POOJA.T.NAGDEV

DEPARTMENT OF BBI
K. P .B HINDUJA COLLEGE OF COMMERCE AND
ECONOMICS
MUMBAI - 400004

Development banking

STATEMENT BY THE CANDIDATE

I, POOJA RAMNARESH JAISWAL, wish to state that the work

embodied in this project entitled DEVELOPMENT BANKING is
carried out under the supervision Of Prof. MS. POOJA .T.NAGDEV,
Department of B.B.I, K.P.B. HINDUJA COLLEGE OF COMMERCE AND
ECONOMICS, Mumbai. This work has not been submitted for any other
degree of this or any other universities.

(POOJA .R. JAISWAL)

(Ms. POOJA.T. NAGDEV)

Development banking

DEVELOPMENT BANKING
(B.B.I. PROJECT)
BY POOJA RAMNARESH JAISWAL
UNDER THE SUPERVISION OF
Ms. POOJA.T.NAGDEV

DEPARTMENT OF B.B.I
K.P.B HINDUJA COLLEGE OF COMMERCE AND
ECONOMICS
MUMBAI-400004
OCTOBER, 2011

Development banking

CERTIFICATE

I, Prof. POOJA.T.NAGDEV hereby certify that MS. POOJA . R.

JAISWAL student of T.Y.B.Com (Banking & Insurance), K.P.B.
HINDUJA COLLEGE OF COMMERCE & ECONOMICS, has
completed her project on DEVELOPMENT BANKING in the
academic year 2011. The information submitted is true and
original to the best of my knowledge.

Development banking

(POOJA NAGDEV)
(Co-ordinator, B. B.I)

ACKNOWLEDGEMENT
During

The

Perseverance

Of

This

Project, I Was

Supported By Different Pe
I Would Also Like To Give My Sincere Gratitude To All My College
Librarian Staff Because Of Whom I Am Able To Complete My Dream
Project.
ople, Whose
Names If Not Mentioned Would Be Inconsiderate On My Part. I Would Like
To Extend
My Sincere Gratitude & Appreciation To Prof. MS POOJA NAGDEV
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Development banking

Who Initiated Me Into The Study Of DEVELOPMENT BANKING

It Has Indeed Been A Great Experience Working Under Her During The
Course Of The Project For Her Invaluable Advice And Guidance Provided
Through Out This Project. I Also Owe My Sincere Gratitude to T.A.
SHIWARE Principal Of Our College.
I Would Also Like To Thank The Following People Who Through Their
Experience Have Enlightened Me On The Practical Aspects Of This Subject
Without Whom The Study Would Not Have Been Carried Out Successfully.
1. PRIYANKA MISHRA
2. KAVITA GIRME

Table of Contents

Sr. no
1.

Contents
Introduction

11

Page
no
8-10

Development banking

2.

Banking services in India

11-15

2.1.banking in India
2.2.overview of development
banks

3.

Development financial

16-22

institutions

4.

Detailed study on banks

23-61

4.1 SIDBI
4.2.NABARD
4.3 IDBI
5.
6.
7.

Questionarie

62

Conclusion
Bibliography

63
64

INTRODUCTION :
The name bank derives from the Italian word banco, desk, used during
the Renaissance by Florentines bankers, who used to make their transactions
above a desk covered by a green tablecloth
A bank is a commercial or state institution that provides financial
services, including issuing money in various forms, receiving deposits of
money, lending money and processing transactions and the creating of credit. A
commercial bank accepts deposits from customers and in turn makes loans,
even in excess of the deposits. Some banks (called Banks of issue) issue
12

Development banking

banknotes as legal tender. Many banks offer ancillary financial services to make
additional profit; for example, most banks also rent safe deposit boxes in their
branches.
Currently in most jurisdictions commercial banks are regulated and
require permission to operate. Operational authority is granted by bank a
regulatory authority that provides rights to conduct the most fundamental
banking services such as accepting deposits and making loans. A commercial
bank is usually defined as an institution that both accepts deposits and makes
loans; there are also financial institutions that provide selected banking services
without meeting the legal definition of a bank. Banks have influenced
economies and politics for centuries. Historically, the primary purpose of a bank
was to provide loans to trading companies. Banks provided funds to allow
businesses to purchase inventory, and collected those funds back with interest
when the goods were sold. For centuries, the banking industry only dealt with

with banks carefully analysing the financial condition of their business clients
to determine the level of risk in each loan transaction. Banking services have
expanded to include services directed at individuals, and risks in these much
smaller transactions are pooled.
A bank generates a profit from the differential between the level of
interest it pays for deposits and other sources of funds, and the level of interest
it charges in its lending activities. This difference is referred to as the spread
between the cost of funds and the loan interest rate. Historically, profitability
from lending activities has been cyclic and dependent on the needs and

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strengths of loan customers. In recent history, investors have demanded a more

stable revenue stream and banks have therefore placed more emphasis on
transaction fees, primarily loan fees but also including service charges on array
of deposit activities and ancillary services (international banking, foreign
exchange, insurance, investments, wire transfers, etc.). However, lending
activities still provide the bulk of a commercial bank's income.
CURRENT SCENAREO:
Currently (2011), overall, banking in India is considered as fairly mature
in terms of supply, product range and reach-even though reach in rural India
still remains a challenge for the private sector and foreign banks. Even in terms
of quality of assets and capital adequacy, Indian banks are considered to have
clean, strong and transparent balance sheets-as compared to other banks in
comparable economies in its region. The Reserve Bank of India is an
autonomous body, with minimal pressure from the government. The stated

policy of the Bank on the Indian Rupee is to manage volatility-without any

stated exchange rate-and this has mostly been true.
With the growth in the Indian economy expected to be strong for quite some
time-especially in its services sector, the demand for banking servicesespecially retail banking, mortgages and investment services are expected to be
strong. M&As, takeovers, asset sales and much more action (as it is unraveling
in China) will happen on this front in India.

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In March 2010, the Reserve Bank of India allowed Warburg Pincus to increase
its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the
first time an investor has been allowed to hold more than 5% in a private sector
bank since the RBI announced norms in 2009 that any stake exceeding 5% in
the private sector banks would need to be vetted by them.
Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector
banks (that is with the Government of India holding a stake), 29 private banks
(these do not have government stake; they may be publicly listed and traded on
stock exchanges) and 31 foreign banks. They have a combined network of over
53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a
rating agency, the public sector banks hold over 75 percent of total assets of the
banking industry, with the private and foreign banks holding 18.2% and 6.5%
respectively.

BANKING SERVICES IN INDIA:

With years, banks are adding services to their
customers. The Indian banking industry is passing
through a phase of customers market. The customers have
more choices in choosing their banks. A competition has
been established within the banks operating in India.
With stiff competition and advancement of technology, the services provided by
banks have become more easy and convenient. The past days are witness to an
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Development banking

hour wait before withdrawing cash from accounts or a cheque from north of
country being cleared in one month in the south.
This section of banking deals with the latest discovery in the banking
instruments along with polished version of their old systems.
A bank is a business which provides financial services for profit.
Traditional banking services include receiving deposits of money, lending
money and processing transactions. Some banks (called Banks of issue) issue
banknotes as legal tender. Many banks offer ancillary financial services to make
additional profit; for example: selling insurance products, investment products,
or stock broking.
Currently in most jurisdictions the business of banking is regulated and
banks require permission to trade. Authorization to trade is granted by bank
regulatory authorities and provides rights to conduct the most fundamental
banking services such as accepting deposits and making loans. There are also
financial institutions that provide banking services without meeting the legal
definition of a bank.

BANKING IN INDIA:
Banking in India originated in the first
decade of 18th century with The General Bank of
India coming into existence in 1786. This was
followed by Bank of Hindustan. Both these
banks are now defunct. The oldest bank in
existence in India is the State Bank of India being established as "The Bank of
Bengal" in Calcutta in June 1806. At that point of time, Calcutta was the most
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active trading port, mainly due to the trade of the British Empire, and due to
which banking activity took roots there and prospered. The first fully Indian
owned bank was the Allahabad Bank, which was established in 1865.By the
1900s, the market expanded with the establishment of banks such as Punjab
National Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai - both
of which were founded under private ownership. The Reserve Bank of India
formally took on the responsibility of regulating the Indian banking sector from
1935. After India's independence in 1947, the Reserve Bank was nationalized
and given broader powers.

OVERVIEW OF DEVELOPMENT BANKING IN INDIA:

The

concept

of

development

banking rose only after Second World

War, Successive of the Great Depression
in 1930s. The demand for reconstruction
funds for the affected nations compelled
in setting up worldwide institution for
reconstructions. As a result the IBRD
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was set up in 1945 as a worldwide institution for development and

reconstruction. This concept has been widened all over the world and resulted
in setting up of large number of banks around the world which coordinating the
developmental activities of different nations with different objectives among the
world.
The course of development of financial institutions and markets during
the post-Independence period was largely guided by the process of planned
development pursued in India with emphasis on mobilization of savings and
canalizing investment to meet Plan priorities. At the time of Independence in
1947, India had a fairly well-developed banking system. The adoption of bank
dominated financial development strategy was aimed at meeting the sectoral
credit needs, particularly of agriculture and industry. Towards this end, the

Reserve Bank concentrated on regulating and developing mechanisms

for institution building. The commercial banking network was expanded to
cater to the requirements of general banking and for meeting the short-term
working capital requirements of industry and agriculture. Specialized
development financial institutions (DFIs) such as the IDBI, NABARD, NHB
and SIDBI, etc., with majority ownership of the Reserve Bank were set up to
meet the long-term financing requirements of industry and agriculture. To
facilitate the growth of these institutions, a mechanism to provide concessional
finance to these institutions was also put in place by the Reserve Bank. The first
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development bank In India incorporated immediately after independence in

1948 under the Industrial Finance Corporation Act as a statutory corporation
to pioneer institutional credit to medium and large-scale. Then after in regular
intervals the government started new and different development financial
institutions to attain the different objectives and helpful to five-year plans. The
early history of Indian banking and finance was marked by strong governmental
regulation and control. The roots of the national system were in the State Bank
of India Act of 1955, which nationalized the former Imperial Bank of India and
its seven associate banks. In the early days, this national system operated along
side of a large private banking system. Banks were limited in their operational
flexibility by the governments desire to maintain employment in the banking
system and were often drawn into troublesome loans in order to further the
governments social goals. The financial institutions in India were set up under
the strong control of both central and state Governments, and the Government
utilized these institutions for the achievements in planning and development of

the nation as a whole. The all India financial institutions can be classified under
four heads according to their economic importance that are:
All-India Development Banks
Specialized Financial Institutions
Investment Institutions
State-level institutions
Other institutions

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DEVELOPMENT FINANCIAL INSTITUTIONS:

Preface
The emerging economies in post colonial era faced the difficult choice of
appropriate mechanism for chanalizing resources into the
development effort. Many of them had inherited capital
starved primitive financial systems. Such system could not

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be relied upon to allocate resources among competing demands in the economy.

The task of institution building was too important to be left at the mercy of the
market forces at the nascent stage of development. In such a situation several
governments in Continental Europe and East Asian economies decided to take
matters into their hands and established institutions specifically to cater to the
requirements of financial resources for developmental effort. Such institutions
were called Development Financial Institutions.
Development financing is a risky business. It involves financing of
industrial and infrastructure projects which usually have long gestation period.
The long tenor of such loans has associated with it uncertainty as to
performance of the loan asset. The repayment of the long term project loans is
dependent on the performance of the project and cash flows arising from it
rather than the realisability of the collaterals. The project could go wrong for a
variety of reasons, such as, technological obsolescence, market competition,
change of Government policies, natural calamities, poor management skills,
poor infrastructure etc. The markets and banking institutions were highly averse
to such uncertain outcome, besides not possessing enough information and
Consideration associated with such risky ventures. The long term loan comes
with a higher price tag due to the term premium loaded into the pricing. In such
a situation the long term financing would be scarce as well as costly so as to
render the project financially unviable.
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. This arrangement worked well in the initial years of development. As

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the infrastructure building and industrialization got underway the financial

system moved higher on the learning curve and acquired information and skills
necessary for appraisal of long term projects. It also developed appetite for risk
associated with such projects. The intermediaries like banks and bond markets
became sophisticated in risk management techniques and wanted a piece of
the pie in the long term project financing. These intermediaries also had
certain distinct advantages over the traditional DFIs such as low cost of funds
and benefit of diversification of loan portfolios. The Government support to
DFIs, in the meanwhile, was also waning either for fiscal reasons or in favour
of building market efficiency. Therefore, towards the end of twentieth century
the heydays of DFIs were over and they started moving into oblivion. In several
economies, having attained their developmental goals, the DFIs were both
restructured and repositioned or they just faded away from scene. The Indian
experience has also more or less traversed the same path. Although India cannot
said to have achieved the developmental goals yet, the Government's fiscal
imperatives and market dynamics has forced a reappraisal of the policies and
strategy with regard to the role of DFIs in the system.

EVOLUTION, OBJECTIVES AND FINANCIAL POSITION

OF FINANCIAL INSTITUTIONS IN INDIA:
A typical structure of financial system in any economy consists of
financial institutions, financial markets, financial instruments and financial
services. The functional, geographic and sectoral scope of activity or the types
of ownership are some of the criteria which are often used to classify the large
number and variety of financial institutions which exist in the economy. In its

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broadest sense the term financial institution would include banking

institutions and non-banking financial institutions
1. The banking institutions may have quite a few things in common with
the non-banking ones. However, the distinction between the two has been
highlighted by Sayers, by characterizing the former as creators of credit, and
the latter as mere purveyors of credit
2. This distinction arises from the fact that banks, which are part of
payment system, can create deposits and credit but the non-banking institutions,
which are not part of payment system, can lend only out of the resources put at
their disposal by the savers.

DEVELOPMENT FINANCE INSTITUTIONS:

An efficient and robust financial system acts as a powerful engine of
economic development by mobilizing resources and allocating the same to their
productive uses. It reduces the transaction cost of the economy through
provision of an efficient payment mechanism, helps in pooling of risks and
making available long-term capital through maturity transformation. By
making funds available for entrepreneurial activity and through its impact

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on economic efficiency and growth, a well functioning financial sector also

helps alleviate poverty both directly and indirectly.
In a developing country, however, financial sectors are usually
incomplete in as much as they lack a full range of markets and institutions that
meet all the financing needs of the economy. For example, 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 countrys financial
sector and act as a gap-filler. The principal motivation for developmental
finance is, therefore, to make up for the failure of financial markets and
institutions to provide certain kinds of finance to certain kinds of economic
agents. The failure may arise because the expected return to the provider of
finance is lower than the market-related return (notwithstanding the higher
social return) or the credit risk involved cannot be covered by high risk
premium as economic activity to be financed becomes unviable at such risk-

based price. Development finance is, thus, targeted at economic activities or

agents, which are rationed out of market. The vehicle for extending
development finance is called development financial institution (DFI) or
development bank.
A DFI is defined as "an institution promoted or assisted by Government
mainly to provide development finance to one or more sectors or sub-sectors of
the economy. The institution distinguishes itself by a judicious balance as

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between commercial norms of operation, as adopted by any private financial

institution, and developmental obligations; it emphasizes the "project
approach" - meaning the viability of the project to be financed against the
"collateral approach"; apart from provision of long-term loans, equity capital,
guarantees and underwriting functions, a development bank normally is also
expected to upgrade the managerial and the other operational pre-requisites of
the assisted projects. Its insurance against default is the integrity, competence
and resourcefulness of the management, the commercial and technical viability
of the project and above all the speed of implementation and efficiency of
operations of the assisted projects. Its relationship with its clients is of a
continuing nature and of being a "partner" in the project than that of a mere
"financier
Thus, the basic emphasis of a DFI is on long-term finance and on
assistance for activities or sectors of the economy where the risks may be higher
than that the ordinary financial system is willing to bear. DFIs may also play a
large role in stimulating equity and debt markets by
(i) Selling their own stocks and bonds;
(ii) Helping the assisted enterprises float or place their securities an
(iii) Selling from their own portfolio of investments.

EMERGENCE OF FINANCIAL INSTITUTIONS IN INDIA:

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As mentioned earlier, DFIs are created in developing countries to

resolve market failures, especially in regard to financing of long-term
investments. The DFIs played a very significant role in rapid industrialization
of the Continental Europe. Many of the DFIs were sponsored by national
governments and international agencies. The first government sponsored DFI
was created in Netherlands in 1822. In France, significant developments in
long-term financing took place after establishment of DFIs such as Credit
Foncier and Credit Mobiliser, over the period 1848-1852. In Asia, establishment
of Japan Development Bank and other term-lending institution fostered rapid
industrializations of Japan. The success of these institutions provided strong
impetus for creation of DFIs in India after independence, in the context of the
felt need for raising the investment rate. RBI was entrusted with the task of
developing an appropriate financial architecture through institution building so
as to mobilise and direct resources to preferred sectors as per the plan priorities.
While the reach of the banking system was expanded to mobilise resources and
extend working capital finance on an ever-increasing scale, to different sectors
of the economy, the DFIs were established mainly to cater to the demand for
long-term finance by the industrial sector. The first DFI
established in India in 1948 was Industrial Finance Corporation of India
(IFCI) followed by setting up of State Financial Corporations (SFCs) at the
State level after passing of the SFCs Act, 1951.

FINANCIAL INSTITUTIONS SET UP BETWEEN

1948 AND 1974

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Besides IFCI and SFCs, in the early phase of planned economic

development in India, a number of other financial institutions were set up,
which included the following.
NAME OF THE COMPANY
ICICI Ltd
LIC
Refinance Corporation for Industries Ltd
Agriculture Refinance Corporation and

YEAR OF
ESTABLISHMENT
1955
1956
1958

1963
NABARD
UTI and IDBI
1964
Rural Electrification Corporation Ltd. and HUDCO Ltd
1969-70
Industrial Reconstruction Corporation of India Ltd.
1971
GIC
1972
It may be noted here that although the powers to regulate financial
institutions had been made available to RBI in 1964 under the newly inserted
Chapter IIIB of RBI Act, the definition of term financial institution was
made precise and comprehensive by amendment to the RBI Act Section 45-I (c)
in 1974.

SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA

(SIDBI)
PROFILE
Small Industries Development Bank of India (SIDBI)
was established in April 1990 under an Act of Indian Parliament as a whollyowned subsidiary of Industrial Development Bank of India. SIDBI has since
completed 8 years of service to the small scale sector. As at March 31, 1998,
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Development banking

SIDBI had total staff strength of 861 comprising of 685 professionals and 176
support staff.
SIDBI's statute provides that it should serve as the principal financial institution
for:
Promotion
Financing and
Development of industry in the small scale sector and
Co-ordinating the functions of other institutions engaged in similar
activities.
SIDBI became operational on April 2, 1990.
The Small Scale Industry (SSI) sector, which is a vibrant and dynamic
sub-sector of the India's industrial economy, comprises the area of SIDBI's
business. The contribution of the SSIs in terms of production, employment and
export earnings has been significant. The objectives of Government policy have
been to impart vitality and growth impetus to the sector by removing
bottlenecks that affect the growth potential. In the liberalised era and emerging
economic scenario, the sector is assured of continued support.

ORIGIN & OBJECTIVES

Small Industries Development Bank of India
(SIDBI) was established in April 1990 under an Act
of Indian Parliament as the principal financial
institution for:
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Promotion
Financing
Development of industry in the small scale sector
Co-ordinating the functions of other institutions engaged in similar activities
Since its inception, SIDBI has been assisting the entire spectrum of SSI
Sector including the tiny, village and cottage industries through suitable
schemes tailored to meet the requirement of setting up of new projects,
expansion, diversification, modernization and rehabilitation of existing units.
Small Industries Development Bank of India [SIDBI] as the principal
financial institution for promotion, financing and development of industry in the
small scale sector, has been assisting the entire spectrum of the SSI
sector, including

the

Tiny,

Village

and

Cottage

industries.

During the year 2002-03, the aggregate sanctions and disbursements of SIDBI
amounted to Rs.10904 crores and Rs.6789 crores respectively. Cumulative
assistance, as at the end of March 2003, surged to Rs.86, 158 crores in terms of
sanctions and at Rs.59, 101 crores of disbursements, thus recording a
compounded annual growth rate of 13.4 % and 11.4 % respectively. Net worth
of the Bank is Rs.4075 crores as at the end of March 2003.

FUNCTIONS OF SIDBI:

It refinances loans by the primary lending institutions

to small scale industrial units.

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It discounts and rediscounts bills arising out of scale of machinery to

small industrial units or manufactured by small industrial units.

It extends seed capital/ soft loan assistance under self employment

scheme for ex- servicemen, National Equity Fund, Mahila Udyog
Nidhi, and Mahila Vikas Nidhi through specified lending agencies.
These schemes help specified groups like women, ex- servicemen etc.

It grants direct assistance as well as refinance loans extended by

primary lending institutions for financing exports of the products of
small industrial units.

It extends loans to State Small Industries Development Corporations for

providing scarce raw materials to small industrial units and for making
their products.

It also provides financial help to National Small Industries Corporation

for providing leasing.

MISSION
To empower the Micro, Small and Medium Enterprises (MSME)
sector with a view to contributing to the process of economic growth,
employment generation and balanced regional development
SIDBI Foundation for Micro Credit (SFMC) was launched by the Bank
in January 1999 for channelising funds to the poor in line with the success of
pilot phase of Micro Credit Scheme. SFMCs mission is to create a national
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network of strong, viable and sustainable Micro Finance Institutions (MFIs)

from the informal and formal financial sector to provide micro finance services
to the poor, especially women

OBJECTIVE OF SIDBI:
The preamble to the Small Industries Development Bank of India Act, 1989
defines the
Objective of SIDBI as:
"The principal financial institution for the promotion, financing and
development of industry in the small scale sector and to co-ordinate the
functions of the institutions engaged in the promotion and financing or
developing the industry in the small scale sector and for the Matters connected
therewith or incidental thereto

In the SIDBI charter, four basic objectives are set out. They are:
Financing
Promotion
Development
Coordination
For growth of industry in the small scale sector.

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Development banking

CHANNELS OF ASSISTANCE:
SIDBI's financial assistance to small scale sector has three major
dimensions:
1. Indirect assistance to primary lending institutions (PLIs);
2. Direct assistance to small units; and
3. Development and Support Services
SIDBI has bagged the prestigious "ADFIAP Development Award 2003" for
its Rural Industries Programmes designed to give impetus to rural development
by creating sustainable industrial and service enterprises in rural areas.

SUBSIDIARIES
SIDBI Venture Capital Ltd. [SVCL] a wholly owned subsidiary of
SIDBI acts as the Asset Management Company of the National Venture Fund
for Software and Information Technology. The fund has a committed corpus of
Rs.100 crores as on March 31, 2003.
SIDBI Trustee Co.Ltd. [STCL] has been set up to carry out trusteeship
functions for Venture Capital Funds. Presently STCL is acting as Trustee of
National Venture Fund for Software and Information Technology.

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Associate Organisations:
Credit Guarantee Fund Trust Scheme for Small Industries [CGTSI]
promoted jointly by Government of India and SIDBI, was launched by the
Hon'ble Prime Minister on August 30, 2000. The credit guarantee scheme of
CGTSI aims at helping the new and existing industrial units in SSI sector, in
getting collateral free credit by way of both term loan and working capital from
eligible member lending institutions. Member Lending Institutions include
scheduled commercial banks, select Regional Rural Banks and such of the
institutions as may be approved by Government of India.
Technology Bureau for Small Enterprises [TBSE] was set up by SIDBI in
1995 in collaboration with United Nations Asian & Pacific Center for Transfer
of Technology. The Bureau aims at helping SSI units to attain international
competitiveness through transfer of latest available technologies from both
within and outside the country

DEVELOPMENT AND SUPPORT SERVICES

The Bank extends development and support services in the form of loans and
grants to different agencies working for the promotion and development of SSIs
and tiny industries. Over the years, the initiatives of SIDBI under promotional
and developmental activities have crystallized into the following important
areas:

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Development banking

Enterprise Promotion with emphasis on Rural Industrialization

Human Resource Development to suit the SSI sector needs

Technology Upgradation

Quality and Environment Management

Marketing and Promotion and

Information Dissemination.

RANGE OF SERVICES
SIDBI REFINANCES:
Loans granted by PLIs for new SSI projects and
for

expansion,

technology

upgradation,

modernisation, quality promotion.

Loans sanctioned by PLIs to small road
transport operators, qualified professionals for self-employment, small

hospitals and nursing homes and to promote hotels and tourism-related

activities.
SIDBI DIRECTLY FINANCES:
SSI units for new/expansion/diversification/modernisation projects.
Marketing development projects which expand the domestic and
international marketability of SSI products.

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Development banking

Existing well-run SSI units and ancillaries/sub-contracting units/ vendor

units for modernisation and technology upgradation.
Infrastructure development agencies for developing industrial areas.
Leasing and hire purchase companies for offering leasing/hire purchase
facilities to SSI units.
Existing export-oriented units to enable them to acquire ISO-9000 Series
Certification
APPROACH:
SFMC is the apex wholesaler for micro finance in India providing a
complete range of financial and non-financial services such as loan funds, grant
support, equity and institution building support to the retailing Micro Finance
Institutions (MFIs) so as to facilitate their development into financially
sustainable entities, besides developing a network of service providers for the
sector. SFMC is also playing significant role in advocating appropriate policies
and regulations and to act as a platform for exchange of information across the
sector. The launch of SFMC by SIDBI has been with a clear focus and strategy
to make it as the main purveyor of micro finance in the country. Operations of
SFMC in the next few years, is not only expected to contribute significantly
towards development of a more formal, extensive and effective micro finance
sector serving the poor in India but also ensure sustainability at all levels viz. at
the apex level (SFMC), at the MFI level and at the client level to ensure
continuance of such arrangement. Most importantly, SFMC has strived to create
a mechanism in which there should be no barriers to growth. Under the
dispensation, there is a focus on innovation and action research.

35

Development banking

RATING OF MFIs:
Most micro finance programmes are being operated by NGOs and are not
subjected to regulation and supervision as they are registered as Societies or
Trusts. Non-regulation of these institutions has worked to their detriment in that
these institutions are not able to have smooth access to funds from the financial
sector which is wary of lending to such entities. This constraint coupled with
the fact that SFMC was launched with a view to upscale the flow of micro
credit with enabling policy modifications relating to simplification of the
procedures in availment of assistance and substantial relaxation in the security /
collateral requirement posed a difficult challenge. Therefore, to meet the
requirements of the revised dispensation which called for selection of suitable
micro finance intermediaries which could be trusted with bulk assistance
without collateral constraints, Capacity Assessment Rating [CAR] was

introduced by SFMC as a supplementary tool to judge risk perception.

On SFMCs initiative, the rating of MFIs has been started by two
agencies. Till March 31, 2005 224 ratings have been commissioned to
MCRIL/CRISIL. SFMC has also organized two trainings on CAMEL
methodology of ACCION to build the internal capacity of SFMC officers. In
addition to SFMC officers, officials from CRISIL, IIFM, Sa-Dhan, RBI,
FWWB, and AFCL also attended the above training.

36

Development banking

MINIMAL SECURITY REQUIREMENT:

Credit worthiness is based on the rating of the borrowing institutions
instead of availability of security/ collateral requirements. Term Deposit
Receipts (TDRs) issued by Scheduled Commercial Banks for an amount
equivalent to 10% /5% /2.5% (depending upon geographical area of operation
and duration of partnership with SIDBI).
CAPACITY BUILDING SUPPORT FOR THE SECTOR:
SFMCs capacity building efforts are directed not only towards MFIs but
also towards smaller/ grassroots institutions engaged in micro finance
operations, training, consultancy, rating and impact assessment etc. and other
service providers in the form of training, seminars, workshops, orientation and
exposure visits. In order to strengthen the supply side of trained manpower,
SIDBI has provided support to premier management institutes for courseware
development on elective in micro finance. The faculty and resource persons
from selected institutions are regularly sponsored for international exposure
visits and training programmes. SIDBI has also been regularly sponsoring staff
of MFIs, consultants and service providers besides management faculty for
short duration training programmes in various areas of micro finance. A number
of customised training programmes / workshops on specific areas of micro
finance being conducted by reputed training institutions / technical service
providers for the field and managerial staff of MFIs are also supported from
time to time. Institution building efforts in the area of human resource, systems,
and practices are critical for healthy growth of the micro finance sector.

37

Development banking

Therefore, at the level of MFIs, to hasten up the process of professionalism,

SFMC has been providing support for salary of young professionals to be
recruited from reputed management institutions for absorption in MFIs.
INNOVATIONS & ACTION RESEARCH:
SIDBI has taken a number of initiatives in launching / facilitating introduction /
market-making of new concepts in the sector. The launch of an electronic portal
for information dissemination and knowledge sharing within the sector and
development of MIS software for MFIs are some such initiatives. It is also
working on an MFI standardization programmes on the lines of the Micro
Banking Bulletin (MBB), managed by CGAP. Other major initiatives include
developing a common chart of accounts for the sector, creating gender and
environment awareness, promoting innovations and action research on
emerging concepts etc.

PROMOTIONAL ACTIVITIES
OBJECTIVE:
As an apex financial institution for promotion, financing and
development of industry in the small scale sector, SIDBI meets the varied
developmental needs of the Indian SSI sector by its wide-ranging Promotional
and development (P&D) activities.

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Development banking

P&D initiatives of the Bank aim at improving the inherent strength of

small scale sector on one hand as also economic development of poor through
promotion of micro enterprises.
In pursuance of its multifaceted P&D activity, synergistic with its
business activities aimed at development of the small industries, SIDBI looks
forward to a partnership with NGOs, associate financial institutions, corporate
bodies, R&D laboratories, marketing agencies, etc., for national level
programmes.
SIDBI has identified the following thrust areas of P&D activities, which
are being undertaken in partnership with various institutions, agencies, and
NGOs.

RURAL INDUSTRIAL PROGRAMME

INTRODUCTION
A unique approach for rural industrialization where the emphasis is on
stimulating and helping the potential entrepreneurs to set up small enterprises
through consultancy outfit positioned by SIDBI.

39

Development banking

OBJECTIVE:
Development of viable and self-sustaining tiny / small enterprises in rural and
semi urban India by harnessing local entrepreneurial talent. The Programmes
attempts to address the problems such as rural unemployment, urban migration
and under-utilization of local skills and resources, and is designed as a
comprehensive

Business

Development

Services

programmes.

The Rural Industries Programmes (RIP) of the Bank provides a cohesive and
integrated package of basic inputs like information, motivation, training and
credit, backed by appropriate technology and market linkages for the purpose of
enterprise promotion.
APPROACH:
Development of underdeveloped areas:
Under RIP, an economically underdeveloped district is identified and an
Implementing Agency (IA) Development professionals, Technical consultancy
organisation or Non- Government organisation is positioned to provide a
comprehensive and integrated package of inputs and business development
services to potential entrepreneurs. The identified IA positions a team of
professionals at the field level for a period of five year. IA also provides support
during post implementation period to ensure sustainability of enterprises.
Integrated approach: The package of services provided by IA, inter alia,
includes identifying and motivating rural entrepreneurs, identification of viable

40

Development banking

ventures based on local skills and resources, training, appropriate technology

linkages and finance tie-up with the formal banking sector.
Performance Oriented incentives: Enterprises are grounded on technological
and economic considerations. No subsidies or grants are available to
entrepreneurs. Besides start-up administrative support, IA is paid performance
fee in the range of Rs. 500 to Rs. 7000 per unit promoted, depending on project
size.
Long term viability and sustainability of the enterprises promoted is an
important aspect of RIP. New enterprises require continued support, at least for
the first year of their operations. Therefore, an amount of Rs. 1,000 per unit is
payable to the IAs by way of post-sanction incentive over and above the initial
performance fee for providing escort services to the assisted entrepreneurs and
post-sanction work.
A sub-sectoral approach is followed to enable the implementing agencies to
provide necessary backward and forward linkages to the enterprises.
Marketing support: Entrepreneurs are supported for group participation in
domestic trade fairs and exhibition cum sale.

NATIONAL BANK FOR AGRICULTURE & RURAL

DEVELOPMENT (NABARB)
INTRODUCTION:

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Development banking

Recently announced National Strategies for accelerating the flow

of credit to farm sector include doubling the flow of agricultural credit in 3
years, increase in disbursement from Rs.80,000 crores in 2003-04 to
Rs.1,05,000 crores in 2004-05, financing of Atleast 100 new farmers and 2-3
new investment projects in various sub-sectors of agriculture by each of the
rural and semi-urban branches of Commercial Banks.
In the above context, NABARD's strategies, inter alia, cover
formulation and circulation of Model Bankable Schemes and Location Specific
Bankable Schemes to the financing banks. NABARD also proposes to identify
highly potential zones for undertaking investment activities in various states
and organize interactive workshops in these potential zones.
The Technical Services Department of NABARD is preparing
and bringing model bankable agricultural projects in the areas of Minor
Irrigation, Land Development, Plantation & Horticulture, Agricultural
Engineering, Forestry and Wasteland, Fisheries , Animal Husbandry and
Biotechnology. Besides these traditional areas, State specific area development
projects and profiles in the emerging thrust areas of Medicinal & Aromatic
Plants, Processing of Fruits & Vegetables have also been prepared for
dissemination among financing banks.

GENESIS :
Thus,Nabard came in to being on 12 JULY 1982
under te act of the parliamen
Took over function of agriculture credit
department and rural plannia high level expert

42

Development banking

commitee set up by RBI in 1979 recommended formation of a national level

organisation for rural development
NG& credit cell (RPCC)
of RBI &AGRICULTURALDEVELOPMENT
CORPORATION (ARDC).
Is the appendix solution dealing with policy planningand operation filed of
credit for nstituion
MISSION
Promote substainal and eqitable agricultural and rural properity through
effective support related service institution development and other
innovative innnavative

OBJECTIVES

To facilitate credit flow for agricultural and rural development.

To promote and support policies ,practices and innovation conductive
to rural development.
To Strenghting rural credit delivery system throught insitutonal and
development measures.
To focuss on poverty allevation and employment generation.
To supervise rural financial institution. (CO-OPERATIVE BANKS
AND REGIONAL RURAL BANKS).

INSTITUTIONS ELIGIBLE FOR REFINANCE

Commercial Banks, State Agriculture Development Finance

Companies(ADFCs), Primary Urban Cooperative Banks(PUCBs) and
State Governments

43

Development banking

ELIGIBLE PURPOSES

Farm Sector Production Credit (Crop Loans) and Investment Credit

Non-farm Sector Investment activities of Artisans, Small Scale
Industries, Tiny Sector, Village and Cottage Industries, Handicrafts,
Handlooms, etc.
Micro Credit Revolving Fund Assistance to SHGs, Voluntary
Agencies/NGOs.
Loans to State Governments
o
For Infrastructure Development under RIDF
o
For Share Capital Contribution to Cooperative Credit
Institutions

NABARDs SUPPORT TO AGRICULTURE AND ALLIED

ACTIVITIES

NABARD Refinance constitutes 28% of the total Ground Level

Credit Flow to Agriculture and Allied Activities.
Minor Irrigation and Forestry forms 21% of the total refinance to
banks/financial institutions.

Aggregate financial support to banks, financial institutions and State

Governments during 2001-02 reached a new height of Rs.21,146
crores.

FINANCIAL

ASSISTANCE

AVAILABLE

FROM

BANKS/NABARD FOR DAIRY FARMING.

NABARD is an apex institution for all matters relating to policy,
planning and operation in the field of agricultural credit. It serves as an
apex refinancing agency for the institutions providing investment and

44

Development banking

production credit. It promotes development through formulation and

appraisal of projects through a well organized Technical Services
Department at the Head Office and Technical Cells at each of the
Regional Offices.
Loan from banks with refinance facility from NABARD is available for
starting dairy farming. For obtaining bank loan, the farmers should
apply to the nearest branch of a commercial or co-operative Bank in
their area in the prescribed application form which is available in the
branches of financing banks. The Technical Officer attached to or the
Manager of the bank can help/give guidance to the farmers in preparing
the project report to obtain bank loan.
For dairy schemes with very large outlays, detailed reports will have to
be prepared. The items of finance would include capital asset items
such as purchase of milk animals, construction of sheds, purchase of

equipments etc. The feeding cost during the initial period of one/two
months is capitalized and given as term loan. Facilities such as cost of

land development, fencing, and digging of well, commissioning of

diesel engine/pumpset, electricity connections, essential servants'
quarters, godown, transport vehicle, milk processing facilities etc. can
be considered for loan. Cost of land is not considered for loan.

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Development banking

However, if land is purchased for setting up a dairy farm, its cost can be
treated as party's margin upto 10% of the total cost of project.
Nabard has been in the forefront of providing financial succor to the
agriculture sector. The emergence of Nabard as an apex institution has
empowered it with all matters concerning policy, planning and operations
in the field of credit for agriculture and other economic activities in rural
areas. As envisaged, NABARDs mission is rural prosperity and performs
prominently functions such as:
1. financing institutions by providing investment and production credit
support for promoting various developmental activities in rural areas
2. Providing measures towards institution building for improving
absorptive capacity of the credit delivery system, including monitoring,
formulation of schemes for restructuring of credit institutions and
training of personnel

3. Co-ordinating rural financing activities of institutions engaged in

developmental work at the field level and maintains liaison with state
governments, Reserve Bank of India (RBI) and other institutions
concerned with policy formulation
4. Undertaking monitoring and evaluation of projects supported by it.
This article briefly discusses the credit as well as non-credit based

46

Development banking

activities of the organization which helps in improving the effectiveness

of credit functions.

SCHEME FORMULATION FOR BANK LOAN.

A Scheme can be prepared by a beneficiary after consulting local
technical persons of State animal husbandry department, DRDA, SLPP etc.,
dairy co-operative society/union/federation/commercial dairy farmers. If
possible, the beneficiaries should also visit progressive dairy farmers and
government/military/agricultural university dairy farm in the vicinity and
discuss the profitability of dairy farming. A good practical training and
experience in dairy farming will be highly desirable. The dairy co-operative
societies established in the villages as a result of efforts by the Dairy
Development Department of State Government and National Dairy
Development Board would provide all supporting facilities particularly
marketing of fluid milk. Nearness of dairy farm to such a society, veterinary aid

centre, artificial insemination centre should be ensured. There is a good demand

for milk, if the dairy farm is located near urban centre.
The scheme should include information on land, livestock markets,
availability of water, feeds, fodders, veterinary aid, breeding facilities,

47

Development banking

marketing aspects, training facilities, experience of the farmer and the type of
assistance available from State Government, dairy society/union/federation.
The scheme should also include information on the number of and types
of animals to be purchased, their breeds, production performance, cost and
other relevant input and output costs with their description. Based on this, the
total cost of the project, margin money to be provided by the beneficiary,
requirement of bank loan, estimated annual expenditure, income, profit and loss
statement, repayment period, etc. can be worked out and shown in the Project
report.

ANNEXURE-I

PRICE STABILISATION FUND SCHEME

Background

48

Development banking

Deeply concerned with the problems being faced by the growers of coffee,
tea, rubber and tobacco due to continued low prices of these commodities for
quite some time, Government of India (GoI) has taken a series of measures
to ameliorate the hardships being faced by the growers of these crops. The
Price Stabilization Fund Scheme is yet another step in the direction of the
GoI to demonstrate its commitment to safeguard the interests of these
growers.
Objective of the Scheme
The PSFS aims at providing financial relief to the growers when prices of
these commodities fall below a specified level without resorting to the
practice of procurement operations by the Government agencies.
Duration of the Scheme
The Scheme will be operational for a period of ten years subject to a review
after five years.
Mode of Intervention
Under the Scheme, a fund called the Price Stabilisation Fund will be
established with contributions from the GoI and entry fee @ Rs.500/- from
each grower desirous of participating in the Scheme. The corpus of the Fund
shall remain undisturbed and interest earnings alone will be utilized for
operational sing the PSFS.

Who can participate in the Scheme?

Initially, the Scheme will be open to growers of tea, coffee, rubber and
tobacco having operational holdings of 4 hectares or less. Subsequently,
coverage of other growers could be considered.

49

Development banking

How to become a member

Growers of aforementioned commodities desirous of participating in the
Scheme shall apply to the respective Commodity Board in the prescribed
form within the date stipulated therefore.
The Commodity Boards shall select the members on first come first serve
basis with preference being given to the members with the least holding size.
The Commodity Boards shall thereafter enroll the eligible grower as
member who will be required to deposit an amount of Rs.500/- with the
Commodity Board.
Opening and maintenance of bank account
The member would be provided with an application form to enable him/her
to open the PSF account with the designated bank branch.
The Commodity Board shall also inform the concerned bank branch for
opening the account in the name of the member.
The account will be maintained as Savings Bank Account and would be
entitled for payment of interest at rates applicable for Savings Bank
Account. No service charges of any kind would be levied.
Members have to deposit their annual contributions to the account by 31
March every year.
GoI contributions to the account would be made not later than 31st May
every year.
At the end of the duration of the Scheme the entire balance in the account
would be payable to the member.

ANNEXURE-II

Price stabilization fund account guidelines for opening &

maintenance of account by banks:

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Development banking

The account will be opened by designated bank branches based on a

Certificate of Eligibility issued by the concerned Commodity Board.
The banks would not insist on introduction of the account holder and
would rely on the Certificate issued by the Commodity Board.
The accounts would be opened with the deposit of Rs.100/- which will
be the minimum balance in respect of these accounts. The accounts
would be designated as PSF Accounts.
The account would be maintained as Savings Bank Account and
would be entitled for payment of interest at the rates applicable for SB
Account.
No service charges of any kind would be leviable.
In accordance with the terms and conditions of the scheme, deposits
will be made by the account holders or by the Government of India
through the concerned Commodity Board which would be credited to
the account.
Drawls would be allowed from the account only on receipt of specific
advice from the concerned Commodity Board in any particular year.
The advice would indicate the extent of drawl that could be allowed to
the member.
Members have to deposit their annual contributions to the account by
a prescribed due date which is presently set as 31st March.
The government contributions would be made not later than 31 May
every year.
When the grower fails to contribute his share to the account by the
due date, he will be deemed to be a defaulter.
Once the account is in default i.e. if the contribution due from the
member is not made by the prescribed due date i.e. by 31 March, the
account would be closed.
No further deposits of the grower members should be accepted for
credit of a defaulters account.
No government contributions could be credited to the defaulters
account.
At the request of the grower member, the balance in the defaulters
account could be repaid to the extent of the members contribution
with interest thereon.
No part of governments contributions and interest thereon should be
paid to the defaulter grower members.
After payment of the dues to the defaulter the balance representing
governments contributions and interest thereof in such account

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Development banking

should be remitted back to the Price Stabilization Fund Trust through

the concerned Commodity Board.
Banks have to provide an annual return to the concerned Commodity
Board indicating the number of accounts maintained the balance
therein and the list of accounts to which government contributions
were credited during the year and also a list of accounts which have
turned into default with details of accounts closed on account of
default. Further details of payments made to the defaulting member as
well as amount remitted to the government from the defaulting
account, on its closure should also be sent to the Commodity Board
every year. The format of these statements would be provided to the
banks.
At the end of 10 years, the entire balance in the account is payable to
the grower members.
Performa of application forms for enrolment of members by the
Commodity Boards and opening of bank accounts under the PSFS are
enclosed.
In case of any doubts, clarifications could be obtained from the Price
Stabilization Fund Trust / concerned Commodity Board.

ENCLOSURE 1
APPLICATION
FOR
ENROLMENT
OF
GROWER
MEMBERS IN THE PRICE STABILISATION FUND SCHEME

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Development banking

To
The_________
________Board
____________
Sir,
I wish to enroll as a Grower Member in the Price Stabilization Fund Scheme
introduced by the Government of India. My details are as under:
1. Name:
2. Fathers Name:
3. Full address:
4. Regn. No. with the Board as a: grower (TBRG NO.)
5.Particulars of holdings of: agriculture lands (in hecters)
a) name of the village, taluka/mandal, district & state where the land ids
situated.
b) Survey No.
c) Holding of Agri. Land (Hect.)
6. Name & address of the: bank with account No.
7. Remarks:
8. Details of entry fee of Rs.500/- by way of cash/D.D.:

I do solemnly declare that to the best of my knowledge and belief, the above
stated information is true, complete and correct. Further, I have read,
understood and hereby agree to the terms and conditions of the Price
Stabilization Fund Scheme.

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Development banking

Signature of the applicant

Place:
Date:

FOR OFFICE USE ONLY

WHETHER ELIGIBLE FOR
IF YES, ENROLMENT NO.

JOINING

ENCLOSURE II

54

PSF

SCHEME YES/NO

Development banking

APPLICATION FOR OPENING OF BANK ACCOUNT UNDER PRICE

STABILISATION FUND SCHEME
To
THE MANAGER
(Name
of
the
(Name
of
the
________________
Date:
Sir

Branch)
Passport
size
photograph
Bank)
with
signature/thumb
impression

I wish to apply for opening of a bank account in your branch under the Price
Stabilization fund Scheme. My details are as under:
1. Name:
2. Fathers Name:
3. Date of Birth:
4. Address:
5. Telephone No. :
6. Registration No. with the: commodity board
7. Name and address of nominee:
8. Relationship with Nominee:
9. Details of existing bank account, if any:

I have been enrolled as a member under the Price Stabilization Fund Scheme
by the __________ Board (Name of the Commodity Board). I have read,
understood and hereby agree to the terms and conditions of the Price

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Development banking

Stabilization Fund Scheme. Further all the particulars and information given
above are true, correct, and complete and upto date in all respect.

SIGNATURE OF THE APPLICANT

Certificate by the _____________ Board
Date:
We certify that Shri/Smt. has been enrolled as a member under the Price
Stabilization Fund Scheme and he/she has paid the entrance fee. He/she may
be allowed to open a bank account under the Price Stabilization Fund
Scheme in your branch.

SIGNATURE OF THE AUTHORISED

DEVELOPMENT AND PROMOTIONAL FUNCTIONS:

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Development banking

Credit is a critical factor in development of agriculture and rural

sector as it enables investment in capital formation and technological
upgradation. Hence strengthening of rural financial institutions, which deliver
credit to the sector, has been identified by NABARD as a thrust area. Various
initiatives have been taken to strengthen the cooperative credit structure and the
regional rural banks, so that adequate and timely credit is made available to the
needy.
In order to reinforce the credit functions and to make credit more productive,
NABARD has been undertaking a number of developmental and promotional
activities such as:o Help cooperative banks and Regional Rural Banks to prepare development
actions plans for themselves.
o Enter into MoU with state governments and cooperative banks specifying
their respective obligations to improve the affairs of the banks in a stipulated
timeframe.
o Help Regional Rural Banks and the sponsor banks to enter into MoUs
specifying their respective obligations to improve the affairs of the Regional
Rural Banks in a stipulated timeframe.
o Monitor implementation of development action plans of banks and
fulfillment of obligations under MoUs.
o Provide financial assistance to cooperatives and Regional Rural Banks for
establishment of technical, monitoring and evaluations cells.
o

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Development banking

o Provide organisation development intervention (ODI) through reputed

training institutes like Bankers Institute of Rural Development (BIRD),
Lucknow www.birdindia.com, National Bank Staff College, and Lucknow.
www.nbsc.in and College of Agriculture Banking, Pune, etc.
o Provide financial support for the training institutes of cooperative banks.
o Provide training for senior and middle level executives of commercial banks,
Regional Rural Banks and cooperative banks.
o Create awareness among the borrowers on ethics of repayment through
Vikas Volunteer Vahini and Farmers clubs.
o Provide financial assistance to cooperative banks for building improved
management information system, computerisation of operations and
development of human resources.

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Development banking

The Industrial Development Bank of India Limited commonly known

by its acronym IDBI is one of India's leading private
banks. It was established in 1964 by an Act of
Parliament to provide credit and other facilities for the
development of the fledgling Indian industry. It is
currently the tenth largest development bank in the
world. Some of the institutions built by IDBI are The
National Stock Exchange of India (NSE), The National Securities Depository
Services Ltd. (NSDL) and the Stock Holding Corporation of India (SHCIL)
The Industrial Development Bank of India (IDBI) was established on
July 1, 1964 under an Act of Parliament as a wholly owned subsidiary of the
Reserve Bank of India. In February 1976, the ownership of IDBI was
transferred to the Government of India and it was made the principal financial
institution for coordinating the activities of institutions engaged in financing,
promoting and developing industry in the country. Although Government
shareholding in the Bank came down below 100% following IDBIs public
issue in July 1995, the former continues to be the major shareholder (current
shareholding: 58.47%). During the four decades of its existence, IDBI has been
instrumental not only in establishing a well-developed, diversified and efficient
industrial and institutional structure but also adding a qualitative dimension to
the process of industrial development in the country. IDBI has played a

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Development banking

pioneering role in fulfilling its mission of promoting industrial growth through

financing of medium and long-term projects, in consonance with national plans
and priorities. Over the years, IDBI has enlarged its basket of products and
services, covering almost the entire spectrum of industrial activities, including
manufacturing and services. IDBI provides financial assistance, both in rupee
and foreign currencies, for green-field projects as also for expansion,
modernization and diversification purposes. In the wake of financial sector
reforms unveiled by the Government since 1992, IDBI evolved an array of fund
and fee-based services with a view to providing an integrated solution to meet
the entire demand of financial and corporate advisory requirements of its
clients. IDBI also provides indirect financial assistance by way of refinancing
of loans extended by State-level financial institutions and banks and by way of
rediscounting of bills of exchange arising out of sale of indigenous machinery
on deferred payment terms.
IDBI has played a pioneering role, particularly in
the pre-reform era (1964-91),in catalyzing broad based
industrial development in the country in keeping with
its

Government-ordained

development

banking

charter. In pursuance of this mandate, IDBIs activities transcended the confines

of pure long-term lending to industry and encompassed, among others, balanced
industrial growth through development of backward areas, modernization of
specific industries, employment generation, entrepreneurship development
along with support services for creating a deep and vibrant domestic capital
market, including development of apposite institutional framework.

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Development banking

In September 2003, IDBI diversified its business domain further by

acquiring the entire shareholding of Tata Finance Limited in Tata Home finance
Ltd., signaling IDBIs foray into the retail finance sector. The fully-owned
housing finance subsidiary has since been renamed IDBI Home finance
Limited. In view of the signal changes in the operating environment, following
initiation of reforms since the early nineties, Government of India has decided
to transform IDBI into a commercial bank without eschewing its secular
development finance obligations. The migration to the new business model of
commercial banking, with its gateway to low-cost current, savings bank
deposits, would help overcome most of the limitations of the current business
model of development finance while simultaneously enabling it to diversify its
client/ asset base. Towards this end, the IDB (Transfer of Undertaking and
Repeal) Act 2003 was passed by Parliament in December 2003. The Act
provides for repeal of IDBI Act, corporatisation of IDBI (with majority
Government holding; current share: 58.47%) and transformation into a
commercial bank. The provisions of the Act have come into force from July 2,
2004 in terms of a Government Notification to this effect. The Notification
facilitated formation, incorporation and registration of Industrial Development
Bank of India Ltd. as a company under the Companies Act, 1956 and a deemed
Banking Company under the Banking Regulation Act 1949 and helped in
obtaining requisite regulatory and statutory clearances, including those from
RBI. IDBI would commence banking business in accordance with the
provisions of the new Act in addition to the business being transacted under
IDBI Act, 1964 from October 1, 2004, the Appointed Date notified by the
Central Government. IDBI has firmed up the infrastructure, technology

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Development banking

platform and reorientation of its human capital to achieve a smooth transition.

On July 29, 2004, the Board of Directors of IDBI and IDBI Bank accorded in
principle approval to the merger of IDBI Bank with the Industrial Development
Bank of India Ltd. to be formed incorporated under the Companies Act, 1956
pursuant to the IDB (Transfer of Undertaking and Repeal) Act, 2003 (53 of
2003), subject to the approval of shareholders and other regulatory and statutory
approvals. A mutually gainful proposition with positive implications for all
stakeholders and clients, the merger process is expected to be completed during
the current financial year ending March 31, 2005.
IDBI would continue to provide the extant products and services as part
of its development finance role even after its conversion into a banking
company. In addition, the new entity would also provide an array of wholesale
and retail banking products, designed to suit the specific needs cash flow
requirements of corporate and individuals. In particular, IDBI would leverage
the strong corporate relationships built up over the years to offer customised
and total financial solutions for all corporate business needs, single-window
appraisal for term loans and working capital finance, strategic advisory and
hand-holding support at the implementation phase of projects, among others.
IDBIs transformation into a commercial bank would provide a gateway
to low-cost deposits like Current and Savings Bank Deposits. This would have a
positive impact on the Banks overall cost of funds and facilitate lending at
more competitive rates to its clients. The new entity would offer various retail
products, leveraging upon its existing relationship with retail investors under its
existing Suvidha Flexi-bond schemes. In the emerging scenario, the new IDBI

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hopes to realize its mission of positioning itself as a one stop super-shop and
most preferred brand for providing total financial and banking solutions to
corporates and individuals, capitalising on its intimate knowledge of the Indian
industry and client requirements and large retail base on the liability side.
IDBI upholds the highest standards of corporate governance in its
operations. The responsibility for maintaining these high standards of
governance lies with its Board of Directors. Two Committees of the Board viz.
the Executive Committee and the Audit Committee are adequately empowered
to monitor implementation of good corporate governance practices and making
necessary disclosures within the framework of legal provisions and banking
conventions.
Industrial Development Bank of India (IDBI) is the tenth largest bank in
the world in terms of development. The National Stock Exchange (NSE), The
National Securities Depository Services Ltd. (NSDL), Stock Holding
Corporation of India (SHCIL) is some of the institutions which have been built
by IDBI. IDBI is a strategic investor in a plethora of institutions which have
revolutionized the
Indian Financial Markets.
IDBI Bank, promoted by IDBI Group started in November 1995 with a branch
at Indore with an equity capital base of Rs. 1000 million.

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MAIN FUNCTIONS OF IDBI:

IDBI is vested with the responsibility of co-ordinating the working of
institutions engaged in financing, promoting and developing industries. It has
evolved

an

appropriate

undertakes/supports

mechanism

wide-ranging

for

this

promotional

purpose.
activities

IDBI

also

including

entrepreneurship development programmes for new entrepreneurs, provision of

consultancy services for small and medium enterprises, up gradation of
technology and programmes for economic upliftment of the underprivileged.

IDBIs ROLE AS A CATALYST:

IDBI's role as a catalyst to industrial development encompasses a wide
spectrum of activities. IDBI can finance all types of industrial concerns covered
under the provisions of the IDBI Act. With over three decades of service to the
Indian industry, IDBI has grown substantially in terms of size of operations and
portfolio.

DEVELOPMENTAL ACTIVITIES OF IDBI:

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PROMOTIONAL ACTIVITIES:
In fulfillment of its developmental role, the Bank continues to perform
a wide range of promotional activities relating to developmental programmes
for new entrepreneurs, consultancy services for small and medium enterprises
and programmes designed for accredited voluntary agencies for the economic
upliftment of the underprivileged. These include entrepreneurship development,
self-employment and wage employment in the industrial sector for the weaker
sections of society through voluntary agencies, support to Science and
Technology Entrepreneurs' Parks, Energy Conservation, Common Quality
Testing Centers for small industries.
TECHNICAL CONSULTANCY ORGANIZATIONS:
With a view to making available at a reasonable cost, consultancy and advisory
services to entrepreneurs, particularly to new and small entrepreneurs, IDBI, in
collaboration with other All-India Financial Institutions, has set up a network of
Technical Consultancy Organizations (TCOs) covering the entire country.
TCOs offer diversified services to small and medium enterprises in the
selection, formulation and appraisal of projects, theirlementation and review.
ENTERPRENEURSHIP DEVELOPMENT INSTITUTE:

Realising that entrepreneurship development is the key to industrial

development; IDBI played a prime role in setting up of the Entrepreneurship
Development Institute of India for fostering entrepreneurship in the country. It
has also established similar institutes in Bihar, Orissa, Madhya Pradesh and
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Development banking

Uttar Pradesh. IDBI also extends financial support to various organisations in

conducting studies or surveys of relevance to industrial development

RECENT DEVELOPMENTS:
To meet emerging challenger and to keep up with reforms in financial sector,
IDBI has taken steps to reshape its role from a development finance institution
to a commercial institution. With Industrial Development Bank (Transfer of
Undertaking and Repeal) Act, 2003, IDBI attained the status of a limited
company viz. "Industrial Development Bank of India Limited" (IDBIL).
Subsequently, the Central Government notified October 1, 2004 as the
'Appointed Date' and RBI issued the requisite notification on September 30,
2004 incorporating IDBI Ltd. as a 'scheduled bank' under the RBI Act, 1934.
Consequently, IDBI, the erstwhile Development Financial Institution of the
country, formally entered the portals of banking business as IDBIL from
October 1, 2004, over and above the business currently being transacted. As of
July, 2006 the employees association of the IFCI have sought its merger with
the Bank.

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QUESTIONAIRE

How does the development bank help in development of country?

How the working of development bank different from commercial &

co operative banks?

What is the role of RBI & Government in development banking

sector?
What are your achievements after liberalization?
Future prospects in post liberalization period
Which sector do you finance?
Do u undertake commercial activities?
Changes that took place after the merger of IDBI?

CONCLUSION

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Development banking

Development Banking in India is almost as old as India s

independence. The first institution established in the field of
development banking was the Industrial Finance Corporation of India
in 1948. After this beginning, a battery of development banks came to
be established and today a well-knit structure of about 50
development banks exists, both at the national and state levels.
This book attempts to spell out the financial and developmental roles
of development banks with special reference to IDBI during about 40
years of post-independence era. Whereas the financial role highlights
the banking support provided by them for the programmes of
industrialisation of the country, the development role sets forth their
promotional and entrepreneurial activities of bringing together the
various elements essential for the industrial development.
The study also provides observations on some of the common
problems and lecunae of the Indian development banks and
proposes a pattern on which the future structure of development
banking
in
India
may
be
modelled.
The book would be of use to stu dents of commerce, management
and economics. It can also be a valuable reference to professionals
in banking and allied areas

BIBLIOGRAPHY

Books
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Development banking

1.Banking Finance & Service System [Mithani Gordon]

2.Banking in the New Millennium

[ ICFAI]

Websites
1. www.Google.com
2. www.Sidbi.com
3. www.idbi.com
4. www.nabard.com
5. www.wekipedia.com
6. Visit to IDBI BANK.

Newspaper Reference

1. Economic Times

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Development banking

2. Business Standard
3. Times Of India
4. Asian Age
5. Financial Express

Magazines Reference

1. Business world
2. Business India
3. Business today
4. Marketing Executive ICFAI PRESS.
5. Advertisement Executive ICFAI PRESS.

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