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Unit 21: Capital Market in India and Working of SEBI

Industrial Reconstruction Corporation of India (IRCI) in April 1971 under the Indian Companies Act Notes
mainly to look after special problems of ‘sick’ units and provide assistance for their speedy
reconstruction and rehabilitation, if necessary, by undertaking the management of the units and
developing infrastructure facilities like those of transport, marketing etc.
Since its inception in 1971 till the end of March 1984, IRCI had sanctioned reconstruction assistance of
` 266 crores to 242 sick or closed industrial units and had disbursed ` 185 crores. Textiles, engineering,
mining and foundry industries were assisted by IRCI which had paid special attention to the units
located in the classified backward areas as also to those in the small scale sector. The Corporation had
also charged concessional rate of interest.
In 1984 the Finance Ministry of the Government of India renamed the Industrial Reconstruction
Corporation of India (IRCI) as Industrial Reconstruction Bank of India (IRBI) and made it as the
principal all-India credit and reconstruction agency for industrial revival, rehabilitation and promotion
of sick units. In 1995, the Finance Ministry again renamed IRBI as Industrial Investment Bank of
India (IIBI). Despite all these changes in names, the financial assistance rendered by this institution
was meagre and could be rendered by other development financial institutions : IIBI is currently
being wound up.
Investment Institutions : The Unit Trust of India
The Unit-Trust of India was formally established in February 1964. The initial capital of the Trust was
` 5 crores which was subscribed fully by the Reserve Bank of India, the Life Insurance Corporation,
the State Bank of India and the scheduled banks and other financial institutions. The general
superintendence, direction and management of the affairs and business of the Trust is vested in a
Board of Trustees.
The primary objective of the Unit Trust was two-fold : (a) stimulate and pool the savings of the
middle and low-income groups, and (b) to enable them to share the benefits and prosperity of the
rapidly growing industrialisation in the country.
These two-fold objectives were to be achieved through a three-fold approach : (i) by selling Units of
the Trust among as many investors as possible in different parts of the country; (ii) by investing the
sale proceeds of the Units in industrial and corporate securities; and (iii) by paying dividends to
those who have bought the units of the Trust.
The operations of the Trust picked up conspicuously almost from the very begining. The total number
of unit holders registered with the Trust at one time exceeded 25 million with mobilised funds
exceeding ` 73,000 crores (in June 2000).
The Trust had built up a portfolio of investments which was balanced between the fixed income-
bearing securities and variable income-bearing securities—the main objective of the Trust was to
maximise income consistent with safety of capital.
The Trust had invested in securities of about 300 sound concerns, which were on regular dividend
paying basis. Barring investment in bonds of public corporations, the Trust funds were invested in
financial, public utility and manufacturing enterprises.
Apart from subscribing to the shares and debentures of companies, UTI sanctioned loans to the
corporate sector.
The commencement of sales of units by the Unit Trust from July 1964 was acclaimed as a landmark in
the development of India’s capital market. In principle, the aim of the Unit Trust was praiseworthy
since it sought to mobilise the community’ s savings for investment in trade and industry. The Trust,
being a public sector enterprise, created confidence among the general public. Besides, it received a
number of tax concessions from the Government. Not only the capital was safe but it was highly
liquid in the sense that any Unit holder could return his/her Units and get back cash from the Trust.
The operation of the Unit Trust during the first three decades showed that the returns for unit holders
were reasonable. On an average UTI paid annual dividend at 20 per cent. The response of investors
especially of the small and medium income groups, to the Unit scheme was very encouraging and it
seemed that the Unit Trust had met the genuine needs of a large number of investors by providing a

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