Page 165 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Indian Financial System

Notes At the state level, another type of institution, namely, the State Industrial Development
Corporation (SIDC) was established in the sixties to promote medium and large scale industrial
units in the respective states. The SIDCs promoted a number of projects in the joint sector and
assisted in setting up industrial units. In recognition of the crucial role played by them in the
promotion of industries in different states, the SIDCs were made eligible for IDBI refinance
facilities in 1976. Thus, they became an integral part of the development banking system of the
country.

The State Small Industries Development Corporations (SSIDCs) were also established to cater to
the requirements of the industry at the state level. They helped in setting up and managing
industrial estates, supplying of raw materials, running common service facilities, and supplying
machinery on hire-purchase basis.
By the early sixties, a plethora of financial corporations catering to the financial needs of a
variety of industries had come into existence. However, the need for an effective mechanism to
coordinate and integrate the activities of the different financial institutions was increasingly
felt. Furthermore, many gigantic projects of national importance were held up as these financial
institutions were not able to supply the necessary capital in view of their own limited resources.
Hence, the establishment of a financial institution with a substantially large amount of capital
resource and capable of functioning independently, unhindered by statutory rigidities, became
inevitable.
The Industrial Development Bank of India (IDBI) was set up in 1964 as an apex institution to
establish an appropriate working relationship among financial institutions, coordinate their
activities, and build a pattern of inter-institutional cooperation to effectively meet the changing
needs of the industrial structure. IDBI was set up as a wholly owned subsidiary of the Reserve
Bank of India. The IFCI became a subsidiary of the IDBI so that it might play an enlarged role. In
February 1976, the IDBI was restructured and separated from the control of the RBI.

An important feature of industrial finance in the country is the participation of major investment
institutions in consortium with other all India financial institutions. The Unit Trust of India
(UTI), established in 1964, the Life Insurance Corporation of India (LIC), established in 1956, and
the General Insurance Corporation of India (GIC), established in 1973, work closely with other
all India financial institutions to meet the financial requirements of the industrial sector.

Specialized institutions were also created to cater to the needs of the rehabilitation of sick
industrial units, export finance, and agriculture and rural development. In 1971, the Industrial
Reconstruction Corporation of India Limited (IRCI) was' set up for the rehabilitation of sick
units. In January 1982, the Export-Import Bank of India (EXIM Bank) was set up. The export
finance operations of the IDBI were transferred to the EXIM Bank with effect from March 1, 1982.
With a view to strengthening the institutional network catering to the credit needs of the
agricultural and rural sectors, the National Bank for Agriculture and Rural Development
(NABARD) was set up in July 1982.
The country is being served by 57 financial institutions, comprising 11 institutions at the national
level and 46 institutions at the state level. These financial institutions have a wide network of
branches and are supported by technical consultancy organisations with IDBI acting as the apex
institution for coordinating their diverse financing and promotional activities. Their strategies,
policies, and industrial promotional efforts sub-serve the national objectives of rapid industrial
growth, balanced regional development, creation of a new class of entrepreneurs, and providing
self employment opportunities.
The national level institutions, known as All India Financial Institutions (AIFIs), comprise six
All India Development Banks (AIDBs), two specialised financial institutions (SFIs) and three
investment institutions. The AIDBs are IDBI, IFCI, ICICI, Industrial Investment Bank of India
Limited (IIBI), Infrastructure Development Finance Company Limited (IDFC) and SIDBI.

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