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Unit 8: Financial Institutions

It was of vital importance to have them operative again in view of their significance to the Notes
economy of the country and the need for the employment of a large workforce. However, the
task was too big for the means of any one of the existing financial institutions. Besides, the
financing of reconstruction and rehabilitation activities would have diverted the limited resources
of the existing financial corporations from their main developmental activities. The setting up
of an additional institution, which specialized in reviving and revitalizing the ailing and closed
units, became inevitable.
Accordingly, the Reserve Bank of India, at the instance of the Government of India, took the
initiative, and IRCI was constituted. In course of operations, the IRCI had to face several
impediments handicapping its major task of changing the ineffective management of assisted
units and implementing reconstruction schemes.

The Corporation could not acquire majority of the shares in the assisted companies nor it could
put on the Board of the defaulting companies competent professionals as Directors and executives
because they did not enjoy statutory immunities and were available to the nominees of IDBI,
IFCI and SFCs.
IRCI could implement any scheme of reconstruction, amalgamation and merger within the
provisions of Companies Act and the process being long drawn acted as a deterrent to the
speedy revival of the sick industrial concerns.

In order to overcome the above constraints, the Government constituted Industrial Reconstruction
Bank of India (IRBI) in March, 1985 to act as the principal credit and reconstruction agency for
reconstruction and rehabilitation of sick industrial units through assistance for their
modernization, diversifications expansion or rationalization and for coordinating similar work
of the other institutions enjoyed therein.
With the setting up of Board for Industrial and Financial Reconstruction (BIFR), the role of IRBI
became irrelevant and as a sequel to that Government of India decided to convert IRBI into a
full-fledged all-purpose development finance institution.
Accordingly, Industrial Investment Bank of India Ltd. (IIBI) was incorporated as a government
company under the Companies Act, 1956 in March, 1997 thereby providing it with adequate
operational flexibility and financial autonomy.
Objectives and Tasks of IIBI: The transformation of IRBI into IIBI has led to a paradigm shift in
its objectives and tasks from rehabilitation to development banking.
Accordingly, the primary objective of the IIBI is to provide customized financial assistance to
industrial enterprises so as to cater to their financial needs. The thrust of the institution is on
setting new standards in the industry as the most innovative financial institution.
As a development bank, the IIBI renders assistance in the form of term loans, underwriting,
direct subscription, deferred payment guarantees and also under asset credit/equipment finance
scheme and equipment leasing/hire purchase scheme.

Besides, the IIBI has also been assigned with the task of undertaking merchant banking activities.
Further, the IIBI provides short-term non-product asset-backed financing in the form of working
capital and other short-term loans to companies to meet their fund requirements.

8.7.4 Summary of SIDBI Performance

Small Industries Development Bank of India (SIDBI), set up as a wholly - owned subsidiary of
IDBI by an Act of Parliament in 1989, commenced its operations from April 2, 1990 by taking
over the outstanding portfolio and activities of IDBI pertaining to the small sector.

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