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Unit 8: Financial Institutions

The SIDC act as catalysts for industrial development and provide impetus to investment in their Notes
respective states. The assistance impetus by SIDCs is in the form of term loans, underwriting/
direct subscription to shares/debentures and guarantees inter-corporate deposits. They also
open letters of credit on behalf of their borrowers. They underwrite a range of promotional
activities such as preparation of feasibility reports, conducting industrial potential surveys,
entrepreneurship development programmes and developing industrial aerial estates. These
institutions are also involved in setting up of medium and large industrial projects in the joint
Sector/assisted sector in collaboration with private entrepreneurs or as wholly owned
subsidiaries. The SIDCs also act agent of providing tax benefits under the state Government's
package scheme of incentives. Since SIDCs also offer a package of development services which
include technical guidance, assistance in plant location and coordination with other agencies. In
line with the changing. Environment, many of the SIDC are making efforts to diversity their
activities to enter the field of equipment leasing, merchant banking and mutual funds.

Did u know? SIDCs have made it a policy to promote the industrial projects in medium
scale sectors and projects costing up to ` 10 crore. Projects where cost exceeds ` 10 crore are
required to approach all India Institutions for financial assistance.
SIDCs insist on debt-equity ratio in the ratio of 2:1. However, in certain cases they reserve the
right to relax it but not exceeding 2.5: 1. The SIDC have prescribed a maximum promoter's
contribution ranging from 12.5% to 22.5% depending upon the location of the project and category
of entrepreneur.
In consequence with the Government policy of sponsoring industrial development in back
regions, the SIDCs/SIICs have provided financial assistance on liberal terms and conditions to
such units as are located in back ward area.
Some SIDCs assumed the role of initiating arrangements for the promotion of new industries
such as securing industrial licenses for projects in their own names, feasibility studies and
negotiating collaborations and other arrangements.
The SIDCs analysis of the operations of the SIDCs reveals that these institutions have played an
important role in the development of small and medium industries. Besides giving loans, they
have offered venture capital to a large extent, which is really praiseworthy.
They are competing with the state financial corporations in different states. SFCs concentrate on
lending funds to small and medium concerns; the SFCs may assume the role of provincial
development banks to provide venture capital to companies and managerial and technical
assistance to entrepreneurs in the identification of new project ideas, carrying out feasibility
studies and implementing the project ideas.

8.7.6 Regional Rural Banks (RRBs)

Regional Rural Banks (RRBs) were introduced to meet the need for extending credit to the
weaker section of the society. They were to supplant the activities of the nationalized commercial
banks in order to create a better distribution channel of the rural credit.
The RRBs were expected to provide credit to the weaker sections and extend the habit of thrift
amongst the poor. They were also designed to mobilize deposits from the rural household in
the country. RRBs were supposed to be an integral part of rural finance in the country.
The RBI provides refinance assistance at 3 per cent to the RRBs in order to facilitate their operations.
They have also been allowed to maintain a lower SLR than the commercial banks. Besides, the
RRBs are allowed to pay half per cent more interest then the commercial banks on deposits so
that more people are interested in saving with them.

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