Page 170 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Unit 8: Financial Institutions

Functions of IDBI Notes

1. Coordinating Function: The IDBI coordinates the functions and operations of all the
financial institutions, including the IFCI, the ICICI, the LIC, GIC and the UTI into a single
integrated financial structure so that each may contribute to the total effect - the growth of
the economy.
2. Financing Function: As an industrial financier, the IDBI would assist all the deserving
projects (regardless of their size), which experience enormous problems in assembling
funds from normal channels. Its endeavour in this regard is to ensure that no worthwhile
project, however, small, is allowed to languish for want of, or insufficiency of, institutional
support. The bank can assist a project, directly and indirectly. As direct financier, it may
assist industrial concerns in following ways:
(i) Grant term loans and advances;
(ii) Subscribe to, purchase or underwrite, the issue of stocks, shares or debentures;

(iii) Guarantee the deferred payments due from industrial concerns to third parties and
the loans raised by them in the open market or from financial institutions; and
(iv) Providing working capital to projects assisted by the bank.

Direct assistance is usually granted for the acquisition of fixed assets for new units as well
as for expansion, modernization or renovation of existing units. It is usually provided to
large-scale and medium sized projects which have not been able to obtain their full
requirements from other term-financing institutions, it normally prefers not to assist
projects whose needs can be met by other institutions.
3. Promotional Function: The IDBI is authorized to perform promotional activities with a
view to bringing about a viable industrial development, especially in the less developed
areas. These promotional activities are oriented towards meeting the dual objectives of
balanced regional development and acceleration in industrial growth. The activities
directed towards the first objective include the identification and follow-up of projects
located in backward areas. These directed towards fulfilling the second objective include
efforts at building up an appropriate frame work for industrial development.

Corporate Strategy of IDBI

Within the overall framework of its purpose and objectives the IDBI during the first decade of its
existence adopted the strategy of supporting all deserving projects of national importance directly
through lendings and direct investment and indirectly through dispensation of resource support
to other term financing institutions. It adopted consortium approach for assisting gigantic projects.
While playing the role of a promoter IDBI adopted penetration strategy to identify growth
potential areas of the country, identify project ideas, provide help to potential entrepreneurs to
appraise these ideas and to help them to materialize these ideas into projects.
As an apex institution, the IDBI adopted the strategy of coordinating the operations of the term
lending institutions through inter-institutional periodic meetings.
During the second decade of its operations the IDBI adopted consolidation strategy so as to carry
forward its mission of fostering industrial growth in the country and diving a qualitative thrust
to the process of industrialization. Thus, the bank focused its efforts on the promotion of small
and medium scale industries, development of industrially backward areas, widening of the
entrepreneurial base in the country and modernization and up gradation of technology.

LOVELY PROFESSIONAL UNIVERSITY 165