Definition Of A Financial Institution Essay Example

to be obtained. Therefore, development finance targets economic activities or agents that are unable to access the market. The entity responsible for providing development finance is called a development financial institution (DFI) or development bank.

A Development Finance Institution (DFI) is a government-supported institution that provides development finance to one or more sectors of the economy. DFIs are unique because they can balance commercial norms followed by private financial institutions with their developmental obligations. They prioritize the "project approach" and place emphasis on the viability of financed projects rather than collateral. In addition to offering long-term loans, equity capital, guarantees, and underwriting functions, a development bank also improves the managerial and operational requirements of supported projects. The success and efficiency of project implementation depend on management's integrity, competence, resourcefulness, as well as the commercial and technical feasibility of projects. The relationship between a development bank and its clients aims for ongoing collaboration where the bank acts as a project partner instead of simply providing funding (Scharf and Shetty, 1972).

The main focus of a DFI is on long-term finance and providing assistance for high-risk activities or sectors that the regular financial system may not be willing to support. DFIs can also contribute to the growth of equity and debt markets by selling their own stocks and bonds, aiding assisted enterprises in issuing their securities, and selling investments from their own portfolio. Currently, the Reserve Bank of India regulates and supervises nine select all India financial institutions.

NABARD, NHB, and SIDBI provide indirect financial assistance through refinance. These three institutions have sound financial health as they have exposure to other financial intermediaries, which

sometimes also have State Government guarantees. Among the remaining six institutions, EXIM Bank and IDFC Ltd. are also healthy. EXIM Bank specializes in international trade financing, while IDFC Ltd. focuses on bringing private capital into the infrastructure sector rather than being a direct lender.

Currently, there are financial difficulties being experienced by the remaining four institutions that provide direct assistance. These institutions were established between 1948 and 1974 as part of India's planned economic development. Among them are the Industrial Finance Corporation of India (IFCI) and State Financial Corporations (SFCs). Other institutions like ICICI Ltd (1955), LIC (1956), Refinance Corporation for Industries Ltd. (later taken over by IDBI) in 1958, Agriculture Refinance Corporation (predecessor of ARDC and NABARD) in 1963, UTI and IDBI in 1964, Rural Electrification Corporation Ltd. and HUDCO Ltd. in 1969-70, Industrial Reconstruction Corporation of India Ltd. (predecessor of IIBI Ltd.) in 1971, and GIC in 1972 were also established during this period. It is important to note that although the powers to regulate financial institutions were given to RBI in 1964 under the newly inserted chapter IIIB of the RBI Act, the definition of 'financial institution' became precise and comprehensive with the amendment to Section 45-1 © of the RBI Act in 1974.

The emergence of financial institutions in India is crucial. FDIs are established in developing countries to address market failures, particularly in the realm of funding long-term investments. DFIs have played a major role in expediting industrialization in continental Europe. Numerous DFIs received support from both national governments and international organizations. The Netherlands pioneered the creation of government-sponsored DFIs in 1822, while France witnessed significant progress in long-term financing

after the establishment of credit fanciers and credit mobilisers between 1848-1852.

The Japan Development Bank and other term-lending institutions in Asia were crucial for Japan's rapid industrialization. India, inspired by their success, also established its own Development Financial Institutions (DFIs) after gaining independence. The Reserve Bank of India (RBI) was entrusted with the responsibility of creating a suitable financial architecture and institution building to mobilize and allocate resources to preferred sectors based on plan priorities.

The purpose of the banking system is to gather resources and offer working capital finance to different sectors of the economy. In contrast, Development Financial Institutions (DFIs) were primarily created to fulfill the long-term financial requirements of the industrial sector. The Industrial Finance Corporation of India (IFCI), established in 1948, became India's inaugural DFI. After the enactment of the SFCs Act in 1951, State Financial Corporations (SFCs) were subsequently formed at the state level.
Our vision is embodied by IDBI.

Our goal is to become a dependable power utility company, offering environmentally friendly electricity at the most cost-effective price. We strive for prosperity for our shareholders and growth that is not reliant on human labor. Our mission is to attain perfection in power through various means: ensuring affordable electricity for India's sustained development, providing clean and renewable energy for a secure future, maintaining leadership in hydroelectricity generation with dedication and innovation, pursuing cost efficiency and productivity to ensure financial well-being and meet stakeholder expectations, being a technology-driven and transparent organization that treats team members with dignity and respect, promoting values throughout the organization to establish trust with associates and stakeholders, continuously enhancing the knowledge and skills of our employees, demonstrating

social responsibility through community development efforts utilizing our resources and expertise, striving for excellence in all endeavors.

GENESIS The Company was founded on January 10, 2000 with the primary objective of offering comprehensive financial services to individuals, companies, societies or associations to facilitate the construction or purchase of residential houses or flats in India. The Company can provide suitable security measures and implement appropriate terms and conditions to accomplish this objective.

On December 19, 2003, the Company's name was changed to IDBI Home finance Ltd (IHFL) after the transfer of shareholding from Tata Finance Ltd. to IDBI Ltd. on May 30, 2003. As of September 8, 2003, IHFL became a wholly owned subsidiary of IDBI Ltd., with its registered office in New Delhi and Corporate Office in Pune. With 18 branches situated in metro centres and major cities, IHFL has established itself as a leading housing finance company in the country.

IHFL, the new generation home finance company, distinguishes itself by merging the superior attributes of different providers in the industry. IHFL places emphasis on delivering a personalized experience to customers and providing excellent customer service. What sets them apart is their cutting-edge information technology system that includes a centralized Data Base located in Pune, which is connected online to all branches. This enables real-time operations, a vital aspect for retail home finance. IDBI Bank, also recognized as Industrial Development Bank of India (IDBI), holds the tenth position globally in terms of development.

IDBI has played a major role in establishing significant institutions in the Indian Financial Markets, which include the National Stock Exchange (NSE), the National Securities Depository Services Ltd. (NSDL), and

the Stock Holding Corporation of India (SHCIL). These institutions have had a transformative impact.

IDBI Bank, launched in November 1995 with a branch in Indore and an equity capital base of Rs. 1000 million, is promoted by IDBI Group. Its main function is to coordinate the activities of institutions involved in financing, promoting, and developing industries.

IDBI plays a crucial role in supporting industrial development through various activities. It offers entrepreneurship development programmes, consultancy services for small and medium enterprises, and promotes the use of advanced technology. Additionally, IDBI is committed to uplifting the underprivileged by implementing programs for their economic growth. Acting as a catalyst for industrial development, IDBI provides financing to all types of industrial concerns according to the IDBI Act.

Over the past thirty years, IDBI has seen substantial growth in its operations and portfolio as it serves the Indian industry. The bank remains committed to its developmental role by engaging in a range of promotional activities. These include assisting new entrepreneurs with development programs, offering consultancy services to small and medium enterprises, and implementing initiatives that empower underprivileged communities through accredited voluntary agencies.

IDBI provides different programs to marginalized groups through voluntary agencies. These initiatives include entrepreneurship development, self-employment, and wage employment in the industrial sector. Additionally, IDBI offers assistance for Science and Technology Entrepreneurs' Parks, Energy Conservation, and Common Quality Testing Centres for small industries. To ensure accessible consultancy and advisory services for entrepreneurs, particularly new and small ones, IDBI has partnered with other All-India Financial Institutions to establish a network of Technical Consultancy Organizations (TCOs) nationwide.

The TCOs offer various services to small and

medium businesses, such as aid with project selection, formulation, appraisal, implementation, and review. IDBI acknowledges the significance of entrepreneurial development in industrial growth and has played a notable part in establishing the Entrepreneurship Development Institute of India to foster entrepreneurship within the country. Furthermore, IDBI has established similar institutes in Bihar, Orissa, Madhya Pradesh, and Uttar Pradesh.

IDBI offers financial assistance to various organizations for conducting studies or surveys on industrial development. NABARD, also known as the National Bank for Agriculture and Rural Development, was established on July 12, 1982, through an act of parliament. Upon its establishment, NABARD took over the agricultural credit responsibilities of the Reserve Bank of India [RBI] and the functions of the former agriculture finance and development corporation [ARDC].

NABARD is a development bank established by the government of India [GOI] with the purpose of facilitating credit flow for the promotion and development of agriculture, small scale industries, cottage and village industries, handicrafts, and other crafts. It also aims to support all other allied economic activities in rural areas and promote integrated and sustainable rural development, as well as the security policy of rural areas. This includes matters connected therewith and incidental thereto. Share capital

The share capital of NABARD is Rs. 2000 crore subscribed by the GOI (Rs. 550 Crore) the RBI (Rs. 1450 Crore).
The management of NABARD vests with the board of directors. The board of directors of NABARD comprises the chair person, managing director, and representative of RBI, GOI, state governments & directors nominated by the GOI.
NABARD operates through its head office at Mumbai, 28 regional offices located in the state capital, a sub office at

port Blair & 360 district offices.

NABARD has approximately 2968 professionals on its staff, along with other supporting employees. The organization's mission is to promote sustainable and equitable agriculture and rural prosperity through effective credit support, related services, institution development, and other innovative initiatives. Their role includes facilitating credit flow for agriculture, rural infrastructure, and rural development; promoting and supporting policies, practices, and innovations conducive to rural development; and strengthening the rural credit delivery system through institutional development.

In terms of functions, NABARD engages in credit planning by preparing district-wise credit plans annually, which indicate potential areas for development through bank credit in agriculture, allied activities, rural non-farm sector, etc. They also prepare state-focused credit plans and monitor the flow of ground-level credit. Additionally, they issue policy and operational guidelines to rural institutions (RFIs).

Financial services provided by NABARD include refinancing RFIs to provide loans for investment and production purposes in rural areas, providing loans to state governments for strengthening cooperatives and developing physical and social infrastructure in rural areas, supporting microcredit innovations by NGOs and other non-formed agencies, and monitoring and evaluating financial projects.

NABARD also engages in promotion and development activities such as institutional development of client organizations, capacity building in partner institutions, and providing training programs.

NABARD supports experimentation with new development models and practices in credit delivery, as well as the dissemination of innovative products and ideas. They assist RBI/GOI in formulating policies related to rural credit, promote the rural non-farm sector, and encourage micro credit innovation. They also support the promotion of the Kisan credit card (KCC) scheme, provide consultancy services, and supervise on-site inspections of cooperative

banks (coops banks) and regional rural banks (RBI). Additionally, NABARD conducts off-site surveillance of the health of cooperative banks. In terms of credit planning, NABARD prepares potential linked plans (PLP) for all districts in the country. These plans map the potential for development in agriculture and rural sectors, taking into account long-term physical potential, infrastructure availability, extension services and marketing support, as well as the strengths and weaknesses of RFI in each district.

NABARD conducts state level planning to prepare a state focus paper for each state, which provides an in-depth overview of development potential in agriculture and allied sectors. This serves as a guide for future investment opportunities and aids bankers and other agencies in preparing their investment action plans.

Every year, NABARD organizes state credit seminars where relevant parties discuss and devise policies to address constraints hindering development. NABARD collaborates with GOI and RBI to facilitate credit flow policies in agricultural and rural development areas. They provide short-term credit for seasonal agriculture operations, assist with crop marketing, and extend financial aid for production and marketing activities carried out by cooperative societies through cooperative banks.

The text below describes how cooperative banks and commercial banks support various activities in the production, procurement, and marketing sectors. These activities are conducted by primary/apex weaver societies, state handloom development corporations, and the State Handicraft Development Corporation (SHnDC). The cooperative banks and RBI provide working capital requirements for pisiculture activities as well as any other activity related to rural or agriculture sector. Additionally, these banks also focus on seasonal agriculture operations (SAO) to ensure timely availability of credit for farmers through a production-oriented lending system.

The system includes features such as evaluating

credit needs based on the area of cultivation and specific scales of finance per crop. It provides credit for purchasing agricultural inputs and offers refinance options for production purposes at lower interest rates to SCBs and RRBs through approved credit limits. Repayment for each withdrawal against the sanctioned credit limit must be made within 12 months. The system also extends refinance facilities to cooperative banks and RRBs to meet farmers' marketing credit needs, aiming to minimize distress sales and improve their holding capability.

Each drawal against the sectioned credit limit is repayable within a maximum period of 12 months. In order to ensure timely supply of agriculture inputs, a line of credit is made available to cooperative banks and RRB for financing apex and primary for stocking and distribution of agriculture inputs by way of sanction of yearly limits. Each drawl is repayable within a period of 120 days. There is a special initiative for direct short term refinance to district central cooperative banks for financing SAO, as well as a special line of credit for oil seeds and pulses production. There is also a special line of credit for the development of tribal areas in predominately tribal areas. Refinancing is provided to cooperative banks for financing production and marketing activities of industrial cooperative societies engaged in cottage and SSI. Refinance is also extended to meet the working capital requirement of primary weavers societies and procurement, stocking distribution, and marketing activities of apex weavers societies and SHDC in the handloom sector. Rural craftsmen in the handicrafts sector are provided support by financing SHnDC through SCB and CB for production, procurement, and marketing of handicraft goods. Refinance

is extended to cooperative banks for Pisiculture as well.A new line of credit is being offered for meeting the working capital requirements of fishermen involved in inland and marine fishery activities. Additionally, cooperative banks are provided with a new line of credit to finance agriculture, allied, and marketing activities. This credit is secured by either gold or other security, instead of being tied to crops.

Medium term credit (MT) can be obtained through various types of loans. One type is MT conversion loans for cooperative banks and RRB, which are granted in the event of crop loss due to natural calamities. Another type is MT non-schematic loans for agriculture and allied activities, also available to cooperative banks and RRB. When there is significant crop loss due to natural calamities, farmers may struggle to repay their production dues to banks. In such cases, refinance is provided in the form of medium term loans, allowing cooperative banks and RRB to convert the short-term loans into longer-term ones.

The converted loan repayment period is 3 years, which can extend up to 7 years in case of recurring calamities. NABARD provides refinance support to SCB and RRB for financing farmers to acquire productive assets for approved agriculture investment purposes. The amount sanctioned for medium term conversion loans in 2006-2007 was Rs.288.02 crore. Investment credit includes refinance for agriculture and allied activities, financing artisans/khadi village industries/RURAL NON-FARM SECTOR, and rural housing. Investment credit leads to capital formation and technology upgrading, resulting in increased production, productivity, and incremental income. NABARD provides refinance support to eligible institutions such as SCARBD/SCB/RRB/CB/schedule primary urban cooperative banks/NEDFi for their investment credit in the rural sector.

The achievements in 2006-2007 were Rs.7605.29 crore, and the target for refinance support in 2007-2008 is set at Rs.8800 crore.The text outlines the various purposes that are covered by NABARD, including farm mechanization, minor irrigation, plantation/horticulture, animal husbandry, storage/market yards, fisheries, post-harvest management, food agro processing, non-farm sector (including rural industries), microfinance, purchases of land, rural housing, and disbursements under poverty alleviation programs. Additionally, hi-tech projects and agricultural export zones are identified as thrust areas where NABARD assists in techno-financial appraisal and provides refinance. In 2006-2007, refinance support was extended to new activities such as financing diesel generator sets in Madhya Pradesh and providing LPG kits to rural areas nationwide.

Investment credit is sanctioned based on the technical feasibility, financial viability, and capacity to generate incremental income of a project. The loan period can range from 3 to 15 years. In addition, there are various types of direct credits available, such as loans to state governments for cooperative credit institutions, loans for rural infrastructure projects, co-financing for agriculture projects, and bulk lending for microfinance activities and NGO projects. NABARD also provides loans to state governments to strengthen the owned funds position of cooperative credit institutions and supports ongoing rural infrastructure projects through the Rural Infrastructure Development Fund (RIDF).The lack of agricultural and priority sector lending deposits by commercial banks with NABARD constitutes the total amount of RS.34000 crore for the RIDF from 1995-96 to 2006-2007. As of March 31st, 2007, the sanctions for all sections of the RIDF were RS.34678.07 crore and disbursements were RS.21067.17 crore. The expected advantages are as follows:

The projects approved under RIDF until March 31, 2007 are expected to have

the following outcomes: • Development of 85.52 lakh units of additional irrigation potential • Expansion of the rural road network by 152,483 km and construction of bridges with a total length of 29,600 meters • Contribution to the GDP