Role of the Industrial Development Bank of India (IDBI)

Role of the industrial Development depose of India (IDBI)The verifying Industry was at a time a simple and reliable wrinkle that took deposits from investors at a lower interest regularize and loaned it egress to borrowers at a higher rate.However deregulation and technology led to a revolution in the asserting Industry that saw it transformed. Banks kick in amaze global industrial powerhouses that tolerate created ever more composite products that use risk and securitisation in models that only PhD students rump on a lower floorstand. Through technology discip spot, canting operate have become available 24 hours a day, 365 days a week, finished ATMs, at online vernacularings, and in electroni rallyy enabled exchanges where everything from stocks to funds futures contracts bum be traded.Indian banking effortThe exploitation in the Indian Banking Industry has been more qualitative than quantitative and it is expected to remain the same in the coming years. Base d on the projections made in the India Vision 2020 prep bed by the Planning Commission and the Draft 10th Plan, the report forecasts that the pace of refinement in the balance-sheets of banks is likely to decelerate. The total assets of all scheduled commercial banks by end-March 2010 is estimated at Rs 40,90,000 crores. That go out pay off about 65 per cent of GDP at electric current market prices as comp atomic number 18d to 67 per cent in 2002-03. Bank assets are expected to grow at an annual composite rate of 13.4 per cent during the rest of the decade as against the growth rate of 16.7 per cent that existed between 1994-95 and 2002-03. It is expected that there will be large additions to the capital base and reserves on the liability side.The Indian Banking Industry can be categorized into non-scheduled banks and scheduled banks. plan banks constitute of commercial banks and co-operative banks. There are about 67,000 branches of Scheduled banks expand across India. As distant as the present scenario is concerned the Banking Industry in India is expiration through a transitional phase.The Public Sector Banks(PSBs), which are the base of the Banking sector in India report for more than 78 per cent of the total banking industry assets. Unfortunately they are burdened with excessive Non perform assets (NPAs), massive manpower and lack of modern technology. On the different hand the Private Sector Banks are making tremendous progress. They are leaders in Internet banking, mobile banking, phone banking, ATMs. As far as extraneous banks are concerned they are likely to succeed in the Indian Banking Industry.In the Indian Banking Industry many of the Private Sector Banks run are IDBI Bank, ING Vyasa Bank, SBI Commercial and International Bank Ltd, Bank of Rajasthan Ltd. and banks from the Public Sector include Punjab National bank, Vijaya Bank, UCO Bank, Oriental Bank, everyahabad Bank among others. ANZ Grindlays Bank, ABN-AMRO Bank, American Exp ress Bank Ltd, Citibank are some of the international banks operating in the Indian Banking Industry.Industrial Development Bank of India (IDBI)The Industrial Development Bank of India (IDBI) was established on July 1, 1964 downstairs an fiddle of Parliament as a wholly owned subsidiary accompany of the Reserve Bank of India. In 16 February 1976, the ownership of IDBI was transferred to the G everyplacenment of India and it was made the wind monetary substructure for coordinating the activities of originations occupied in financing, promoting and developing industry in the region. Although brass shareholding in the Bank came down below 100% following IDBIs public issue in July 1995, the precedent continues to be the major stockholder (current shareholding 52.3%). During the foursome decades of its existence, IDBI has been instrumental not only in establishing a well-developed, diversified and efficient industrial and institutional structure but excessively adding a q ualitative dimension to the process of industrial maturation in the country.IDBI has vie a pioneering role in fulfilling its mission of promoting industrial growth through financing of medium and long-term projects, in consonance with national plans and priorities. Over the years, IDBI has enlarged its basket of products and services, viewing al approximately the entire spectrum of industrial activities, including manufacturing and services. IDBI forgets pecuniary assistance, twain in rupee and foreign currencies, for green-field projects as also for expanding upon, modernisation and diversification purposes. In the wake of pecuniary sector reforms unveiled by the government since 1992, IDBI evolved an set out of fund and fee-based services with a view to providing an integrated solution to meet the entire demand of pecuniary and corporate advisory getments of its nodes. IDBI also provides indirect monetary assistance by way of refinancing of loans extended by State-le vel financial institutions and banks and by way of rediscounting of bills of exchange arising out of sale of indigenous machinery on deferred payment terms.IDBI has lay outed a pioneering role, particularly in the pre-reform era (1964-91),in catalyzing broad based industrial education in the country in keeping with its governing body-ordained suppuration banking charter. In pursuance of this mandate, IDBIs activities transcended the confines of pure long-term lending to industry and encompassed, among others, balanced industrial growth through phylogeny of backward areas, modernisation of specific industries, employment genesis, entrepreneurship development along with sponsor services for creating a deep and vibrant domestic capital market, including development of apt institutional framework.Narasimam committee recommends that IDBI should give up its direct financing maps and concentrate only in promotional and refinancing role. But this recommendation was rejected by the government. Latter RBI constituted a committee at a lower place the chairmanship of S.H.Khan to examine the archetype of development financing in the changed global challenges. This committee is the first to recommend the concept of universal banking. The committee wanted to the development financial institution to diversify its activity. It recommended to harmonise the role of development financing and banking activities by getting away from the conventional distinction between commercial banking and developmental banking.In September 2003, IDBI diversified its business domain further by acquiring the entire shareholding of Tata Finance extra in Tata Home finance Ltd., signaling IDBIs foray into the retail finance sector. The fully-owned housing finance subsidiary has since been renamed IDBI Home finance special(a). In view of the signal changes in the operating environment, following initiation of reforms since the former(a) nineties, Government of India has decided to transfo rm IDBI into a commercial bank without eschewing its secular development finance obligations. The migration to the clean business model of commercial banking, with its admission to low- represent current, savings bank deposits, would help overcome most(prenominal) of the limitations of the current business model of development finance while at the same time enabling it to diversify its thickening/ asset base. Towards this end, the IDB (Transfer of Undertaking and Repeal) coif 2003 was passed by Parliament in declination 2003. The Act provides for repeal of IDBI Act, corporatisation of IDBI (with volume Government holding current share 58.47%) and transformation into a commercial bank.The provisions of the Act have come into force from July 2, 2004 in terms of a Government Notification to this effect. The Notification facilitated formation, incorporation and allowance of Industrial Development Bank of India Ltd. as a company chthonian the Companies Act, 1956 and a deemed Ba nking Company under the Banking Regulation Act 1949 and helped in throwing requisite regulatory and statutory clearances, including those from RBI. IDBI would commence banking business in accordance with the provisions of the untested Act in addition to the business being transacted under IDBI Act, 1964 from October 1, 2004, the appointed participation notified by the Central Government. IDBI has firmed up the infrastructure, technology platform and reorientation of its human capital to achieve a smooth transition.IDBI Bank, with which the parent IDBI was merged, was a vibrant immature generation Bank. The Pvt Bank was the fastest growing banking company in India. The bank was pioneer in adapting to policy of first mover in score 2 cities. The Bank also had the least NPA and the highest productivity per employee in the banking industry.On July 29, 2004, the Board of Directors of IDBI and IDBI Bank accorded in convention approval to the merger of IDBI Bank with the Industrial Development Bank of India Ltd. to be formed incorporated under the Companies Act, 1956 pursuant to the IDB (Transfer of Undertaking and Repeal) Act, 2003 (53 of 2003), battleground to the approval of shareholders and other regulatory and statutory approvals. A mutually p supporter proposition with positive implications for all stakeholders and clients, the merger process is expected to be completed during the current financial year ending March 31, 2005.IDBI would continue to provide the extant products and services as part of its development finance role even after its conversion into a banking company. In addition, the new entity would also provide an array of wholesale and retail banking products, designed to suit the specific needs cash flow requirements of corporates and individuals. In particular, IDBI would leverage the strong corporate relationships built up over the years to offer customised and total financial solutions for all corporate business needs, single-window ap praisal for term loans and working capital finance, strategic advisory and hand-holding support at the implementation phase of projects, among others.IDBIs transformation into a commercial bank would provide a gateway to low-cost deposits like Current and Savings Bank Deposits. This would have a positive impact on the Banks overall cost of funds and facilitate lending at more competitive rates to its clients. The new entity would offer various retail products, leveraging upon its existing relationship with retail investors under its existing Suvidha Flexi-bond schemes. In the emerging scenario, the new IDBI hopes to realize its mission of positioning itself as a one stop super-shop and most preferred brand for providing total financial and banking solutions to corporates and individuals, capitalising on its intimate knowledge of the Indian industry and client requirements and large retail base on the liability side.Recent developmentsTo meet emerging challenges and to keep up with r eforms in financial sector, IDBI has taken steps to reshape its role from a development finance institution to a commercial institution. With the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003, IDBI attained the status of a peculiar(a) company viz. Industrial Development Bank of India Limited (IDBIL). Subsequently, the Central Government notified October 1, 2004 as the Appointed duration and RBI issued the requisite notification on September 30, 2004 incorporating IDBI Ltd. as a scheduled bank under the RBI Act, 1934. Consequently, IDBI, the erstwhile Development Financial Institution of the country, formally entered the portals of banking business as IDBIL from October 1, 2004, over and preceding(prenominal) the business currently being transacted.Acquisition of United Western BankIn 2006, IDBI Bank acquired United Western Bank in a rescue. Annasaheb Chirmule, who worked for the cause of Swadeshi movement, founded Satara Swadeshi Commercial Bank in 19 07, and some three decades later founded United Western Bank. The bank was incorporated in 1936, and commenced operations the next year, with its decimal point office in Satara, in Maharashtra State. It became a Scheduled Bank in 1951. In 1956 it merged with marrow Bank of Kolhapur, and in 1961 with Satara Swadeshi Commercial Bank. At the time of the merger with IDBI, United Western had some 230 branches spread over 47 districts in 9 states, controlled by five Zonal Offices at Mumbai, Pune, Kolhapur, Jalgaon and Nagpur.Main function of IDBIIDBI is vested with the responsibility of co-ordinating the working of institutions engaged in financing, promoting and developing industries. It has evolved an appropriate mechanism for this purpose. IDBI also undertakes/supports wide-ranging promotional activities including entrepreneurship development programmes for new entrepreneurs, provision of consultancy services for short and medium enterprises, upgradation of technology and programmes for economic upliftment of the underprivileged.IDBI role as catalystIDBIs role as a catalyst to industrial development encompasses a wide spectrum of activities. IDBI can finance all types of industrial concerns covered under the provisions of the IDBI Act. With over three decades of service to the Indian industry, IDBI has grown substantially in terms of surface of operations and portfolio.Development activities of IDBI and promotionl activitiesIn fulfilment of its developmental role, the Bank continues to perform a wide range of promotional activities relating to developmental programmes for new entrepreneurs, consultancy services for small and medium enterprises and programmes designed for accredited voluntary agencies for the economic upliftment of the underprivileged. These include entrepreneurship development, self-employment and wage employment in the industrial sector for the weaker sections of society through voluntary agencies, support to Science and Technology Entreprene urs Parks, Energy Conservation, Common prize Testing Centres for small industries.Evolution Changing RoleThe genesis of Industrial Development Bank of India Limited (IDBI Ltd.) can be traced to the establishment of The Industrial Development Bank of India (IDBI), its predecessor entity, in 1964, by an Act of Parliament to provide credit and other facilities for the development of industry. IDBIs charter was later broad-based to also encompass the responsibilities of headspring financial institution for co-ordinating the working of National and State-level institutions engaged in financing, promoting and developing industry. Initially set up as a fully-owned subsidiary of the Reserve Bank of India (RBI), the ownership of IDBI was later transferred to the Government of India in 1976. Although Government shareholding in the Bank came down below 100% following IDBIs public issue in July 1995, the former continues to be the major shareholder(currentshareholding51.4%).Cumulative assist ance sanctioned and disbursed by IDBI since inception up to end-September 2004 aggregated some Rs.2,23,000 crore and Rs 1,78,000 crore respectively. IDBIs asset base stood in the vicinity of Rs. 63,850 crore at end-September2004.As a considered response to changes in its operating environment following initiation of reforms since the early nineties and the resultant concerns of IDBIs sustained viability therein in its current avatar, IDBI, in consultation with the Government of India, decided to transform into a commercial bank without eschewing its secular development finance obligations. The migration to the new business model of commercial banking, with its gateway to low-cost current/savings bank deposits, it was felt, would help overcome most of the limitations of the current business model of development finance while simultaneously enabling it to diversify its client/asset base.Towards this end, the IDBI (Transfer of Undertaking and Repeal) Act 2003 was passed by Parliament on December 16, 2003 and received the Presidents assent on December 30, 2003. The provisions of the Act came into force from July 2, 2004 in terms of a Government Notification to this effect. The Notification enabled IDBI to obtain the requisite statutory and regulatory approvals, including those from RBI, for conversion into a banking company. The new company viz. Industrial Development Bank of India Limited (IDBIL) was incorporated on September 27, 2004 and the record-keeper of Companies, Mumbai, issued the certificate for commencement of business to IDBI Ltd. on September 28, 2004. Subsequently, the Central Government notified October 1, 2004 as the Appointed Date and RBI issued the requisite notification on September 30, 2004 incorporating IDBI Ltd. as a scheduled bank under the RBI Act, 1934. Consequently, IDBI, the erstwhile Development Financial Institution of the country, formally entered the portals of banking business as IDBIL from October 1, 2004, over and above the busin ess currently being transacted.IDBI Ltd. is registered as a company under the Companies Act, 1956 to carry out banking business in accordance with the provisions of the Banking Regulation Act, 1949. The IDBI Repeal Act, 2003 enabled IDBI to become a banking company without the need to obtain a separate banking licence under the Banking Regulation Act, 1949. IDBI Ltd. will enjoy certain regulatory forbearance, including right from compliance with SLR requirements (mandated under the Banking Regulation Act) for the first five years. All existing shareholders of the erstwhile IDBI, including the Central Government, have become pro-rata shareholders of IDBI Ltd. from the appointed date. Further, the provisions of the Memorandum and Articles of Association of IDBI Ltd. require that the Central Government, as a shareholder of the Company, shall, at all times, maintain not less than 51% of the issued capital of the company.The authorized capital of IDBI Ltd, has been minify to Rs.1250 cr ore from Rs.1500 crore (the authorized capital of erstwhile IDBI) in conformity with the provision of the Banking Regulation Act. The paid-up capital of the Company, at Rs.653 crore, however, remains the same as the paid-up capital of the erstwhile IDBIRole of Financial Institutions in extraneous Investment in IndiaThe main role of the financial institutions in India in respect to foreign investments is to aid foreign investors in investment activities in India. The funds from overseas countries come in two forms unusual direct Investments and Joint Ventures of the foreign companies with Indian companies. immaterial direct investments inflows are approved through spontaneous route or through government route. Those units that require government approval to get funds require the FIPB approval. Foreign Direct Investment through automatic route, on the other hand, does not require FIPB approval. All these allocation of financial assistance to various industrial units in India are gui ded by the financial institutions set up in various parts of India. Some of the leading financial institutions in India that play an important role in foreign investments in India are RBI, IDBI Bank, IFCI Bank, ICICI Limited and EXIM Bank.Role of IDBI in Foreign InvestmentThe role of IDBI in Foreign Investment is mainly to provide financial assistance on a consortium basis to various industrial units in India which are mainly involved in manufacturing or processing of goods, mining, transport generation and distribution of power.Main Functions of IDBIIDBI coordinates between various financial institutions who are highly involved in provide financial assistance, promoting, and developing various industrial unitsIDBI is also engaged in a variety of promotional activities such as development programs for the fresh entrepreneurs, planning of consultancy services for both the small scale enterprises and the medium sized industrial unitsIDBI works for the advancement of technology and oth er welfare schemes to ensure economic development.Industrial Development Bank of India acts as a catalyst in various industrial development programsIDBI provides financial assistance to all kinds of industrial units which comes under the provisions of the IDBI ActIDBI has served various industrial sectors in India for about three years and has grown leaps and bounds in its size and operating unitsRole of IDBI in Foreign InvestmentIt manages various financial institutions working under IDBI bankProvides financial assistance to various industrial units in terms of developmentsIt also offers refinancing options including term loans to the suitable financial institutionsIt provides keep to the industrial units that are involved in manufacture or processing of goods, mining, transport generation and distribution of power both in private and public sectorsIt also provides finance to various projects, expansion of any project, diversifications, or even developing the projects which will e xceed Rs. 30 one million million and it also provides funding to those projects which cost less than Rs. 30 million through indirect means as it offers refinancing to the main financial institutions such as SFC/SIDC/Commercial BanksArticlesIDBI Bank July-Sep net up 57 pct, beats fcastState-owned IDBI Ltd on Monday post a 57 percent rise in July-September net profit, helped by growth in both the net interest income and fee-based income, beating analyst forecasts. Net profit of the bank for the second quarter was at 2.54 one thousand million rupees, up from 1.62 billion rupees a year ago. A Reuters poll of brokerages had estimated profits at 1.95 billion rupees. Profitability grew on the back of good growth in the net interest income and fee-based income front, Yogesh Agarwal, chairman and managing director, told reporters at a press conference.The banks net interest income rose to 4.72 billion rupees, up from 1.29 billion rupees a year ago, while fee-based income rose 99 percent to 3.90 billion rupees. Its net interest margin rose to 1.07 percent, up from 0.41 percent a year ago with cost of deposits coming down as high cost deposits were getting retired, Agarwal said. Core income helped profits grow for the bank, said an analyst in a Mumbai-based brokerage, on crack of anonymity. The bank, with a capital adequacy ratio of 11.9 percent, is waiting for government approval to raise funds for growth.Government owns around 52 percent in the bank and it will have to take a call on modes of capital-raising to be made available to the bank, he said. We hope to tap the (capital) market by January 2010, subject to government deciding on mode of capital raising to be adopted by the bank, he said. Its capital adequacy at tier I level was at 6.83 percent, while that in the tier II segment was at 5.07 percent. The bank will also raise $225 million via syndicated loans to meet its growth targets, R.K. Bansal, chief financial officer, said adding the bank is targeting a lo an growth of 20 percent in the current fiscal. We will be signing for this foreign currency loan tomorrow, he said. The loan will be for a one-year tenure with an all-inclusive cost of 6.2 percent.The bank which would open its first foreign branch in Dubai has an enabling resolution to raise up to $1.5 billion via medium term notes in foreign currency, Bansal said adding it can be raised only after the lender has a foreign presence as per Reserve Bank of India guidelines.The cash strapped Industrial Development Bank of India (IDBI), has got a line of credit of $100 million from the Asian Development Bank (ADB). The institution has also reached the final stages of an line of battle with KfW of Germany for co-financing of infrastructure projects along with the line of credit (LoC)from ADB. This comes as a great help to the FI at a time when it is starved of funds. The funds will be lent against private infrastructure projects in four states namely Karnataka, Andhra Pradesh, Gujarat a nd Madhya Pradesh. In fact, IDBI is not the only institution to have got it. IIL FS too has got a $100 million LoC from ADB.The duration of loan from ADB will be 20 years on a floating rate basis. It will be lent at LIBOR plus 60 basis point. The boards of ADB and both the FIs have cleared the loan proposal and the signing of the documents will take place in the next 10 to 15 days. The KfW deal is being negotiated and is likely to be taken up at the latest Indo-German meeting. KfW is a development bank for developing countries that operate on behalf of the German Government. The rates in the case of KfW are likely to be very close to the rates offered by ADB. But in the case of KfW, the tenure of the payments is loss to be longer in the range of 25 years.In fact, the borrowings of IDBI have been growing sharply. From Rs. 37,861 crore in 1997, it has gone up to Rs. 56,057 crore as on June 30, 2001. Of this, the borrowings outside India had grown from Rs. 5660 crore in 1997 to Rs. 7,913 crore as on June 30, 2001. In fact, IDBI along with NABARD have been requesting the RBI and the Government to extend the tenure of long-term operations funds availed by the institution from the RBI till 1990. These were taken off following the start of economic reforms in 1991.