Banking Awareness: All about Industrial Development Bank of India
Industrial Development Bank of India(IDBI)
The IDBI was set up in 1964 as the apex development bank of the country. Originally, it was set up as a wholly government owned institution with the recent action of the IDBI, following Government's permission in wake of amendment to the IDBI Act in March 1995, of raising financial resources from the capital market the government's holding will gradually decline.
The role of the IDBI is to strengthen the effectiveness of the existing structure of financial institutions by evolving an appropriate machinery for coordinating their activities. The IDBI has also been designed to function as a development agency with a special responsibility to:
( i ) Undertake market investment research and surveys as also techno-economic studies in connection with the development of industry.
( ii ) Provide technical and administrative assistance for promotion, management or expansion of industry.
( iii ) Plan, promote and develop industries to the vital gaps in the industrial structure.
Given the wide range of functions, the IDBI charter provides for a considerable measure of operational flexibility. The IDBI can finance all types of industry, irrespective of their form of organisation. There are no restrictions as regards the nature and type of security. There are maximum limits prescribed either for assistance to a unit or the size of the unit itself.
Role of IDBI
In the early decades of its existence, IDBI had directed its financial assistance at capital-intensive industries. Subsequently, in the late 1970's and the early 1980's, IDBI had turned its attention to upgrading technology. Emphasising the up gradation of process and product technologies, import substitution, capacity utilisation, and exports by floating several industry-specific modernisation funds. During the second half of the 1980's, IDBI's operating philosophy underwent a dramatic change. IDBI expanded the scope of its technology upgrading schemes by setting up a venture capital fund. During the 1990's, IDBI responded to the radically changed environment by offering new services like asset-credit, equipment-leasing and bridge loans against public issues, pollution control and energy conservation. In addition, variations have been introduced into the modernisation and venture capital schemes. A sharper focus has also been given to its non-funds-based activities as IDBI entered the merchant banking, debenture trusteeship, and foreign exchange services. The IDBI is also now engaged in co-promoting new organisations in the potential growth area.
These are as follows:
- A credit rating and information services company called Credit Analysis and Research Ltd. (CARE)
- An investor services company for registrar services christened Investor Services of India Ltd. (ISIL)
- A merchant banking outfit a joint venture with Asian Capital Partners, Hong Kong- which will provide corporate advisory services.
- The National Stock Exchange.
An innovative effort of the IDBI has been to introduce the variable interest rate system. Beginning December 15, 1993, the borrowers of the IDBI have the option to choose between a fixed rate of interest or a variable rate. The Variable interest rate would be on the basis of percentage points over a Long Term Prime to be calculated by the IDBI.
Presently, IDBI is preparing itself for a visualised scenario. When project financing is likely to constitute 60 percent of portfolio, 20 percent will be in the form of short-term funding and another 20 percent in activities related to the capital markets and Forex markets.
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