At the same time raw industrial units were to be set up for industrializing the country. Government of India came forward to set up the Industrial Finance Corporation of India (IFCI) in July 1948 under a Special Act. The Industrial Development Bank of India, scheduled banks, insurance companies, investment trusts and co-operative banks are the shareholders of IFCI. The Government of India has guaranteed the repayment of capital and the payment of a minimum annual dividend. Since July I, 1993, the corporation has been converted into a company and it has been given the status of a Ltd. Company with the name Industrial Finance Corporations of India Ltd. IFCI has got itself registered with Companies Act, 1956. Before July I, 1993, general public was not permitted to hold shares of IFCI, only Government of India, RBI, Scheduled Banks, Insurance Companies and Co-operative Societies were holding the shares of IFCI.
Management of IFCI
The corporation has 13 members Board of Directors, including Chairman. The Chairman is appointed by Government of India after consulting Industrial Development Bank of India. He works on a whole time basis and has tenure of 3 years. Out of the 12 directors, four are nominated by the IDBI, two by scheduled banks, two by co-operative banks and two by other financial institutions like insurance companies, investment trusts, etc. IDBI normally nominates three outside persons as directors who are experts in the fields of industry, labour and economics, the fourth nominee is the Central Manager of IDBI. The Board meets once in a month. It frames policies by keeping in view the interests of industry, commerce and general public. The Board acts as per the instructions received from the government and IDBI. The Central Government reserves the power up to the Board and appoints a new one in its place.
The Board is assisted by the Central Committee which consists of the chairman, two directors elected by nominated directors and the Board of directors elected by the elected directors. This committee assists the Board in discharge of its functions. It .can act on all matters under the competence of the Board, So this committee practically transacts the entire business of the corporation. IFCI also has Standing Advisory Committees one each for textile, sugar, jute, hotels, engineering and chemical processes and allied industries. The experts in different fields appointed on Advisory Committees. The chairman is the ex-officio member of all Advisory Committees. All applications for assistance are first discussed by Advisory Committees before they go to Central Committees.
Financial Resources of IFCI
The financial resources of the corporation consist of share capital bonds and debentures and borrowings.
a) Share Capital:
The IFCI was set up with an authorized capital of Rs. 10crores consisting of 20,000 shares of Rs. 5,000 each. This capital was later on increased at different times and by March, 2003 it was Rs. 1068 crores. The capital was subscribed by Central Government, Reserve Bank of India, scheduled banks, Life Insurance Corporation, investment trusts, co-operative banks are other financial institutions. In 1964, the share capital held by the central government and RBI was transferred to the Industrial Development Bank. The corporation thus became a subsidiary of IDBI. The central government had guaranteed the shares of the corporation both for repayment of the principal and for the payment of a dividend at 2.5 per cent on the original issue and 4 per cent on the additional issues. However, since July , 1993 IFCI has been converted into a limited company.
b) Bonds and Debentures:
The corporation is authorized to issue bonds and debentures to supplement its resources but these should not exceed ten times of paid-up capital and reserve fund. The bonds and debentures stood at a figure of Rs. 57.69 crores 1971 and rose to Rs. 15366.5 crores as on 31st March 2003. The bonds and debentures are also guaranteed by the central government for both payment of interest at such rates as may be fixed at the time the bonds and debentures are issued.
The corporation is authorized to borrow from government IDBI and financial institutions. Its borrowings from IDBI and Govt. of India were Rs. 975.6 crore on March 31, 2003. Total assets of IFCI as on March 31, 2003 aggregated Rs. 22866 crore including investments of Rs. 3820.3 crore and loans and advances of Rs. 13212.8crore.
Priority Criterion for Investment
IFCI plans its financing policies as per the priorities set by the government through Industrial Policy Statements. The Industries which are in high priority are given more importance. Following considerations are taken into account while selecting a financial proposal:
- Importance of the project for national economy.
- Employment-oriented and labour-intensive nature of the project.
- Export potential of the unit,
- Projects located in backward areas or ‘no industry districts.
- Projects initiated by new or technician entrepreneurs.
- Projects which will harness indigellously available technology, technical know how and raw materials.
- Projects which will help rural areas.
- Projects which help in conserving energy or which manufacture renewable energy systems or devices.
- Projects to be set up in co-operative sector.
Eligibility for Assistance under Direct Financing
Following types of industrial concerns are eligible for direct finance under IFCI Act, amended from time to time:
- Limited companies incorporated in India, in private, public or joint Sector
- Co-operative societies registered in India, which are engaged or propose to engage in any of the activities related to
- Manufacture, preservation or processing of goods
- Hotel industry
- Generation or distribution of electricity or any other form of power
- Transport of passengers or goods.
- Maintenance, repair or servicing of machinery or vehicles.
- Assembling, repairing or packing of articles.
- Development of contiguous area of land as an industrial estate.
- Fishing or providing shore facilities for fishing.
- Providing special or technical knowledge or other services for promotion of industrial growth.
- Research and Development of any process or product in relation to any of the matters aforesaid.
Purpose of Direct Assistance:
IFCI provides direct financial assistance for the following causes:
- Setting up of new industrial projects.
- Expansion of existing units or for diversification into new lines of activity.
- For renovation and modernization of existing units.
IFCI does not ordinarily provide funds for working capital purpose as this function is left to commercial banks. It does not allow utilizing its assistance for meeting existing liabilities of the industrial concerns. Similarly, foreign currency loans can be used for purchasing capital goods only and not of raw material.
Functions of IFCI
IFCI is authorized to render financial assistance in one or more of the following forms:
- Granting loans or advances to or subscribing to debentures of industrial concerns repayable within 25 years. Also it can convert part of such loans or debentures into equity share capital at its option.
- Underwriting the issue of industrial securities i.e. shares, stock, bonds, 0r debentures to be disposed off within 7 years.
- Subscribing directly to the shares and debentures of public limited companies.
- Guaranteeing of deferred payments for the purchase of capital goods from abroad or within India.
- Guaranteeing of loans raised by industrial concerns from scheduled balls or state co-operative banks.
- Acting as an agent of the Central Government or the World Bank in respect of loans sanctioned to the industrial concerns.
IFCI provides financial assistance to eligible industrial concerns regardless of their size. However, now-a-days, it entertains applications from those industrial concerns whose project cost is about Rs. 2 crores because upto project cost of Rs. 2 crores various state level institutions (such as Financial Corporations, SIDCs and banks) are expected to meet the financial requirements of viable concerns. While approving a loan application, IFCI gives due consideration to the feasibility of the project, its importance to the nation, development of the backward areas, social and economic viability, etc. The most of the assistance sanctioned by IFCI has gone to industries of national priority such as fertilizers, cement, power generation, paper, industrial machinery etc. The corporation is giving a special consideration to the less developed areas and assistance to them has been stepped up. It has sanctioned nearly 49 per cent of its assistance for projects in backward districts. The corporation has recently been participating in soft loan schemes under which loans on confessional rates are given to units in selected industries. Such assistance is given for modernization, replacement and renovation of plant and equipment.
IFCI introduced a scheme for sick units also. The scheme was for the revival of sick units in the tiny and small scale sectors. Another scheme was framed for the self-employment of unemployed young persons. The corporation has diversified not merchant banking also. Financing of leasing and hire purchase companies, hospitals, equipment leasing etc. were the other new activities of the corporation in the last few years.
The IFCI has been playing very important role as a financial institution in providing financial assistance to eligible industrial concerns. However, no less important is its promotional role whereby it has been creating industrial opportunities also. It has been taking up directly as well as indirectly; such steps and activities are regarded necessary for the acceleration of the process of industrialization in the country.
The promotional role of IFCI has been to fill the gaps, either in the institutional infrastructure for the promotion and growth of industries, or in the provision of the much needed guidance in project intensification, formulation, implementation and operation, etc. to the new tiny, small-scale or medium scale entrepreneurs or in the efforts at improving the productivity of human and material resources.
(a) Development of Backward Areas: – The main thrust of all financial institutions has been to remover regional imbalances by promoting industrialization of backward areas. IFCI introduce a scheme of confessional finance for projects set up in backward areas. The backward-districts were divided into three categories depending upon the state of development there. All these categories were eligible for concessional finance. Nearly 50 per cent of total lending of IFCI has been to develop backward areas.
(b) Promotional Schemes:- IFCI has been operating six promotional schemes with the object of helping entrepreneurs to set up new units, broadening the entrepreneurial base, encouraging the adoption of new technology, tackling ‘the problem of sickness and promoting opportunities for self development and . self employment of unemployed persons etc. These schemes are as such:
- Subsidy for Adopting Indigenous Technology:- The projects which use indigenously developed technology are entitled to a concession in the form of subsidy covering interest payments due to IFCI during the first three years of operations, extendable to five years.
- Meeting Cost of Market Studies: - The entrepreneurs setting up medium sized industrial projects for the first time can avail 75 per cent of the cost of market survey/study subject to a ceiling of Rs. 15,000 provided it is handled by Technical Consultancy Organization. .
- Meeting Cost of Feasibility Studies: – IFCI provides subsidy for the fees paid for consultancy assignments relating to feasibility, project reports etc. The amount allowable is 80 per cent of the fees of Rs. 7,500 whichever is less. This limit is Rs. 8,500 or 100 per cent of the total fees whichever is less for handicapped or scheduled caste persons.
- Promoting Small Scale and Ancillary Industries: – For the identification of products suitable for ancillary or further processing in small scale sector and preparation of feasibility reports a subsidy of Rs.0.1 million per annum for technical consultancy organization is allowed.
- Revival of Sick Units: – There is a subsidy to the extent of 80 per cent or Rs. 5,000 (whichever is less) for the fees charged by a technical consultancy organization for carrying out a diagnostic study or for the implementation of rehabilitation programme. This facility is allowed to tiny units or units in small scale sector.’
Self-development and Self employment Scheme: - An unemployed person in the age group of 21 to 35 years may be allowed a soft loan for providing margin money for getting a loan from a bank or a financial institution. The soft loan at interest free rate in first year and has confessional interest later on. The amount available under this scheme is 25% of margin money subject to Rs. 5000.