Industrial Finance Corporation of India
At the time of independence in 1947, India's capital market was relatively underdeveloped. Although there was significant demand for new capital, there was a dearth of providers. Merchant bankers and underwriting firms were almost non-existent. And commercial banks were not equipped to provide long-term industrial finance in any significant manner.
It is against this backdrop that the government established The Industrial Finance Corporation of India (IFCI) on July 1, 1948, as the first Development Financial Institution in the country to cater to the long-term finance needs of the industrial sector. The newly established DFI was provided access to low-cost funds through the central bank's Statutory Liquidity Ratio or SLR which in turn enabled it to provide loans and advances to corporate borrowers at concessional rates.
This arrangement continued until the 1990s when it was recognized that there was need for greater flexibility to respond to the changing financial system. It was also felt that IFCI should directly access the capital markets for its funds needs. It is with this objective the constitution of IFCI was changed in 1993 from a statutory corporation to a company under the Indian Companies Act, 1956. Subsequently the name of the company was also changed to 'IFCI Limited ' with effect from October 1999.
IFCI has fulfilled its original mandate as a DFI by providing long term financial support to all segments of Indian Industry. It has also been chiefly instrumental in translating the government's development priorities into reality. Until the establishment of ICICI in 1956, IFCI remained solely responsible for implementation of the government's industrial policy initiatives. Its contribution to the modernization of Indian Industry, export promotion, import substitution, entrepreneurship development, pollution control, energy conservation and generation of both direct and indirect employment is noteworthy.
Formation of IFCI
The IFCI was the 1st specialized financial institution setup in India to provide term finance to large industries in India. It was established on 1 July 1948 under The Industrial Finance Corporation Act of 1948. In 1993 it was reconstituted as a company to impart higher degree of operational flexibility.
Objectives of IFCI
The main objective of IFCI is to provide medium and long term financial assistance to large scale industrial undertakings, particularly when ordinary bank accommodation does not suit the undertaking or finance cannot be profitably raised by the concerned by the issue of shares.
Functions of IFCI
1) For setting up a new industrial undertaking.
2) For expansion and diversification of existing industrial undertaking.
3) For renovation and modernization of existing concerns.
4) For meeting the working capital requirements of industrial concerns in some exceptional cases.
5) Direct financial support (by way of rupee term loans as well as foreign currency loans) to industrial units for under taking new projects, expansion, modernization, diversification etc.
6) Subscription and underwriting of public issues of shares and debentures.
7) Guaranteeing of foreign currency loans and also deferred payment guarantees.
8) Merchant banking, leasing and equipment finance.
9)Provides financial assistance towards balance regional development and development of management education in the country