IV ESTABLISHMENT AND WORKINGS OF...

CHAPTER - IV

ESTABLISHMENT AND W ORKINGS OF INDUSTRIAL FINANCE CORPORATION OF

INDIA

After looking into the historical background of development banks or

specialized financial institutions in India, it is quite evident that the

development of financial institutions, and the establishment of capital

markets in particular, is central to the transition from a centrally

planned, non-market economy to a market economy.

With the end of the llnd World War, the urge to speedier

industrial expansion was great. At the same time, there was also great

need for modernization and replacement of obsolete machinery in

already established industries. The usual agencies meant to provide

finance for large-scale industries were either apathetic or were found

inadequate.

With the initiative of the Government a comprehensive system of

indirect finance developed in the country. With great accent on

industrial development the task of the industrial financing organization

was two-fold: first, to obtain a rising share of the capital flow for

industrial development, and second, to ensure its rational allocation in

conformity with the planned priorities within the industrial sector. In

view of these requirements of the economy some specialized

institutions of industrial financing were set up. By establishing Industrial

Finance Corporation just after independence, our National Government

fulfilled a basic recommendation, which the Central Banking Enquiry

Committee had made more than 4 decades ago.

IFCI was the first ‘Development Bank’ established soon after

India's Independence Day, by an act of Parliament in 1948. Introducing

the Bill in the Constituent Assembly on the 20th Nov, 1947, the then

and the first Finance Minister of Independent India, Honorable Shri

Shanmukhan Chetty had stated, “with the inauguration of the

Independent India and our anxiety to go ahead full speed with the

Industrial Development of the Country, the setting up of an Industrial

Finance Corporation has acquired a new significance. I must frankly

say that the object of this Bill is to set up Finance Corporation for the

purpose of financing the large-scale industries in this country. It is my

intention, after this Bill has been placed on the Statute Book, to

persuade the provincial government to set up similar industrial finance

corporations in each province, mainly to finance small scale

industries1”.

The Bill for the establishment of an Industrial Finance

Corporation for providing medium and long-term finance to industries in

India was introduced in the autumn session of 1946 of the Legislative

Assembly. The Bill was passed and became an Act, the Industrial

Finance Corporation Act, 1948 (XV of 1948), after being passed by the

Dominion Parliament on 13th Feb, 1948, on the 27th March, 19482 It

was on 1st July 1948 that IFCI opened its door for business for the

purpose of making medium and long term credits more readily

available to industrial concerns in India, particularly in circumstances

where normal banking accommodation is inappropriate or recourse to

capital issue channels is impracticable. The Act received the assent of

the Governor General on the 27th March 1948, and came into force on

the 1st July 19483

A. General background

The Corporation came into existence during the period of transition

following the cessation of hostilities. During war-time under the

stimulus of the expenditure of the Allied Governments including that of

U u o t e d in I FC I . A S a g a o f 3 5 s e a r s o f S e r v i c e s to I nd u s t r y ( De l h i . \ e a r u n s p e c i f i e d I p a g e s not

n u m b e r e d .

1st A n n u a l R e p o r t o f t he IFC'l pp. I.

\ n n u a l R e p o r t op. ci t .

the Government of India and of H.M.G. and on account of the

necessity for making supplies available to those Governments for the

prosecution of hostilities, there was a considerable expansion of Indian

industry. The curtailment of imports from abroad for considerations of

foreign exchange or shipping difficulties was a further factor leading to

the growth of Indian industry, the impetus to such growth being

particularly marked after the outbreak of hostilities with Japan. On

account of the inflation created by the methods adopted for financing

the war expenditure of the Allied Governments, there was in India a

continuous increase in the price-level and the products of Indian

industry were readily saleable either to the purchasing departments of

governments or to meet civilian requirements. The country was also

able to establish and expand taking advantage of war-time conditions,

markets in foreign countries, notably in the countries of the Middle East

and Australia for some of its products e.g. cotton textiles. In these

circumstances, it is perhaps not surprising that no great emphasis was

placed on quality as a ready market was available for the products of

Indian industry, there being like wise no great urge for attaining

technical efficiency or for reducing expenses consistently with the

maintenance of a reasonable standard in regard to quality on account

of the increase in the cost of living, substantial addition had to be made

in the form of dearness allowances to the wages paid to labour,

thereby increasing labour charges. With the cessation of war time

expenditure , the picture substantially changed and industrial concerns

which able to attain prosperity during war time were now unable to

compete either with the older established producers at home or

manufacturer in foreign countries. Moreover, during war time, in many

cases inadequate attention was paid to the desirability of building up

reserves, with the result that Indian industry was not as well equipped

as it might have been to face the transition from a war time to a peace

time economy. The inadequacy of the reserves built up during war time

created, however, a special problem inasmuch as industry did not

possess adequate resources for renewal and replacement of

machinery and equipment, apart from the prevailing apathy of the

capital issues market. The country also lacked in certain basic

industries, as for example, the machine tool industry and the essential

chemical industries which are necessary for the purpose of supporting

an industrial economy.

Government, however, committed to protect the industries which

came into existence during the war and which cater for the essential

requirements of the community, and the Tariff Board had been

examining the claims for protection of such industries. On the

recommendation of the Board, Government has been granting varying

measure of protection to Indian industries.

B. SHARE CAPITAL and SHARE HOLDERS

Under section 4 of the above Act, the authorized share capital of

the Corporation was Rs. 10 crores divided into twenty thousand fully

paid up shares of five crores of rupees being issued in the first instance

as provided for by sub-section (1) of the above section. In accordance

with sub-section (2), the Central Government and the Reserve Bank

subscribed for two thousand shares each i.e. Rs. 1 Crore each of the

share capital. The balance of Rs. 3 crores was offered to scheduled

banks, insurance companies, investment trusts and others like financial

institutions, and co-operative banks.

AS ON 30 . JUNE 1949

Class of shareholdersNo. Of Shares

Percentage to the Total

theld (Rs. Crores) (%)1. Scheduled Banks 2,500 1.25 25.02. Insurance companies,

investment trusts and other I 2,500 1.25 25.0like financial institutions

3. Co-operative banks 1,000 0.50 10.04. Central Government ! 2,000 1.00 20.05- Reserve Bank of India 2,000 1.00 20.0

Total 10,000 5.00 100.0

Source: - Compiled from the IFCI’s 1sl. Annual Report 1948-49

The authorized share capital of the Corporation which was

originally Rs. 10 crores was increased to Rs. 20 crores by the 1972

amendment to the IFC Act. Only shares of Rs. 5 crores were issued

initially but a second series of shares for Rs. 2 crores was issued in

1962. The paid up capital was further raised to a total of Rs. 8.35

crores in 1964 as given in table 4.2 when the IDBI was established so

as to provide to it 50% of the ownership, commercial banks (20%), co

operative banks (8%) LIC of India (22%).

TABLE 4.2

Paid-up value Percentage to

Class of Shareholders (Rs. Crores) theTotal (%)

1 i Industrial Development Bank of India 4.175 50.0(IDBI)

2. Scheduled Banks 1.670 20.03. Co-operative Banks 0.668 8.04. Insurance Companies 1.837 22.0

Total 8.350 100.0

Source: - C om piled from the IFC Ts Annual Report 1963-64

In the year 1981 paid up capital of IFCI was further raised to Rs.

17.50 crores. The paid up capital contribution as given in table 4.3 was

- IDBI 50% , scheduled banks 20%, co-operative banks 8% and

insurance concerns 22%.

TABLE 4.3IFCI’s Shareholders and Shareholding Pattern

AS ON 30™. JUNE 1981

Class of Shareholders

No. Of Shares held

Paid-up value

(Rs. Crores)

Percentage to the

Total (%)Industrial Development Bank 17,500 8.75 50.0

of India (IDBI)

Scheduled Banks 7,067 3.53 20.0

Co-operative Banks 2,932 1.47 8.0

Insurance Companies 7,501 3.75 22.0

Total 35,000 17.50 100.0

Source: - Compiled from the IFCI’s Annual Report 1980-81

The capital was raised to Rs. 45 crores by 1986. The paid up

capita! as shown in table 4.4 was contributed by IDBI (50%)

scheduled banks (19.3%), insurance companies (21.4%) and co

operative banks (9.3%).

TABLE 4.4

IFCI’s Shareholders and Shareholding Pattern



Paid-up value

(Rs. Crores)

Percentage to the

Total (%)Industrial Development Bank of India (IDBI) 22.500 50.0Scheduled Banks 8.685 19.3Co-operative Banks 4.185 9.3Insurance Concerns, etc 9.630 21.4

Total 45.000 100.0

Source: - Compiled from the IFCI’s Annual Report 1985-86

TABLE 4.5

IFCI’s SHAREHOLDERS AND SHAREHOLDING PATTERN



No. Of Shares theld

Paid-up value

(Rs. Crores)

Percentage to the

Total (%)Industrial Development Bank of 62,500 28.75 50.0

India (IDBI)



Insurance Concerns, etc 26,641 12.26 21.3

Total 1,25,000 57.50 100.0_________ _____________________________________________ ]______________ !_____________________ _J_____________________

Source: - Operational Statistics of IFCI’s 1986-87 pp-84

On 30th June, 1987 the paid-up value of the capital further rose to

Rs. 57.50 crores with pattern of share holding as IDBI (50%).

scheduled banks (17.6%) insurance concerns etc. (21.3%) and co

operative banks (11.1%) as given in Table 4.5

After 45 years of rich and varied history as the pioneer industrial

finance institution in India, IFCI was converted into a public limited

company from 1st July 1993.

TABLE 4.6

IFCI’s Shareholders and Shareholding Pattern

AS O N 30t h . JU N E 1993


No. Of Shares held

Paid-up value (Rs. Crores)

Percentage to the

Total (%)Industrial Development 2,02,500 101.25 50.0

Bank of India (IDBI)



Insurance Concerns, etc 86,193 43.10 21.28

Total 4,05,000 202..50 100.0

Source: - Operational Statistics of IFCI’s 1992-93

The paid up capital of IFCI as on 30th June 1993 was Rs. 202.50

crores and as shown in table 4.6 the pattern of the shareholdings

was, IDBI (50%) scheduled banks (17.33%) insurance banks

(21.28%) and co-operative banks (11.39%)

A comparative analysis o f the pattern of shareholding of the

shareholders o f IFCI from time to time reveals the following :

[The selection of years in on the basis of availability of reliable

information]

AS AT 30th . JUNE1949 1964 1981 1986 1987 1993

Paid-up value (Rs.crores)

1.25 1.67 3.53 8.685 10.11 35.09

% to the tota l paid-up capital

25.0 20.0 20.0 19.3 17.6 17.33

SOURCE: - Compiled from IFCI’s Annual Reports and Operational Statistics of therelevant years.

The above data reveals that the share of scheduled banks in the

paid up capital of IFCI has been gradually decreasing from 25% in

1948 to 20% in 1964 to 17.33% in 1993 at the time of conversion of

IFCI into a public limited company.

TABLE 4.8

Shareholding Pattern of Co-Operative Banks

AS AT 30th . JUNE

1949 1964 1981 1986 1987 1993Paid-up va lue (Rs.crores)

0.50 0.668 1.47 4.185 6.38 23.06

% to the tota l paid-upcapital

10.0 8.0 8.0 9.3 11.1 11.39


Though it had initially decreased from 10% of paid up capital in

1948 the share of co-operative banks in the paid up capital of IFCI has

been increasing such that it reached to 11.39% in 1993 from its initial

8% in 1964.

AS AT 30th. JUNE1949 1964 1981 1986 1987 r 1993

Paid-up value (Rs.crores)

1.25 1.837 3.75 9.63 12.26 43.10

% to the total paid-up capital

25.0 22.0 22.0 21.4 21.3 21.28


The shareholding pattern of insurance companies followed the

steps of scheduled banks as its share showed a gradual declining

trend from the inception of IFCI in 1948 (25%) till its conversion into a

public limited company 1993 when its share stood at 21.28%, of paid

up capital.

TABLE 4.10

Shareholding Pattern of IPBi

AS AT 30™. JUNE

1949 1964 1981 1986 1987 1993Paid-up value (Rs.crores)

- 4.175 8.75 22.50 28.75 101.25

% to the total paid-upcapital

- 50.0 50.0 50.0 50.0 50.0

SOURCE: - Compiled from IFCI’s Annual Reports and Operational Statistics of the relevant years.

The above analysis clearly indicates that though there has been

slight variations in the share holding pattern of scheduled banks, co

operative banks and insurance companies but in the case of IDBI right

^om its inception in 1964 till 30th June 1993, after which IFCI was

converted into a public limited company, the pattern of shareholding

had been 50% of the total paid-up capital consistently. Clearly, IFCI

was a 50% subsidiary of IDBI.

The above table clearly reveals that the Corporation’s capital is

held jointly by the Govt, of India, the RBI, the Life Insurance

Corporation, scheduled and co-operative banks, insurance companies

and investment trusts, the majority ownership vested in the public

sector; individuals can not hold shares of the Corporation. It thus

combines Govt, association and supervision with the benefit of

experience of the banking of financial community.

Under Sec. 21 of the IFC Act, the Corporation, in order to

increase its resources, was authorized to issue bonds to the extent of 5

times the amount of its paid-up capital and reserves. Under sec. 22 of

the IFC Act, the Corporation could also accept deposits from the public

repayable after the expiry of a period not less than 5 years. There was

a restriction placed on the amount of deposit up to Rs. 10 Crores4.

C. GUARANTEE BY CENTRAL GOVERNMENT

The bonds and debentures of the Corporation were guaranteed

by the Central Govt, in respect of the repayment of the principal and

payment of interest. In terms of sec-5 of the IFC Act, the shares of the

Corporation were guaranteed by the Central Govt, as to the repayment

of the principal and payment of the annual dividend at such minimum

rate as may be fixed by the Central Government.

An n u a l R e p o r t I FC I 19 4 8 - 4 9 pp . I 7

D. BOARD OF DIRECTORS

The general superintendence and direction of affairs and

business of IFCI vests in a Board of Directors. Under Sec 10 of the

IFCI Act, the Board consists of 12 directors and is composed of as : -

a. 3 directors nominated by the Central Govt.

b. 2 directors nominated by the Central

Board of the RBI.

c. 2 directors elected by the scheduled banks

d. 2 directors elected by the insurance concerns,

investment trusts and other like financial institutions.

e. 2 directors elected by the co-operative banks.

f. 1 Managing Director appointed by the Central

Govt., after consideration of recommendation : -

1. in the case of the first appointment, of

the Central Board of the RBI.

2. in the case of subsequent appointments

of the Board.

The Managing Director is the Chairman of the Executive

Committee that in addition to him consists of 4 other Directors. In Aug

1955, after the Report of the IFCI Enquiry Committee was published,

the chairman of the Corporation became a full-time officer.

Dr.S.K. Basu formerly professor of Industrial Finance, Calcutta

University, pointed out that the main defect of the organizational set-up

of IFCI was the absence of an Economic Intelligence Section and a

Technical Investigation Department. The IFCI Enquiry Committee fully

endorsed the suggestions of Dr. Basu regarding the creation of an

Economic Research Department and the building up of a technical

staff. IFCI even went forward to consider a scheme for the setting up of

an Economic Research Department.

After the establishment of the IDBI the board comprised of 13

members. Because of its pattern of ownership, the IFCI’s Board of

Directors became much more broad based than that of the other

institutions. The Chairman, who is a whole time official, is appointed by

the Central Govt, after consultation with the IDBI (formerly it used to be

RBI). The Central Govt, and the IDBI nominate 2 and 4 Directors

respectively. It has been the practice of the IDBI to have 3 outside

nominees, these being experts in the area of industry, labour and

economics. The fourth nominee is the General Manager of the IDBI.

Scheduled banks, investment institutions and co-operative banks elect

2 directors each.

The IFCI had also set up Standing Advisory Committee for 6

major groups of industries, these being reconstituted from time to time.

The Chairman of the IFCI is the ex-officio Chairman of the Advisory

Committee which besides a few directors of the Corporation includes

outside experts, besides officers of the Govt, mostly from the DGTD.

The Board has to act on business principles with due regard to

the interest of industry, commerce and the general public and is to be

guided by such instructions on questions of policy as may be given by

the Govt, of India, and in regard to which Govt’s decisions are to be

final. The Govt, of India has also the power to supersede the Board

and appoint a new Board in its place if it fails to carry out Government

instructions. The Board of Directors is guided on questions of policy

by the IDBI5.

E. OFFICES OF IFCI

The headquarters of the IFCI has always been at New Delhi.

Besides, a network of regional branches and other offices were set up

at other places with a view to provide better and more personalized

services to clients spread all over the country. In 1993, at the time

when IFCI was converted into a public limited company there were 17

offices all over the country, including a separate office at Delhi.

Regional offices were set up at Bombay, Calcutta, Chandigarh, Delhi,

Hydrabad, Lucknow, Madras, Guwahati and branch offices at

Ahmedabad, Bangalore, Bhopal, Bhubaneshwar , Kochi, Jaipur,

Kanpur, Panaji, Patna and Pune. A lot of work has been delegated to

these branch offices though all sanction of assistance is done by the

Board of Directors, on the basis of recommendations put up by the

management at the Head Office. The regional and branch offices of

IFCI handle all work relating to the disbursement of financial assistance

including execution of documents and monitoring of projects located in

the areas under their respective jurisdiction as well as much of the

follow-up work, recoveries etc is done in the branches most of which

have technical, financial and legal persons. The IFCI has also

constituted Local Advisory Committee at almost all branch offices to,

“advise the management about the industrial climate in the

respective areas covered by the branch offices, opportunities for

investment, general impression about the working of the IFCI,

I’n'or t o t h e e n f o r c e m e n t o f t he I D B l s A c t I 9 6 4 g u i d e l i n e s w e r e g i v e n b y t he C e n t r a l G o m .

measures to be adopted for popularizing the activities of the IFCI,

improvement o f the services rendered by the IFCI, to its clients etc6”.

F. FUNCTIONS

Sec 23 of the IFC Act authorized IFCI to carry on and transact the

following kinds of business7 : -

1. Guaranteeing loans raised by industrial concerns which are

repayable within a period not exceeding 25 years and are

floated in the public market.

2. Underwriting the issue of stock, shares, bonds or debentures

by industrial concerns provided such stocks, shares etc. are

disposed of by the Corporation within a period of 7 yrs from

acquisition.8

3. Granting loans or advances to or subscribing to debentures of

industrial concerns, repayable within a period not exceeding

25 years.

4. Extending guarantees in respect of deferred payments by

importers who are able to make such arrangements with

foreign manufacturers.

The Corporation was required to dispose of any shares, bonds or

debentures it may have to take up in fulfillment of its under-writing

commitments as early as possible and in any case within 7 years.

The above section also provided that no accommodation shall be

given of the type referred to in (1) and (3) above, unless it is sufficiently

secured by the pledge, mortgage, hypothecation or assignment of

1 lie G r o w th a n d F a c e t s o f D e v e l o p m e n t B a n k i n g b y S . L . M . S i n h a p p . 52 .

I FC Ac t 1 9 4 8 s ec. 2 3 .

I his l i m i t a t i o n c a n b e w a i v e d w i t h t h e p e r m i s s i o n o f t he U n i o n Go v t .

Govt, or other securities, stocks, shares or secured debentures,

bullion, movable or immovable property or other tangible assets or

unless it is guaranteed as to the repayment of principal and the

payment of interest by the Central Govt., State government, a

scheduled bank or a State Co-operative Bank. This means that the

Corporation is authorized to grant advances or to guarantee advances

only against the security of tangible assets.

G. LIMIT OF ACCOMODATION AND PROHIBITED

BUSINESSSince the main intention in establishing the Corporation was that

it should assist industrial concerns in obtaining capital and not act as a

holding company or an investment trust, the Corporation can not enter

into any arrangements with a single industrial concern for an amount

equivalent in the aggregate to more than 10% of the paid up share

capital of the Corporation, but in no case exceeding 50 lakh of rupees.

The Corporation was prohibited in terms of Sec 26(b) of the IFC

Act from

a. accepting deposits except as provided by the Act, and

b. subscribing directly to the shares of public limited

companies.

The IFCI could, however, underwrite the issue of stock, shares,

bonds or debentures by industrial concerns and also retain, up to a

period of 7 yrs without Govt’s permission and longer with Govt’s

Permission, as part of its assets such stock, shares etc which it might

be required to take up in fulfillment of its underwriting obligations. It

was felt that if an industrial concern approached the public for capital

with an assurance that the Corporation would subscribe a portion of it,

the industrial concern could reduce its requirements for loans from the

Corporation substantially, if not dispense with them altogether. The

IFCI was, therefore, empowered under the IFC (Amendment) Act of

1960, to subscribe directly to the stock or shares of any industrial

concern. The provisions relating to underwriting were, however,

maintained unchanged.

H. ELIGIBILITY FOR IFCI’s ASSISTANCE

The IFCI is the first Development Bank, established in the

country with the objective of meeting the medium and long term credit

needs of eligible industrial concerns in the country9. To become eligible

for IFCI’s financial assistance the concerns have to be either public

limited companies or co-operative societies incorporated by an Act of

the legislature or under any law for the time being in force and

registered in India.

Initially, there was a restriction in regards to grant of financial

assistance to industrial concerns but to manufacturing or processing of

goods, mining and the generation and distribution of electricity gas. But

along with the amendments of the IFC Act in 1952, 57, 60, concerns

engaged or proposing to be engaged in shipping, the hotel industry

and the preservation of goods also became eligible for its assistance.

Besides, financial assistance from IFCI is also available to industrial

concerns in corporate and cooperative sectors engaged in transport,

■ndia . I 987

setting up or development of industrial estates, fishing, maintenance,

repair, testing or servicing of machinery, equipment, vehicles, etc ,

providing medical, health and allied services , providing services

relating to information technology, telecommunications or electronics,

leasing or sub-leasing, providing engineering, technical, financial,

managerial, marketing and allied services, and research and

development of any concept, and technology, design and process or

production in relation to any of the above matters.

Keeping consistence with its objectives, the IFCI has been

meeting the long and medium term requirements of industry

particularly of block capital. The financial assistance from the IFCI is

available for the new industrial projects as well as for the expansion,

renovation, and modernization diversification of the existing ones. The

assistance is provided for creating fixed capital. This may include the

purchase of plant and machinery , construction of factory building and

purchase of land for the factory. It generally does not grant assistance

for the purposes of working capital, which include the purchase of raw

material, or for repayment of existing liabilities, as a matter of policy

save in exceptional circumstances. Although the private sector

undertakings have received the bulk of assistance from the IFCI, the

public and jo int sector undertakings together with producers,

cooperatives have also received loans from it.

Loans in foreign currencies are granted only for the import of

capital goods and not for financing raw materials and maintenance

imports or payment of royalties, interests and dividends, etc. Similarly,

no assistance is granted for acquisition of capital goods for commercial

or trading purposes.

Small-scale industrial units and industrial enterprises organized

on the basis of proprietary or partnership basis are not eligible for

financial assistance from the IFCI. The authorized business of IFCI

was enlarged with an amendment made in 1986 so as to include the

following:-

1. act as agent for World Bank or any other international or

national institution or organization.

2. provide, in addition to technical and administration

assistance, legal and marketing assistance to any

industrial concern for the promotion , management or

expansion of any industry.

3. provide consultancy and merchant banking service and

outside India, and

4. be appointed administrator in an industrial concern.

In terms of preamble to the IFC Act, 1948, the Corporation has

been established for the purpose of making medium and long-term

credits available to industrial units in India. In financing new projects,

apart from their individual priority, the IFCI attaches importance to the

projects which are basically, (i) employment oriented and labour

intensive (ii) proposed to be located in the notified backward area

which include “no industry districts” and “hill areas”, (iii) export oriented,

(iv) promoted by new entrepreneurs (v) to harness indigenous

technology or process know-how of raw material (vi) to benefit rural

areas or the cooperative sector (vii) to conserve the requirements of

energy or the use of manufacture renewable energy system.10

' - K i i l k a mi . C o r p o r a t i o n F i n a n c e - P r i n c i p l e s a n d P r o b l e m s . H i m a l a y a P u b l i s h i n g H o u s e .

•’^••.pp.982.

The IFC (Amendment) Act of 1982 has authorized IFCI to

undertake certain incidental activities, such as research and surveys

for evaluating or dealing with marketing or investments and

undertaking and carrying out techno-economic studies in connection

with the development of industries; technical and administrative

assistance to any industrial concern for the promotion, management or

expansion of any industry, and merchant banking operations.

I. INFORMATION DESIRED FROM INDUSTRIAL

CONCERNS

When considering applications, the Corporation generally requires

information from the industrial concern with regard to various aspects

of its application. It desires to know:

1. What the company has been producing or proposes to

produce?

2. What is the value of the security offered and what is the

amount of the loan asked for?

3. What margin will be left in favour of the Corporation?

4. What are the purposes for which assistance is required by

the Company? The industrial concern is required to state

its requirements under the various heads, lands, buildings,

plant, machinery etc.

5. Is the company going to be properly equipped?

a. Is the factory located in a suitable place?

b. Has the company enough land on which it is going

to erect the factory?

c. Has the company such title to the land as will allow

it to create a charge on the land and the buildings

erected on the land?

d. Has the company made arrangements for a

sufficient supply of electricity?

e. Is the machinery purchased of the correct type and

purchased from and /or manufactured by a

reputable firm, and whether it is suitable for the

particular purpose?

f. Has the company the requisite technical staff to be

in a position to handle the machinery and to produce

products of a particular standard, at a cost which

can stand competition?

g. Will there be a market for the company’s products

over a long period or are there other people already

producing the same kind of things with better

equipment?

6. W hether the company has obtained the permission

required for raising capital, importing machinery, getting

electric power and setting up the factory?

7. W hether the company has made specific mention of the

several products to be turned out?

8. Estimated cost of production on pre-war basis and on the

basis of the rates prevailing for raw material, power,

wages, etc., on the date of application.

9. Whether the company has projected the balance sheet

and profit and loss account for a number of years, showing

what resources the company will have for repaying the

loan and the profit it will make.

Generally full information relating to the application is not given.

For example, in a large number of cases the precise nature of the

product to be manufactured is not mentioned. For instance, the

company say that they are going to put up a cotton mill, but the

success of a particular company in a particular area will depend on the

counts of cotton yarn and the variety of cloth they will produce. Where

full information in not given, correspondence has to be entered into to

gather such information.

When the Corporation is in possession of all facts and

information and reports on the projects, it has very often to suggest

modifications in the scheme of the company and the loan can be finally

sanctioned only after the final shape of the scheme is settled. It will be

of assistance to the Corporation if the companies applying for

accommodation will make full disclosures and give complete

information about their schemes and volunteer information that should

be necessary for any businessman to consider a business proposition.

Every company, when it contemplates expansion or putting up a new

Plant, will be scrutinizing the proposal thoroughly and getting the

requisite information on all relevant points. It should, therefore, not be

difficult for the company to pass on such information to the

Corporation, rather than wait for questions to be asked.

J PRIORITIES FOR ASSISTANCE

Initially the policy of ‘first come, first served' was largely followed

by the Corporation while granting assistance to industrial concerns

save in the case of industrial cooperatives. The criteria forjudging the

applications are : -

1. National importance of the industry.

2. Experience and competence of the management.

3. Feasibility of the scheme.

4. The reputation enjoyed by the products of the company

for quality.

5. The cost of the scheme as compared with the

resources of the company.

6. Security offered and its proportion to the loan.

7. W hether the aid granted is likely to help the company to

work efficiently and comfortably.

8. Whether the industry is one of those whose production

exceeds the country’s requirements.

9. W hether the concern has adequate technical

personnel.

10. W hether adequate supplies of raw materials will be

available over a period of years.

Thus the criteria adopted were only those of ‘overall

development’ and contribution to national income. With amendments to

the IFC Act only such projects became eligible for finance as will

usefully contribute to the industrial development of the country within

the framework of its 5 years plans. While implementing this policy it

gives preference to industrial concerns which are export, defence and

agricultural oriented and import substitutive. Further, in pursuance to

the stipulated policy aimed at removing regional imbalances in the

economy and fostering industrial growth in less developed states/

areas, financial assistance on concessional terms is also being made

available by it since July 1970. The Corporation has helped in

broadening the entrepreneurial base of industry by giving

encouragement to new entrepreneurs and technologists so as to set up

sound and viable industrial projects.

K. NATURE OF INSPECTION OF THE SCHEMES

The projects for which industrial concerns seeks assistance from

the IFCI involve business risks. Therefore, the IFCI examines the

technical and economic viability of the project, the experience and

probity of the promoters and their own contribution to the project cost,

and competence of the management responsible for the construction

and operation of the projects. Apart from these business

considerations, the desirability of the project from the development

point of view is also taken into account. The IFCI is normally expected

not to provide assistance to projects relatively low in industrial and

rational priority. Furthermore the IFCI’s approach in respect of

assistance being largely project oriented, it takes vital interest in the

successful execution and operation of the project for which it offers

financial assistance

The Corporation arranges for the inspection of the working of the

factory to be carried out by its own officers. These are asked to report

on the books and accounts of the concern, the valuation of its assets,

the efficiency of the management, the availability of raw materials, the

market for its products, etc. In particular, they are asked to report on

point such as the following

I. Whether the factory is working satisfactorily.

II. Whether it is likely to be handicapped by lack of water,

access to a public road, etc.

III. Whether adequate arrangements have been made for

power.

IV. Whether the Company is keeping proper books of

account.

V. Whether the value of the assets has been fraudulently

written up.

VI. Whether there are adverse circumstances such as liability

to floods, etc.

In considering applications, the Corporation has been guided

much by the value of the asset mortgaged to the Corporation as by the

profit-earning capacity and prospects of the concern and the technical

soundness of the scheme. It has also been guided by the criterion

whether the industrial concern is likely to make a contribution in

maintaining the economic life of the community.

L- u n d e r w r i t i n g c o m m i t m e n t s

Since the time of inception the Corporation decided not to do any

underwriting of issues of industrial concerns. The reasons, according to

the Corporation, for this are two fold; firstly the unsatisfactory state of

the capital issue market in the country and secondly, uncertainty in

regard to adequate response from the public.

The relevant passages from the annual reports for the years

1948 - 49, 1949 - 50 and 1950 - 57 are reproduced below :

“In view of the present situation in the money market and the

stock exchanges, the Corporation does not consider it advisable to

undertake underwriting commitments for the time being . The

Corporation would be justified in underwriting an issue of shares or

debentures only if it was reasonably satisfied that there was likely to be

an adequate response from the public and the market”11.

“The Corporation considers that conditions of sufficient

confidence have not yet been established in the money market to

warrant underwriting operations being undertaken at present12”

“On account of the conditions prevailing in the money market

and the stock exchange , the Corporation did not consider it advisable

to undertake underwriting commitments. When the situation improves

and if suitable propositions are received, the Corporation may

undertake underwriting operations13”.

Jointly with two other financial institutions, the Corporation under

wrote for the first time in 1958.

M- TERMS o f s a n c t i o n i n g l o a n s

While lending, the Corporation generally requires the mortgage

^ the fixed assets of the companies, like land, buildings, plant and

Annua l R e p o r t I F C I . 1 9 4 S - 4 9 , p p . l 4 .

, A n n u a l R e p o r t I F C I . 19 4 9 - 5 0 , p p . 2 0 .

A n ' iual R e p o r t I F C I . 1 9 5 0 - 5 1 , p p . 3

machinery. The Corporation, as a rule, does not grant advances

against hypothecation of stocks of raw materials, and finished goods

for working capital because the Corporation does not want to compete

with commercial banks in the provision of working capital. The

Corporation primarily grants accommodation for the acquisition of fixed

assets.

The Corporation ordinarily requires the personal guarantee of

directors to the board of management of the borrowing concern in

order to ensure the interest of the corporation. In fact the Corporation

has the right to take over the management of a concern or to sell the

property mortgaged in the event of continuous default in the payment

of interest and of the principal advanced to the concern. It obtains

periodic reports from borrowing concerns and also undertakes periodic

inspection.

Loans are also granted against the guarantee of approved

banks. A debt equity ratio of 1:2 is generally insisted in the case of new

projects or projects undertaking expansion or renovation. Finance up to

65% of the capital cost is normally granted to co-operative enterprises.

Loans are repayable in semi-annual installments over a period

generally extending up to 12 to 15 years including an initial grace

period of about 3 yrs after the first disbursement. The interest charged

by the Corporation varies from time to time according to the prevailing

market interest rate and its own cost of borrowings.

Sec 28 of the IFC Act empowers the Corporation to take over the

management of an industrial concern in the event of the borrowing

company failing to carry out the terms of its agreement with the

Corporation.

N. PERIODICAL INSPECTIONS

The Corporation usually takes steps to see that the amount of

loans paid by the Corporation is utilized for the purpose for which it is

intended. The steps usually take the form of periodical inspections

which enable the Corporation to see the extent to which the schedules

of construction or expansion of production are being adhered to by the

company .These inspections enable the Corporation to keep a watch

on the progress of the company, and at a later stage, the Corporation

is enabled to enquire and see how far the companies have succeeded

in reducing costs and improving the quality of their products.

OVERALL OPERATIONS

We now turn to the operations of the IFCI. The IFCI provides

assistance to limited companies in the public and private sectors and

cooperative societies. The Corporation is empowered to provide

assistance in all forms namely, sanctions of rupee and foreign currency

loans, underwriting of and subscribing to share and debenture issues,

guaranteeing of deferred payments in respect of machinery imported

from abroad or purchased in India, as also of loans raised in foreign

currency from foreign financial institutions and rupee loans by industrial

concerns from scheduled banks or state Co-operative bank or the

public market.

The operations undertaken by IFCI can be grouped under 2

broad heads, namely, project financing operations and promotional

activities.

Under its project financing operations14 “IFCI provides direct

financial assistance for the setting up of new industrial projects as also

for the expansion, diversification and modernization of existing ones, in

the form of rupee and foreign currency loans, underwriting and /or

direct subscription to shares/debentures as also guarantees for

deferred payments and foreign loans to all medium, medium-large and

large-sized industrial projects set up or proposed to be set up in the

country in the corporate and co-operative sector”.

Apart from project financing operations, equally important role of

IFCI as a national development bank lies in providing supportive

measures called, promotional activity, to improve the productivity of

human and material resources and to accelerate the process of

industrialization in its multifaceted form. Elaborate discussion about the

promotional activities of IFCI is made in Chap-7

FINANCING OPERATIONS OF THE IFCI

In view of the preceding discussions of functions and

responsibilities of IFCI, it becomes imperative to enumerate its actual

performance in these matters. The analysis of the operational policies

of the IFCI is illustrated with regard to its position as on the date of its

conversion into public limited company in 1992-93 and the cumulative

figures, as on that date. Our main aim is to analyze the working and

achievements of IFCI Ltd. and to achieve this purpose we would give a

synoptic view of the position of IFCI that existed as on 30th June 1993,

the last day of working of IFCI as a statutory corporation.

I[ CI A n n u a l R e p o r t 19 8 5 - 8 6 . p p . 6 .

The project financing operations of the IFCI is studied with

reference to sector - wise, scheme wise , industry wise , state wise ,

assistance to backward areas, facility wise - purpose wise and

disposal of applications.

I S ecto r W ise A ssis tance

A notable feature of the IFCI’s operating policies is the sector-

wise financial assistance. It provides financial assistance to enterprises

in the (i) co-operative sector (ii) private corporate sector (iii) public

sector and (iv) joint sector.

A remarkable feature of the IFCI’s assistance is its active

participation in the financing of industrial co-operatives . In fact, it is the

financial assistance from the IFCI that has made the experiment of

industrial co-operatives successful in this country. The first successful

industrial co-operative to be developed in India was a sugar co

operative which was financed by the IFCI. Inspired by the success of

the first industrial co-operative more and more industrial co-operatives

came into existence, particularly in sugar and cotton textile industries.

The IFCI’s continuing financing assistance in pursuance of the national

policies, as stated in the successive 5 Year Plans, thus contributed in a

big way to the emergence of a viable co-operative industrial sector.

The private corporate sector has been the largest recipient of

financial assistance from the IFCI. Its assistance to projects associated

with corporate enterprises has increased substantially over the years.

Up to Aug. 1970, the IFCI had been providing financial

assistance only to public limited companies in the private sector and to

co-operative societies. In Jan 1969, it was authorized to extend

financial assistance to public sector undertakings and the govt.

companies also for there expansion and diversification provided such

companies:

(i) were public limited companies within the meaning of the

Companies Act, 1956.

(ii) had declared at least a maiden dividend

(iii) had built up sufficient internal resources to undertake the

expansion programme; and

(iv) should not have approached the govt, for budgetary support to

finance their programmes .

In 1972, this facility was extended to public sector undertakings

incorporated as private limited. Companies. In the beginning when IFCI

started financing public sector undertakings, the assistance provided

was expectedly modest. Later on, the magnitude picked up. Compared

with the public sector, joint sector under takings have received a little

more assistance, although their share in the IFCI’s total assistance

remains modest.

The sector-wise classification of projects and assistance

sanctioned as well as disbursed both during 1992-93 and cumulatively

upto the 30th June 1993, is given in table 4.11. During 1992-93,

assistance to the extent of Rs. 64.17 crores, which formed 1.7% of the

total assistance , was sanctioned to 18 projects in the co-operative

sector. The number of industrial cooperatives assisted during the

period included 5 sugar cooperatives, two textile cooperatives, 11 other

cooperatives pertaining to basic industrial chemicals and synthetic

fib res. Cumulatively, up to the 30th June, 1993, IFCI had sanctioned

assistance aggregating Rs. 773.50 crores to 369 industrial

Table 4.11

Sector-wise Classification of Assistance

Sanctioned and Disbursed

(Rs. Crores)

Sector (1992-93) Cumulative upto the 30th June, 1993

No. of Sanctions Disbursements No. of Sanctions Disbursements

i Projects. (Rs.) (Rs.)Projects (Rs. (Rs.)

I (2) (3) (4) (5) (6) (7)

I Co 18 64.17 72.38 369 773.50 610.20operative (1.7%) (2.9%) (4.6%) (5.5%)

1 Sub- 18 64.17 72.38 369 773.50 610.20total(l) (1.7%) (2.9%) (4.6%) (5.5%)

II; Corporate

! Private 462 2775.66 2058.37 3303 12629.52 8555.94

i (74.8%) (83.6%) (75.9%) (77.0%)

I Public 24 527.41 108.70 328 1462.25 751.18

(14.2%) (4.4%) (8.8%) (6.7%)

Joint 29 346.86 224.48 309 1784.34 1196.76

(9.3%) (9.1%) (10.7%) (10.8%)

Sub- 515 3649.92 2391.55 3940 15876.11 10503.88T otal(ll)

(98.3%) (97.1%) (95.4%) (94.5%)

Grand 593 3714.10 2463.93 4309 16649.61 11114.08Total (l+||)

(100.0) (100.0) (100.0) (100.0)

Source : Annual Report, IFCI, 1992-93

Note : Figures in Brackets are in percentage to the total

cooperatives, against which Rs. 610.20 crores had already been

disbursed.

In the corporate sector, the private sector, claimed assistance of

the order of Rs. 2,775.66 crores (74.8%) of the total for 462 projects

during the period under report. The assistance to 24 public sector

projects (not covered by the Budgetary -support of Government)

amounted to Rs. 527.41 crores and formed 14.2% of the total. With

regard to the joint sector projects, the sanctions were of the order of

Rs. 346.86 crores (which constitute 9.3% of the total assistance) to

only 29 joint sector projects. Thus, the overall assistance to corporate

sector, comprising private, public and joint sectors, during the period,

aggregated Rs. 3649.93 crores to 515 projects. Cumulatively, that

assistance aggregated Rs. 15, 876. 11 crores (95.4% of the total),

against which the disbursements effected, were of the order of

Rs. 10,503.88 crores.

II Scheme Wise Assistance

The IFCI provides finance under a number of schemes for

different purposes. Some of the important schemes are

a. Buyer’s Credit Scheme

b. Financial lease and Hire-Purchase Scheme

c. Supplier’s Credit Scheme

d. Equipment Finance Scheme

e. Equipment Credit Scheme

f. Equipment Leasing Scheme

g. Equipment Procurement Scheme

h. Installment Credit Scheme

Table 4.12

Scheme-wise Classification of AssistanceSanctioned and Disbursed

(Rs. Crores)

Scheme of Financing

(1992-93)(April-June)

Cum ulative up to the 30th June, 1993

No. of Projects

SanctionsRs.

DisbursementsRs.

No. of Projects

SanctionsRs.

Disbursem entsRs.

0) (2) (3) (4) (5) (6) (7)

Project Finance

Related to projects 368 2670.06 1936.05 3941 13533.10 9278.38only (71.9% ) (78.6%) (81.3%) (83.5% )

Sub Total 368 2670.06 1936.05 3941 13533.10 9278.38(71.9% ) (78.6%) (81.3%) (83.5% )

Financial Services

Equipment Finance 62 237.69 234.61 362 10.33.92 722.53(6.4% ) (9.5%) (6.2%) (6.5%)

Equipment Leasing 10 147.86 32.83 103 520.40 274.31(4.0% ) (1.3%) (3.1%) (2.5%)

Equipment 0.47 27 35.74 26.71Procurement (0.2%) (0.2%)

Equipment Credit 64 129.15 105.81 226 603.89 436.90(3.5% ) (4.3%) (3.6%) (3.9%)

Supplier’s Credit 3 20.00 5.32 36 61.05 24.20(0.5%) (0.2%) (0.4%) (0.2% )

Buyer's Credit 29 407.64 51.60 72 537.38 100.52(11.0%) (2.1%) (3.2%) (0.9%)

assistance to 18 95.90 89.63 74 313.63 242.72-easing and Hire Purchase Concerns

(2.6% ) (3.7%) (1.9%) (2.2%)

'nstallment Credit 2 5.80 7.61 4 10.50 7.81(0.1% ) (0.3%) (0.1%) (0.1%)

ju o - io ta l (n) 188 1044.04 527.88 904 3116.51 1835.70

firarirj ~r _ i i ~7i(28.1% ) (21.4%) (18.7%) (16.5%)

u rand Total (i+ jj) 556 3714.10 2463.93 4845 16649.61 11114.08

____(100.0) (100.0) (100.0) (100.0) (100.0) I

Source. Annual Report, IFCI, 1992-93 0 e igure in bracket relate to percentage to total.

In spite of this difficult scenario, during the 15 months’ period in

1992-9 3 (April 1992 to June 1993), overall net sanctions of IFCI under

its various schemes of assistance, aggregating Rs. 3714.10 crores in

respect of 533 projects, were higher by 22.0% on annualized basis as

compared to the net financial assistance of Rs. 2435.00 crores

sanctioned during the previous year 1991-92 (April-March). Total

disbursements during the period, aggregating Rs. 2463.93 crores were

higher by 22.8% on annualized basis as compared to Rs. 1604.77

crores disbursed in the previous year. Table 4.12 gives the broad

scheme-wise classification of assistance sanctioned and disbursed in

1992-93 (April-June), both under project finance and financial services

and correspondingly, scheme-wise cumulative data as on the 30th

June, 1993.

Cumulatively , the aggregate sanctions accorded by IFCI under

its various schemes, upto the end of June, 1993 amounted to Rs.

16,649.61 crores to 4,309 projects. The overall disbursements upto the

30th June, 1993, were of the order of Rs. 11,114.08 crores, of which ,

cash disbursements, i.e., disbursements excluding guarantees, were of

the order of Rs. 10,636.34 crores, The total outstanding assistance

portfolio as on the 30th June, 1993, was Rs. 8,815.58 crores.

HI Industry Wise Assistance

The range of industries availing financial assistance from the

IFCI is very wide. Although some traditional industries such as sugar,

cotton textile, cement and paper have accounted for the major part of

the financial assistance a number of industries set up during the post

^dependence period have also received loans and advances from it.

The order of preference given to various industry groups in its

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Table 4.14

Industry (1992-93) Cumulative up to the 30the June, 1993

No. of Amount %of the No. of Amount % of the

'projects Sanctioned

(Rs.)total Projects Sanctioned

(Rs.)

total

i ^ (2) (3) (4) (5) (6) (7)

Basic lndustries(viz.,; basic metal industries,

156 1796,95 48.4 892 5937.93 35.7

i basic industrial . chemicals, fertilizers,' cement, mining, power

generation etc.

(128) (786.86) (32.3) (828) (4140.98) (32.0)

Capital Goods Industries (machinery

69 413,40 11.1 734 2235.23 13.4

and accessories, electrical machinery and appliances, transport equipment), etc.

(73) (248.79) (10.2) (710) (1821.81) (14.1)

Intermediate goods industries (viz, chemical

94 593.63 16.0 827 3662.19 22.0

products, metal products, non-metallic mineral products, jute, tyres and tubes , etc.)

(92) (448.06) (18.4) (782) (3068.51) (23.7)

Consumer Goods Industries (viz., sugar

157 722.58 19.5 1544 3962.87 23.8

other food products, cotton/woolen textiles, paper and other miscellaneous industries.

(204) (789.53) (32.4) (1474) (3240.33) (25.1)

Service lndustries(viz., h|°*elS' medical

57 187.54 5.0 312 851.39 5,1

services, shipping, etc.) (68) (161.76) (6.7) (294) (663.86) (5.1) I

Total 533 3714.10 100.0 4309 16649.61 100.0

------- (565) (2435) (100.0) (4088) (12935.49) (100.0)

Source : Annual Report, IFCI, 1992-93

Note Figures in brackets relate to the previous year 1991-92 and as on the 31sl March 1992.

sanctioned assistance has been changing according to national

priorities, initially, preference was given to sugar and textile projects,

especially in the co-operative sector which offer high employment

potential and also channelise the savings of the agricultural sector for

productive purposes. Besides, they produce commodities of mass

consumption. However, with the increased tempo of industrialization

under successive 5 year plans, there has been a diversification in the

range of industries financed by the IFCI. Among the new ones

chemical industry including fertilizers has received the maximum

assistance. Over the years some changes have taken place in industry

wise assistance from the IFCI for e.g. until 1965 iron and steel and

transport equipment industries had not received any assistance. Their

share in the IFCI’s assistance is now considerable. The share of non-

ferrous metal has , however, declined in recent years.

Industry-wise coverage of overall assistance sanctioned by IFCI

during 1992-93 (April-June) and cumulatively up to the 30th June, 1993,

is given in Table 4.13. Industries which claimed a significant share in

IFCI’s assistance during 1992-93 (April-June), were textiles (12.9%),

petroleum refining (12.8%), electricity and gas (12.2%), iron & steel

(10.7%) and chemicals & chemical products (9.6%). Petroleum refining

entered IFCI’s portfolio for the first time in 1992-93. Number-wise,

textiles with 84 units was on the top followed by units relating to

chemicals & chemical products (82%), iron & steel (51%), food

products (30%), hotel and tourism-related activities (27%), cement

(25%), electronics (24%), transport equipment(20%), leasing & hire-

purchase concerns (18%), sugar (17%), and electricity & gas (17%).

Industry-wise distribution of assistance sanctioned during 1992-

93(April-June) as also cumulative assistance as on the 30th June,

1993, according to the use-based classification of products is given in

table-4.14. Compared with the previous year, intermediate goods

industries, consumer goods industries and service industries in IFCI’s

assistance portfolio did not show improvement in 1992-93. However,

assistance to basic industries and capital goods industries was higher

by 82.7% and 32.9% respectively than that of the previous year.

IV State Wise Assistance

IFCI started with a modest business in 1948-49 sanctioning a

total assistance of Rs. 3,42,25,000 against 21 applications to the 10

provinces of the country (as shown in statement A). Major share was,

however, taken up by the four states - Bombay (21.33%); Bihar

(14.22%), Madras (21.91%) and West Bengal (22.06%) followed by

Orissa (11.69%), East Punjab (4.38) and U.P. (2.41%).

The State-wise spread of IFCi’s assistance in 1992-93 and

cumulatively upto the 30th June, 1993, is set out in Table - 4.15. During

the period under report, quantum-wise, the States of Gujarat,

Maharashtra, Madhya Pradesh, Karnataka, Punjab and Tamilnadu

claimed first six positions in IFCi’s sanctioned assistance portfolio.

v Assistance to Backward Areas

Although a big chunk of the Corporation’s assistance has gone

to a few developed states, it has also taken interest in assisting the

projects belonging to less developed areas of the country. An important

feature of the IFCI’s, operative policies region-wise is the assistance

provided to the relatively less developed regions of the country.

Recognizing the importance of reducing regional imbalances in

economic development and the part that the IFCI could play, the Govt.

STATEMENT ‘A’

Classification - Province Wise

i

IS.I No.I

Name of Province

Number of Application Sanctioned

AmountSanctioned

Rs. % to total

1 Assam - - -2 Bombay 6 73,00,000 21.33%3 Bihar 3 55,50,000 16.22%4 C,P. & Berar - - -5 Delhi, Ajmer & Merwara

and other Centrally Administered areas.

6 East Punjab 2 15,00,000 4.38%7 Madras 3 75,00,000 21.91%8 Orissa 1 40,00,000 11.69%9 U.P. 3 8,25,000 2.41%10 West Bengal 3 75,50,000 22.06%

Total 21 3,42,25,000 100.0

Source : A nnua l R eport, IFCI, 1948-49,pp.20

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-93

of India issued a policy directive as early as Aug, 1948 to the effect

that IFCI should assist, as far as possible, in the industrial development

of backward areas. In line with the Govt’s policy of reducing regional

imbalances, the IFCI provided assistance to enterprises in the

backward regions.

The IFCI along with other all-India DFI’s initiated measures to

promote the industrial development of such areas/ districts. During the

period, IFCI’s assistance to projects in centrally notified backward

districts/areas amounted to Rs. 1642.80 crores in respect to 241

projects, which constituted 44.2% of the total assistance sanctioned.

Cumulatively, up to the 30th June, 1993, IFCI had sanctioned financial

assistance aggregating Rs. 7,891.27 crores to 1963 projects located in

notified backward districts/areas , which constituted 47.4% of IFCi’s

overall net cumulative sanctions. The disbursements against these

sanctions upto the 30th June, 1993, had been of the order of Rs.

5,379.76 crores.

VI Project Finance

a. Facility wise classification of Assistance

A major part of the IFCI’s financial assistance to industry is in the

form of project finance for new units, expansion, diversification and

modernization in the form of foreign currency and rupee term loans,

underwriting and direct subscription to shares and debentures, and

guarantees for deferred payments of plant and machinery as well as

for foreign currency loans from foreign financial institutions.

A major part of the financial assistance by the IFCI is in the form

of term loans. The annual average of such loans has recorded an

appreciable rise over the years. In relative terms, however, its

importance, as a form of financial assistance has declined, indicating

a broadening in the range of activities of the IFCI, like underwriting,

guarantee and so on.

At the time of the setting up of the IFCI, it was decided that in

view of the situation in the stock exchanges, it should not for the time

being undertake underwriting operations, although it was authorized by

the charter to do so. It turned up to underwriting only in 1958. Despite

the upsurge over the years, underwriting and direct subscription are

rather small and constitute a negligible part of its financing operations.

Up to 1956 guarantees, as a form of financial assistance was not

initiated by the IFCI. The yearly average of such assistance has been

of low magnitude. It formed a small and declining percentage of IFCI’s

industrial financing also.

Thus, although the composition of its project financing has

broadened over the years, IFCI is primarily a lending agency to

industrial concerns.

The project finance sanctions for the period under report

amounted to Rs. 2670.06 crores to 368 projects and the disbursements

amounted to Rs. 1936.05 crores. On annualized basis, project finance

sanctions and disbursements were higher by 21.3% and 23.8%

respectively in comparison to that of the previous year. Facility-wise

classification of project finance is given in Table 4.16.

Of the total assistance granted by the Corporation nearly 54.4%

(Rs. 1450.86 crores) was sanctioned out of which 64.7% (Rs. 1252.36

crores ) was disbursed as Rupee loans. Of the total sanctioned 9.6%

(Rs. 256.87 crores) was sanctioned and of total disbursements, 13.3%

(Rs. 256.80 crores) was disbursed in the form of foreign currency

Table 4.16

Facilitv-wise Classification of Project Finance

(Rs. Crores)

i Facility (1992-93) Cumulative upto the 30th June, 1993

Sanctions(Rs.)

Disbursements(Rs.)

Sanctions(Rs.)

Disbursements(Rs.)

ProjectFinance

Rupee Loans 1450.86 1252.36 9234.81 6905.21

(54.4%) (64.7%) (68.2%) (74.4%)

Foreign 256.87 256.80 2149.29 1562.30CurrencyLoans

(9.6%) (13.3%) (15.9%) (16.9%)

Underwriting & DirectSubscription

591.06

(22.1%)

140.50

(7.2%)

1352.18

(10.0%)

336.18

(3.6%)

Guarantees

For Deferred Payments

347.87

(13.0%)

124.04

(6.4%)

595.51

(4.4%)

262.17

(2.8%)

For Foreign 23.40 162.35 201.31 212.52Loans

(0.9%) (8.4%) (1.5%) (2.3%)

Total 2670.06 1936.05 13533.10 9278.38

(100.0) (100.0) (100.00) (100.00)

Source : Annual Report of IFCI 1992-93

loans. Similarly, underwriting and direct subscription accounted for

nearly 22.1% (Rs. 591.06 crores) of the total sanctions and 7.2%

(Rs. 140.50 crores ) of the total disbursements for 1992-93. The

remaining 13.9% (Rs. 371,27crores) of the total sanctions and 14.8%

(Rs. 286.39 crores) of the total disbursements consisted of guarantees

issued against deferred payments 13.0% (Rs. 347.87 crores) of total

sanctions and 6.4% (Rs. 124.04 crores) of total disbursements; and

foreign loans from foreign finance institutions 0.9% (Rs.23.40 crores) of

total sanctions and 8.4% (Rs. 162.35 crores) of total disbursements for

1992-93.

The cumulative figures of sanctions and disbursements up to

30th June 1993 reveal that the Corporation’s major share of sanctions

and disbursements are through Rupee loans 68.2% of total sanctions

and 74.4% of total disbursements ; next position is occupied by the

foreign currency loans with 15.9% of total sanctions and 16.9% of total

disbursements up to 30th June ‘93.

Underwriting and direct subscription occupy third position with

10% of total sanctions up to 30th June '93 but guarantees in the form of

deferred payments were 2.8% of total disbursements and foreign

loans 2.3% of total disbursement, occupy 3rd position with 5.1% of total

disbursements. Guarantees accounted for 5.9% of total sanctions up to

30th June ‘93 and underwriting and direct subscription accounted for

3.6% of total disbursements up to 30th June '93.

Among loans, rupee loans have been prominent primarily on

account of two reasons. One, the Corporation’s assistance consisted of

entirely rupee loans for nearly a decade, it was only from 1957-58 that

is started other financial activities. Second, financial constraints were

also partly responsible.

b. Purpose Wise Assistance

The IFCI provides assistance for setting up new industrial

projects as also for the expansion , diversification or the modernization

of the existing ones.

Out of the total project finance assistance sanctioned by IFCI in

1992-93(April-June), Rs. 1565.87 crores was claimed by 145 new

projects. Of these , 2 projects had a capital outlay upto Rs. 3 crores; 6

projects individually had a capital outlay between Rs. 3 crores and Rs.

5 crores ; 16 projects were in the capital outlay range of Rs. 5 crores

to Rs. 10 crores ; 36 projects had a capital outlay between Rs. 10

crores and Rs. 20 crores; and 85 projects were those where capital

outlay per project, was above Rs. 20 crores.

Out of the 223 existing projects claiming an assistance of Rs.

1104.19 crores , 56 projects claimed assistance of the order of Rs.

430.65 crores for their expansion and diversification programmes, 53

projects were sanctioned assistance of the order of Rs. 207.35 crores

for their modernization programes and 114 projects were those which

claimed assistance aggregating Rs. 466.19 crores for meeting the cost

of either balancing equipment or project overrun, etc.

From the cumulative figure of assistance sanctioned upto 30th

June 1993 it can be seen that the substantial portion of assistance

sanctioned by the IFCI goes to the new projects accounting for nearly

65.0% of total assistance (Rs. 8801.06 crores.) It is clear from this that

In IFCI’s financing schemes accent has been on setting up new

projects. Even in respect of existing companies more assistance has

been given for expansion and diversification which is 15.9% (Rs.

2155.71 crores) of total assistance than for modernization 14.4% (Rs.

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1944.18 crores) and rehabilitation etc. 4.7% (Rs. 631.55 crores) of

total assistance upto 30th June ‘93.

In India, where industrialization has been delayed, eagerness to

finance new projects is understandable, but accent on setting up new

projects should not be at the cost of modernization of the existing

industrial units.

VII Flow of Applications

Under project finance, IFCI handled, during the period under

report, applications (inclusive of those under the Equipment Finance

Scheme) from 399 eligible concerns for an aggregate assistance of

Rs.8,181.70 crores, either on its own or on joint financing basis.

Applications from 9 concerns for an aggregate assistance of

Rs.348.76 crores were either withdrawn by the applicants or treated as

closed for want of progress or lack of viability of the proposed projects.

As at the close of June, 1993, applications from 28 concerns (5

on joint financing basis) under IFCI’s lead for an aggregate assistance

of Rs. 493.72 crores were pending. Other applications from 362

concerns were sanctioned assistance during the period; the disposal in

97.05% cases, having been made in less than four months time from

the date of receipt of complete information and data.

Thus, the overall operations and workings of IFCI as on 30th

June, 1993 reveal that the IFCI had done a reasonably good job. But

this was just a beginning. A lot still remains to be achieved by the

forerunner of all development banks.

IV ESTABLISHMENT AND WORKINGS OF...

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