IFCI Ltd

IFCI, previously Industrial Finance Corporation of India, is an Indian government owned development bank to cater to the long-term finance needs of the industrial sector. It was the first Development Financial Institution established by the Indian government after independence.

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.

In 1993 it was reconstituted as a company to impart higher degree of operational flexibility. IFCI was allowed to access the capital markets directly.

History

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 1 July 1948. 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.

Definations: 1)Frama/Miller: "The theory of finance is concerned with how individuals and firms allocate resources through time". 2)Harvey: "Industrial Finance as one of the three areas of the discipline of finance. It deals with the operation of the firm - both the investment decision and the financing decision - from that firm's point of view." 3)Damodaran: "Industrial Finance is the study of any decisions made by the firms that have financial implications." Need of Industrial Finance: 1)To start a Industry 2)To Develop and Market New Products 3)To Enter New Markets 4)To Take-over or Acquisition 5)To pay for the day to day Running of industrial Types of Industrial Finance: 1)Short-term Industrial Finance Short-term Finance refers to the funds required for a period of less than one year. Short-term finance is usually required to meet variable, seasonal or temporary working capital requirements. 2)Medium-term Industrial Finance The period of one to five years maybe regarded as Medium-term. Medium-term finance is usually required for permanent working capital, small expansions, replacements, modifications etc. Medium-term finance may be raised by: I)) Issue of shares II) Issue of debentures III) Borrowings from banks and other financial institutions IV) Plouging back of profits 3)Long-term Industrial Finance Periods exceeding 5 years are usually regarded as long-terms. Long-term is required for procuring fixed assets, for the establishment of a new business , modernization, etc. The important source of long-term fiancé are: I)) Issue of shares II) Issue of debentures III) Borrowings from banks and other financial institutions IV) Plouging back of profits

Chronology

1948

- The Company was Incorporated on 1 July, at New Delhi. The Corporation provides medium and long-term credits to industrial concerns in India. Any public limited company or co-operative society incorporated and registered in India which is engaged, or proposes to engage itself, in the manufacture, preservation or processing of goods, or in the shipping, mining or hotel industry or in the generation or of distribution of electricity or any other form of power, is eligible for financial assistance.

1962

- 4,000 shares issued for cash.

1970

- In consultation with other all-India financial institutions, viz., the IDBI, the LIC and ICICI, the Corporation announced on 23 July, certain concessions to eligible industrial concerns that may be located in the notified districts in the less developed States/areas. - The Corporation also received instructions from Government that it could entertain applications for financial assistance from public sector undertakings on the same basis as applications from private sector concerns.

1972

- The Industrial Financial corporation Act, 1948 was amended to enable private limited companies to seek financial assistance from the Corporation.

- The important terms and conditions on which loans are sanctioned are:- (i) Security: First charge of all the fixed assets such as land, buildings, plant and machinery and fixtures. Raw materials, stock-in-process and finished good will not be mortgaged. (ii) Margin: Generally 50% of the value of total assets including those to be acquired with the loan. This may be to 35% in special cases with prior approval of the Central Government. (iii) Period: will be spread over up 35 years to suit borrower's convenience.

1975

- The Risk Capital Foundation was sponsored by IFCI, for offering service to first generation of new entrepreneurs by providing their interest-free personal loans, more or less in the form of venture capital assistance.

1985

- 20,000 shares issued.

1986

- 25,000 shares issued.

1987

- The Company was converted into a company known as Risk Capital & Technology Finance Corporation, Ltd. The other subsidiaries are IFCI Financial Services Ltd., IFCI Investors Services Ltd. and IFCI Custodial Services Ltd.

- 25,000 shares issued.

1988

- 25,000 shares issued.

1989

- 25,000 partly paid up shares fully called up. 50,000 shares issued (paid up Rs 2,500).

1990

- Partly paid up shares fully called up. 50,000 shares issued (paid up Rs 3,750).

1992

- 1,20,000 shares issued.

1993

- 2025,00,000 No. of equity shares of Rs 10 each were allotted during the year without payment being received in cash in exchange for shares of erstwhile IFCI.

1996

- The Corporation handled 79 merchant banking assignments, of which 25 related to Issue Management, 32 Project Counselling Appraisal and 22 Debenture Trusteeship.

- With a view to competitive repositioning of IFCI, the Corporation, undertook to harness organisational strength by concentrating on continuous improvement of core competence. It was proposed to make entry into new business areas such as stock broking, asset management, investor services, insurance etc.

- The Corporation raised Rupee resources including a public issue of family bonds which were offered in five categories viz. millionaire bond, growing income bond, education bond, Gift bond and retirement bond for an aggregate amount of Rs 800 crores.

1997

- 100,000 cumulative redeemable Pref. shares issued (redeemable at par on 2.8.2002).

1998

- Shri K.D. Agrawal, Chairman & Managing Director, upon completion of his term, demitted office on 15 July. In his place, Shri P.V. Narasimham was appointed as an Additional Director and Chairman & Managing Director of the Corporation with effect from 16 July.

1999

- The name of the Company has been changed from "The State Bank of India ltd.." to IFCI Ltd. w.e.f. 32 October.

Objectives and functions of IFCI

Objectives

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

The functions of the IFCI base as follows:

(i) The corporation grants loans and advances to industrial concerns.

(ii) Granting of loans both in rupees and foreign currencies.

(iii) The corporation underwrites the issue of stocks, bonds, shares etc.

(iv) The corporation can grant loans only to public limited companies and co-operatives but not to private limited companies or partnership firms.

References

The Economic Times