Industrial Finance Corporation of India
Encyclopedia
Industrial Finance Corporation of India
GENESIS OF IFCI
At the time of independence
in 1947, India
's capital market
was relatively under-developed. Although there was significant demand for new capital, there was a dearth of providers. Merchant bank
ers and underwriting
firms were almost non-existent. And commercial bank
s 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 year 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 beeb 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,enterpreneurship development,pollution control,energy conservation and generation of both direct and indirect employment is noteworthy.
GENESIS OF IFCI
At the time of independence
Indian independence movement
The term Indian independence movement encompasses a wide area of political organisations, philosophies, and movements which had the common aim of ending first British East India Company rule, and then British imperial authority, in parts of South Asia...
in 1947, India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
's capital market
Capital market
A capital market is a market for securities , where business enterprises and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets...
was relatively under-developed. Although there was significant demand for new capital, there was a dearth of providers. Merchant bank
Merchant bank
A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans. A merchant bank also provides advisory on corporate matters to the firms they lend to....
ers and underwriting
Underwriting
Underwriting refers to the process that a large financial service provider uses to assess the eligibility of a customer to receive their products . The name derives from the Lloyd's of London insurance market...
firms were almost non-existent. And commercial bank
Commercial bank
After the implementation of the Glass–Steagall Act, the U.S. Congress required that banks engage only in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S...
s 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
Development Finance Institution
Development finance institution is generic term used to refer to a range of alternative financial institutions including microfinance institutions, community development financial institution and revolving loan funds...
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
Statutory Liquidity Ratio
Statutory liquidity ratio is the amount of liquid assets, such as cash, precious metals or other approved securities, that a financial institution must maintain as reserves other than the cash with the Central Bank...
or SLR which in turn enabled it to provide loans and advances to corporate borrowers at concessional rates.
This arrangement continued until the year 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 beeb 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,enterpreneurship development,pollution control,energy conservation and generation of both direct and indirect employment is noteworthy.