IV FINANCIAL INSTITUTIONS: CONTRIBUTION AND REGULATORY PATTERN

Transcription

1 Chapter IV FINANCIAL INSTITUTIONS: CONTRIBUTION AND REGULATORY PATTERN o Financial Institutions o Overall Operations o All-India Financial Institutions o Industrial Finance Corporation of India (IFCI) o Industrial Credit and Investment Corporation of India (lcici) o Industrial Development Bank of India (lobi) o Industrial Reconstruction Corporation of India (IRCI) o Life Insurance Corporation of India (LIC) o Unit Trust of India (UTI) o Money Lending Terms and Conditions o Guidelines for Convertibility, 1984 o Nominee Directors and Guidelines o An Evaluation

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3 FOUR Financial Institutions After Independence, the theme ofthe planners was to foster rapid industrial development ofthe country. The planned industrial growth, as envisaged under various Five Year Plans, also required adequate planning for new financial resources. The industrial growth depended on the development of the capital markets to meet both long term and short term industrial finance. The existing resources, specially the commercial banks and the Managing Agency Houses, were incapable to deal with the problem of large scale industrial investment. For a long time the progress of industrial development in India was hampered because of non-availability of adequate capital for investment in industries. Under these circumstances, the Government stepped in to bridge the gap and it was at the initiative ofthe Government that the industrial financing pattern was institutionalised exclusively to meet the financial requirements ofthe industries. Financial institutions, both at the Central and State levels, were constituted to survey credit and other inputs necessary for planned industrialisation. Thus, Industrial Finance Corporation ofindia (IFCI), Industrial Credit and Investment Corporation of India Ltd. (ICICI), National Small Industries Corporation (NSIC), National Industrial Development Corporation (NIDC), were some of the institutions established at the Central level with their counterparts at State level called State Financial Corporations (SFC's) and State Industrial Development Corporations (SlOe's). In order to provide finance to all these financial institutions, the Industrial development Bank of India (lobi) was established in 1964 as the apex development Bank. Apart from this, the all-india investment institutions viz. Life Insurance Corporation (LIC),

4 114 GOVERNMENT REGULATION OF CORPORATE SECTOR Unit Trust of India (UTI) and General Insurance Companies (GIC) also began sharing the lending of finances to the industries. Section 4-A, of the Companies Act 1956 provides for five financial institutions. as follows: (i) (ii) (iii) (iv) (v). Industrial Credit and Investment Corporation of India Industrial Finance Corporation of India Industrial Development Bank of India Life Insurance Corporation of India Unit Trust of India Apart from these public financial institutions, under sub-section (2) of Section 4-A the Central Government is empowered to notify in the official Gazette such other institutions as it thinks fit to be a public financial institution. The financial assistance rendered by these institutions is mostly in the form ofterm loans and under-writing and/or direct subscriptions to the share capital of the companies. Though all the term financing institutions render both the types of financial assistance to the private corporate sector, their proportions differ from institution to institution. The financing pattern of these institutions is governed by their objectives and the role an institution has to play in a particular field. Overall Operations of Financial Institutions The financial institutions, operating at the national and regional levels, are playing an increasingly significant role as a source of term finance to industry and also in creating additional capacity in a large number of industries. In the mid-sixties the aggregate assistance of all the term-lending institutions was not higher than the capital raised by the private corporate sector directly from the capital market. During the capital raised by the corporate sector from the market was Rs, I 16 crores while the total disbursements of term-lending institutions was about Rs, 110 crores. During the seventies the picture completely changed and the aggregate sanctions of the financial institutions increased almost eight fold from Rs, 254 crores in to Rs. 2,060 crores in Similarly disbursements of assistance by the financial institutions increased sharply from Rs, 160 crores in to Rs. 1,352 crores in There was further remarkable increase during in both sanctions and disbursements (see Table 4. I). 1. IDBI: Report on Development Banking in India , p. S.

5 F(:-l'ANCIAL INSTITUTIONS : CONTRIBUTION AND PATTERN 115 While assistance (including guarantee) sanctioned increased to Rs. 2, crores and disbursements increased to Rs. 1, crow; in There was sufficient increase in the financial assistance from various all-india financial institutions. As stated in Table 4.1, IDBl's sanctions (excluding' assistance to other institutions) increased by 21.1 % from Rs. 1, crores in to Rs crores in 1980-lH; IFCI's by 53.5% from Rs crores to R~ crores and ICICl's by 53.9% from Rs crores to Rs, crores. Among the all-india investment institutions viz. LIC, UTI and GIC, while the sanctions by LIC increased by 3~i.8% from Rs crores to Rs. 1l1.02 crores, sanctions by UTI and GIC declined-uti by 44.7% from Rs, crores to Rs, crores, and GIC by 53.4% from Rs. 66 crores to Rs crores. SFC's recorded a growth of 43% in their aggregate sanctions which increased fromrs crores to crores. The aggregate sanctions by SIDC's 'also increased at an impressive rate of 39.4% from Rs crores to Rs crores. Assistance by All Financial Institutions (March 1984): Aggregate sanctions (net of inter-institutional flows) of financial institutions, comprising IDBI, IFCI, ICICI, LIC, UTI, GIC, IRCI. 18 SFCs and 25 SIDC, increased by 24.6% to Rs crores in (April March) as against the growth rate of 14.5% to Rs. 3,229.8 crores in The growth rates in sanctions were 32.7% for all-india development banks (IDBI. IFCI and ICICO, 23.7% for investment institutions (LIC, UTI and OIC). 12.1% for IRCI, 19.9% for SIDCs and 3.2% for SFC (See Table 4.2). The share of all-india development banks in total sanctions during was 62.8%, investment institutions II % and IRCI 1.6%. Among state-level institutions, SFCs' share was 15.7% and SIDCs' 8.9%. Table 4.2 further states that the total disbursements of financial institutions amounted to Rs. 2,905.9 crores in , registering an increase of 22.2% over disbursements ofrs. 2,378.5 crores in This was on top of an increase in disbursements by 15.6% in The amount disbursed by all financial institutions during is estimated to generate total investment of Rs. 5,600 crores in fixed assets as compared with Rs. 4,736 crores in lobi Annual Report of , p. 37.

6 TABLE 4.1 (Period: April-March) Assistance Sanctioned and Disbursed by Financial lnstitutiods ( And ) (Rs, Crores) -0\ Institutions Sanctions Disbursements C) Cumulative Cumulative ~ upto end upto end "' fa March 1981 March 1981 z (1) (2) (3) (4) (5) (6) (7) ~ ẕt 1. lobi fa 2. IFCI ~ 3. ICICI c: e- 4. LIC > UTI GIC z 7. IRCI ạ " 8. SFCs , n 9. SIDCs fa a Total: ~ ~ -l Notes: (I) Figures have been adjusted for inter-institutional flows. (2) lobi figures exclude refinance to SFCs and SIDCs, subscriptions to shares and bonds of financial flo "' institutions and seed capital. "' o (3) Data in respect of all institutions include guarantees, if any. d JIG (4) Data in respect of SFCs and SIDCs are provisional and incomplete (5) Data in respect of SIDCs relate to only 22 SlOes. (6) LfC figures of and cumulative upto end-march 1981 exclude assistance of Rs. 60 crores sanctioned and disbursed to 3 government companies and short-term loans. (7) Figures in this table and subsequent tables may not exactly add up due to rounding off. [lobi Report on Development Banking in India p. I.]

7 FINANCIAL INSTITUTIONS: CONTRIBUTION AIIID PATTERN 117 TABLE 4.2 Assistance Sanctioned anddisbursed by All Financial Institutions (April-March 1970 to 1984) (Rs. Crores) Year lobi All Financial Institutions* Sane- Disburse- Sane- Disburse- %(2) %(3) tions ments tions ments to to (4) (5) (I) (2) (3) (4) (5) (6) (7) Cumulative upto end of March Institutions covered are lobi, IFCI, ICICI, IRCI, LIC, UTI, GIC, SFCs and SIDCs (data relating to SFCs and SIDCs are provisional). [ lobi Annual Report , p. 38 ]

8 118 GOVERNMENT REGULATION OF CORPORATE SECTOR Capital Formation: There was also considerable increase in the share of the financial institutions, as a proportion to the total investment in private sector industry, with the growth in the volume of institutional financial assistance. Disbursement of assistance by all the financial institutions as a proportion to capital formation in the private manufacturing sector was around 14% in ; this increased to 17.8% in , 24.2% in and about 34% in Table 4.3 sets out data on disbursements by all the financial institutions to private corporate sector industries during the period to in relation to gross fixed capital formation by medium and large public limited companies covered by RBI company finance studies. The companies. included in these studies are each with paid-up capital of Rs, 5 lakhs and more representing the bulk of private industrial sector. Disbursements of the institutions to the private corporate sector during was at Rs. 144 crores and it increased to Rs. 540 crores in , and it further increased to Rs, 1,164 crores in It indicates that the institutional assistance as a proportion to capital formation in the private manufacturing sector has gone up to a great extent during these years. (Table 4.3) Support to Capital Market: Another major object of the financial institutions in India is to encourage the orderly growth and broadbasing of the capital market. The capital market offers a remunerative outlet for LIC, OIC and UTI for deploying a part oftheir investible funds in industrial securities. As stated in Table 4.4 the total underwriting of equity and debentures by the institutions increased from less than ( ) 40 Crores during to ( ) Rs. 190 crores in During seven years period from to underwriting of equity exceeded that of debentures. The devolvements on the institutions continued increasing in the later part of the decade. The details, as analysed in Table 4.4 further indicate the vital support which the financial institutions have provided to the growth of the capital market from to Out of the aggregate sanctions (including guarantees) of Rs, 12, crores upto end of March 1981 made by all the financial institutions, rupee loans at Rs, 9, crores accounted for 78.5%, foreign currency loans Rs crores or 7.6%, underwriting and direct subscription assistance Rs, 1, crores or 9.4% and guarantees Rs crores or 4.5%. Upto the end of March 1981, the utilisation ofrupee loans at Rs. 6, crores was 69.5% of the corresponding sanctions \\1Dile the utilisation of foreign currency loans was slightly higher Rs crores at 74.2%, the devolvement in respect of underwriting assistance was Rs crores at 62.2%.3 3. See lobi Report on Development Banking in India , p. 4.

9 FINANCIAL INSTITUTIONS: CONTRIBUTION AND PATTERN 119 TABLE 4.3 Role of Financial Institutions in Capital Formation in tbe Organised Private Manufacturing Sector (Rs. Crores) Disbursement of Gross fixed Capital (2) as % institutional formation of of (3) Year assistance to medium and large Private Sector public Ltd. Companies-l- Companies" (1) (2) (3) (4) N.A N.A N.A. + Institutions covered are lobi, IFCI, ICICI, LIC, IRCI, SFCs and SIDCs. In both Columns (2) and (3), joint and Cooperative Sectors are included. The Capital formation date given here relate to RBI Company Finance Studies of medium and large public limited Companies each with paid-up capital of Rs. 5 lakhs and more. N.A. = Not Available. lidbi Report on Development Banking in India at p. 2 ],

10 120 GOVERNMENT REGULATION OF CORPORATE SBCI'OR TABLE 4.4 Support to Capital Market by Financiallastitutious (1970 to 1980) (Rupees in lakhs) Year (April-March) Sanctions Disbursements Capital raised market Equity Deben- Equity Deben- Equity Deben- & tures & tures & tures Prefer- Prefer- Preference eence ence (380) (670) ] IHO (350) (250) (570) (980) (592) (1113) (632) (1160) (723) (265) (450) (1303) (699) (1891) (760) (2118) (873) (7148) Covering IDBI, IFCI, ICICI, IRCI, LIC, UTI, SFCs and SIDCs. Note :-Figures within brackets indicate share of LIC and UTI. [ lobi Report on Development Banking in India , p. 6 ]

11 FINANCIAL INSTITUTIONS: CONTRIBtITlON AND PATTERN 121 All-India Financial Institutions All India financial institutions(idbi, IFCI. ICICI, IRCI, LIC and UTI) have played a very significant role in meeting emerging corporate requirements of industrial finance. The pattern of institutional assistance at all India level was a major part of the Government policy of promotion of industries in the private sector. This policy was also aimed at promoting the entrepreneurship which may otherwise lie dormant due to lack of funds. Specially the contribution ofthe all India financial institutions came to lime-light during the seventies when the industrial growth was faced with the ticklish problem of paucity of large scale capital investment. The financial institutions filled up the gap in industrial finance and assisted in the establishment of new industries as well as removed constraints on financial resources for viable and desirable new projects.' They provided financial resources to the industries by way of loans, guarantees and subscribing to rhe share capital of companies. A study of 293 capital issues floated during the five year period (1972 to 1976) and financed by five financial institutions (IDBI, IFCI, ICICI, UTI and LIe) was conducted" in order to find out cases in which more than one financial institution participated in capital issues. Table 4.5 gives the number of instances in which a single financial institution has undertaken the underwriting alone and the cases where more than one financial institutions participated jointly in a single issue. The analysis states that there were 21 issues, 32 issues, 20 issues, 37 issues and 32 issues respectively in the years , 1974, 1975 and 1976 in which the five all-india financial institutions had participated out of the total issues of 52, 77, 49, 63 and 52 floated over the five years period. In 1972 as high as 14 out of 21 issues were of the character in which more than one financial institution, have participated and as high as 66.7% of the issues were underwritten by more than one institutions together. This proportion had reduced in 1973 and again situation improved in 1974 and it continued in In 1976 the underwriting showed a declining trend when out ofthe aggregate issues of 32 in which financial institutions had participated in as high as 28 issues in which more than one institutions had shown their favour. Obviously, this shows an increasing trend ofjoint participation in underwriting capital issues by all-india financial institutions. 4. See B.V. Kumar, "Institutional Loan to Private Sector Companies", The Economic Times, Nov. 22, 1977, p, S. S. See Study by Bijan Kumar Ganguly, "Capital Under-writing Diffusion of India," The Economic Times, Jan. 21, 1978, p. S.

12 TABLE 4.5 Contribution of Five All India Financial Institutions (ldbi, IFCI. ICICI, UTI, and Lie) - lj (A Study of 293 Capital Issues Floated During 1972 to 1976) Participation in a single issue No. % Index No. % Index No. % Index No. % Index No. % Index A. One Institution B. More than one Total [See Bijan Kumar Ganguly, "Capital Under-writing Diffusion in India", The Economic Times, Jan. 21, 1978, p. 5.] ~ < ~ ~ llil ~ ~ S z ~ 8llIl ~ ~ ~

13 FINANCIAL INSTITUTIONS: CONTRmUTlONAND PATTERN 123 According to the IDBI Study Report" the seventies witnessed accelerated growth in the operations of the all India financial institutions. Their aggregate sanctions (comprising rupee loans, foreign currency loans, underwriting operation and direct subscriptions to corporate shares) recorded a sharp rise from 186 crores in to Rs. 1,855 crores in The disbursements also steadily increased from Rs, 116 crores in to Rs. 538 crores in and further to Rs, 1,157 crores in It will be clear from the details as given in Table 4.6 that during the aggregate sanctions offinancial assistance amounted to Rs. 2, crores as compared to the previous years figures of Rs, 1, crores, thus registering an increase of 22.8%. The cumulative sanctions upto the end of March were at Rs. 10, crores. Similarly there was sufficient rise in disbursements in as compared to the previous year Financial Assistance Purpose-wise: Table 4.7 shows the financial assistance as sanctioned by the all India Financial institutions during the years and It is clear from the data that the financial assistance to the new projects has increased in to Rs crores as compared to Rs crores in the year The rise is about 39.4%. Similarly the share of financial assistance for expansion and diversification of projects has risen from Rs, crores in to Rs crores in Financial Assistance Sector-wise: Table 4.8 gives detail ofthe sectorwise classification of assistance by All-India financial institutions as sanctioned and disbursed in two years and in the public sector, joint-sector, cooperative sector and private sector. In the case ofprivate sector industries while in the financial assistance sanctioned was Rs, 1, crores, in the year it was Rs, 1, crores, thus it was about Rs. 424 crores more. Similarly the disbursement of the financial assistance was Rs. 1, crores in which was about Rs. 302 crores more. However. the cumulative sanctioned financial assistance sector-wise upto the end ofmarch 1981 was Rs. 10, crores and the cumulative disbursement of the financial assistance was Rs crores, Thus it is clear that, as in previous years, the private sector continued to account for the highest share of institutional assistance. 6. See IDBI Report on Development Banking in India , p See IDBI Report on Development Banking in India, , p. 11.

14 TABLE 4.6 Assistance SaactioDed and D isbursecl by All-India Financial IIL'ititutioDS ~ (Period: April-March) (Rs, Crores) Sanctions Disbursements Institutions Cumulative Cumulative upto end upto end March 1981 March 1981 (I) (2) (3) (4) (5) (6) (7) 1. lobi IFCI ICICI LIC UTI GIC Total Notes: (1) Figures include guarantees, if any, in respect of all institutions. (2) lobi figures include direct project loans, underwriting/direct subscriptions, soft loans, TDF loans, refinance to SFCs, SIOCs and banks, all export finance schemes, subscriptions to shares and bonds of state-level institutions, seed capital and guarantees. (3) LIC figures for and cumulative upto end-march 1981, exclude assistance ofrs. 60 crores sanctioned and disbursed to 3 Government companies as short-term loans. (4) Figures have been adjusted for inter-institutional flows. [ lobi Report on Development Banking in India , p, 11 ] ~ ~ I ~ fl ~ ~ ~ j> ;;l en l!l ~

15 FINANCIAL INSTITUTIONS: CONTRmUTION AND PAlTERN 125 TABLE 4.7 Purpose-Wise Classification of assistance Sanctioned by All-India Financiallnstitntions. (Period: April-March) (Rs. Crores.) Purpose (1) (2) (3) I. New Projects Expansion/Diversification Modernisation/Rationalisation/Balancing equipment Supplementary assistance Total [lobi Report on Development Banking in India , p. 15.] Notes: (1) Institutions covered are lobi, IFCI, ICICI, LIC. and GIC. (2) lobi data include project loans, underwriting and direct subscriptions, soft loans and TDF loans etc. In the following pages an attempt is made to explain the extent of the Government control over each all-india financial institution and their contribution upto to the growth of the private corporate sector industries in India.

16 (period: April-March) TABLE 4.8 Sector-Wise Classification of Assistance by All-India Financial Institutions. (Rs. Crores) -IV 0-. Sanctions Disbursements Sectors Cumulative Cumulative upto end upto end March 1981 March 1981 (I) (2) (3) (4) (5) (6) (7) 1. Public Joint Co-operative Private Notes: (I) Total Institutions covered are lobi, IFCI, ICICI, LIC, UTI and GIC. (2) lobi figures exclude assistance under overseas buyers' credit, overseas investment finance, preshipment credit, subscriptions to shares and bonds offinancial institutions, seed capital and guarantees. (3) Lie figures for and cumulative upto end-march 1981 exclude assistance of Rs. 60 crores sanctioned and disbursed to 3 Government companies as short-term loans. (4) Figures have been adjusted for inter-institutional flows. [lobi Report on Development Banking in India p, IS.] C) o ~ ~!l:: ~ --I llll ~ <:: ~ ~ 8 ~;;l ~

17 FINANCIAL INSTITUTIONS: CONTRmUTION AND PATTERN 127 Industrial Finance Corporation of India (IFCI) The IFCI was established in July, 1948 under the Industrial Finance Corporation Act, Its aim is to grant medium and long term financial assistance to the industries. IFCI's role now extends to the entire industrial spectrum of the country encompassing principally (a) Project financing operations and (b) Promotional activities. As a development Bank, IFCI is constantly reviewing its operational policies and procedures in order to meet the growing loan requirements of industries as integrated with the objectives ofthe country's Five Year Plans and the national industrial policies enunciated by the Government from time to time. The Industrial Finance Corporation Act, 1948 was amended by the enactment of the Industrial Finance Corporation (Amendment) Act, It has considerably enlarged the scope and coverage ofthe operations of the IFCI with a view to meet the rapidly growing requirements of the country. Fifty per cent of the share capital of IFCI is held by the Industrial Development Bank ofindia (lobi) and the rest by nationalised and other scheduled banks, co-operative banks, insurance concerns, investment trusts, etc. The general superintendence and direction of the affairs and business of IFCI vests in a Board of Directors consisting of a whole-time Chairman appointed by the Central Government and twelve other Directors of whom six are elected by shareholders other than lobi, two are nominated by the Central Government and four are appointed by lobi. The resources of IFCI comprise its paid-up share capital, retained earnings, repayment of loans by borrowers, sale/ redemption of investments, borrowings from the market by issue of bonds, borrowings from the Central Government and lobi as also the borrowings raised from foreign credit institutions and international capital markets'. It performs three important functions. In the first place, it grants loans and advances to industrial concerns and subscribes to the debentures floated by them. Secondly, it guarantees loans raised by the industrial concerns in the capital market. Thirdly, it underwrites the issue of stocks, shares, bonds and debentures of industrial concerns provided such stocks, shares etc. are disposed of by the corporation within a period of seven years from the time of acquisition. Initially the IFCI granted loans only to the public limited companies and cooperatives. By the Amending Act of 1982 its scope is extended and 8. It came into force from 12th March, See 36th Annual Report of IFCI, , p. 8.

18 128 GOVERNMENT REGULAnON OF CORPORATE SECTOR the public limited companies are also now eligible to get financial assistance from the Corporation. Earlier the Corporation was authorised to give long and medium term loans only to companies engaged in manufacturing, mining, shipping, generation and distribution of electricity. However, the Amending Act of 1982 has further widened its sphere of industrial activity. The limit of financial assistance to any single concern is now Rs. I crore (initially the limit was Rs. 50 lakhs) and under certain conditions it may be exceeded with the permission of the Government. The rates of interest charged from 1974 onwards are per cent and per cent on rupee loans and foreign loans respectively. While granting loans to the industries, the Corporation carefully scrutinises and evaluates the applications. Specially it considers : (a) the importance ofthe industry to the national economy, (b) the feasibility and cost ofthe scheme for which financial aid is required, (c) the competence of the management, (d) the nature of the security offered, (e) the adequacy ofthe supply oftechnical personnel, raw material, etc., and (f) the quality of the product and the requirements of the manufactured product for the country. While the loan is sanctioned the Corporation requires the security of fixed assets. Ordinarily, it requires personal guarantee of directors. Under the loan agreement it secures right to appoint two directors on the board of management of the borrowing company in order to ensure and safeguard its interests at management level. As regards matters relating to investments'" IFCI has played an important role of a catalyst. The investment of IFCI resulted from (a) acquisition of shares pursuant to underwriting operations, (b) direct subscription to shares in the case of small and medium-sized projects, (c) excercise of convertibility option in respect of loans sanctioned according to policy of the Government, and (d) bonus share issue and subscription to rights shares. IFCr also continues its endeavour towards disposing of the shares in s mall lots to the public with the twin objective of recycling its funds and activating the capital market. In normal cases the IFCr disposes of shares in small lots in open market through approved stock/share brokers of recognised stock exchanges. Its aim is to avoid destablising effect on the management of the concerned companies. Regarding cases where shares are disposed of according to same agreements, the procedure adopted is in accordance with the covenants of the agreement or settled through negotiat ons in view of the terms of the agreement. In connection with sick or potentially 10. See 35th Annual Report of IFCI, , p. 37.

19 FINANCIAL INSTITUTIONS: CONTRIBUTION AND PATTERN 129 sick industries, the practice has been to review such investments from time to time at the inter-institutional forums. Plan-wise financial Assistance: Table 4.9 gives in detail an account of the financial assistance sanctioned and disbursed by the IFCI for implementing industrial development programmes of the Government under six Five Year Plans during the past thirty-six years from 1949 to A review of thirty-six years functioning of the IFCI reveals that it has fulfilled its objectives quantitatively as well as qualitatively. The total sanctioned financial assistance during the period from 1949 to 1984 (upto 30th June 1984) amounted to Rs. 2, crores covering 1,894 industrial projects of 1,567 industrial concerns spread all over the country. The cumulative disbursements as on June 30, 1984 amounted to Rs. 1, crores, which represented 74.3% of the total sanctions. However, in relation to total loan assistance sanctioned, the disbursements against loan assistance accounted for 77.7% as at the end of the 30th June The total assistance outstanding as on the 30th June 1984 amounted to Rs, 1, crores from 1,166 concerns." Financial Assistance to Corporate Sector: Table 4.10 gives the analysis of financial assistance sanctioned and disbursed during the year and cumulative upto the 30th June 1984, to the various industrial projects in the corporate sector which includes industrial units in private, joint as well as public sectors. Cumulatively also the share of assistance of private sector projects in IFCI's total assistance portfolio as on the 30th June 1984 was the largest i.e, 61.2%. the share of joint and public sector projects being 14.0% and 12.3% respectively. The cumulative sanctions to 1276 projects in private sector was of Rs. 1, crores and cumulative disbursement was of Rs. 1, crores. There were 161 projects in joint sector having sanctions and disbursements of Rs crores and Rs crores respectively. Purpose-wise classification of Assistance: Table 4.11 gives a short analysis of the purpose-wise assistance sanctioned and disbursed by IFC[ during the year and also cumulatively upto the 30th June Out of 334 projects assisted during the year the number of new projects, which accounted for 71.3% of assistance, was 147. Compared with the previous year the share of new projects in IFC1's assistance in increased by 61%. So also. the share of modernisation assistance under the Soft Loans Scheme during the year showed an increase of 157.9% over the previous year th Annual Report of IFCI , p See 36th Annual Report of IFCI, , PP

20 TABLE 4.9 Plan-Wise Financial Assistance Sanctioned and Disbursed (1949 to 1984) -Vol 0 (Rs. Crores) Net financial assistance sanctioned Financial assistance disbursed o 0< m Year ending the Loans Under- Guaran- Total Loans Under- Guaran- Total ;a 30th June writings tees writings tees z 3: Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. ~ -l (1) (2) (3) (4) (5) (6) (7) (8) (9) ;a m o -l Period prior to the First Plan : l"" IU > - - -l 5 z The First Plan: "" o 0 The Second Plan : :;e (g ~ The Third Plan : -l m V> The Annual Plans: ] I Total: m o -l 0 ;a

21 (I) (2) (3) (4) (5) (6) (7) (8) (9) -- The Fourth Plan: d.ll " - Z > z ~ ): r- Total: Z The Fifth Plan : ~ l z 0 C/O Total: Total: The Sixth Plan: c "Cl > ~ l til Total: Grand Total : w- [IFCI: 36th Annual Report , p, 59. ] o c z -l '" ;; c: :l 0 z > 'Z '" z

22 132 GOVERNMENT REGULATION OF CORPORATE SECTOR TABLE 4.10 IFCI-FinUQcial Assistance Sanctioned and Disbursed to Corporate Sector (Rs. Crores) Cumulative upto the (July-June) 30th June, 1984 Sector Sanctions Disburse- Sanctions Disbursements ments No. of Amount No. of Amount Projects Rs. Rs. Projects Rs. Rs. (1) (2) (3) (4) (5) (6) (7) Private Joint Public Total [36th Annual Report of IFC1, , p, 48.1 Industry-wise Financial Assistance: Till the end of June 30, 1983, amongst the industries assisted in the corporate sector, the maximum share in the assistance was taken by 314 textile projects with an assistance of Rs crores. The next in importance were 115 projects with an assistance of Rs crores under metallurgical industries (ferrous group) followed by 102 project with an assistance of Rs crores under the head machinery. 95 projects in the corporate sector belonged to paper industry which had accounted for assistance of Rs crores followed by 105 projects sharing assistance of Rs crores belonging to fertilisers, pesticides and other basic industrial chemicals. 99 cement projects claimed assistance of the order of Rs crores followed by 72 projects belonging to electrical maehinery group accounting for assistance of Rs crores and 60 projects in sugar industry claiming an assistance of Rs crores, The other industries covered in the corporate sector pertained to electricity and gas, non-ferrous metals, transport equipment, synthetic Fibers and resins, rubber products, metal products, jute chemicals. miscellaneous manufacturing industries etc.

23 financial INSTITUTIONS: CONTRIBUTION AND PATTERN 133 TABLE 4.11 Purpose-wise classification of Assistance Sanctioned and Disbursed (Rs. Crores) Cumulative upto the (July-June) 30th June, 1984 Purpose No. of Sanctions Disburse- Sanctions Disburseprojects ments ments Rs. Rs. Rs. Rs. (1) (2) (3) (4) (5) (6) New projects (71.3%) (63.3%) (65.3%) (62.0%) Expansion/ diversification %) (17.9%) (18.5%) (21.7%) Modernisation/ renovation, etc. -Soft loans scheme (8.7~) (10.5%) (9.5%) (9.8%) -Normal (10.0%) (8.3%) (6.7%) (6.5%) Total (100.0%) (100.0%) (100.0%) (100.0%) Notes: (i) Figures in brackets denote percentages to the total. (ii) Assistance under modernisation/renovation, etc., duringthe year includes assistance sanctioned to certain concerns for meeting a part of over-run in the costs of certain newt expansion/diversification projects which were assisted in earlier year(s). [ 36th Annual Report of IFCI , p. 45. ]

24 134 GOVERNMENT REGULATlO~ OF CORPORATE SECTOR During the year (ending on June 30), the industries which claimed a significant share in IFCrs assistance were cement 16.1%. basic chemicals and chemical products 10.7%, synthetic fibres and resins 10.1%, textiles 10.8%, transport equipment 9.4%, electrical machinery 6.5%, fertiliser 5.8~~, iron and steel 4.2%, Sugar 5%. etc. Table 4.12 gives a detailed account of industry-wise coverage of financial assistance given by IFCI during the year and also cumulative upto the end of June TABLE 4.12 IFCI : Industry-wiseFinancial Assistance I During and Cumulative from 1948 to 84 J (Rs. Crores) Industry During the year (upto 30th June) Cumulative up to the end of June 1984 (1948 to 1984) Textiles Cement Sugar Paper Iron and Steel Basic Industrial Chemicals Synthetic fibres & resins Fertilisers & pesticides Transport Machinery ElectricaL Machinery Miscellaneous Chemicals Rubber products Non-ferrous metals Misc. non-metallic mineral products Hotel MetaL products Others Total

25 FINANCIAL INSTITUTIONS: CONTRIBUTION AND PATIERN 135 So far as quantitative achievements of IFCI are concerned, during the last thirty six years it has disbursed upto the 30th June 1984, financial assistance of Rs. 1, crores comprising of rupee loans of Rs. 1, crores, foreign currency loans of Rs crores, underwritings and direct subscriptions of Rs crores and guarantees of Rs crores. The qualitative achievements of the IFCI are abo very significant. Since its inception in 1948, IFCI has been able to create acceptability of the concept of "project-oriented approach" in place ofthe concept of "security-oriented approach," which had been prevailing in the realm of the industrial finance for a long time. In its follow-up measures and mechanics. the endeavour of IFCI has been to inculcate amongst the entrepreneurs and promoters a better awareness offinancial and managerial imperatives f01' success of an industrial venture. Now the wider considerations of profitability and productivity of an industrial venture, its overall viability and bankable nature, the quality of its management, the organisational set-up, the likely contribution ofthe project to the economy of the country as well as furtherence of the objectives of publi c policy. govern the authorised business of IFCI.13 Impact 00 Management Culture: In its follow-up measure and mechanics the endeavour of IFeI has been to inculcate amongst the managements a better awareness ofthe financial and managerial imperatives as also disciplines important for the success ofan industrial venture. Enlightened promoters and competent managements are now able to appreciate in an increasing measure, the benefits derived by them from the various exercises that IFCI requires them to carry out during implementation and operational stages ofthe project. Over the years, there has been a gradual but quite perceptible impact in the "management culture" of industrial units assisted by public financial institutions including IFCI with the result that a trend has set in the industry, towards.. professionalisation of management." Industrial Credit and Investment Corporation of India (ICICI) The ICICI was registered in January, 1955 as a Corporation for granting industrial finance. It was sponsored by a mission from the World Bank for the purpose of developing industries in the private sector. The main object of the lcici was to meet the needs of industry 13. See 36th Annual Report of lfci, , p. 43.

26 136 GOVERNMENT REGULATION OF CORPORATE SECTOR for permanent and long-term funds in the private sector. Its financial assistance has stimulated the promotion ofnew industries and assisted the expansion and modernisation of the existing industries for industrial production.'! The Corporation grants financial assistance in the form oflong term and medium-term loans, participates in equity capital, underwrites new issues ofshares and debentures, guarantees loans from other private investment sources and provides managerial, technical and administrative expert advice to private industries. The scope of operations of the Corporation has recently been extended to public, joint and cooperative sector industries. As a development bank, the Corporation has helped the country in setting up import substitute industries, thereby moving towards the national objectives of industrial self reliance aud export of industrial manufactures. Also IClCI has provided assistance in different forms to industry, often playing an active role in encouraging industrial enterprises to mobilise capital through relatively new instruments such as convertible debentures. The Corporation's assistance for financing acquisition of indigenous equipment has also been attuned to the needs ofindustrial enterprises. For instance, besides providing assistance by way of equity and term loans, the conventional forms, ICICI introduced the suppliers' credit facility way back in Purpose-wise, besides financing expansion and diversification, the Corporation has provided assistance for replacement, modernisation, technological upgradation and rehabilitation of enterprises. In the initial years the emphasis was on non-traditional and new industries, but as the years have gone by, it has shifted towards expansion and modernisation of established companies. In recent years, the Corporation has also laid stress on high technology areas. Decade of Financial Contribution ( ) : In the first five years ( ) of its operations the total financial sanction amounted to Rs crores with an annual average of Rs crores. In the second five years ( ) the financial sanction amounted to Rs crores. This was the highest percentage of growth and the lowest growth 14. See 30th Annual Report of ICICI, 1984.

27 FINANCIAL INSTITUTIONS: CONTRIBUTION AND PATTERN 137 was during third five years period from 1966 to The Corporation achieved second highest growth rate during the fifth five-year period ( ) with an increase of per cent over the fourth five-year period ( ). The financial sanctions of the Corporation received a great impetus during the period with an annual average of Rs crores. During the period the trend of financial assistance as provided by JCICJ shows that the share of the private sector increased from per cent in to per cent in The share ofthe joint sector declined from per cent in to 7.68 per cent in Similarly the share in cooperative sector declined from per cent in to 1.73 per cent in An analysis of the sector-wise assistance reveals that the share of the private sector has been increasing from 1976 onwards. Table 4.13 gives an account of the decade of growth of JCICI from 1974 to Amount of loans has increased from crores in 1974 to Rs. 1, crores in Quantum of investments has increased from Rs crores in 1974 to Rs. 1, crores in Cumulative Operations: As stated in Table 4.14 the total rupee loans sanctioned and disbursed by the Corporation during the last 29 years amounted to Rs. 1, crores and Rs. 1, crores respectively. Thus, the rupee loans occupied second place in the composition of assistance provided by the Corporation. The underwriting of shares/ debentures occupied third place followed by direct subscriptions to shares/debentures and guarantees. The total amount underwritten and direct subscriptions by the Corporation during the last 29 years was Rs crores and the disbursement was Rs, crores. A special feature of direct subscriptions in recent years is that a large amount relates to debentures. The Corporation adopted a strategy of non-involvement, as far as possible, in the affairs of the assisted concerns. The total financial assistance sanctioned by JCICI upto the end of December 31, 1984 amounted to Rs. 3, crores. This consisted of Rs. 1, crores in foreign currencies and the balance consisted of underwriting and direct subscription including guarantees. The total assistance disbursed by the Corporation at the end of December 1984 amounted to Rs. 1, crores of which Rs, crores were in foreign currencies and Rs crores in Rupee loans, underwriting and direct subscriptions amounted to Rs crores and guarantees worth Rs crores. This may be considered a very creditable contribution of the Corporation.

28 TABLE 4.13 ICICI-Growth from 1974 to IN 00 (Rs. Crores) As at the end of Loans !il ool Investments ' '" ~ ce- Fixed Assets > ool a Net Current Assets z 0 '11 Other Balances Total '"> ool m [ loci-29th and 30th Annual Report, 1983 and 1984 p. 4. ] o ool 0 '" o 0 -e, ~ Z 3: 8 "ll 0 '" <II m

29 FINANCIAL INSTITUTIONS : CONTRIBUTION AND PATTERN 139 TA8LE 4.14 ICICI-Cumulative Operations as on December 31, 1984 (Rs. Crores) Direct Finance Sanctions Disburse- Outstanding ment Foreign Currency Loans Rupee Loans Underwriting and Direct Subscription Guarantees Total Supplier's credit Leasing Total [ICICr-30th Annual Report 1984, p. 61 During 1983 and 1984: A comparative statement of the (direct finance) sanctions and disbursements made by JCICI in 1983 and 1984 is given in Table Total sanctions increased to Rs crores in 1984 from total sanctions of Rs crores in Similarly the total disbursements were Rs in 1984 where as in 1983the disbursements were only of Rs crores.

30 140 GOVERNMENT REGULATION OF CORPORATE SECTOR TABLE 4.15 ICICI-Sanctioas and Disbursements during 1983 and 1984 (Rs. Crores) Direct Finance Sanctions Disbursements Foreign Currency Loans Rupee Loans Underwriting and Direct Subscription Guarantees Supplier's Credit Leasing Total [ rcicr, 30th Annual Report 1984, p. 8 ] Industry-wise distribution of Assistance: The financial assistance of the ICICI as sanctioned and disbursed industry-wise during the year 1984 is stated in Table The important objectives ofthe ICICI are to provide foreign currency loans and other financial assistance to industrial enterprises. Corporation sanctioned the maximum amount of financial assistance to industries under the category "Other Chemicals" to the extent of Rs crores which was 14.9 per cent ofthe total amount. Other industries in serial order to which the amount was sanctioned were cement (l2.3%), textiles (9.1 per cent), transport (9.1 per cent), basic industrial chemicals (9 per cent), electrical equipment (7.2 per cent). The total financial assistance sanctioned during 1984 amounted to Rs crores. As regards disbursements of financial assistance the trend was in the serial order, cement, textiles, transport, other chemicals, machinery, electrical equipment, etc. The total financial assistance disbursed during 1984 was Rs crores. Thus, ICICI gave priority to non-traditional and growth-oriented industries except textiles which is a welcome feature for diversified industrial development in India.

31 FINANCIAL INSTITUTIONS: CONTRIBUTION AND PATTERN 141 TABLE 4.16 ICICI-Industry-wise Distribution of Financial Assistance During Year December 31, 1984 (Rs. Crores) Net amount Percent- Amount Percentsanctioned age of disbursed age of Industry amount amount sanctioned disbursed to total sanctions to total disbursement Sugar Food Products Textiles Paper and Paper Products Rubber Products Basic industrial chemicals Fertilisers & pesticides Other chemicals Cement Basic metal industries Metal products (except machinery and transport equipment) Machinery Electrical equipment Transport equipment Electricity generation and distribution Shipping Others Total [ ICICI Annual Report 1984, p. 15. ]

32 142 GOVERNMENT REGULATION OF CORPORATE SECTOR Borrowings (rom International Capital market: ICICI is making a significant financial assistance to industries in India by granting foreign currency loans. For this purpose lcici is tapping and getting commercial borrowings from the international capital market. Its thirteenth commercial borrowiug of about S 40 million is currently being finalised.p The loan in two tranches-one ou 25 million and the other ou 30 million ECU-would be making a.significant breakthrough in maturity as it would have to be repaid in 10 years with an initial grace period of 4 years. Lead managed by Midland Bank. it would bear an interest of 1/8 per cent over Libor if the tax laws are not changed by the concerned countries. Other banks participating in this deal are Netwest Bank. Credit Du Nord and the French Bank Parisa. ICICI has on its own as also in co-ordination with other central financial institutions, participated in the preparation of industrial potential surveys, feasibility studies for viable industrial projects and organised inter-institutional groups to undertake various promotional and developmental activities at the state level. The various developmental measures, including provision of concessional finance initiated by the All-India financial institutions, the capital subsidy and the tax benefits offered by the Union Government and the supporting infrastructure facilities and a variety of incentives provided by the state governments have together contributed to the flow of assistance to the projects in backward areas from ICICI. The Industrial Development Bank of India (lobi) The lobi formally came into existence in July It is an important specialised financial institution closely linked with the Reserve Bank of India. Its establishment was considered necessary in order to meet the large financial requirements of the new and growing industrial enterprises and also to coordinate the activities of all agencies which were concerned with the industrial finance. It is an apex financial institution wholly owned subsidiary to the Reserve Bank ofindia. Under its Charter lobi has been assigned, besides financing the long-term and medium-term need of industrial projeets, the special role in the following: (i) planning, promoting and developing industries to fill the gaps in the industrial structure in India; IS. See "13th lelel borrowing being finalised", Indian Express, July 31, p. 1.

33 FINANCIAL INSTITUTIONS: CONTRmUTION AND PATTERN 143 (ii) (iii) (iv) co-ordinating the working of institutions engaged in financing, promoting or developing industries and assisting in the development of such institutions; providing technical and administrative assistance for promotion. management or expansion of industry; and undertaking market and investment research and surveys as also techno-economic studies in connection with development of industry. The government made it an autonomous corporation from February 16, 1976 and delinked it from the Reserve Bank of India. It was done with the aim to develop expertise in three areas-assessment of projects, monitoring at the stage ofconstruction and the healthy functioning of the unit to secure the over-all national interest. Functions and two Decades of IDBI : The main function of the lobi is to provide industrial finance. With this aim in view the lobi coordinates activities of the financial institutions and thus provides indirect assistance to the industries. It also extends direct financial assistance to industries. It subscribes to purchase and underwrite the issue of stocks, shares and bonds or debentures. At its own option the lobi may convert loans and advances. granted by it, into equity stocks and shares. It not only finances the money-lending institutions (banks and financial institutions) but it also subscribes to their stocks and shares. In order to implement government planning and policy it has adopted several measures to promote industrial development in backward areas and to encourage flow of institutional finance to the small scale industries. The year marked the completion of two decades ofopera tions of lobi. In the first decade the operations of lobi were in the nature of building an effective organisational frame-work, developing linkages with other financial institutions. It also evolved a system for coordination of policies and practices amongst a large number of developed banks operating all-over the country. It thus accomplished successfully an effective coordination and it emerged as the Central financing and coordinating institution relating to industrial finance. This paved the way for lobi's recognition as an autonomous body. After the legislation of 1975, lobi was delinked from the Reserve Bank of India and its ownership was transferred to the Government. lobi was,.therefore, reconstituted from February 16, 1976 to guide industrial financing structure of the India.

34 144 GOVERNMENT REGULATION OF CORPORATE SECTOR In the second decade, lobi endeavoured to evolve appropriate policies to meet the changing needs and fulfil national priorities. During this period the assistance sanctioned by lobi was approximately 14 times higher than in the first decade. It is significant to note the qualitative shift in the flow of financial assistance to certain areas in the priority list ofthe Government. Necessary steps were taken to upgrade the appraisal and organisational skills ofsf'cs and SIOCs to equip them to sustain the rapid growth in their operations. lobi extended refinancing facilities to regional rural banks and urban and central co-operative banks. The number of institutions catering to the small and medium sectors increased from 91 in 1974 to 826 in lobi has also emphasised the fuiler utilisation ofexisting capacities and the upgradation of technology. It has provided concessional financial assistance to projects in order to correct the regional imbalances, lobi has also vitally contributed for widening ofentrepreneurial base, development of smail scale sector, streamlining ofprocedures, and decentralisation of operations. The participation and involvement of JDBI in the process of industrial development in the future is expected to be stili much more in view of the increasing tempo of industrialisation in the country. Financial Assistance: Sanctions of lobi under all schemes of financial assistance aggregated Rs. 2,625 crores during the year as against Rs, 2,130 crores in , registering a growth rate of 23% on top of25.1%growth in the previous year. Similarly disbursements aggregated Rs. 1,948 crores in as compared with Rs. 1,517 crores in the previous year (Table 4.17). Cumulative sanctions and disbursements made by lobi, since its inception in 1964 to the month ending June 1984 amounted to Rs. 12,856 crores and Rs. 9,354 crores respectively." Table 4.17 also reveals that since its establishment in July 1964 till the end ofjune 1984 the JOBI has sanctioned cumulatively financial assistance of over Rs. 12,855.9 crores and disbursed Rs. 9,354.3 crores.p It is thus clear that JOBI has made a great financial contribution to the industrial development of India. This contribution is further analysed and presented under various forms like scheme-wise, industry-wise, etc, in the foilowing pages. 16. See IDBI Annual Report , p See also "Review of IDBI of : IDBI Sanctions up 20 per cent", Financial Express, July 31, 1984, p. 4.

35 FINANCIAL INSTITUTIONS: CONTRIBUTION AND PATTERN 145 TABLE 4.17 IDBI-Treods in Financial Assistance Sanctioned and Disbursed (Period ) (July-June) Year (Rs. Crores) Sanctions Disbursements Amount % change Amount %change Total Note: Figures include guarantees but exclude assistance under Export Finance Scheme. [ lobi Annual Report , p Scheme-wise financial assistance: Table 4.18 gives a detailed comparative account ofthe scheme-wise financial assistance sanctioned and disbursed by the lobi in the years and During (July to June) lobi sanctioned aggregate financial assistance of Rs. 2,625.1 crores recording an increase of about Rs. 500 crores over the preceding year's ( ) sanctions of Rs. 2,130.0 crores. The sanctions

36 TABLE ~ IDBI-Scheme-wise Assistance Sanctioned and Disbursed 0- ( to June ) (Period July-June) (Rs. Crores) o Sanctions Disbursement ~ Assis- ~ Type ofassistance July 64-June July tance z ~ ttl 1964 out-.., z June stand- ~ 1984 ing as m o c: at the r- end June >.., z ::;; '"' No. Amount No. Amount No. Amount Amount Amount Amount Amount o 0 (I) (2) (3) (4) (5) (6) (7) (8) (9) (10) ( II) (12) 1. Direct Assistance ' m (23.5) (30.0) (31.9) (29.0) (27.4) (30.4) til m () (a) Project Loans I (b) Underwriting and 0 ~ direct subscriptions (c) Soft loans (d) Technical development fund _. ~ "ll 0 ~ >..,

37

38 148 GOVERNMENT REGULATION OF CORPORATE SECTOR under all schemes of assistance except refinance of industrial loans recorded increases. Direct assistance sanctioned in under the scheme for project finance totalled Rs crores comprising Rs, crores of project loans, Rs crores of underwriting and direct subscriptions to shares and debentures of industrial concerns, soft loans Rs crores and technical development fund Rs crores. At this t evel, the sanctions were 30~:' higher than the preceding year's total of Rs, crores. The total amount of disbursement under direct assistance in was Rs crores which was 27.4% higher than than previous years' ( ) amount Rs crores. Table 4.18 further explains the financial assistance as disbursed by IDBI under soft loan scheme, technical development fund, refinance of industrial loans, rediscounting of bills, subscriptions to shares and bonds of financial institutions, seed capital assistance, etc. Assistance sanctioned to MRTP Companies: The share of MRTP Companies in total sanctions by lobi which had declined from 11.3% in to 9.1% in and , increased to 12.2% in (See Table 4.19). The increase in the share of financial assistance was due mainly to large assistance sanctioned to three major projects for the manufacture of Soda Ash, Artificial fibre and Cement. TABLE 4.19 IDBI-Assistance Sanctioned to MRTP Companies (Period July-June) (Rs. Crores) July 1964 to Scheme July 1984 I. Direct Assistance (a) Project Loans (b) Underwriting and direct subscriptions (c) Guarantees (d) Soft loans (e) Technical development fund Refinance of industrial loans Rediscounting of bills Total "A" Total lobi assistance sector-wise "B" Percentage of A to B [ lobi-annual Report , p. 64 ]

39 FI~ANClAL 11'STITUTIOr-;S : CONTRIBUTION AND PATTERN 149 Industry-wise Assistance: An important feature of the industry-wise distribution of financial assistance of IDBI was the marked shift in the flow of assistance during the year to industrial sectors like basic industrial chemicals and fertilisers (See Table 4.20). Compared with a 2.2% share in the total assistance sanctioned in , basic industrial chemicals. claimed 7.8% in ; the share offertilisers in the total sanctions also increased from 0.2% in to 3% in Continuing the past trend, the share of electricity generation increased to 12.6% from 8.1% in However, the relative share of road transport sector declined from 17.3% in to 11.5% in mainly due to modification in ARS. Share of cement industry also declined from 6.3% in to 4.7% in While the share of cotton textiles declined from 11.9% to 10% and rubber products from 2.3% to 1.2%. paper and paper products received higher share of 4.2% compared with 2.1% in On a cumulative basis upto the end of June 1984, the share of cotton textiles was 14.5% followed by road transport 135%, electricity generation 6.9% and fertilisers 4.3%.18 Sector-wise Assistance: Table 4.21 gives a clear picture of sector-wise financial assistance as given by IDBI in , and cum ulative from 1964 to The share of public sector in total assistance sanctioned rose rather sharply to 22.4% in from 12.6% in mainly because of sizable increase in assistance to SEBs and SRTCs under the bills scheme. The share of joint sector projects increased from 6.2% in to 10% in Private sector units. which received 78.3% of IDBI financial assistance in accounted for 65.4% in The share of cooperative sector units registered marginal decline from 2.9% to 2.1%. The shares of private, joint, public and cooperative sectors were 74.2%, 7.8%, 14.9% and 3.1% respectively, in the cumulative assistance up to the end ofjune Resource support to Financial Institutions: Table 4.22 gives a short account of the financial assistance given by IDBI to various all India financial institutions and state-level financial institutions during , and cumulative from July 1964 to Juue During , lobi subscribed Rs crores towards the share capital and bond issues of all-india and state-level financial institutions. In the IDBI subscribed Rs crores to these financial institutions. Up to the end of June 1984, such financial assistance aggregated Rs. 421 crores. 18. See IDBI Annual Report , p. 60.

40 150 GOVERNMENT REGULATION OF CORPORATE SECTOR TABLE 420 lobi-industry-wise Assistance Sanctioned (July 1982 to June 1984) (Rs. Crores) Industry July June 1984 Amount %to Amount %to Amount %to total total total 1. Food manufacturing except beverages (a) Sugar (b) Other S Cotton Textiles Jute Paper and paper products Rubber Products Basic industrial chemicals (other than fertilisers Fertilizers Miscellaneous chemicals Cement t Basic metal industries (a) Iron and Steel (b) Non-ferrous II. Metal products Machinery (Other than electrical) Electrical Machinery appliances Transport equipment Electricity generation Services (a) Road transport II (b) Others II Others Total lldbi-annual Report p. 62 ]

41 FINANCIAL INSTITUTIONS: CONTRIBUTION AND PATIERN 151 TABLE 421 lobi-sector-wise Assistance Sanctioned (Period July-June) (Rs, Crores) Total [ lobi Annual Report , p. 641 Supervisory activities: lobi also functions as a supervisory body to see that the financial institutions are functioning within the proper directions. During the year , lobi carried out inspection of 3 SFCs and 13 srocs. Inspection reports of 6 SFCs and 8 SIDCs were finalised and forwarded to the concerned corporations for necessary action. IDBI continued to monitor the progress in the implementation of institutional development programmes drawn up for each of the SFCs! SI DCs. During the year , Business Plans and Resource Forecasts (BPRFs) for all SFCs and 24 SIDCs were jointly drawn up. BPRF exercises proved to be useful in bringing about qualitative improvement in the overau operations of SFCs!SIOCs. IDBI also organises conferences to discuss issues relating to augmentation of resources of SFCs and decentralisation of their operations. It also assists state-level financial institutions in guiding their functioning and imparting training to their officers in various areas of projects appraisal. Liberalisation of financial assistance by lobi: The Industrial Development Bank of India has announced further liberalisations in its financial assistance to industries. The liberalisations are effected In regard to schemes like soft loan, refinance and bills rediscounting.

42 TABLE 4.22 Resource Sapport to Other Financial Institutions (July 1964 to June 1984) -VI tv (Rs. Crores) o 0< m ;Ill Amount Subscribed z ::: m July 1964 to June 8984 z..; Institutions ;Ill Shares Bonds Total Shares Bonds Total Shares. Bonds Total "' o c: r- >..; I. IFCI z 2. ICICI " 3. IRCI f') 0 4. UTI ;Ill 5. SFCs ;Ill ~ > 6. SIDCs m'"" 7. NSIC {II TCOs Total ?l '"" 0 ;Ill [lobi Annual Report , p. 97]

43 FINANCIAL INSTITUTIONS: CONTRIBUTION AND PATTERN 153 According to a report appearing in Economic Times 1 ' the restriction on expansion in capacity under the soft loan scheme will be removed provided such an expansion is incidental to modernisation in such cases; concessional interest will be charged only to the proportionate amount of the loan required to take the capacity upto 25 per cent or up to the normal ceiling under the scheme, whichever is lower. As for the refinance scheme, the ceiling of Rs. 2.5 crores on the net worth of an industrial concern for eligibility for assistance has been raised to Rs. 5 crores. Similarly, in the case of subsidiary companies, the present ceiling on the net worth of holding companies will also now be Rs. 5 crores. This ceiling will also be applicable to all public sector units except State level development institutions like Industrial Development Corporations and Infrastructural Development Corporations. Restrictions on the maximum loan of Rs. 200 lakhs available under refinance scheme to an industrial concern setting up more than one project has been relaxed to Rs. 500 lakhs. However, the cost of individual projects to be eligible for assistance under the scheme and the maximum amount of loan per project will continue at Rs. 300 lakhs and Rs. 200 lakhs respectively. Annual purchaser-wise limit of Rs. 3 crores under bills rediscounting scheme has been raised to Rs. 5 crores in the case of multi-division companies. As for no industry districts, interest-free assistance for project specific infrastructure, during construction period, available under project finance scheme for projects costing more than Rs. 3 crores will now be available even to medium industries costing less than Rs, 3 crores under refinance scheme. The lobi will partly finance feasibility studies by outside consultants for determining modernisation needs of such of the small-scale units as are identified by SFCs as having potential for further growth through modernisation. The lobi, therefore, has made a major financial contribution to the supply of funds to the term-lending financial institutions as well as to the industrial development of the country. It has also played a significant role in regulating the financial management of the private sector industries in India. 19. The Economic Times, Scpo 21, 1984, p. 4.

44 154 GOVERNMBNT REGULATION OF CORPORATE SECTOR Industrial Reconstruction Corporation or India (IRel) IRCI was established in April in order to provide financial assistance for the reconstruction and rehabilitation of sick industrial units. It was incorporated under the Companies Act as a limited company. The lobi hoids its 50% of shares. The financial assistance of IRCI to sick industries is provided in various following forms: (i) (ii) (iii) (iv) (v) Where financial assistance is not available from normal financial and banking channels. Technical assistance and guidance. Managerial assistance in the field of administration. finance, marketing, industrial relations. etc. Restructuring of capital base and liabilities. Anangements for procurement of necessary inputs. The Industrial Reconstruction Corporation of India was made a statutory bank and it was renamed as the "Industrial Reconstruction Bank of India" under the Industrial Reconstruction Bank of India Act This Act came into force from March 20, This statutory status of a Bank was given to this corporation with a view to enable it to function as the principal credit and reconstruction agency for industrial revival and to coordinate similar work ofthe other institutions engaged therein and to assist and promote industrial development, and to reaabilitate industrial concerns and for matters connected therewith or incidental thereto. MuIti-directional Assistance by Corporation 20 : The Corporation is continuously emphasising on vital aspects of rehabilitation i.e. modernisasion of out-dated and old plant and machinery, diversification on their product lines and up-dating oftechnology. Apart from assisting units which approach directly, the Corporation is extending financial assistance to industrial units in consortium with other financial institutions as a member of the inter-institutional group led by IDBI. The sick industrial units in general and particularly those which are being assisted by the Corporation are beset with a number ofadverse economic factors. While the normal units may be in a position to withstand the pressures on their smooth operations, arising out of high prices of basic metals and other raw materials, fuel and power, high incidence of interest burden, high wage bills, crippling power shortage, shrinkage 20. See IRCl12th Annual Report , p. 7. (Latest available Printed Report).

45 FINANnAL INSTITUTIOlliS : CONTR.IBUTION AND PATTERN 155 in demand and marketing constraints, the sick industrial units, particularly those which have been corning to IRCI at chronic stages, have had to face alongwith the above other severe problems, such as non-availability of required level of working capital at the appropriate time, low creditibility in the market which forces them to make cash purchase of raw materials and other necessary inputs, thereby blocking a sizeable portion of their working capital, longer period of realisation against their sales, etc. To face the critical situation owing to power shortage, the Corporation has been providing diesel generating sets to the affected units, although cost-benefit wise such a measure cannot be considered an economic substit ute for the power supplied by the electricity authorities, and, as such, considerable under-utilisation of both productive capacity and employed man-power could not be avoided at the plants. In the case of assisted cotton textile units, the Corporation has been providing them with a special fund to creat buffer stocks of raw cotton at the appropriate time. Besides, the Corporation is constantly endeavouring to induct professional executives into the deficient management set-up of the assisted units through its industrial management pool cadre. Financial Assistance to Sick Industrial Units: By and large IRCI has confined its financial assistance for granting of loans for reconstruction and guarantee purposes. Since 1980 it has also started giving lines of credit facilities to Siate-level agencies to enable them to assist smallscale sick units in their respective areas. The assistance sanctioned by IRCI to sick industrial units went up from Rs crores in to Rs crores in and it was by way of term loans and hire purchase assistance." During the year , the IRCI sanctioned financial assistance of Rs crores (gross) by way of term loans, as compared to Rs crores in the previous year and Rs crores during Of this, Rs crores were sanctioned to 55 fresh cases, and Rs, crores as supplementary assistance to 33 units which were already receiving corporation's assistance. The aggregate assistance sanctioned, net of cancellations, stood at Rs crores to 209 industrial units as at the end of June 1983, as compared to Rs crores to 156 units as at the end of June (See Table 4.23). The Corporation disbursed financial assistance during , by way of term loans amounted to Rs crores, as compared to Rs, crores in and Rs. 19,96 crores during Cumulatively, the total disbursements by way of term loans stood at 21. See IDBI Report on Development Banking in.ndia, , p. 53.

46 156 GOVERNMENT REGULATION OF CORPORATE SECI'OR Rs crores to 153 units till the end of June 1983 as against Rs crores to 122 industrial units as at the end of June By way of hire-purchase assistance, the aggregate sanctions and disbursements, at the end of June 1983, was Rs, 2.89 crores and Rs crores respectively. During the accounting year (July-Juner" IRCI sanctioned reconstruction assistance of Rs, crores (gross) by way of term loan as compared to Rs crores in the year Of this Rs crores were sanctioned to 60 new cases and Rs crores as supplementary assistance to 43 units. At the end of June 1984 the net aggregate sanction stood at Rs crores (net of cancellation) in respect of 262 units as compared to Rs crores in respect of 209 units as at the end of June The Corporation disbursed Rs crores as term loans in as compared to Rs crores in the year Of this Rs crores was disbursed to 51 new cases and Rs erores as supplementary assistance to 57 units already receiving assistance of the Corporation. At the end of June 1984, the total cumulative disbursement of term loans amounted to Rs crores to 204 industrial units as against Rs crores to 151 industrial units as at the end of June Under equipment leasing scheme the Corporation extended financial assistance to various industrial units for the purchase of plant and equipment by sanctioning Rs. 300 crores to 20 units and disbursing Rs, 1.54 crores to 13 units. Considering all type of financial assistance, as mentioned above and in Table 4.23, the total funds sanctioned by the IRCI aggregated Rs crores during the year , as against Rs crores during the year Disbursements during were Rs crores as compared to Rs crores in Cumulatively, the grand total of sanctions and disbursements was Rs crores and Rs crores respectively at the end of June 1982, as compared with that at the end of June 1983 where the sanctions were of Rs crores and of disbursements Rs crores (See Table 4.23). 22. See Annual Report S, Miniitt)' of FinaDce,Go'f'eJDD1Cl1t ofindia" p. 9.

47 FINANCIAL INSTITUTIONS : CONTRmUTION AND PATTERN 157 TABLE 4.23 racr. Sanctions and Disbursements of Financial Assistance ( and Cumulative upto the end of 1983) (Rs, Crores) Sanctions Disbursement Cumulative Cumulative at the at the end of 83 end of 83 Term Loans Hire-purchasing Schemes Equipment Leasing Term Loans to Textile Processing Corp. of India Ltd Purchase of Diesel Generating Sets Line of Credit Facility Total [ IRCI Annual Report , p. 9] Industry-wise Financial Assistance : IRCl's assistance covers a wide range of sick industries. They are classified in ten groups, namely, (i) Food Manufacturing, (ii) Textiles-Cotton and Jute, (iii) Paper and Paper Products, (iv) Rubber Products, (v) Chemicals and Pharmaceuticals, (vi) Metal Products (except Machinery and Transport Equipment, (vii) Machinery (except Electrical), (viii) Electrical Machinery/Equipment, (ix) Transport Equipment and (x) other Industries including Ceramics, Leather Printing, Hotel, etc. Industry-wise classification of loan assistance sanctioned (effective) and disbursed by IRCI during

48 158 GOVERNM~NT ReGULATION OF CORPORATE SECTOR (July-June) is given in Table The data regarding loan assistance reveals that in the year the Textile group and the Rubber Products group accounted for major share of sactions of Rs crores and Rs crores respectively. Then comes the Metal Products and Transport Equipment to which sanctions were of Rs crores and Rs crores respectively. The disbursements for textiles group and Rubber Products were of Rs, crores and Rs crores respectively. A detailed account of loans sanctioned and disbursed unit-wise in 1980, 1981, 1982 and 1983 is given in Tables 4.25 and TABLE 4.24 IRel: Industry-wise Loan Assistance Sanctioned and Disburesed (July 1982-June 1983) (Rs. Crores) Industries Sanctions Disbursement 1. Food Manufacturing Textiles-Cotton & Jute Paper and Paper Products Rubber Products Chemicals & Pharmaceuticals Metal Products Machinery Electrical Machinery Transport Equipment Other Industries [IReI Annual Report , p. 10]

49 TABLE 4.25 Industry-wise Break-up of Loan Sanctioned (effective) during 1980, 1981, 1982 and 1983 (Rs, in lakhs) LOAN SANCTIONED (EFFECTIVE) INDUSTRY GROUP.., As on As on As on As on Z. > No. of No. of No. of No. of z (") Units Amount % Units Amount % Units Amount % Units Amount % ;; e- Food Manufacturing (except beverages) Zen 001 Textiles (i) Cotton ILl ~ 001 (ii) Jute Paper & Paper Products ~ en Rubber Products Chemicals & (") Pharmaceuticals Metal Products except?i Machinery & Transport ~ al Machinery except e :! Electrical Electrical Maehinery/ s Equipment > z Transport Equipment e (i) (Bicycles &." >- Accessories (ii) Wagon Building til (iii) Ship Buildings '" z & Repairs I I Other Industries TOTAL III VI \0 [IRCI Annual Report p.25]

50 INDUSTRY GROUP TABLE Industry-wise Break-up of Loan Disbursed daring 1980, 1981, 1982 and 1983 s LOAN DISBURSED (Rs. in lakhs)!ii As on As on As on As on ' Z 3: No. No. No. No. t2 o-i of of of of Units Amount % Units Amount % Units Amount ~ Units Amount % (I) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) Food Manufacturing o 0 (except beverages) ' Textiles: ~ >- (i) Cotton !II (ii) CIl Jute Paper & Paper Products ~ 11' Rubber Products Chemicals & Pharmaceuticals Metal Products except Machinery & Transport ~ 11'!Il 0 c:: t"" >- ool 0 Z 0 "l

51 (I) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) Machinery except Electrical i z > Electrical Machinery/ n Equipment > e- Transport Equipment Z ~ (i) Bicycles & ;:j ~ Accessories (ii) Wagon Building ~ fa (iii) Ship Building & Repairs I I"l 0 Other Industries ?i ;iiq ;; ;j TOTAL loo.0@153" z 0 > z c Notes: Loan Assistance includes term loans, as well as hire-purchase assistance. not include one unit in Haryana to which the Corporation had issued guarantees, but no loan. An amount of Rs, lakhs has been repaid by 63 units by way of term loans and hire-purchase instalment as at the end of June, Includes debentures of Rs lakhs. -0\ [IRCI Annual Report , p. 28]. S III '"z -

52 162 GOVERNMENT REGULATION OF CORPORATE SECTOR Purpose-wise classification of Assistance: The Corporation is specially emphasising on certain vital aspects of rehabilitation of the sick industrial units. In this way the Corporation sanctioned for expansion, renovation, diversification during Rs, crores towards capital expenditure which was nearly 68 per cent of total effective sanctions as compared to Rs crores or 58 per cent of effective sanctions. To deal with problem of timely availability of matching quantity of working capital for its assisted units, in the year the Corporation sanctioned Rs, crores (16 per cent) as margin money for working capital, as against Rs crores (23 per cent) in The provision for meeting resource gap for its assisted units was Rs, 9.30 crores (J5 per cent) in , as against Rs erores (14 per cent) in TABLE 4027 IReI : Purpose-Wise Classification of Assistance t Sanctioned (Effective) LOAN SANCTIONED S1. No. PURPOSE Expansion/Renovatiol Balancing/Equipmcnt Diversification (38.43) (19.52) (26.49) (16.24) (18.24) 2. Correcting imbalanceon current position (Margin Money/Working Capital) (19.04) (41.65) (33.58) (31.76) (42.33) 3. Meeting Resource Gap (9.40) (28.00) (29.54) (9.75) 4. Repayment of Pressing Liabilities (36.64) (25.20) (10.32) (12.15) (16.62) S. Other Purposesand Start-up Expenses) (5.89) (4.23) (1.61) (9.75) (13.06) TOTAL [ IRC' Annual Report p. 29]

53 FINANCIAL INSTITUTIONS: CONTRIBUTION AND PATTERN 163 During , disbursements on account of capital expenditure were also higher at Rs crores (54 per cent) as campared to Rs crores (48 per cent) in Disbursements on account of margin money towards working capital was Rs crores (25 per cent) in , as against Rs crores (26 per cent) in Disbursements for meeting resource gap ofassisted units was the same as last years level of Rs crores. Table 4.27 shows the statement giving purpose-wise classification of sanction from the inception of IRel to and also cumulative amount of money it sanctioned for various purposes upto June 30, and Disbursed (From to ) (EFFECTIVE) t (Rs in lakhs) Cumulative since inception of IRCllo S (2.24) (29.55) CO.28) (17.73) 06.66) (57.82) (67.52) (45.40) (44.45) (30.64) (33:79) (25.86) (20.39) (23.24) (16.29) (24.52) U (15.35) (27.97> (27.78) (48.35) (25.75) (14.18) (15.00) (19.82) (16.71) (3.15) (6.93) (4.41) (3.00) (1.78) (0.11) (5.46) (21.25) (8.69) (11.22) (3.62) (4.20) (2.98) (1.03) (4.80)

54 164 GOVERNMENT REGULATION OF CORPORATE SECTOR Table 4.28 states the position of amount disbursed by the IRCI purpose-wise from its inception in to Last column of the statement mentions the comumulative amount of money which the IRCI has disbursed during the period of more than last one decade. In the IRCI sanctioned Rs lakhs and disbursed Rs lakhs, whereas in the amount sanctioned and disbursed was Rs. 6, akhs and ~s. 3,468.34Iakhs respectively. This unprecedented increase in the financial assistance given by IRCI reflects on its vital TABLE 4.28 IReE : Purpose-Wise Classification of Assistance Sanctioned (Effective) LOAN DISBURSED si, No. PURPOSE " J97J J J. Expansion/Renovation/ Balancing Equipment/ Diversification ""(18.13) (15.54) (14.38) (19.96) (24.86) 2. Correcting imbalance on current position (Margin Money/Working Capital) (1l.62) (29.34) (56.53) (41.72) (38.17) 3. Meeting Resource Gap (10.94) (8.07) (24.55) (0.75) 4. Repayment of Pressing Liabilities (57.82) (36.71) (19.97) (8.18) (23.72) 5. Other Purposes (Including Start-up Expenses) (12.43) (7.47) (1.05) (5.59) (12.50) TOTAL [ lrci Annual Report ,p, 30 ]

55 FINANCIAL INSTITUTIONS : cosraraunox AND PATTERN 165 contribution in various directions in order to remove the sickness of industrial units of the country. Achievements and Trend: The policy of IRCI to participate in the techno-financial management ofassisted units had yielded positive results even for those units which have been termed irreversibly sick. A study23 made' by IRCI of its 73 assisted units, reveals that about one-third of sick units which used to be treated as "burial bound" had embarked on and Disbursed (From to ) (Rs. in lakhs) Cumulative since inception of IRCI to (13.58) (3.64) (19.14) (17.11) (24.59) (48.50) (53.59) (31.46) (35.58) (42.51) (29.21) (23.83) (22.80) (25.74) (24.68) (29.21) (12.98) (31.84) (36.84) (48.95) (45.86) (23.13) 09.30) (27.15) (14.32) (6.37) (5.63) (6.48) (3.33) (0.71) (1.68) (6.62) (23.54) (15.64) (9.18) (3.63) (3.42) (1.92) (0.75) (5.56) See "IRCI Aided units on Road to Recovery", The Economic Times, August 4, 1984, p. 3.

56 166 GOVERNMENT REGULATION OF CORPORATE SECTOR a recovery path through steps like balancing of equipment product revision, technological udgradation and changed product-mix. It is specially pointed out that the technological upgradation and proper capacity utilisation have been IRCl's prescriptions that have helped in nursing the sick and ailing units back to their health and proper functioning. The IRCT extended financial assistance to 154 industrial units by way of loans and guarantees till the end ofjune During the year , 97 assisted units reported a total industrial output of Rs. 400 crores as against Rs. 256 crores by 79 units in Out of 97 units. 65 units were common to both years. A comparison of performance of these 65 units in the two successive years indicates that their aggregate production went up to Rs. 230 crores in J The total sales (net) reported by 97 units in J aggregated Rs. 400 crores as against Rs. 236 crores reported by 79 units in 198J-82. The Industrial Reconstruction Rank of India (IRBI): Under the Industrial Reconstruction Bank of India Act, > (No. 62 of 1984). the Parliament converted the existing Industrial Reconstruction Corporation of India (lrco in the Industrial Reconstruction Bank of India (IRBI). This Act came into force from 20th March It has made IRBI as one more financial banking institution for the reconstruction and revival of the sick industrial units. The aforesaid Act specifically provides that the IRBI shall function as the principal credit and reconstruction agency for industrial revival by undertaking modernisation, expansion. reorganisation, diversification or rationalisation of industries. It shall also function as a co-ordinating agency of other institutions engaged in similar financial task and shall assist and promote industrial development, reconstruction and revival and undertake rehabilitation of industrial concerns by provining or procuring assistance and operating schemes for attaining these objectives." However, Mr. R.C. Dutt, who was Chairman of IRCI in has criticised this change with the following comment: "A chapter which began with the birth of IRCI in 1971 has thus been closed. Like many other noble endeavours which postindependence India embarked on, the attempt to provide institutional 24. See IRCl Annual Report of p Received assent of the President on 11th Sept See Gazette of India, Extraordinary Part II, Sec. I Sept For objectives of the IRBI, see the Premble and Section 18 of the IRBI Act

57 FINANCIAL INSTITUTIONS: CONTRIBUTION AND PATTERN 167 help to cure sickness arising out of mismanagement floundered against interested opposition, was deemed to be impracticabie without being given a chance to work itself out and has finally been abandoned to appease these interests. What consequence in terms of social cost and human suffering this will bring is for the future to cornpute.t''" Life Insurance Corporation of India (LIC) The Life Insurance Corporation of India came into existence on 1st September 1956, which was the Appointed Day notified for this purpose under Section 3 ofthe Life Insurance Corporation Act, On that day, all the assets and liabilities appertaining to the Controlled Business of all insurers stood transferred to and vested in the Corporation by the operation of Section 7 of the Act. The total book value of the corporation's investments as at 31st December 1957 in Stock Exchange Securities was Rs crores, of which Rs crores were in India and Rs crores outside India. Out of these investments in India, investments in the public sector comprising Central and State Government Loans and the major portion ofthe Approved Securities amounted to Rs crores or 77.37% of the total, while investments in the private sector consisted of debentures and shares in joint stock companies and also some of the Approved Securities amounted to Rs. 74:62 or ~~ of the total investments in India." The Corporation invests its funds in various ways. Its money is invested in controlled fund, group gratuity fund and group superannuation fund. It also invests money in stock exchange securities, underwriting activity, and subscriptions to Bonds and Shares of the All India Financial Institutions. Other areas of its investment include loans to industrial estates, loans on mortgage of property, loans for housing development, financing housing schemes on mortgage of property, etc. Sector-wise Distribution of Investments: The Book Value of Corporation's investment as on 31st March 1984 in the Public Sector was Rs. 7, crores, in Cooperative Sector Rs crores and in Private Sector Rs crores. These investments were made in Stock Exchange Securities, Loans (excluding Loans on Policies and Loans on Personal Security) and capital of the Unit Trust of India. Thus the total investment was of Rs crores as stated in Table R.C. Dutt, "The Problem of Sick Enterprises." The Economic Times. 7th Nov p. 5. See also Sudesh Das Gupta, Business Standard, 71hOctober Report of the Life Insurance Corporation of India for the period 1st Sept to 31st Dec p, 8.

58 168 GOVERNMENT REGULATION Of CORPORATE SECTOR TABLE 4.29 LlC: Sector-wise break-up of Investment in India (as on 31st March 1984) (Rs. in Crores) Sector Book value of % to total Investment and Loans (a) Public Sector (b) Co-operative Sector (c) Private Sector (i) Joint Sector (ii) Others ]0.5 Total [LlC: Twenty-Seventh Annual Report for the year ending 31st March 1984 p. IS] The Corporation's total Book Value ofinvestments in Private Sector was of Rs crores. Table 4.30 further explains classification of Private Sector investments. In the Joint Sector the investment was of the Book Value of Rs crores. Under category "Others" the Book value investment was of Rs crores. This investment was regarding debentures, perference and equity shares of companies. Loans granted to the companies was of Rs crores, loans to policy holders was of Rs crores and other mortgage loans were of Rs crores. (See Table 4.30). Stock Exchange Securities: The book value ofthe LlC's investments as on 31st March 1984 in Stock Exchange Securities was Rs. 5, crores. Of these investments of Rs. 5, crores were in India and investments of Rs crores were out of India. 28 Of the investment of Rs. 5, crores in Stock Exchange Securities in India, book value of the Corporation's investments in Government of India Securities and State Government Securities amounted to Rs. 2, crores and Rs crores respectively. The book value of Approved Securities amounted to Rs. 1, crores. These consisted principally of Municipal Securities, Debentures of State level Land Development Banks and Bonds and or Shares of Port Trust, State Electricity Boards, State Financial Corporations and All-India Statutory Corporations. 29. See Statement 1 ofthe Appendix V of 27th Report of Life Insuranoc Corporation at pp. 67 to 70.

59 FINANCIAL INSTITUTIONS: CONTRIBUTION AND PATTERN 169 TABLE 4.30 LIC : Private Sector Distribution of Investments (as on 31st March 1984) Particulars of Investment Private Sector (I) (Rs. in Crores) Book Value of Investments and Loans Outstanding Joint Sector (i) Debentures of Companies 3.90 (ii) Preference Shares of Companies 2.33 (iii) Equity Shares of Companies 2.68 (iv) Loans to Companies (including Short Term Loan) (2) Others (i) Debentures of a Company being approved securities (ii) Debentures of companies (iii) Preference Shares of Companies (iv) Equity Shares ofcompanies (v) Loans to companies (including short term loans) (vi) Loans to policy Holders under "OYH" schemes etc. (vii) Other Mortgage Loan Total [LIC: Twenty-Seventh Annual Report, March 31, p ] The book value of the corporation's investments in shares and debentures of companies and of co-operative societies in India amounted to Rs crores, Investment in Public Limited Companies: During the year ending on 31st March 1984, the Life Insurance Corporation sanctioned term loans (including short term loans) and/or subscription to debentures of 147 companies. The amounts thus sanctioned aggregated to Rs crores. Particulars of the loans and subscription to debentures and shares of companies are given in Table 4.31.

60 170 GOVERNMENT REGULATION OF CORPORATE SECTOR TABLE 4.31 Investment in Public Limited Companies : Loans, Debentures and Subscription to Issues Sanctioned, Disbursed/Subscribed (Year ended on 31st March 1984) No. of Companies Issues Sanctioned Amount (Rs. in Crores) Disbursed/ Subscribed Amount Loans and Debentures (i) Term Loans (ii) Short Term Loans : (a) Public Sector Companies (b) Others (iii) Loans to Sugar Cooperatives 0.15 (iv) Debentures of Companies Share Capital (i) Total Preference Shares of Companies (ii) Equity Shares of Companies 0.13 Total 0.13 Grand Total [ LIC Twenty-Seventh Report for year ended 31st March 1984, p.20] Investment in Debentures and Shares of Companies in Large Groups/ Single Large Undertakings and Dominant Undertakings: Besides its normal investment operations by way of sale and parchase of securities in stock markets and investment in Government Securities, the Life Insurance Corporation has been participating with other financial institutions in extending direct assistance to industries. Such assistance is given in the form of loans and underwriting of direct subscriptions to shares and debentures of industrial concerns. Table 4.32 gives in detail an account ofthe total investments of the LIe in debentures, shares and loans of companies (as on 31st March 1984) as classified in three categories. In 104 Large Groups, controlling 332 companies the LIC has made a total investment of Rs. 43, lakhs. In 50 other Single Large Undertakings the LIC has invested Rs, 10, lakhs, In 17 Dominant Undertakings the investment made is of Rs, lakhs. Thus the LIC is making a vital contribution to the finances of 399 top-ranking companies ofindia.

61 TABLE 4.32 LIC : Total Investments in Debentures and Shares of Companies and Loans in Large Groups/ Undertakings registered Under Section 26 of MRTP Act (as on 31st March 1984) (Rs. in Lakhs) i >:z: o Percentage > t"" Number of Outstanding to Total Z Companies Loans Short Preference Equity Invest- ~ Sr. Groups/ in which Term Term Debentures Shares Shares Total ment in 2 No. Undertakings LIC has Loan Loan Private g investments Sector z CI> (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) z 0 ""! 1. Large Groups '" iil 2. Other Single :z: Large Undertakings > z0 3. Dominant Undertakings z Total Investments in Undertakings [ LIC Twenty-seventh Report for the year ended 31st March 1984, pp ] -.. (') e... ""! 0 i

62 172 GOVERNMENT REGULATION OF CORPORATE SECTOR Unit Trust of India (UTI) The Unit Trust of India was established in February, Its primary object is to mobilise public savings through the sale of "Units" under different Unit Schemes and Saving Plans. While investing money, its primary concern is the profitability of the investment so that its basic objective of ensuring reasonable and growing returns to unit holders is fulfilled. Its approach is three-fold: (i) by selling units of the trust among as many investors as possible in different parts ofthe country; (ii) by investing the sale proceeds of the Units and also the initial capital fund of Rs. 5 crores in individual and corporate securities; and (iii) by paying dividends to those who have bought the Units ofthe Trust. Fioancial Assistance to Corporate Sector : The Trust, being a public sector enterprise, has created confidence among the general public. It has received various tax concessions from the Government of India. The Unit Trust of India participates with other all-india financial institutions in sharing of assistance to industrial projects. The investible funds of UTI as at the end of June 1981 amounted to Rs, crores showing a rise of 12.1% over the preceding year June, 1980 which showed an amount of Rs, crores." Trends in sanctions and disbursements of assistance by UTI to the corporate sector by way of underwriting/direct subscriptions to shares and debentures during the last five years and the cumulative position since inception are given in Table Sanctions of direct financial assistance declined to Rs crores in from Rs, crores in 1979~80. The figure of 1979~80 included short term loans of Rs. 25 crores also. Thus, after making allowance for this, the figure reveals a marginal decline in the volume of direct sanction to industries in The pattern of assistance in showed a mixed trend; Underwriting and direct subscriptions to privately placed debentures increased sizeably from Rs crores to Rs, crores during the same period. Disbursements were also less in as compared to the last year. However, it may be stated on the basis ofthe lobi Report" that during operations of the Unit Trust ofindia over-all showed improved results of its financial assistance to industries. Investible Fund: The increase in the investible funds of the order of Rs. 391 crores was the highest on record as against Rs, 191 crores last year. This was brought about by the larger inflow of funds through sales coupled with the increased income. At the end ofthe year the 30. See 1081 Report on Development Banking in India, , p lobi Annual Report, ,PP

63 FINANCIAL INSTITUTIONS: CONTRrnUTION AND PATTERN 173 (period: April-March) TABLE 4.33 UTI Financial Assistance (0 Corporate Sector (Rs. Crores) Year Sanctions Disbursements Amount % increase Amount % increase Comulative upto end-march Note: Companies direct subscriptions to shares and debentures (including privately placed debentures) and underwriting operations. [IDBI Report on Development Banking in India, , p. 42] investible funds stood at Rs. 1,261 crores as against Rs. 870 crores at the end of June of the previous year. Schemewise break-up ofthe funds is given in Table TABLE 4.34 Investible Funds of the Trust Schemewise Representation (Rs. Crores) Investible Funds as on Increase ( + )/Decrease (-) Unit Scheme Amount % Unit Scheme Unit Scheme l Unit Scheme Unit Scheme MIS GIS x 7.7 MIS(2) CGS All Schemes , *lntroduced on November 1, 1983 and sales closed on December 31, "Introduced on December 1, 1983.

64 174 GOVERNMENT REGULATION OF CORPORATE SECTOR TABLE 4.35 Investment in Corporate Sector ( ) Type of Investment Unit SCheme Unit Scheme Unit Scheme Unit SCheme ,.,.., 00 ~ 00 ~ 00 ~ 00 ~ -b -h -h -h -h -h -h -h ,.., Equity Shares (27.9) (24.9) (3.2) (2.4) (-) (0.4) (-) (-) Preference Shares (1.8) (1.3) (1.0) (0.7' (-) (-) (-) (-) Debentures (38.1) (44.8) (41.6) (29.2) (4.2) (11.9) (16.1) (48.4) Advance Deposits Against Investment Commitments (12.7) (12.6) (1.6) (0.1) (-) (3.5) (12.9) (12.9) Unsecured Short-term S l5 Deposits (7.1) (9.9) (27.9) (7.4) (52.9) (38.S) (13.4) (22.8) Bridge Finance (2.2) (0.8) (-) (-) (-) (-) (-) (-) Application Money (0.8) (2.0) (-) (-) (-) (-) (-) (-) Advance Call Deposits (00) (00) (-) (-) (-) (-) (-) (-)..,.., Total Investments in Corporate Sector (90.6) (96.3) (75.3) (40.4) (57.1) (54.3) (42.4) (84.1) [ Unit Trust of India Annual Report , p. 36 J

65 FINANCIAL INSTITUTIONS: CONTRIBUTION AND PATTERN 175 (Rs. Crores) Unit Schemes All Schemes Percentage of 1983 total investments MIS-83 GlS-83 MIS (2)-83 COS-83 in corporate sector...,...,...,..., ;;l; ;;l; ;;l;... ;;l;..., ;;l; -b -b.jj i ~ * ~ -b.jj.,b I...,..., , 0 ~ 0 ~ <"l <"l..., <"l...,......, <"l... <"l (-) (-) (-) (3.9) (-) (-) (-) (-) (20.8) (17.0) (-) (-) (-) (-) (-) (-) (-) (-) (1.4) (0.9) (-) (30.2) (-) (30.3) (-) (57.5) (-) (-) (33.2) (38.7) (-) (-) (-) (-) (-) (-) (-) (-) (10.5) (9.4) (57.5) (30.9) (-) (-) (-) (-) (-) (-) (13.3) li0.6) (-) (-) (-) (-) (-) (-) (-) (-) (1.6) (0.5) (-) (-) (-) (-) (-) (-) (-) (-) (0.6) (1.3) (-) (-) (-) (-) (-) (-) (-) (-) (0") (" ") (57.5) (61.1) (-) (34.2) (-) (57.S) (-) (-) (81.4) (78.4)

66 176 GOVERNMENT REGliLATION OF CORPORATE SECTOR Out of total investible funds (UTI) of Rs. 1,261 crores on 30th June 1984, investments in corporate sector accounted for as much as Rs crores (Table 4.35) showing an increase of Rs crores from the year The share of the corporate sector in the total investible funds worked out to 78.4 per cent in 1984 as compared to 81.4 per cent in the previous year Investment in shares and debentures rose by Rs crores to Rs, in June 1984 from the 1983 level of Rs crores (Table 4.36). This increase in respect of equity shares was from Rs crores as on to Rs crores on , i.e, of Rs, crores, In the case ofdebentures the increase from Rs, crores (in 1983) to Rs crores (in 1984) was of Rs crores. However, there was a marginal decrease in the preference shares (Rs = Rs crores). The share of corporate securities in the total investment, in the corporate sector. also rose to 72.2 per cent from 68.] per cent in the previous year. Industry-wise classification of Investment: In the year ]980-8] the highest share of the financial assistance of the Unit Trust of India was given to Textiles and it was followed by Machine industry." Table 4.36 shows investment of U.T.I. as on 30th June 1983 and 30th June It is clear from the date, as given in the comparative statement (Table 4.36) that as in Chemicals, Engineering and Textile Industries continued to occupy prominent position also in ]984 which together accounted for more than 56 per cent ofthe total investments. Electricity generation and supply, Iron and Steel, Paper Products and Transport Equipments accounted for investments ranging from 4 to 7 per cent of the Trust's total investments. The investment portfolio ofthe Unit Trust of India at the end of June 1984 included holdings in 750 companies as against 745 companies in June It was holding ordinary shares in 572 companies, preference shares in 157 companies and debentures in 319 companies." The Unit Trust of India has entered the Third decade in July 1984 contributing to the growth ofthe corporate sector. With an investible resource of the order of Rs crores and with over lakh unit holding accounts spread all over the country. The Unit Trust has assumed the dimensions of a major investment and service oriented financial institution. 32. See IDBI Annual Report , p, Unit Trust of India 20th Annual Report , p. 35.

67 TABLE 4.36 Industry-wise Investments of the Trust (R~. Crores) Equity Shares Preference Shares Debentures Total Percentage of Total 81. Industry No Z > 1. Aluminium Z LBasic & Foundries] J o s 2. Banks & Investment Cos " e- 3. Cement Chemicals & Pharmaceuticals Z (a) Dyes & Dyestuffs ~ (b) Fertilizers (c) Petro-Chemicals ~ (d) Pharmaceuticals (e) Plastics & Paints In (f) Others Electricity Generation & (') Supply Engineering z 7. Glass & Potteries ~ 8. Iron & Steel iii (Basic & Foundaries) , , :j 9. Paper & Paper Products Plantations (Tea, Coffee & 0 Z Rubber) Rubber & Rubber Mfrs > z 12. Shipping t:l 13. Sugar "'C:I 14. Textiles , (a) Cotton ~ (b) Composite Mills ~ (c) Manmade Fibres z (d) Jute Transport Equipment Miscellaneous Toral : ,( ""-J ""-J Includes investments in Banks since nationalised. [Unit Trust of India Annual Report , p. 37].., '"' ~