Small Industries Development Bank of India (SIDBI)

In the field of financing of small scale industries in India, a separate apex development bank has started its operations from April 2, 1990. The SIDBI has been set up under an Act of Parliament as the principal financial institutions for promotion, financing and development of industry in the tiny and small scale sector. It coordinates of other institutions engaged in similar activities.

The SIDBI was established as a wholly-owned subsidiary of the Industrial Development Bank of India. It has taken over IDBI’s financing activities relating to the small scale sector.

The major activities undertaken by this bank are as follows:

i) Refinancing of term loans granted by banks and other eligible financial institutions, namely the State Financial Corporations and State Industrial Development Corporations.
ii) Direct discounting as well as re-discounting of bills arising out of sale of machinery of capital equipment by manufacturers in small scale sector on deferred credit.
iii) Equity type assistance under National Equity Funds and by way of seed capital to entrepreneurs.
iv) Re-discounting of short term trade bills arising out of sale of products of small scale sector.
v) Resources support to National Small Industries Corporation and other institutions concerned with small industries.
vi) Share capital and resources support to factoring organizations.

Resources: The paid up share capital of the bank stood at Rs 450 crore as on March 31, 2000, which was wholly subscribed by IDBI. After the enactment of Small industries Development Bank of India (Amendment) Act, 2000, not less than 51% of the issued capital of SIDBI, which has been subscribed by IDBI shall be transferred to and vested in the public sector banks, the General Insurance Corporation, the LIC and other institutions owned and controlled by the Central Government. The authorized capital of SIDBI has been raised to Rs 1,000 crore.

The bank has been sanctioned limits by the Reserve Bank of India out of National Industrial Credit (long term Operations) Fund. Government of India has also provided it long term interest free loan and also contributes to the National Equity Fund maintained by the Bank, SIDBI has also raised resources in foreign currencies from the following two sources:

i) OECF, Japan, has sanctioned loans for on lending to small scale units through the refinance scheme of SIDBI.
ii) The Asian Development Bank sanctioned the line of credit of US $ 100 million to SIDBI for no lending to small scale and medium scale units, through selected SFCs, SIDBI has drawn from this line of credit against its refinance assistance to small scale units.

Deposit Insurance and credit Guarantee Corporation (DICGC)

The Deposit Insurance Corporation was established by an Act of Parliament on January 1, 1962. In July 1978 it took over the undertaking of the Credit Guarantee Corporation of India Ltd., a company promoted by the Reserve Bank of India. Consequently, its name was changed to Deposit Insurance and Credit Guarantee Corporation. It is wholly owned by the Reserve Bank of India and its entire share capital (Rs 50 crores) is held by the latter.

The Corporation performs the following two functions:

1) Deposit Insurance: With a view to provide protection to depositors in commercial banks, regional rural banks and co-operative banks, the Corporation provides insurance cover up to a certain amount. Under the scheme in the event of liquidation, reconstitution or amalgamation of an insured bank, every depositor of that bank is entitled to repayment of his deposit held by him in the same right and capacity in all branches of that bank up to Rs 1 lakh. The corporation charges premium from the insured banks for this purpose and credits the same to Deposit Insurance Fund maintained by it. Claims of depositors, whenever an insured bank fails or is amalgamated with another bank, are met out of this fund.
2) Credit Guarantee: The Corporation provides guarantee cover to credit facilities extended to certain categories of small borrowers scale industries. Such guarantees are extended to the participating institutions, viz., Commercial Banks, Regional Rural Banks, Co-operative Banks, State Financial Corporations and other term lending institutions. Now the guarantee cover is available in respect of all priority sector advances. The guarantee support is weighted in favor of smaller and weaker borrowers and small scale industrial units established in backward areas. The Corporation charges a guarantee fee from the banks and financial institutions which is credited to the Credit Guarantee Fund.