My Prez on Dev Banking

8/8/2019 My Prez on Dev Banking

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Development Banking in India

An overview

We Empower MSMEs

GSR Murthy

AGM, SIDBI, Bhubaneswar

29 - Aug 2010 @ ximb

[email protected]

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Banks are financialintermediaries

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What is a Bank?


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Different Banking Intermediaries

Commercial Banks

Public, Private, Foreign

Development Banks

Investment Institutions

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What are DevelopmentBanks

They supply

1. Capital

2. Knowledge

3. Enterprise

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Economic Growth coupled with just distribution ofbenefits

- To act as gap fillers in the capital market- Acceleration of pace of industrialisation- Rendering long term financial support andentrepreneurial and managerial assistance todeserving projects

Objectives of Development Banking

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World War- II & destructionofeconomoiesNeeded Reconstruction

Development ofeconomies ...need infrastructure

...lot ofcapital ..long term investments wereneeded. ...longgestation period....asset liability

mismatch....high risk

forlong term credit needs institutions withDevelopmental outlook were needed

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Genesis of Development Banking


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Commercial banks : lend whenborrower

doesnt need and take back when he needs it;

DFI - lend in distress and take when he can pay- ina lightervein

safety-------------------------------------------------------d aredevil(commbanks) (DFI) (venture cap)

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Philosophy of Development Banking


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first government sponsored DFI was created in Netherlands in 1822. InFrance, Credit Foncierand Credit Mobiliser, overthe period 1848-1852.

International BankforReconstruction &Development - IBRD (World Bank) 1944

World Bank's Mission Statement

toreduce poverty, and improve living standardsby

promoting sustainable growth and investment in people.

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First modern Development Bank in the world


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Fromfacilitatorofpost-warreconstructionanddevelopment to the present day mandate of

worldwide poverty alleviation

Reconstructionremains an important part ofWBwork. However, the global challenges in the world

compel them tofocus on poverty alleviation,

global issues like climate change, diseases, health,

trade, sustainable development etc.,

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Evolution of World Banks Mission


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MillenniumDevelopment Goals

Millennium Development Goals (MDGs) are 8

international development goals that all 192 UN

member states and at least 23 internationalorganisations have agreed to achieve by 2015.

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Evolution of World Banks Mission - 2


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Goal 1: Eradicate extreme poverty and hunger

Goal 2: Achieve universal primary education

Goal 3: Promote genderequality and empowerwomen

Goal 4: Reduce Child Mortality Rate

Goal 5: Improve maternal health

Goal 6:C

ombat HIV/AIDS, malaria, and otherdiseasesGoal 7: Ensure environmental sustainability

Goal 8: Develop aglobal partnership fordevelopment

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Evolution of World Banks Mission - 3


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At the time of independence in 1947, India's capitalmarket was relatively under-developed. Although

there was significant demand for new capital, there

was a dearth ofproviders. Merchant bankers and

underwriting firms were almost non-existent. Andcommercial banks were not equipped to provide

long-term industrial finance in significant manner.

Industrial Finance Corporation ofIndia (IFCI)the first Development BankofIndia in 1948.

State Financial Corporations (SFCs)SFCs Act, 1951

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Genesis of Development Banking in India


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DFI no where defined.

There is no specific use of the term DFI in either the RBI

Act, 1934 or the Companies Act, 1956 or various statutes

establishing DFIs. While the RBI Act defines the term

Financial Institution (FI), the Companies Act hascategorised certain institutions as Public Financial

Institutions (PFIs).

They are defined as public financial institution (PFI) - "an

institution promoted or assisted by Government mainly toprovide development finance to one or more sectors or sub-

sectors ofthe economy.

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Definition : Development Banking in India


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contd.,

Other Development BanksFinancial Institutions set up between 1948 and 1990

[1955] NATIONALSMALLINDUSTRIES CORPORATION -NSIC

[1955] INDUSTRIALCREDITAND INVESTMENT CORPORATIONOF INDIA-ICICI

[1956] LIFE INSURANCE CORPORATION -LIC

[1958] REFINANCE CORPORATION FORINDUSTRYLTD (merged with IDBI in 1964)[1964] INDUSTRIALDEVELOPMENT BANKOF INDIA - IDBI

[1964] UNITTRUSTOF INDIA -UTI

[1960s] STATE INDUSTRIAL DEVELOPMENT CORPORATIONS - SIDCs

[1960s] STATE SMALLINDUSTRIES DEVELOPMENT CORPORATIONS

[1971] INDUSTRIALRECONSTRUCTION CORPORATIONOF INDIA

[Converted into Industrial Reconstruction Bank ofIndia (1985)

Industrial Investment Bank ofIndia (1997)]

[1973] GENERALINSURANCE CORPORATION -GIC[1982] EXPORTIMPORTBANKOF INDIA -EXIM

[1982] NATIONALBANK FORAGRICULTURE AND RURALDEVELOPMENT -NABARD

[1986] SHIPPING CREDITAND INVESTMENT COMPANYOF INDIA

[merged with ICICI in 1986]

[1990] SMALLINDUSTRIES DEVELOPMENT BANKOF INDIA

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NetworkDevelopment Banks in India

ALLINDIA FINANCIALINSTITUTIONS - 15

COMPRISING

-ALLINDIADFIS 6- SPECIALISED INSTITUTIONS 6

- INVESTMENTINSTITUTIONS 3

IFCI, ICICI, IDBI, IIBI, EXIM, SIDBI

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Repositioning ofDevelopment Banks in India

towards universal banking

(cafeteria approach)

Narasimham committee 2 &SH Khan committee

recommendations

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Journey of ICICI Bank(formerly Industrial Credit and Investment Corporation ofIndia)

- 1955 Incorporated as aDFI

- 1994 Established abaking subsidiary ICICI Bank

- 2002 ICICI merged into ICICI Bank

Branch Network - 2,016branches (as on 31 March 2010)

ATM Network - 5,219 ATMs in India

Overseas presence - in 18 countries

the second largest bank in India

the largest private sectorbank in Indiaby market capitalization

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Journey of IDBI Bank(formerly Industrial Development Bank ofIndia)

- 1964 Incorporated as aDFI (as subsidiary ofRBI)

- 1976 Ownership transferred to Govt ofIndia

- 1994 Established abaking subsidiary IDBI Bank

- 2004 IDBI merged into IDBI Bank

leading public sectorbankand 4th largest Bank in

overall ratings

categorised IDBI as an "otherpublic sectorbank".

10th largest developmentbank in the world i

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Journey of IFCI

- 1948 Incorporated as afirst DFI

- 1993 Converted intoa company

- 1999 Became IFCI Limited

Showed some turnaroundbut still is in troubleSurvivingongovt life line

Consultant is beingappointed to show the growth path

IDBI, PNB not ready to take overthis FI

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Journey ofNABARD

- 1982 Established by an Act ofParliament

- 1993 Converted intoa company

- 1999 Became IFCI Limited

Toprovide focused and undivided attention to the developmentof rural India by facilitating credit flow for promotion of

agriculture and rural non farm sector.

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What is an MSME

Definition : investment in plant & and machinery

micro

enterprise

small

enterprise

medium

enterprise

serviceunit

upto Rs.10 lakh Rs.10 - 200 lakh Rs.200 - 500 lakh

manufacturin

g unitupto Rs.25 lakh Rs.25 - 500 lakh

Rs.500 - 1000

lakh

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How Important are MSMEs

Largest employment generating sector after agriculture

Provide employment to more than 4 crore persons

Employment potential at low capital cost Constitute 95% of industrial units

Total of 1.3 Crore registered / unregistered MSMEs

Key contributors to national economy

45% of manufacturing output

40% of total exports

7% of Gross Domestic Product

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Mandate for SIDBI

Promotion

Development

FinancingCo-ordination


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MISSION of SIDBI

To empower the Micro, Small and MediumEnterprises (MSME) for economic growth,

employment generation and balanced regional

development of our country.


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SIDBI Products & Services

SIDBI products & services are broadlygrouped into three groups

(i) Indirect Assistance

(ii) Direct Assistance

(iii) Development & Support Services


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Traditional Credit Products

Fund Based Non Fund Based

Term Loan WC limits INLC Guarantees

SIDBI/ BANK

WC Finance LC s Guarantees


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SIDBI : Operational Highlights

Particulars(Rs. Crore)

FY 2009 FY 2010 % Growth

Sanction 29188 35521 21.69%

Disbursement 28298 31918 12.79%

Total Income 2082 2540 22%

Profit before tax 749 865 15.48%

Net Profit 299 421 40.80%

Earning per share 6.65 9.36 40.75%

% of Net NPA to net portfoliooutstanding

0.08 0.18 (125%)


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SIDBIs

Cells, Subsidiaries & Associates

SVCL(1999)

CGTMSE(2000)

SMERA

(2005)

ISTSL(2005)

ISARC

(2008)

SMEFDP

SFMC

SFRC

Govt. Schemes

P & D


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Challenges before SIDBI

Strengths Weaknesses

Lean organisationTalent poolLarge balance sheet size

Lack of focus & strategyProcedural bottlenecks

Opportunities Threats

Retails lendingLarge marketD

evelopmental role

MarginalisedSFC bad portfolio

Competition


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Future outlook

Options before SIDBI

- To acquire a banking arm (or)- To merge with / get merged with a bank (or)

- To continue as a DFI (and)

- Expand market reach (and)

- Expand product reach

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