UNIT 3:

INDUSTRIAL AND AGRICULTURAL BANKING SYSTEMS:

Agriculture contributes to the growth of GDP and thus to the growth of Indian economy.
In India, banks and financial institutions lend to agriculture sector. Banks role is not
limited to lending to agriculture sector. But it expands to providing various services to the
farmers, particularly to the Small and Marginal Farmers. Banks have established Credit
Counselling Centres to help farmers understand the details of financial support provided
by Banks and the various Govt. sponsored schemes and the benefits available to them
under those schemes.Besides financing to agricultural and allied activities, banks
implement various Government sponsored schemes for the Small and Marginal Farmers,
viz. Kisan Credit Card Scheme, Pradhan Mantri Fasal Bima Yojana (PMFBY), etc. There
is a Standing Committee in IBA to deliberate issues faced by banks in lending to
agriculture and allied activities as well as the challenges faced by the farming
community, from time to time and carry forward the views of the Committee in those
matters to the Government of India / Reserve Bank of India / other concerned agencies
for resolving the issues.

All Indian Development Banks:

Development banks can be known as special industrial financial institutions. These banks
were mostly established after World War II in both developed as well as developing
countries in the world. Just like elsewhere, the development banks in India are responsible
for accelerating the economic development of the country. In the following banking
awareness study notes on development banks, we shall learn more about them in terms of
meaning, types, features, and more!
o Unlike other commercial banks, the development banks do not mobilize savings. Instead,
they invest the resources in a productive and efficient manner.
o These banks are expert financial bodies that perform the dual functions of granting
medium and long-term finances to private entrepreneurs and performing promotional
roles for the economic development of the country.
o The development banks are responsible to provide medium and long-term finances to the
industrial as well as agricultural sectors. As well, they finance both private and public
sectors.
o Some of the most popular development banks in India are the Industrial Development
Bank of India (IDBI), the Industrial Credit and Investment Corporation of India (ICICI),
and Export-Import (EXIM) Bank of India, etc.

Investment Institutions

An investment institution is a corporation or trust company that manages, sells and markets
investment products to the public. They can be privately or publicly owned (listed on the
stock market). The laws governing banks and other financial institutions is complicated.
 Types of investment institutions

There are different kinds of investment institutions. These include:

 banks and trust companies,
 credit unions,
 investment firms.


State Level Institutions:

There are two important development agencies constituted at which provide financial
assistance for setting up of industrial project small and medium-scale sector. These
institutions also part modernisation, expansion and diversification programmes of
existing units. The area of operation of these state level institutions is limited respective
state.

Specialized Financial Institutions:

Specialised Financial Institutions means the financial institutions established by specific law,
namely Government Savings Bank, Bank for Agriculture and Agricultural Co-operatives,
Government Housing Bank etc.

Role of Specialised Financial Institutions

Specialised Financial Institution have the following functions:

1. Lending: To provide industrial establishments with longer-term financing,
2. The formation of business units: To assist in the formation of business units that require a
substantial sum of money and have a long gestation period.
3. Economic progress: To assist the rapid growth of the economy in general and backward
regions in particular.
4. Consulting services: To provide specialised services in the areas of marketing, project help,
technical aid, and entrepreneur training and development.
5. Assist with new projects: To assist in the identification, appraisal, and implementation of new
initiatives by providing technical and professional management services.
International Finance Institutions:

An international financial institution (IFI) is a financial institution that has been established
(or chartered) by more than one country, and hence is subject to international law. Its owners or
shareholders are generally national governments, although other international institutions and
other organizations occasionally figure as shareholders. The most prominent IFIs are creations of
multiple nations, although some bilateral financial institutions (created by two countries) exist
and are technically IFIs. The best known IFIs were established after World War II to assist in the
reconstruction of Europe and provide mechanisms for international cooperation in managing the
global financial system.
Types
Multilateral Development Banks[edit]
A multilateral development bank (MDB) is a development bank, created by a group of
countries, that provides financing and professional advice to enhance development. An MDB has
many members, including developed donor countries and developing borrower countries. MDBs
finance projects through long-term loans at market rates, very-long-term loans below market
rates (also known as credits), and grants. Additionally, MDBs often have a geographic focus area
for their development objective. With this geographic and thematic focus, funding for a variety
of ventures – often resource-intense infrastructure projects – is provided. Since MDBs are
backed by nations, they tend to profit from favorable loan conditions compared to other banks
and can therefore take more risks in their investment strategy. [1] This aids their purpose-driven
cause.
The following are usually classified as the main MDBs:
1. World Bank
2. European Investment Bank (EIB)
3. Islamic Development Bank (IsDB)
4. Asian Development Bank (ADB)
5. European Bank for Reconstruction and Development (EBRD)
6. CAF – Development Bank of Latin America and the Caribbean (CAF)
7. Inter-American Development Bank Group (IDB, IADB)
8. African Development Bank (AfDB)
9. New Development Bank (NDB)
10. Asian Infrastructure Investment Bank (AIIB)

IBRD:

International Bank of Reconstruction and Development (IBRD)?

The International Bank of Reconstruction and Development (IBRD) is a development bank
administered by the World Bank. The IBRD offers financial products and policy advice to
countries aiming to reduce poverty and promote sustainable development. The International
Bank of Reconstruction and Development is a cooperative owned by 189 member countries.
 IFC:

The International Finance Corporation (IFC) is an international financial institution that

offers investment, advisory, and asset-management services to encourage private-sector
development in less developed countries. The IFC is a member of the World Bank Group and is
headquartered in Washington, D.C. in the United States.
It was established in 1956, as the private-sector arm of the World Bank Group, to
advance economic development by investing in for-profit and commercial projects for poverty
reduction and promoting development.[2][3][4] The IFC's stated aim is to create opportunities for
people to escape poverty and achieve better living standards by mobilizing financial resources
for private enterprise, promoting accessible and competitive markets, supporting businesses and
other private-sector entities, and creating jobs and delivering necessary services to those who are
poverty stricken or otherwise vulnerable.[5]
Since 2009, the IFC has focused on a set of development goals that its projects are expected to
target. Its goals are to increase sustainable agriculture opportunities,
improve healthcare and education, increase access to financing for microfinance and business
clients, advance infrastructure, help small businesses grow revenues, and invest in climate health.
[6]

The IFC is owned and governed by its member countries but has its own executive leadership
and staff that conduct its normal business operations. It is a corporation whose shareholders are
member governments that provide paid-in capital and have the right to vote on its matters.
Originally, it was more financially integrated with the World Bank Group, but later, the IFC was
established separately and eventually became authorized to operate as a financially autonomous
entity and make independent investment decisions.
It offers an array of debt and equity financing services and helps companies face their risk
exposures while refraining from participating in a management capacity. The corporation also
offers advice to companies on making decisions, evaluating their impact on the environment and
society, and being responsible. It advises governments on building infrastructure and
partnerships to further support private sector development.

IDANABARDNHB

NIDA is a line of credit for funding rural infrastructure projects under the following three
channels:
 Funding rural infrastructure projects directly to State Government and State-owned Institutions.
 Funding PPP infrastructure projects in rural areas, developed directly or through Special Purpose
Vehicles promoted by State-owned Institutions, Co-operatives, Producer Organizations,
Corporates etc.
 Funding non-PPP, rural infrastructure projects developed by Registered entities like Companies
and Co-operatives.
 Achievements:
Since inception in 2010-11 till 31 October 2023, cumulative sanction and disbursement under
NIDA stood at ₹ 70680.67 crore and ₹ 38329.14 crore respectively.
Progress during the last 5 years and the current year has been impressive as indicated below:
(₹ crore)
Year Sanctioned

2018-19 7362.76

2019-20 4382.30

2020-21 22767.75

2021-22 8125.27

2022-23 3581.71

2023-24 (as on 31 October 2023) 1249.36

Since launch of the product, NABARD has sanctioned 133 projects under NIDA covering
following sectors
 Power transmission
 Renewable energy (wind)
 Renewable energy (solar power generation)
 Restoration of power distribution
 Roads and bridges
 Warehousing / Storage
 Development of Market Yard
 Irrigation
 Drinking water
 Sanitation
Micro Financing Institutions:

Microfinance, also called microcredit, is a type of banking service provided to low-income

individuals or groups who otherwise wouldn't have access to financial services.
While institutions participating in microfinance most often provide lending—microloans can
range from as small as $50 to under $50,000. But many banks offer additional services such as
checking and savings accounts as well as micro-insurance products, and some even offer
financial and business education.12 The goal of microfinance is to ultimately give
impoverished people an opportunity to become self-sufficient.
Understanding Microfinance
Microfinance services are provided to unemployed or low-income individuals because most
people trapped in poverty, or who have limited financial resources, don't have enough income to
do business with traditional financial institutions.
Despite being excluded from banking services, however, people who live on as little as $2 a
day do attempt to save, borrow, or acquire credit or insurance, and they do make payments on
their debt. Thus, many poor people typically look to family, friends, and even loan sharks (who
often charge exorbitant interest rates) for help.