In this essay we will discuss about the Industrial Finance Corporation of India. After reading this essay you will learn about: 1. Introduction to Industrial Finance Corporation of India (IFCI) 2. Functions of Industrial Finance Corporation of India (IFCI) 3. Financial Resources 4. Working.


  1. Essay on the Introduction to Industrial Finance Corporation of India (IFCI)
  2. Essay on the Functions of Industrial Finance Corporation of India (IFCI)
  3. Essay on the Financial Resources of Industrial Finance Corporation of India (IFCI)
  4. Essay on the Working of Industrial Finance Corporation of India (IFCI)

Essay # 1. Introduction to Industrial Finance Corporation of India (IFCI):

After the Second World War, there was a great need for the expansion of industries in India. Again with the introduction of planned industrial development, the industrial finance became inadequate to meet the requirements of industrial development of the country. Thus in July 1, 1948 the Industrial Finance Corporation of India (IFCI) was established by the Government under a special Act.

The prime object of IFCI is to provide medium term and long-term finance to public limited companies and co-operative organisations. The authorised share capital of the IFCI is now raised to Rs 20 crore. The IDBI, scheduled banks, insurance companies, investment trusts and co-operative banks are the shareholders of the IFCI.


Later, by an amendment to the IFCI Act, private limited companies have become eligible to get financial assistance from IFCI. After the establishment of Industrial Development Bank of India (IDBI) in 1964, the IFCI became a subsidiary to the IDBI. Again on 24th March, 1993 the Industrial Finance Corporation (Transfer of Undertaking and Repeal) Bill 1993 was passed in the Parliament in order to privatize the I.F.C.I.

Now I.F.C.I. would be free to raise resources from the open market and face competition. Moreover, with effect from 1st July, 1993, the IFCI has been converted into a public limited company and it is renamed as Industrial Finance Corporation of India Ltd.

Essay # 2. Functions of Industrial Finance Corporation of India (IFCI):

The Corporation is authorised to perform the following functions:

(i) Granting loans and advances to industrial concerns and subscribing to the shares and debentures floated by them;


(ii) Underwriting the issue of stocks, shares, debentures and bonds of industrial concerns provided these stocks, shares etc., are disposed of by the Corporation within seven years;

(iii) Guaranteeing loans raised by industrial concerns in the capital market;

(iv) Granting loans in foreign currencies to specified industries; and

(v) Guaranteeing deferred payments in respect of imports of capital goods made by approved industrial concerns.


The IFCI is authorised to advance long and medium term finance only to those companies which are engaged in manufacturing, mining, shipping and generation and distribution of electricity. Now the Corporation’s capacity to advance loan or to assist a single concern is limited to Rs 1 crore and the period of loans should not exceed 25 years.

The corporation is charging rate of interest on loan at the rate of 11.25 per cent on rupee loan and 11.50 per cent on foreign loan.

The corporation is giving more preference in advancing finance to:

(i) New entrepreneurs,

(ii) Projects aimed at exploring new areas of technology,

(iii) Prospect of the projects in earning foreign exchange,

(iv) Projects involved for producing inputs for raising agricultural production,

(v) Projects involved in the production of essential consumer goods, and

(vi) Projects located in notified list.

Essay # 3. Financial Resources of Industrial Finance Corporation of India (IFCI):

The main three components of financial resources of IFCI include:


(i) Share capital

(ii) Bonds and debentures and

(iii) Other borrowings.


Initially, the paid up capital of the IFCI was Rs 5 crore. Later on, the amount was increased several times and as on 31st March, 2013, the amount of paid up capital stood at Rs 1,926 crore. The share capital of IFCI is mostly subscribed by IDBI, the LICI, commercial banks and the cooperative banks. IFCI has also accumulated sizeable reserves.

Besides paid up capital and reserves, the other major sources of financial resources of IFCI are issue of bonds and debentures, borrowings, from the IDBI, the government and foreign loans. Again such bonds and debentures issued by IFCI are guaranteed by the Government of India for its repayment of principal and payment of interest.

Essay # 4. Working of Industrial Finance Corporation of India (IFCI):

Since its inception in 1948, the IFCI has sanctioned net financial assistance up to March 1993 to the extent of Rs 15,430 crore against which the total disbursement was Rs 10,380 crore. The industries of high national priority which have been receiving financial assistance from IFCI include fertilizers, cement, power generation, paper, industrial machinery etc.

Again, the IFCI has registered an impressive performance by earning a net profit of 18.81 per cent, i.e.. to the tune of Rs 217.59 crore during the period of half year ending on September 30, 1997 as against Rs 183.14 crore during the same period of the previous year.


In recent years, IFCI has introduced the following new promotional schemes:

(a) Interest subsidy scheme for women entrepreneurs,

(b) Consultancy fee subsidy schemes for providing marketing assistance to small scale units,

(c) Encouraging modernisation of tiny, small and ancillary units,

(d) Controlling pollution of small and medium scale units.

In recent years about 50 per cent of the assistance has been advanced to industrial projects located in backward districts of country. However, in recent years, the performance of IFCI is not at all satisfactory. Total amount of loan sanctioned by IFCI initially increased from Rs 3,746 crore in 1993-94 to Rs 6,580 crore in 1995-96 and then it gradually declined to Rs 1,050.4 crore in 2006-07 and then increased to Rs 4,015 crore in 2008-09.


But the total amount of loan disturbed by the IFCI which initially increased from Rs 2.163 crore in 1993-94 to Rs 4,586.5 crore in 1995-96 and then drastically fell to Rs 2,164.7 crore in 2000-01 and then to Rs 278 crore in 2003-04 and then finally to only Rs 3,311 crore in 2008-09.

In 2012-13, total amount of financial resources sanctioned and disbursed by the IFCI stood at Rs 2,219 crore and Rs 1,504 crore respectively. Unfortunately, IFCI has been worse affected due to its huge non-paying assets, willful defaults etc.

The Government of India have also made an attempt to rehabilitate IFCI by subscribing Rs 400 crore through long term convertible bonds and also advised IDBI, SBI and LIC for extending assistance worth Rs 200 crore each. In order to meet its outstanding liabilities the Government of India has provided Rs 2,096 crore as loan during 2002-03 and 2003-04.

Again the share of non-performing assets (NPAs) in net loans advanced by IFCI stood at 28.0 per cent as at the end of March, 2005. Even then the IFCI is gradually becoming sick. The Government of India is now seriously considering to merge IFCI with a large PSU bank such as Punjab National Bank.