Defects of Industrial Finance and Investment Corporation of India
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Drawbacks:
The following are some of the important drawbacks of industrial finance in India:
1. Backward Financial System:
One of the important drawback of industrial finance in India is that it is not yet developed fully, the extent of capital market which is a source of long term finance including equity and debt is quite small. It also fails to provide risk capital in adequate quantity. The development of non-bank financial intermediaries is also very poor.
stem is very much inadequate in respect of financial deepening which can be measured as a ratio of liquid liabilities to GNP. All these indicators reflect about the undeveloped financial system prevailing in our country.
2. Paucity of Funds:
Another shortcoming of industrial finance is that it is grossly inadequate for the continuously growing and large requirements, especially to meet the needs of large industries. Moreover, the small industries are also facing shortage of finance in a acute manner. Besides, the securing and servicing of foreign funds are becoming difficult and expensive. Thus as a result of paucity of fund the expansion of industries is becoming very difficult.
3. Unsatisfactory Interest Structure:
The interest rate structure for different types loans like short term, medium term and long term are more or less unsatisfactory. These rates are not appropriate and are not properly aligned with one another and these rates are largely distorted and does not attain demand – supply equality for capital. Indigenous money lenders also charges high rate of interest from small and village industries distorting the market interest rate structure.
4. Lack of Adequate Capital Formation:
Industrial finance usually suffers from lack of adequate capital formation. There are inherent difficulties of mobilizing the quantum of incremental rural incomes which could have been utilized for financing rural industries.
The following are some of the important drawbacks of industrial finance in India:
1. Backward Financial System:
One of the important drawback of industrial finance in India is that it is not yet developed fully, the extent of capital market which is a source of long term finance including equity and debt is quite small. It also fails to provide risk capital in adequate quantity. The development of non-bank financial intermediaries is also very poor.
stem is very much inadequate in respect of financial deepening which can be measured as a ratio of liquid liabilities to GNP. All these indicators reflect about the undeveloped financial system prevailing in our country.
2. Paucity of Funds:
Another shortcoming of industrial finance is that it is grossly inadequate for the continuously growing and large requirements, especially to meet the needs of large industries. Moreover, the small industries are also facing shortage of finance in a acute manner. Besides, the securing and servicing of foreign funds are becoming difficult and expensive. Thus as a result of paucity of fund the expansion of industries is becoming very difficult.
3. Unsatisfactory Interest Structure:
The interest rate structure for different types loans like short term, medium term and long term are more or less unsatisfactory. These rates are not appropriate and are not properly aligned with one another and these rates are largely distorted and does not attain demand – supply equality for capital. Indigenous money lenders also charges high rate of interest from small and village industries distorting the market interest rate structure.
4. Lack of Adequate Capital Formation:
Industrial finance usually suffers from lack of adequate capital formation. There are inherent difficulties of mobilizing the quantum of incremental rural incomes which could have been utilized for financing rural industries.
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