Saturday, August 22, 2009

Importance of Industrial Development Bank

The Industrial Development Bank of Pakistan is one of the leading financial institutions of Pakistan. It was established in 1961. Prior to nationalization of banks in January 1974 the IDBP had a paid up capital of Rs. One billion of which 51% was held by the Federal Government and rest by provincial governments, commercial banks, insurance companies and other Pakistan private investors. On nationalization of banks, the entire share capital previously held by private individuals and other institutions was transferred to Federal Government.
A unique feature of IDBP now is that it is also a scheduled bank and an authorized dealer of foreign exchange. The IDBP thus operates as a full fledged commercial bank in addition to its role as a developmental financial institution.
In 1989 the IDP began to provide universal banking fascilities to its clients. As a universal bank IDBP is committed to diversification of its banking business. It is providing combination of commercial banking and investment banking services to its clients. It is maintaining close links and having extensive consultations with its customers in private sector. The IDBP operates in frame work of the development programme for the private sector. Its prime objective is wide diffusion of credit and broad based ownership for creating middle class of industrial entrepreneurs.
In order to obtain its objectives, the IDBP, it performs the following functions.
(i) Provides medium and long term loans in local and foreign currency for the establishment of new industrial units and for modernization and replacement of existing units in the private sector.
(ii) Guarantee loans, debts and credits raised or incurred by an industrial concern.
(iii) Undertakes complete commercial banking business.

(iv) Undertakes merchant banking business (under writing of public issue of shares, leasing etc.)
(v) Administers the Equity Participation Funds.
(vi) Acts as refinancing agency in respect of the world. Bank and Asian Development Bank, Credit to small scale industrial units.
(vii) Extends consultancy and technical assistance service to clients in the execution and management of projects.
The financial health of the IDBP is not satisfactory at present. It is facing serious problems of non-payment of loans. This has adversely affected the profitability and liquidity of the Bank. The major factors contributing to its low performance are (i) inadequate legal and judicial system (ii) deteriorating culture system (iii) general slow down of the economy (iv) adverse impact of sanctions, etc.
The IDBP had equity of Rs.907 million as on June 2003 against which the total losses stood at about Rs.24 billions. The bank has also failed to maintain the required paid up capital up Rs. 1 billion.
The new focus of Bank is to shift the operational emphasis to commercial banking operations. Emphasis is also being laid on providing export finance and meeting the sunning financial needs of the existing industrial projects.

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