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Statement of Object and Reasons - Continued decline in the availability of concessional funds from the Government and the Reserve Bank of India over the years as also the changes in the past several months in the financial sector have made it obligatory for the Industrial Finance Corporation of India(IFCI) to raise resources largely from the market. However, Industrial Finance Corporation Act, 1948 permits accessibility to the market only when it is backed by a Government guarantee, and thereby prevents it from raising resources on competitive terms. Further, the Act also provides for a very dominant role to its major shareholder, namely, the Industrial Development Bank of India in the functioning of the IFCI. This is considered anomalous as the two institutions are competitors.

2. To deal with these problems and in particular, to ensure greater flexibility and consequent ability of IFCI to respond to the needs of the fast changing financial system, it was thought necessary to establish a new company under Companies Act, 1956, to which the entire undertaking, business and functions of IFCI as well as all the assets and liabilities and the staff of IFCI will be transferred on such day as will be notified by the Central Government. Conversion of IFCI into a Company would also enable it to reshape its business strategies, provide greater autonomy, enter the capital market for raising resources, facilitate expansion of its equity base in future, and create a more levelled playing field across broadly similar financial institutions. The Industrial Finance Corporation (Transfer of Undertaking and Repeal) Ordinance, 1992 was, therefore, promulgated by the President on the 1stOctober, 1992.

3. The Bill seeks to replace the said Ordinance and to achieve the aforesaid objects. -

[2nd April, 1993]

An Act to provide for the transfer and vesting of the undertaking of the Industrial Finance Corporation of India to and in the Company to be formed and registered as a Company under the Companies Act, 1956, and for matters connected therewith or incidental thereto and also to repeal the Industrial Finance Corporation Act, 1948.

Be it enacted by Parliament in the Forty-fourth Year of the Republic of India as follows:-