Understanding UBI and SIDBI: Nationalised Financial Institutions in India
India's financial landscape is replete with nationalised banks, and two notable entities are United Bank of India (UBI) and Small Industries Development Bank of India (SIDBI). This article explores these institutions, highlighting their establishment, roles, and distinctions.
United Bank of India (UBI)
One of the 14 scheduled commercial banks nationalised in 1969 was United Bank of India (UBI). Nationalisation was a significant move by the then Prime Minister Indira Gandhi that aimed to ensure better access to credit and support for the general population. UBI, with its rich history, plays a crucial role in the Indian banking sector.
Small Industries Development Bank of India (SIDBI)
SIDBI, on the other hand, is a more specialised financial institution that was established on April 2, 1990, through an Act of Parliament. Its primary objective is to facilitate and strengthen credit flow to the Micro, Small, and Medium Enterprises (MSME) sector, addressing financial and developmental gaps in the MSME ecosystem across the nation. SIDBI works in conjunction with other financial institutions engaged in similar activities to ensure comprehensive support for small industries.
Establishment and Operation of SIDBI
SIDBI was conceptualised to be a development financial institution that would provide long-term finance to the MSME sector. Unlike commercial banks, which accept deposits and provide short-term loans, SIDBI focuses on providing financial assistance to small and medium industries. This distinction is pivotal in understanding its unique role within the Indian financial system.
The shares of SIDBI are primarily held by the Central Government and other institutions, including public sector banks (PSBs) and insurance companies that are owned and controlled by the Central Government. This structure ensures that SIDBI's operations align with the national policies and objectives related to economic development and industrial growth.
Types of Organizations
It is essential to differentiate between different types of financial institutions in India. Banks like SBI, ICICI, and HDFC are commercial banks that operate by accepting deposits and providing short-term loans. In contrast, institutions like National Bank for Agriculture and Rural Development (NABARD), Export-Import Bank of India (EXIM), and National Housing Bank (NHB) serve specific sectors or objectives of the economy. Similarly, SIDBI is categorised as a developmental financial institution, and it is distinct from a bank but closely aligned with other nationalised bodies.
Financial Instruments and Support
SIDBI offers financial assistance through various instruments such as loans, guarantees, and equity investments. These tools are designed to support the growth and development of small industries. By providing longer-term credit, SIDBI aims to address the financial and developmental gaps that smaller enterprises often face. This approach ensures that MSMEs can access the necessary capital to innovate and expand their operations.
Conclusion
In summary, UBI and SIDBI represent significant pillars in India's nationalised bank system. UBI, as one of the 14 banks nationalised in 1969, has a long history and continues to serve a broad base of customers. SIDBI, being a development financial institution, focuses specifically on the MSME sector, providing tailored financial solutions to support entrepreneurship and innovation.
Hence, while UBI is a nationalised bank, SIDBI is a financial statutory body with a distinct mandate. Both institutions play vital roles in fostering the growth and development of the Indian economy.