Which Financial Institutions are Regarded as Public Financial Institutions in India?

Summary: This article explores which financial institutions are regarded as a public financial institution in India, as laid out in Section 4A of the Companies Act, 1956.

As outlined under the Section 4A of the Companies Act, 1956, there is a highly specific guideline of financial institutions that are to be regarded as Public Financial Institutions in India. Under Section 4A (2) of the Act, the central government of India is empowered to specify other institutions to be deemed as public financial institutions through issuing a gazetted notification. Section 4A (2) contains a proviso that lays down the criteria listed below, in order for an institution to be deemed as a public financial institution, through the issuance of a gazetted notification by the central government of India, which includes,

The particular institution that wants to be deemed a public financial institution should have been established or constituted by or under any of the Central Acts, or,

The particular institution that wants to be deemed a public financial institution should have not less than 51% of its paid-up share capital held or controlled by the central government of India.

The following institutions will be regarded as Public Financial Institutions in India,

1. The Industrial Development Bank of India.2) The Industrial Credit and Investment Corporation of India3) The Life Insurance Corporation of India.4) The Industrial Finance Corporation of India.5) The Unit Trust of India6) The Infrastructure Development Finance Company Ltd.

The Reconstruction Company or The Securitization Company that has been recognised under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Further, the Ministry of Corporate Affairs in India through a circular issued on June 2, 2011, prescribed certain additional conditions for institutions looking to be deemed as public financial institutions under Section 4A of the Act. These extra conditions are listed below,

The particular institution that wants to be deemed a public financial institution should have been established under a Special Act or under the Companies Act being the Central Act.

The particular institution that wants to be deemed a public financial institution should primarily be involved in industrial or infrastructure financing.

The particular institution that wants to be deemed a public financial institution should have been existing for at least three years. In addition, their financial statements are required to show that the income from infrastructural or industrial financing exceeds fifty percent of their income.

The particular institution that wants to be deemed a public financial institution should have a net worth of at least one thousand crores.

The particular institution that wants to be deemed a public financial institution should be registered as an Infrastructure Finance Company (IFC) with the Reserve Bank of India (RBI) or a Housing Finance Company (HFC) with the National Housing Bank.

In the event that the company that wants to be deemed a public financial institution is a central public sector undertaking (CPSU) or a state public sector undertaking (SPSU), no restrictions will apply with respect to the financing of a specific sector or sectors and the net-worth.

Till date, the Central Government has specified 39 institutions as public financial institutions in India. Only Central Government has the power to add or increase to the institution list, based on the institutions that fall under the aforementioned criteria.

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