A Study on the Growth and Challenges of Development Banking in India

8/16/2019 A Study on the Growth and Challenges of Development Banking in India

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PREFACE

M.B.A is one of the most reputed professional courses in the field of management. This course

includes both theory and its application contents of curriculum. Project Report is an integral part

of the M.B.A. at “Uttar Pradesh Technical University !uc"no#$. %ach student is re&uired to

prepare research report in his or her 'th semester. MBA intends to get familiar #ith practical

aspect of management through research. The importance of any academic course #ould give

advantage and acceptance of the true from only through practical e(perience. The topic assigned

for the research report is) “A STUDY ON THE GROWTH AND CHALLENGES OF

DEVELOPMENT BANKING IN INDIA”. The Research programmed is an integral constant

of the cause curriculum of programmed in Management

*t has been said that +inance is the life blood of business, #ithout finance the heart and brain of

business cannot function implying there by its natural death.

*n present scenario financial mar"et investment has became complicated and is both art and a

science. -ne ma"e investments for a return higher than #hat he can get by "eeping the money in

commercial or cooperative Ban" or even in an *nvestment Ban". *n +inance field it is common

"no#ledge that money is scarce and investor try to ma(imie their return But the return is higher

if the ris" is also higher Return and ris" go together and they have a trade off. The art of

investment is to see that return is ma(imied #ith the minimum of ris" if the investor "eep his

money in a Ban" in saving account he ta"es the least ris" as the money is safe and he #ill get

bac" #hen he #ant it but he runs the ris" that the return in real terms adjusted for inflation

negative or small and even if positive it may not come up to his e(pectations or needs.

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To utilie the theoretical "no#ledge * decided to choose my topic #hich may cover all and as

result * selected “A STUDY ON THE GROWTH AND CHALLENGES OF

DEVELOPMENT BANKING IN INDIA”.

This researh re!"r# is $i%i$e$ i" 'i%e ha!#ers(

Firs# ha!#er

The chapters are divided and defined in a logical systematic and scientific manner to cover every

Boo" and corner of the topic. The *ntroductory stage of this research report is based on

introduction of /evelopment ban" in *ndia its objective importance scope 0 limitation.

Se"&$ ha!#er dealt #ith Research Methodology. The process of carrying out the #hole

research problem is defined in it. *t contains information about the tools techni&ues used for

collecting the secondary data.

Thir$ ha!#er /ata analysis 0 interpretation.

F")r#h Cha!#er is finding and recommendation. 1ontains the findings and recommendation of

the study. This based on the data analyed and interrelated in previous chapters. This is the most

important section of the report for repot is evaluated on the validity and correctness of its

findings. /epicted conclusion #hich concludes the #hole repot that is gives a brief description

of the process employed so far.

Fi'#h Cha!#er one title conclusion contains the personal conclusion for the study.

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ACKNOWLEDGEMENT

Any attempt at any level can2t be satisfactorily completed #ithout the support and guidance of

learned people. * am over#helmed in all humbleness and gratefulness to ac"no#ledge all those

people #ho helped me to put these ideas #ell above the level of simplicity and into something

concrete. -nly #ith their support and help * have been able to complete my survey effectively

and moreover on time.

* ta"e immense pleasure in than"ing Respected Mr.Rahul Anand 3ingh 4ead of /epartment for

having permitted me to carry out this project #or". 4e #as al#ays there to sho# me the right

trac" #henever * needed his help. 5ith the help of his valuable suggestions guidance and

encouragement * #as able to perform this project #or".

* #ish to e(press my deep sense of gratitude to my 3upervisor /r. 6eetu 3ingh. 3he gave me

moral support and guided me in different matters regarding the topic.. 3he had been a source of

inspiration and their timely guidance helped me a lot in the conduct of my project #or". 3he gave

useful suggestions her able guidance and her constant support and motivation encouraged me a

lot to come up #ith the successful completion of the project. * than" her for her overall support.

/eepa" 7umar 8upta

9MBA 'th 3emester

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INTRODUCTION

The economic development of any country depends up on the e(tent to #hich its financial system

efficiently 0 effectively mobilies 0 allocates resources. There are a number of ban"s and

financial institution that performs this function one of them is the development of ban".

/evelopment ban"s are uni&ue financial institution that performs the special tas" of promoting

the development of a nation.

/evelopment ban"s are financial agencies that provide medium and long term financial

assistance and at as a motivational agent in promoting balance development of the country. They

are engage in promotion and development of industry agriculture and other "ey sectors they also

provide development services that can aid in the accelerate gro#th of economic.

There has been more than :; years of development ban"ing e(perience in the 1aribbean. *t

started in amaica.

Under one name or another development ban"ing institutions spread across the 1aribbean in the


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gro#th sought strategic solutions in terms of economic diversification and development of small

farm agriculture. These sectors and subsectors did not attract funding from commercial ban"s.

The creation of development ban"s #as the ans#er. 1aribbean development ban"s are 3tate

o#ned enterprises #ith only one or a fe# e(ceptions. 8overnments appoint their Boards of

/irectors and through this mechanism can hold them accountable for their performance as #ell as

provide policy directives.

OB*ECTIVE OF DEVELOPMENT BANKS

The objective of development ban"s are as follo#s.


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R"+e "' $e%e+"!,e -a&.

Among the institutions #hose role in the development of the less developed regions is #ell

Recognied but inade&uately emphasied are the development ban"s. Playing multiple roles

these institutions have helped promote nurture support and monitor a range of activities though

their most important function has been as drivers of industrial development. All underdeveloped

countries launching on national development strategies often in the aftermath of decoloniation

#ere "een on accelerating the pace of gro#th of productivity and per capita 8/P. This #as the

obvious re&uirement for alleviating poverty and reducing the developmental gap that separated

them from the developed countries. To realie this goal they considered industrialiation to be an

important prere&uisite. This stemmed from the perspective that modern economic gro#th #as a

process characteried by an increase in the share of employment in the nonagricultural sector

and #ithin the latter by a change in the scale of productive units the gro#th of factory production

and a shift from personal enterprise to the impersonal organiation of economic firms. 8iven

these features the financial sector must be designed to include institutions sources of finance and

instruments that can bridge the significant mismatches in the e(pectations #ith regard to

maturity li&uidity ris" and interest rates bet#een savers and investors. -ne #ay to deal #ith this

problem is to encourage the gro#th of e&uity mar"ets. This is seen as attractive because unli"e in

the case of debt ris" is shared bet#een the financial investor and the entrepreneur. This enhances

the viability of the firm in periods of recession. 4o#ever the evidence sho#s that even in

developed countries e&uity mar"ets play a relatively small role in mobiliing capital for ne#

investments. %ven #here mar"ets are active it is the secondary

Mar"et that is of significance.

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An important institutional innovation in many lateindustrialiing developing countries #as

the creation of #hat are broadly called development ban"s #hich most often are public or

>oint sector institutions. /evelopment ban"s are in the nature of “universal ban"s$ Underta"ing a

#ide range of activities besides those underta"en by commercial ban"ing *nstitutions.

*n addition they are assigning a special role in GG


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concern. /evelopment ban"ing on the other hand is concerned #ith lending funds for medium

to longterm for financing the investments in fi(ed assets of

A++ I&$ia Fi&a&ia+ I&s#i#)#i"&s the company. 1ommercial ban"ing is securityoriented #hile

development ban"ing is projectoriented. /evelopment ban"s also finance largescale projects

jointly #ith commercial ban"s. /evelopments Ban"s have recently been permitted to grant short

term #or"ing capital finance to the corporate. They .have entered into various other types of

financial activities and have underta"en various financial services as #ell.

*n


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-R8A6*3AT*-6A! 3TRU1TUR% -+ /%H%!-PM%6TBA67 -+ *6/*A

*6/U3TR*A! /%H%!-PM%6T BA673

A8R*1U!TURA! /%H%!-PM%6T BA673

%IP-RT J *MP-RT /%H%!-PM%6T BA673

All *ndia level

3tatelevel

3+1

s

3*/1s

3T*

1s

9

All

*ndia

level

6ABA

R/


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3tate level

!ocal level

All *ndia level

P!/Bs

3!/Bs

%I*M

BA67

3!/B,s

!arge

3cale

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*ndustries

3mall

3cale

*ndustries

*+1*

*/B*

*1*1*

*RB*

DEVELOPMENT BANKS IN INDIA

/uring the for independent period *ndia is #ell served by a net#or" of development ban"s at a

national as #ell as state level. The industrial finance corporation of *ndia K*+1*C.The first

development ban" of country #as establish in


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These are GGGG..


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At the state level there are the state land development ban"s K3!A/C for supplying medium and

long term credit for agricultural. +urther and local level there are primary and development ban"

KP!/BC and the for promoting and development at e(port and import all *ndia an level

institution for e(port import ban" of *ndia K%I*MC for establish in


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a3 *ncrease loans and e&uity investments to its developing associate countries K/M1sC for their

monetary and social development.

-3 Provides technical help for the planning and implementation of development projects and

programs and for advisory services.

3 Promotes and facilitates speculation of public and private capital for gro#th and development.

$3 Responds to re&uests for assistance in coordinating gro#th policies and plans of its increasing

member countries.

F"r,a#i"& "' De%e+"!,e Ba&.s i& I&$ia2

/evelopment ban"s #ere set up in *ndia at various points of time starting from the late


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Besides providing direct loans financial institutions also e(tend economic assistance by #ay of

under#riting and direct contribution and by issuing guarantees. Recently some /evelopment

Ban"s have started e(tending short termL#or"ing capital finance although long term lending

continues to be their major activity. To promote harmonious personnel relations in ban"ing

industry and to devise #ays and means for involving ban"ing personnel in the endeavors of ban"s

for gro#th and development of ban"ing and the economy of the country.

O%er%ie/ "' $e%e+"!,e -a&.i&1 i& I&$ia

The concept of development ban"ing rose only after 3econd 5orld 5ar after the 8reat

/epression in


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particularly of agriculture and industry. To#ards this end the Reserve Ban" concentrated on

regulating and developing mechanisms for institution building. The commercial ban"ing net#or"

#as e(panded to cater to the re&uirements of general ban"ing and for meeting the shortterm

#or"ing capital re&uirements of industry and agriculture. 3pecialied development financial

institutions K/+*sC such as the */B* 6ABAR/ 64B and 3*/B* etc. #ith majority o#nership

of the Reserve Ban" #ere set up to meet the longterm financing re&uirements of industry and

agriculture. To facilitate the gro#th of these institutions a mechanism to provide concessional

finance to these institutions #as also put in place by the Reserve Ban".

The first development ban" *n *ndia incorporated immediately after independence in


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and development of the nation as a #hole. Thus *ndia financial institutions can be classified

under five heads according to their economic importance)

• All*ndia /evelopment Ban"s

• 3pecialied +inancial *nstitutions

• *nvestment *nstitutions

•

3tatelevel institutions

• -ther institution

CHALLENGES FOR DEVELOPMENT BANKS

/evelopment ban"s are li"ely to be seriously challenged in this decade. -n the lending

side of their operations one challenge is competition from commercial ban"s and

merchant ban"s. The gro#th in sie of nonfinancial enterprises and the associated gro#th

in the average sie of their loan demands #ill bring them into a range #hich attracts the

interest of private financial institutions. Parado(ically too the success of development

ban"s in demonstrating the feasibility of doing good investment financing business #ill

also encourage the interest of potential competitors. /evelopment ban"s should see these

prospects as both challenges and opportunities. The opportunities in here in the possibility

of joint financing arrangements in #hich development ban"s bring their comparative

strength in appraising and monitoring investment projects. *n situations of competition

development ban"s #ould need to increase their average loan sies to remain competitive.

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*f they do not there is the danger of their clients outgro#ing them. !arger loan sies

might generate reductions in unit costs #hich #ould provide scope for competitive loan

pricing and higher rates of return.

Another challenge on the lending side is the greater comple(ity of enterprise ris"

evaluation #hen the enterprises are cross border enterprises operating in nonuniform

regulatory and legal jurisdictions. -n the funding side development ban"s may

increasingly need to rely on their o#n financial strength for mar"et access of funds since

governments may become reluctant to guarantee their debt and might not have the debt

bearing capacity or sufficiently strong credit ratings. *f development ban"s are to rely on

their o#n financial strength it becomes imperative that they become more efficient and

that they adopt loan pricing policies #hich ensure ade&uate rates of return on their asset

portfolios.

/evelopment ban"s should also consider engaging their traditional funding partners on

different modalities of funding as alternatives to lines of credit. +or instance

consideration could be given to fi(ed term debt and to bond issues both of #hich might

lo#er costs of funds mobiliation and transactions costs associated #ith reporting on lines

of credit.

IFCI 4I&$)s#ria+ Fi&a&e C"r!"ra#i"& "' I&$ia3

*ndustrial +inance 1orporation of *ndia K*+1*C #as the first development ban" established in

*ndia in the year


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in *ndia. *+1* #as converted into public lignite company on >uly


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To act as an agent for the 1entral 8overnment and for the 5orld Ban" in respect of loans

sanctioned by them to industrial units.

To guarantee deferred payments by importers of capital goods #ho are able to obtain this

concession from foreign manufacturersQ

Miscellaneous) K*C to provide technical guidance to industrial units as to finance KloansC KiiC to

guarantee loans in foreign currency. KiiiC To e(amine utility of loans granted to industrial units

K*HC to guarantee loans raised from scheduled ban"s and 3tate 1ooperative Ban"

O-5e#s

The main object of *ndustrial +inance 1orporation of *ndia !imited is to provide financial

assistance to largescale industrial units particularly at a time #hen the normal ban"ing

accommodation is inade&uate and not forthcoming to assist these industrial units. *ndustrial

enterprises organied on the basis of proprietary or private limited company basis cannot ta"e

loans from this corporation. -nly the public limited companies are eligible to ta"e loans from it.

Ma&a1e,e

The *ndustrial +inance 1orporation or *ndia is managed by a board of directors consisting of


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/ebentures) The 1orporation is also authoried to issue debentures and bonds. But their total

amount should not e(ceed ten times of its paidup share capital plus reserve funds.

!oans) The 1orporation has the po#er to borro# funds KloansC from *ndustrial /evelopment

Ban" of *ndia. +oreign investment *nstitutions 1entral 8overnment and Reserve Ban" of *ndia.

Public /eposits) The 1orporation can accept public deposits for a ma(imum period of five years.

+urther the amount of public deposits cannot e(ceed Rs.


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• Most of the loans sanctioned to those industrial units #hich are already organied and

financially strong.

• !ays greater emphasis upon giving assistance to consumer goods industries as against

basic and capital goods industries.

• The corporation has failed in regional and territorial economic development.

• The assistance is insignificant as compared to the re&uirements of the industrial unit and

hence it has "noc"ed at the doors of other financial institutions.

• The recurring e(penses of the corporation are &uite high.

• *n spite of the above criticism #e must recognie that the corporation has done a good

job. *t has entered in ne# lines of business. !oans one concession rates are granted to

industries situated in bac"#ard areas.

INDUSTRIAL DEVELOPMENT BANK OF INDIA ACT 6789

4IDBI3

T4% *6/U3TR*A! /%H%!-PM%6T BA67 -+ *6/*A A1T


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Kuly


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the government. !ater RB* constituted a committee under the chairmanship of 3.4.7han to

e(amine the concept of development financing in the changed global challenges. This committee

is the first to recommend the concept of universal ban"ing. The committee #anted the

development financial institution to diversify its activity. *t recommended to harmonies the role

of development financing and ban"ing activities by getting a#ay from the conventional

distinction bet#een commercial ban"ing and developmental ban"ing.

*n 3eptember D;;E */B* diversified its business domain further by ac&uiring the entire

shareholding of Tata +inance !imited in Tata 4ome finance !td. signaling */B*s foray into the

retail finance sector. The fully o#ned housing finance subsidiary has since been renamed */B*

4ome finance !imited. *n vie# of the signal changes in the operating environment follo#ing

initiation of reforms since the early


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in obtaining re&uisite regulatory and statutory clearances including those from RB*. */B* #ould

commence ban"ing business in accordance #ith the provisions of the ne# Act in addition to the

business being transacted under IDBI Act


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also provide an array of #holesale and retail ban"ing products designed to suit the specific needs

cash flo# re&uirements of corporate and individuals. *n particular */B* #ould leverage the

strong corporate relationships built up over the years to offer customied and total financial

solutions for all corporate business needs single#indo# appraisal for term loans and #or"ing

capital finance strategic advisory and “handholding$ support at the implementation phase of

projects among others.citation neededN

*/B*s transformation into a commercial ban" #ould provide a gate#ay to lo#cost deposits li"e

1urrent and 3avings Ban" /eposits. This #ould have a positive impact on the Ban"s overall cost

of funds and facilitate lending at more competitive rates to its clients. The ne# entity #ould offer

various retail products leveraging upon its e(isting relationship #ith retail investors under its

e(isting 3uvidha +le(ibond schemes.

The responsibility for maintaining standards of corporate governance lies #ith its Board of

/irectors. T#o 1ommittees of the Board vi. the %(ecutive 1ommittee and the Audit 1ommittee

are ade&uately empo#ered to monitor implementation of good corporate governance practices

and ma"ing necessary disclosures #ithin the frame#or" of legal provisions and ban"ing

conventions.

IDBI Ba&. Li,i#e$ KB3%) :;;


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including t#o overseas centers at 3ingapore 0 Beijing.EN 3ome of the institutions built by */B*

are the 3ecurities and %(change Board of *ndia K3%B*C 6ational 3toc" %(change of *ndia K63%C

the 6ational 3ecurities /epository !imited K63/!C the 3toc" 4olding 1orporation of *ndia

!imited K341*!C the 1redit Analysis 0 Research !td the %(im Ban" K*ndiaCK%(im Ban"C the

3mall *ndustries /evelopment Ban" of *ndiaK3*/B*C the %ntrepreneurship /evelopment

*nstitute of *ndia and */B* BA67 #hich is o#ned by the *ndian 8overnment.*/B* Ban" is on a

par #ith nationalied ban"s and the 3B* 8roup as far as government o#nership is concerned. *t is

one among the DF commercial ban"s o#ned by the 8overnment of *ndia. The Ban" has an

aggregate balance sheet sie of Rs. D :EE?@ crore as on March E


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KviiC %(tends consultancy and technical assistance service to clients in the e(ecution and

management of projects.

The functions of the */B* can be broadly grouped into three categories vi.

/irect assistance to industrial units in the form of loans and advances. *ndirect assistance through

refinancing of the loans and advances given by other financial institution. Promotional activities

in respect of industrialiation of bac"#ard areas small industrial units etc.

/irect Assistance) The industrial development ban" of *ndia provides direct assistance to

industrial units in the form of loans and advances. Besides it also subscribes to their shares and

debentures thereby giving then strong financial support. The ban" can guarantee the loans and

advances raised by the industrial concerns from the scheduled ban"s *+1* and other notified

sources. *t can also under#rite the shares and debentures issued by the industrial concern.

*ndirect +inancial Assistance) The promotional activities of the *ndustrial /evelopment ban" of

*ndia include 3pecial assistance for industrial development in the bac"#ard areas.

Assistance to small scale industries and 3pecial assistance by #ay of soft loan scheme #ith a

vie# to promoting the industrial development of the bac"#ard areas the */B* provides

confessional finance assistance to the small and medium projects in these areas. This concession

assistance is available up to an account of Rs. D crores and has a longer repayment period.

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9

Na#i"&a+ Ba&. '"r A1ri)+#)re a&$ R)ra+ De%e+"!,e 4NABARD3

His#"r:

6ABAR/ #as established on the recommendations of 3hivaraman 1ommittee by an act of

Parliament on uly


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Na#i"&a+ Ba&. '"r A1ri)+#)re a&$ R)ra+ De%e+"!,e KNABARDC is an ape( development

ban" in *ndia having head&uarters based in Mumbai KMaharashtraCEN and other branches are all

over the country. *t #as established on uly


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6ABAR/ role in rural development in *ndia is phenomenal.=N 6ational Ban" +or Agriculture 0

Rural /evelopment K6ABAR/C is set up as an ape( /evelopment Ban" by the 8overnment of

*ndia #ith a mandate for facilitating credit flo# for promotion and development of agriculture

cottage and village industries. The credit flo# to agriculture activities sanctioned by 6ABAR/

reached Rs


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commercial #ay. 1ooperative is member driven formal organiation for socioeconomic purpose

#hile 348 is informal one. 68- have more of social color #hile that of PR* is political one.

/oes the legal status of an institute influences effectiveness of the program.

Mir"'i&a&e a&$ NABARD

+or a better reach of microfinance program a continuous chec" of the status progress trends

&ualitative and &uantitative performance comprehensively is re&uired. Thus the Reserve Ban" of

*6/*A and 6ABAR/ has laid out certain guidelines in ;F;? for the commercial ban"s

Regional Rural Ban"s and 1ooperative Ban"s to provide the data to RB* and 6ABAR/ about the

progress of the microfinance program. There are three aspects on #hich the data #as collected

savings of selfhelp groups #ith ban"s loan disbursed by ban"s to selfhelp groups default by

selfhelp groups repayment of the loans ta"en from ban"s. Ban"s also provides data regarding

loans given by ban"s to the microfinance institutions

Or1a&i


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I&$)s#ria+ i&%es#,e -a&. "' I&$ia +#$ 4IIBI3

*ndustrial reconstruction ban" of *ndia K*RB*C #as set up under industrial reconstruction ban" of

*ndia act


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DC To provide managerial and technical assistant to sic" industrial unit.

EC To secure the assistance of other financial institution 0 govt agencies for the revival 0

reconstruction of sic" industrial unit.

'C To promote merchant ban"ing services for meager reconstruction etc.

:C To provide concomitancy services to the ban"s in the matter of such unit.

FC To underta"e leasing business.

*n a similar trend the *RB* is to function as the principal credit 0 reconstruction agencies for

industrial revival and &uardination the activity of other institutions engaged in the revival of

industries and also to assists to promote industrial development and reconstruction of industrial

unit.

The *RB* is empo#ering to ta"e over the management of assistant sic" industrial unit lease than

out or sale those as running concern or to prepare the scheme or reconstruction by scaling do#n

the govt of *ndia.

S,a++ I&$)s#ries De%e+"!,e Ba&. "' I&$ia 4SIDBI3

3mall *ndustries /evelopment Ban" of *ndia is an independent financial institution aimed to aid

the gro#th and development of micro small and mediumscale enterprises in *ndia. 3et up on

April D


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capacity building and on lending. Recently it has opened seven branches christened as Micro

+inance branches aimed especially at dispensing loans up to Rs. :.;; la"h.citation neededN *t is

an ape( bodyclarification neededN and nodal agency for formulatingKcitation neededC

coordination and monitoring the policies and programmed for promotion and development of

small scale industries.

3*/B* has also floated several other entities for related activities. 1redit 8uarantee +und Trust

for Micro and 3mall %nterprises K


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3*/B* directly assists 33*s under Project +inance 3cheme %&uipment +inance 3cheme

Mar"eting 3cheme Hendor /evelopment 3cheme *nfrastructural /evelopment 3cheme *3-

=;;; Technology /evelopment 0 Moderniation +und Henture 1apital 3cheme assistance for

leasing to 6B+1s 3+1s 3*/1s and resource support to institutions involved in the development

and financing of small scale sector.

These 3chemes are mainly targeted at addressing some of the major problems of 33*s in areas

such as high tech project mar"eting infrastructural development delayed realiation of bills

obsolescence of technology &uality improvement e(port financing and venture capital

assistance. /irect Assistance 3chemes.

Pr","#i"&a+ a&$ De%e+"!,e A#i%i#ies

3*/B* is actively involved in promoting tiny and small scale industries by means of its

promotional and developmental activities through suitable professional agencies for organiing

%ntrepreneurship /evelopment Programmers Technology Up gradation 0 Moderniation

Programmers Micro 1redit 3chemes and assistance under Mahila Hi"as 6idhi to bring about

economic empo#erment of #omen specially the rural poor by providing them avenues for

training and employment opportunities.

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ICICI BANK

*1*1* Ban" #as established in


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Receipts on the 63% in D;;;. *1*1* Ban" ac&uired the Bank of Madura Limited in an allstoc"

deal in D;;apan Asia to be listed on the 63%.

*n D;;; *1*1* Ban" became the first *ndian ban" to list on the 6e# or" 3toc" %(change #ith

its five million American depository shares issue generating a demand boo"


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*t #as the first development ban" in private sector to be set up as a joint stoc" company in *ndia

in


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To assist in the creation e(pansion and moderniation at industrial units in the private

sector.

To encourage the inflo# and participation of foreign capital in the private sector industrial

units. To e(pand the investment mar"et in *ndia

F)&#i"&s "' ICICI -a&.

*1*1* provide the assistance in the follo#ing base.


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The authoried capital of *1*1* is Rs. D: crores #hich #as raised to Rs. F; crores. The present

subscribed capital is Rs. DD crores. The capital has been subscribed by K*C *ndian ban"s and

insurance companies KiiC general public in *ndia KiiiC foreigners including British and American

investors.

!oans

The *1*1* is empo#ered to accept foreign currency loans. !oan provided by the 5orld Ban" is

dominating feature. Besides 5orld Ban" loan the *1*1* is also obtaining loans from */B*

*BR/ A*/ and 7+5 of the +ederal Republic of 8ermany America Britain and also from

8overnment of *ndia.

O-5e#i%es "' #he s#)$:

The objective of development ban"s are as follo#s.


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IMPORTANCE

5e have studied that ban"ing is an important aid to industry and trade and that it also provides a

variety of services to the public in general. *ndeed ban"ing may be regarded as an indispensable

part of the economy of every 1ountry. The significance of ban"ing has increased all over the

#orld #ith the rise in income levels and gro#th in the volume of financial transactions.

• *t discusses the concept of /evelopment ban"ing in *ndia.

• *t thro#s light on the government efforts to promote development ban"ing in *ndia.

• *t traces the gro#th of development ban"ing only in *ndia and not #orld#ide.

• *t tries to analyses the problems faced in development ban"ing in *ndia and suggest

remedies for further gro#th of such mar"ets.

43


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S"!e "' #he s#)$:

The purpose of the study is to obtain information about the development ban" in *ndia...

The scope of the study also provides information about the role and gro#th of development

ban" in *ndia. 5ith the study * conclude that development ban" gro#th economy of country

is uplifting day by day. /evelopment ban" provided much facilities 0 financial support to

the urban 0 local people. *t provides some special schemes to the agriculture sector. *t also

helps in upliftment of other ban"ing sectors. *t has to provide resources of private region.

44


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Li,i#a#i"& "' #he s#)$:

Although lets of care and efforts are made to ensure the fault free study but still there remains

certain limitation #hich possibly may accrue such as

!ac" of time acted as constraint in study.

!ac" of development ban" in nearby areas also acts as constraint as its not possible to get the real

e(posure.

The study is based on secondary data any "ind of discrepancy in the #ill cause same in the study.

Researcher is only on indicator and cannot solve the problem.

45


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RESEARCH METHODOLOGY

Researh

Research is a purposeful investigation. *t is a scientific 0 systematic search for "no#ledge 0

intimation on a specific topic research is use full 0 research objective can be achieved if it is

done in proposes process.

Me#h"$"+"1:

The #orld methodology spell the meaning itself if the method used by the researches in obtaining

information. The data Kinformation can be collected from primary sources 0 secondary sources.C

By primary data #e mean data collected by researches him for the first time to collaborate the

data #hich has previously not been used is "no#n as primary data by secondary data #e mean

the data collected from various published matters a Magaine ne#spapers status of previous

research report etc. *n other #ords #e can say that the data #hich has already been used your

different purpose by different people is "no#n as secondary Primary data can be collected

46


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through &uestionnaire and personal intervie# as for as concern my research is limited to dealers

personality 3econdary data are collected from the various boo"s journals ne# spaper editional

e(pert suggestions #eb sites 0 internet 0 etc.

Researh Me#h"$"+"1:2= Research is a common language refers to a search of "no#ledge.

Research is scientific 0 systematic search for pertinent information on a pacific topic infect

research is an art of scientific investigation. Research methodology is a scientific #ay to solve

research problem. *t may be understood as a science of studying ho# research is doing

scientifically. *n it #e study various steps that are generally adopted by research by research in

studying their research problem it is necessary for researchers to "no# not only "no# research

method techni&ues but also technology.

The s"!e "' Researh Me#h"$"+"1: is /i$er #ha& "' researh ,e#h"$s(

The research problem consists of series of closely related activities. At a times. The first step

determines the native of the last step to be underta"en #hy a research has been defined #hat data

has been collected and #hat a particular methods have been adopted and a host of similar other

&uestions are usually ans#ered #hen #e tal" of research methodology concerning a research

problem or study. The project is a study #here focus is on the follo#ing points)

Researh $esi1&A research design is defined as the specification of methods and procedures for ac&uiring the

information needed. *t is a plant or organiing frame#or" for doing the study and collecting the

data. /esigning a research plan re&uires decision all the data sources research approaches

Research instruments sampling plan and contact methods.

Researh $esi1& is ,ai&+: "' '"++"/i&1 #:!es2=

%(ploratory research

/escriptive studies

1asual studies

47


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E>PLORATORY RESEARCH

The major purposes of e(ploratory studies are the identification of problems the more precise

formulation of problems and the formulation of ne# alternative courses of action. The design of

e(ploratory studies us characteried by a great amount of fle(ibility and ad J hoc veracity.

DESCRIPTIVE RESEARCH

/escriptive research in contrast to e(ploratory research is mar"ed by the prior formulation of

specific research Vuestions. The investigator already "no#s a substantial amount about the

research problem perhaps as a Result of an e(ploratory study before the project is initiated,

/escriptive research is also characteried by a preplanned and structured design.

CASUAL OR E>ERIMENTAL RESEARCH

A as)a+ $esi1& i&%es#i1a#es #he a)se a&$ e''e# re+a#i"&shi!s -e#/ee& #/" "r ,"re

%aria-+es( The h:!"#hesis is #es#e$ a&$ #he e?!eri,e is $"&e( There are '"++"/i&1 #:!es "'

as)a+ $esi1&s2

*. After only design

**. Before after design

***. Before after #ith control group design

*H. +our groups si( studies design

H. After only #ith control group design

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H*. 1onsumer panel design

DATA COLLECTION METHOD

PRIMARY SECONDARY /irect personal *ntervie#

*ndirect personal *ntervie#

*nformation from correspondents 8ovt. publication Mailed &uestionnaire Report 1ommittees 0 1ommissions

Vuestion filled by enumerators. Private Publication

PRIMARY DATA

These data are collected first time as original data. The data is recorded as observed or

encountered. %ssentially they are ra# materials. They may be combined totaled but they have not

e(tensively been statistically processed. +or e(ample data obtained by the peoples.

49

Published 3ources Unpublished 3ource


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SECONDARY DATA

3econdary data on the other hand are those #hich are collected by someone #hich have been

passed through statistical process.

S")res "' Se"&$ar: Da#a are2=

*OURNALS@NEWSPAPER e#2= 3ome ne#spapers L>ournals collect their o#n data.

%.g. *ndian >ournals of economics %conomic Times Advertising Today etc.

/ata may be obtained through #ebsites.

/ata may be obtained from !ibrary KBoo"s 0 ArticlesC

Peri"$ "' S#)$:)

This study has been carried out for a ma(imum period of ' #ee"s.

Area "' s#)$:) The study is e(clusively done in the area of finance. *t is a process re&uiring care

sophistication e(perience business judgment and imagination for #hich there can be no

mechanical substitutes.

This report is based on descriptive research and the sources of data is on secondary data

http)LL###.idbi.com

http)LL###.sidbi.com

http)LL###.google.com

http)LL###.ban"netindia.com

50

http://www.idbi.com/http://www.sidbi.com/http://www.google.com/http://www.banknetindia.com/http://www.idbi.com/http://www.sidbi.com/http://www.google.com/http://www.banknetindia.com/


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63 The i&$i%i$)a+ "ri-)#i"& "' eah $e%e+"!,e -a&.(

Ta-+e 6(6

/ata analysis of *+1* BA67 /ata analysis of *+1* in concern #ith various sectors as per assistance providing by it to them

%AR 3A61T*-63 8R-5T4 RAT%

S

/*3BUR3%M%6T 8R-5T4 RAT%


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D;;@D;;= D;':.F EF.: EE?'.E E;.:

D;;=D;


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Ier!re#a#i"&2 *+1* and industrial finance section of *+1* #ent up to Rs.F:?=.?crore in

D;;' from ED.Ecrore in


55/81

Pu!"# $"&' C()*+'",) P*",+')

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

S+'"&

D"u*).)&'

Ier!re#a#i"&2 The *+1* provided ma(imum assistance to private sector by giving

Rs.';FF;.=cr as a march D;


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D;


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D %(pansion FF'=.F F:'?.:

E Rehabilitation


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Ier!re#a#i"&2 *n the purpose of #ise sanctions and disbursements ne# projects W Rs


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Pu!"# $"&' C()*+'",) P*",+')

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

AMMOUNT

PERCENTAGE

Ier!re#a#i"&2 The */B* provided ma(imum assistance to private sector by giving

Rs


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: 5or"ing capitalD;;?D;


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< 3+1


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%AR 3A61T*-6 8R-5T4 S /*3BUR3%M%6T 8R-5T4

D;;FD;;? D=: D?=

D;;?D;;@


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-2000

0

2000

4000

6000

8000

10000

12000

14000

SANCTION

GROWTH %

DISBURSEMENT

Ier!re#a#i"&2 The sanctions of 3*/B* are generally given to those entrepreneurs #ho have

business of small scale and fulfill the criteria of 3*/B*. *t underta"es large variety of promotional

and developmental activities in order to improve the strength of small scale units creating

employment opportunities and ne# #ay for economic development of poor.

Ta-+e 6(7

3*/B* Analysis

3erial number Purpose %arlier Present

< *nvestment limits for

tiny unit for

D;;;;; :;;;;;

D Refinances sie of

projects

:;;;;;


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E %ligible for assist

&uantum of

?:;;;


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Ier!re#a#i"&2 3*/B* has some eligibility criteria for industries as to see" any "inds of

assistance or founding and from the recent times 3*/B* has raised it eligibility criteria for every

institution to gain financial assistance. 4ere follo#s the change in the criteria of the 3*/B*

/ata Analysis of 6ABAR/

*t is responsible for short term medium term and long term financing of agriculture and

allied activities. The institutions such as film +inance 1orporation tea plantation

finance scheme shipping development fund ne#s paper finance corporation handloom

finance corporation housing development +inance 1orporation also provide financial

varies areas. There the various financial activity of 6ABAR/ is giving and analyed in

accordance #ith each other.

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5ith its effective overseeing and monitoring of the implementation of government of

*6/*A program double the flo# of credit to agriculture over a three year period from

D;


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*/B* *+1* *1*1* and **B* provide financial assistance to medium and large industries #hereas

3*/B* caters to the financial needs of smallscale sector. A***Bs also underta"e

Promotional and developmental activities. among the 3+*s R1T1 and T/*1* provide ris"

capital venture capital and technology finance mostly to startup companies in the "no#ledge

based *T and related sectors.

I&s#i#)#i"& 2009-2010 2010-2011 2011-2012

KAC A,")

(RE. in

r"re

%a1e

Share

A,")

4RS( in

r"re3

%a1e

hare

A,")

(RS. in

r"re3

%a1e

hare

*/B* 14,470 37.6 17,059 37


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*1*1* 19,22 49.9 D:@EF ::.= E


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The development ban" in *ndia divided in to three parts.

iC *ndustrial development ban". iiC Agricultural ban". iiiC %(port *mport development ban"s.

Ser%ies "' I&$)s#ria+ De%e+"!,e Ba&. "' I&$ia

*n order to increase its customer base the *ndustrial /evelopment Ban" of *ndia offers a number

of customied and innovative ban"ing services. The services are meant to offer cent percent

satisfaction to the customers. 3ome of the #ell "no#n services offered by the ban" are)

Wh"+esa+e Ba&.i&1 ser%ies2 The #holesale ban"ing services form a major part of the ban"ing

services of the ban". The services that are offered under the #holesale division are)

• 1ash Management

• Transactional services

• +inance of #or"ing capital

• Agro based business transactions

• Trade services

The #holesale ban"ing services are an important source of income in a number of infrastructure

projects such as po#er transport telecom rail#ays road#ays and logistics and so on.

Re#ai+ Ba&.i&1 Ser%ies2 The *ndustrial /evelopment Ban" of *ndia is also a leader in the retail

ban"ing services. The 6et *nterest *ncome amounted to around 9 D


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&uality financial products to the target mar"et to give that onestopsolution to the ban"ing needs.

The retail products offered by the ban" include)

• 4ousing loans

• Personal loans

• 3ecurities loans

•

Mortgage loans

• %ducational loans

• Merchant establishment overdrafts

• 4oliday travel plans

• 1ommercial property loans

Treas)r: 'ai+i#ies a&$ ser%ies2 The net interest income of this sector amounts to around 9


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E?i&a Ba&. underta"es a variety of lending and service programmers #hich are meant for

*ndian entities 1ommercial ban"s and overseas entities. %(am Ban" operates a #ide

variety of schemes for the benefit of *ndian e(porters. 3ome of these are as follo#s)

iC E?!"r# 4S)!!+ier0s3 Cre$i#2 3uch credit is granted to *ndian e(porters to enable them to

e(tend term credit to overseas importers of eligible *ndian goods.

iiC Fi&a&e '"r C"&s)+#a&: a&$ Teh&"+"1: Ser%ies ) 3uch credit is granted to *ndian

e(porters of consultancy and technology services to enable them to e(tend term credit to

-verseas importers.

iiiC Pre=shi!,e Cre$i#2 3uch credit is granted to *ndian e(porters to enable them to buy ra#

materials and other inputs for e(port contracts e(tending over a period of si( months

ivC F"rei1& C)rre&: Pre=shi!,e Cre$i#2 This is granted to eligible e(porters to enable them

to access finance for import of ra# materials and other inputs needed for e(port production.

vC Fi&a&e '"r E?!"r# Oriee$ U&i#s a&$ U&i#s i& E?!"r# Pr"essi&1 "&es ) This credit is

granted to *ndian 1ompanies to ac&uire indigenous and imported machinery and other assets for

e(port production.

viC F"rei1& C)rre&: Li&es "' Cre$i# '"r I,!"r#s2 Under this scheme eligible e(port oriented

units get foreign currency loans to ac&uire imported machinery for e(port production.

viiC O%erseas I&%es#,e Fi&a&e2 3uch finance is provided to *ndian promoters of joint

ventures or subsidiary set up abroad. *t enables #he, to finance e&uity contribution in such

ventures. %(im Ban" is one of the agencies to carry out technical appraisal to establish viability

of overseas projects for approval by 8ovt. L RB*.

viiiC E?!"r# Mar.e#i&1 Fi&a&e2 3uch finance is provided to e(porters to implement mar"et

development programmers and finance productive capabilities through loan financing.

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1ompanies can upgrade their production facilities and implement their strategic e(port mar"et

development plants to penetrate and sustain their presence in industrialied country mar"ets.

i(N Pr"$)#i"& E;)i!,e Fi&a&e2 Under this scheme eligible e(portoriented units are

granted loans to ac&uire e&uipment.

x) Pr"1ra,,e '"r Fi&a&i&1 Pr"$)#@ Pr"ess J)a+i#: Cer#i'+rr#i"&2 Under this programme

:;S of the. %ligible e(penditure incurred by corporate to obtain productL

Process &uality certification is reimbursed.

(iC E?!"r# Ve&$"r De%e+"!,e Fi&a&e2 This facility enables the vendors of e(portoriented

units to ac&uire plant and machinery and other assets for increasing

%(port capability.

(iiC E?!"r# Pr"$)# De%e+"!,e Fi&a&e2 This scheme is meant to enable *ndian firms to

underta"e product “development Research and /evelopment for e(ports.

Ier!re#a#i"&2 +rom the above data it is clear that industrial ban" provide !ong term and

short term loans to the industries and Agriculture development ban" 6ABAR/ provides financial

assistance to the farm sector by #ay of refinance for various agriculture and allied activities li"e

minor irrigation plantation and horticulture land development and %I*M ban" provide credit

granted to *ndian e(porters to enable them to e(tend term credit to overseas importers of eligible

*ndian goods.

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93 The r"+e "' $e%e+"!,e -a&.i&1 i& I&$ia&s e"&",i $e%e+"!,e.

The economic development of our country depends more on real factors li"e the industrial

development moderniation of agriculture organiation of internal trade and e(pansion of

foreign trade especially e(ports and less on the monetary factors contributed by ban"ingX

%conomic planning li"e laying do#n of specific targets and allocating particular sums of money

that constitute the economic policy of the government also plays a significant role. 3till #e

cannot underestimate the importance of ban"ing and the monetary mechanism.

-ne of the major considerations that led to the nationaliation of the fourteen major development

ban"s of *ndia in


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ine(plicably large. -nly #e need e(ploiting this idle capital. 5ho else can e(ploit it if not

ban"sQ Both in rural and urban areas huge amounts of money are #asted on celebrations li"e

marriages and births. *f ban"s can offer handsome interest on savings people can be induced to

direct their savings from #asteful activities to ban"s. Promoting attractive deposit schemes needs

some very active #or" on the part of the ban"s but it can certainly mobilie a large amount of

saving for capital formation.

The 8overnment of *ndia has no# underta"en a large number of projects for the economic

reconstruction of the country. Ban"s can generate an ade&uate volume of credit and conduct it

along useful productive channels. They can distinguish bet#een the essential and nonessential

factors of the economy bet#een productive and nonproductive investment bet#een speculative

arid nonspeculative borro#ings and thus help in the gro#th of the economy.

Before nationaliation our ban"s could not play this constructive role e(pected of them. But after

nationaliation the entire ban"ing machinery has no# been geared to the economic development

of the country. They have started loo"ing after the needs of the small farmer and the ne#

entrepreneur. *t is earnestly hoped that the 8overnment #ill ta"e some more positive steps to

ensure that the real benefits of an organied ban"ing system percolate do#n to the poor illiterate

masses of *ndia.

Ier!re#a#i"&2 2 +rom the above data it is clear that development ban"ing help in countries

development such as moderniation of agriculture organiation of internal trade and e(pansion

of foreign trade and thus 6ationaliation brought about a major policy shift in the #or"ing of

these ban"s.

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3 T" s#)$: a-")# #he ha++e&1es "' $e%e+"!,e -a&.i&1(

/evelopment ban"s are li"ely to be seriously challenged in this decade. -n the lending side of

their operations one challenge is competition from commercial ban"s and merchant ban"s. The

gro#th in sie of nonfinancial enterprises and the associated gro#th in the average sie of their

loan demands #ill bring them into a range #hich attracts the interest of private financial

institutions. Parado(ically too the success of development ban"s in demonstrating the feasibility

of doing good investment financing business #ill also encourage the interest of potential

competitors. /evelopment ban"s should see these prospects as both challenges and opportunities.

The opportunities in here in the possibility of joint financing arrangements in #hich development

ban"s bring their comparative strength in appraising and monitoring investment projects. *n

situations of competition development ban"s #ould need to increase their average loan sies to

remain competitive. *f they do not there is the danger of their clients outgro#ing them. !arger

loan sies might generate reductions in unit costs #hich #ould provide scope for competitive

loan pricing and higher rates of return.

Another challenge on the lending side is the greater comple(ity of enterprise ris" evaluation

#hen the enterprises are cross border enterprises operating in nonuniform regulatory and legal

jurisdictions. -n the funding side development ban"s may increasingly need to rely on their o#n

financial strength for mar"et access of funds since governments may become reluctant to

guarantee their debt and might not have the debt bearing capacity or sufficiently strong credit

75


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ratings. *f development ban"s are to rely on their o#n financial strength it becomes imperative

that they become more efficient and that they adopt loan pricing policies #hich ensure ade&uate

rates of return on their asset portfolios.

/evelopment ban"s should also consider engaging their traditional funding partners on different

modalities of funding as alternatives to lines of credit. +or instance consideration could be given

to fi(ed term debt and to bond issues both of #hich might lo#er costs of funds mobiliation and

transactions costs associated #ith reporting on lines of credit.

Ier!re#a#i"&2 +rom the above data it is clear the development ban"s are li"ely to be seriously

challenged in this decade. -n the lending side of their operations one challenge is competition from

commercial ban"s and merchant ban"s. /evelopment ban"s should also consider engaging their

traditional funding partners on different modalities of funding as alternatives to lines of credit.

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FINDINGS

The researcher found that *+1* and industrial finance section of *+1* #ent up to

Rs.F:?=.?crore in D;;' from ED.Ecrore in


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trade and thus 6ationaliation brought about a major policy shift in the #or"ing of these

ban"s.

Re",,e&$a#i"&s


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CONCLUSION

The course of development of financial institutions and mar"ets during the post*ndependence

period #as largely guided by the process of planned development pursued in *ndia #ith emphasis

on mobiliation of savings and channeling investment to meet Plan priorities. At the time of

*ndependence in


80/81

Li,i#a#i"&s "' #he s#)$:

The study is limited up to some specific sectors and does not cover the #hole area #here

development ban"ing is involved. 3ince the study is based on the secondary data any faulty data

#ill be for#arded as the data is e(tracted from here only. The study has the time constraints too

#hich leads to its limited scope.

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Bi-+i"1ra!h:

BOOKS 2• 7rishnas#ami -. R. , Methodology of Research in 3ocial 3ciences , D;;? , 4imalaya

Publishing 4ouse

• 7othari 1. R. , Research Methodology ,

Documents

A Study on the Growth and Challenges of Development Banking in India