SAMRITI GOEL

MBA LECTURER

FM 305

INTRODUCTION

Development banks are the institutions engaged in the promotion and

development of industry, agriculture and other key sectors.

National or regional financial institution designed to provide medium- and

long-term capital for productive investment. Such investment is usually

accompanied by technical assistance.

Some development banks are government-owned, while others are private.

Many have been established under the auspices of the World Bank.

Among the largest are the Inter-American Development Bank, the Asian

Development Bank, and the African Development Bank.

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DEFINITION

D.M. Mithani:

“A development bank may be defined as a

financial institution concerned with providing all types of

financial assistance (medium as well as long-term) to

business units in the form of loans, underwriting,

investment and guarantee operations and development in

general and industrial area”.

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FEATURES

A development bank does not accept deposits from the

public like commercial banks and other financial

institutions who entirely depend upon saving mobilization.

It is a specialized financial institution which provides

medium term and long-term lending facilities.

It is a multipurpose financial institution. Besides providing

financial help it undertakes promotional activities also. It

helps an enterprises from planning to operational level.

It provides financial assistance to both private as well as

public sector institutions.

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CONTD… The role of a development bank is of gap filler, when assistance from

other sources is not sufficient then this channel helps. It does not

compete with normal channels of finance.

Development banks primarily aim to accelerate the rate of growth. It

helps industrialization specific and economic development in general.

The objective of these banks is to serve public interest rather than

earning profits.

Development banks react to the socio-economic needs of development.

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OBJECTIVES

Lay Foundations for Industrialization

Meet Capital Needs

Need for Promotional Activities

Help Small and Medium Sectors'

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FUNCTIONS

Financial Gap Fillers

Undertake Entrepreneurial Role

Joint Finance

Refinance Facility

Credit Guarantee

Underwriting of Securities

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DEVELOPMENT BANKING IN INDIA

The “recommendation for setting up industrial financing institutions was made in

1931 by Central Banking Enquiry Committee but no concrete steps were taken.

In 1949, Reserve Bank had undertaken a detailed study to find out the need for

specialized institutions.

It was in 1949 that the first development bank i.e. Industrial Finance Corporation

of India (IFCI) was established.

In 1951, Parliament passed State Financial Corporation Act. Under this Act state

governments could establish financial corporations for their respective regions.

The IFCI and state financial corporations served only a limited purpose. There was

a need for dynamic institutions which could operate as true development agencies.

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CONTD…. The Industrial Credit and Investment Corporation of India (ICICI) were established in 1955

as a Joint Stock Company. Though ICICI was established in private sector but its pattern of

shareholding and methods of raising funds gives it the characteristic of a public sector

financial institution.

Another institution ,Refinance Corporation for Industry Ltd. (RCI) was set up in 1958 by

Reserve’ Bank of India, LIC and Commercial Banks.

In 1964, Industrial Development Bank of India (IDBI) was set up as an apex institution in the

area of industrial finance, RCI was merged with IDBI. IDBI was a wholly owned subsidiary of

RBI and was expected to co-ordinate the activities of the institutions engaged in financing,

promoting or developing industry.

The State Industrial Development Corporations (SIDC's) were established in the sixties to

promote medium scale industrial units.

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CONTD…

The State Small Industries Development Corporations (SSIDC's) were

also set up to cater to the needs of industry at state level.

The Unit Trust of India (UTI) established in 1964, Life Insurance

Corporation of India (1956) and General Insurance Corporation of India

(GIC) set up in 1973 also finance industrial activities at all India level.

In 1982 the Export-Import Bank of India (Exim Bank) was established to

provide financial assistance to exporters and importers.

In order to meet credit needs of agriculture and rural sector, National'

Bank for Agriculture and Rural Development (NABARD) was set up in

1982.

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Role of development banks in financial system

Providing Funds

Infrastructural Facilities

Promotional Activities

Development of Backward Areas

Planned Development

Accelerating Industrialization

Employment Generation

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ALL INDIA DEVELPOMENTS BANKS

In India, various financial institutions were set up after independence only. The

Government of India has taken steps to set up institutions which assist various

sectors of the economy. At present the country has 12 institutions at the national

level and 46 at the state level. The All India Financial Institutions comprise All-

India Development Banks, namely:

Industrial Development Bank of India,

Industrial Finance Corporation of India Ltd.,

Industrial Credit and Investment Corporation of India Ltd.,

Small Industries Development Bank of India,

Industrial Reconstruction And Development Bank of India,

NABARD

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There are three investment institutions:

Life Insurance Corporation of India Ltd.,

Unit Trust of India and

General Insurance Corporation of India.

At state level there are 18 State Finance Corporations

and 28 state industry development corporations.

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