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Development banks

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  • 1.  Development banks are special industrial financing institutions.  These banks are mostly set up after World War II in both developed and underdeveloped countries.  Development banks do not mobilize savings like other banks but invest the resources in a productive manner.  These banks make significant contribution to industrial development.
  • 2. states that , “ 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.  D.M.Mithani
  • 3. It is a specialized financial institution which provides medium term and long- term lending facilities.  It is a multipurpose financial institution because besides providing financial help ,it undertakes promotional activities also.  Development banks provides financial assistance to both public and private institutions.  The role of a development bank is of gap filler.  Development banks accelerate the rate of growth through helping in industrialization in specific and economic development in general. 
  • 4. The objective of development bank is to serve the public interest rather than earning profits.  Development banks react to socio-economic needs of development. 
  • 5. 1. 2. 3. 4. Lay foundations for industrialization. Meet capital needs. Need for promotional activities. Help small and medium sectors.
  • 6. 1. 2. 3. 4. 5. 6. 7. Financial gap fillers. Undertake Entrepreneurial Role. Commercial banking business. Joint Finance. Refinance Facility. Credit Guarantee. Underwriting of Securities.
  • 7. 1. 2. 3. 4. Technical Feasibility. Economic Viability. Managerial Competence. Financial Appraisal.
  • 8.  The foreign rulers in India did not take much interest in the industrial development of the country.  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.
  • 9.  It was in 1948, that the first development bank i.e. Industrial Finance Corporation of India (IFCI) was established.  To cater the needs of the small and medium enterprises ,in 1951, Parliament passed State Financial Corporation Act. Under this Act, state governments could establish financial corporations for their respective regions.  After this, National Industrial Development Corporation (NIDC) was established which could not serve the ambitious role assigned to it and restricted itself to modernization and rehabilitation of cotton and jute textile industry.
  • 10.  In 1955, The Industrial Credit and Investment Corporation of India Ltd.(ICICI) was established as a joint stock company. It provides term loans and take an active part in the underwriting of and direct investments in the share of industrial units.  Then in 1958, Refinance Corporation for Industry (RCI) was set up by the Reserve Bank of India.  In 1964,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.
  • 11.  The State Industrial Development Corporations were established in the sixties to promote medium scale industrial units.  NABARD was set up in 1982, which was responsible for short term, medium term ,long term financing of agriculture and other allied activities.

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