development bank

TABLE OF CONTENTS

Introduction To Development Bank

Meaning of Development Banks

Overview of Development Banking in India

Definition of Development Banks

Functions of development

Major objectives of Development Bank

Classifications of Development Banks in India

Examples of Development Banks in India

Conclusion

References

Development banks are the institutions which supply capital, knowledge and enterprises, the three major ingredients of development for business enterprises.

These institutions provide long term finance to agriculture, industries, trade, transport and basic infrastructure, so that in the absence of financial resource the economic development of the country is not adversely affected.

1. INTRODUCTION

Development banks are specialized financial institutions. They provide medium and long-term finance to the industrial and agricultural sector. They provide finance to both private and public sector. Development banks are multipurpose financial institutions. They do term lending, investment in securities and other activities. They even promote saving and investment habit in the public.

2. MEANING

3. OVERVIEW The concept of development banking rose only after

Second World War, after the Great Depression in 1930s. As a result the IBRD was set up in 1945 as a worldwide institution for development and reconstruction. The Narashimam committee had recommended to give up its direct financing functions and to perform only the promotional and refinancing role. Specialized development financial institutions (DFIs) such as the IDBI, NABARD, NHB and SIDBI, etc., with majority ownership of the Reserve Bank were set up to meet the long-term financing requirements of industry and agriculture.

4. DEFINITION

As per Banking subject

"Development banks are financial institutions established to lend (loan) finance (money) on subsidized interest rate. Such lending is sanctioned to promote and develop important sectors like agriculture, industry, import-export, housing and allied activities."

5. IMPORTANT FUNCTION OF DEVELOPMENT BANKS

Small Scale Industries (SSI):

Development banks play an important role in the promotion and development of the small-scale sector. Government of India (GOI) started Small industries Development Bank of India (SIDBI) to provide medium and long-term loans to Small Scale Industries (SSI) units.

DEVELOPMENT OF HOUSING SECTOR:

NHB promotes the housing sector in the following ways:

• It promotes and develops housing and financial institutions.

• It refinances banks and financial institutions that provide credit to the housing sector.

Large Scale Industries (LSI)

Development banks promote and develop large-scale industries (LSI). Development financial institutions like IDBI, IFCI, etc., provide medium and long-term finance to the corporate sector. They provide merchant banking services, such as preparing project reports, doing feasibility studies, advising on location of a project, and so on.

Agriculture and Rural Development:

Development banks like National Bank for Agriculture & Rural Development (NABARD) helps in the development of agriculture. NABARD started in 1982 to provide refinance to banks, which provide credit to the agriculture sector and also for rural development activities. It coordinates the working of all financial institutions that provide credit to agriculture and rural development.

Enhance Foreign Trade:

Development banks help to promote foreign trade. Government of India started Export-Import Bank of India (EXIM Bank) in 1982 to provide medium and long-term loans to exporters and importers from India.

Review of Sick Units:

IIBI is the main credit and reconstruction institution for revival of sick units. It facilitates modernization, restructuring and diversification of sick-units by providing credit and other services.

Entrepreneurship Development:

Many development banks facilitate entrepreneurship development. NABARD, State Industrial Development Banks and State Finance Corporations provide training to entrepreneurs in developing leadership and business

management skills.

Regional Development:

Development banks facilitate rural and regional development. They provide finance for starting companies in backward areas. They also help the companies in project management in such less-

developed areas.

Contribution to Capital Markets:

Development banks contribute the growth of capital markets. They invest in equity shares and debentures of various companies listed in India.

6. Major objectives of Development Banks

1. Lay Foundations for IndustrializationA number of countries got independence from colonial rule. Their economies needed to be rehabilitated. Other underdeveloped and developing countries too needed to accelerate the pace of industrialization.

2. Meet Capital NeedsThere was a dearth of capital needed to foster industrial growth in underdeveloped countries. Owing to the low level of income of the people there were no sufficient surpluses for capitalization.

3. Need for Promotional ActivitiesBesides capital needs, underdeveloped countries suffered from lack of expertise, managerial and technical know-how. Developmental banks could take up the job of and joint sectors and provide managerial and resources and skills and of channeling them into approved fields under private auspices are needed in these countries.

4. Help Small and Medium Sectors

The large scale was, to some extent, able to meet its needs. There was a need to mitigate sufferings of small and medium size industries which form a sizeable sector of the industrial economy.

7. CLASSIFICATION OF DEVELOPMENT BANK IN

INDIA

INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI)

The Industrial Development Bank of India (IDBI) was established on 1 July 1964 under an Act of Parliament as a wholly owned subsidiary of the Reserve Bank of India.

INDUSTRIAL INVESTMENT BANK OF INDIA LTD.

The Industrial Investment Bank of India is one of oldest banks in India. The Industrial Reconstruction Corporation of India Ltd., set up in 1971 for rehabilitation of sick industrial companies, was reconstituted as Industrial Reconstruction Bank of India in 1985 under the IRBI Act, 1984.

ACQUISITION OF UNITED WESTERN BANK

In 2006, IDBI Bank acquired United Western Bank in a rescue Annasaheb Chirmule , who worked for the cause of Swadeshi movement, founded Satara Swadeshi Commercial Bank in 1907, and some three decades later founded United Western Bank.

INDUSTRIAL FINANCE CORPORATION OF INDIA

This was set up in the 1948 to provide term lending finance to the medium and large scale industries by providing them long term loans. The cooperative organizations, joint and public sector units are also eligible for getting assistance from IFCI.

INDUSTRIAL CREDIT INVESTMENT CORPORATION INDIA

It was established in 1955 to provide finance to the large private enterprises and industries. It basically issues money by underwriting of the new securities and subscribing to the stocks and debentures of the company.

NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT (NABARD)

NABARD is a central institution for financing agricultural and rural sectors. It was set up by the central Government and RBI in July, 1982. Its paid up capital was Rs.100crores subscribed by the Government and RBI equally.

SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)

SIDBI was set up in October 1989 for the purpose of providing financial and non-financial assistance to small scale industries in the country. It is a wholly owned subsidiary of the IDBI.

DISCOUNT AND FINANCE HOUSE OF INDIA (DFHI)

The Discount and Finance House of India, was set up by the RBI in 1988.It was a joint stock company owned jointly by the RBI, public sector banks and all India financial institution. The authorised capital of DFHI was Rs.250 crores. The paid up capital of Rs.150crores was contributed by RBI, commercial banks and financial institutions.

EXIM BANK

Exim bank means export import bank India. It was set up in January, 1982 as a statutory corporation. It is wholly owned by the central government. Its paid up capital was Rs.220.5 crores.

NATIONAL HOUSING BANK (NHB)

National Housing Bank was set up in July 1988 as an apex level housing finance institution in India. It is wholly owned subsidy of the RBI. IT began operations with a capital of Rs. 170 crores.

STOCK HOLDING COOPERATION OF INDIA LIMITED (SHCIL)

SHCIL was promoted by Public financial institutions and insurance majors like IDB, UTI, ICICI, LIC, GIC, and its subsidies, IFCI, and IIBI. SHCIL was INCORPORATED AS A public limited company on 28TH July,1986.

STATE FINANCIAL CORPORATION’S (SFCS)

State Financial Corporation has been set under State Financial Act, 1951. They play an effective role in the development small and medium enterprise and in bringing about regionally balanced economic growth. There are about 18 SFCs in the country.

INDUSTRIAL RECONSTRUCTION BANK OF INDIA

The share capital had been provided by IDBI, IFCI, UTI and LIC. It was established to look after the sick and unstable industries and take steps to revitalize them by providing the capital reorganization. It had been mainly functional in the west Bengal and had been suffering from the high rates of default and capital shortages.