development banks

2. 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

3. 1. INTRODUCTION
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.

4. 2. MEANING
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.

5. 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.

6. 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."

8. 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.

9.  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.

10.  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.

11.  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.

12.  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.

13.  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.

14.  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.

15.  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.

16.  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.

17. 6. Major objectives of Development Banks
1. Lay Foundations for Industrialization
A 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 Needs
There 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.

18. 3. Need for Promotional Activities
Besides 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.

19. 7. CLASSIFICATION OF
DEVELOPMENT BANK IN INDIA

20. 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.

21. 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.

22. 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.

23. 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.

24. 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.

25. 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.

26. 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.

27. 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.

28. 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.

29. 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.

30. 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.

31. 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.