Mc 304 financial institutions and markets

2. Contents
 Introduction.
 Meaning of Development Bank.
 Definition of Development Bank.
 Features of Development Bank.
 Lending procedure of Development
Banks.
 Conclusion.

3. INTRODUCTION

4. Meaning of Development Bank

5. “ A Development Bank may be defined as
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 promotional
activities , economic development in general
and industrial development in particular.”
D. M. Mithani

6. Features of
development bank
 A development bank does not accept deposits from
the public like commercial banks and other financial
institutions who entirely depends upon saving
mobilization.
 It is a specialized financial institution which
provides medium term and long term lending
facilities.
 It provides financial assistance to both private as
well as public sector institutions.
 The role of development bank is of gap filler. When
assistance from other resources is not sufficient
then this channel helps.

7. Project appraisal and eligibility of
applicant
Technical appraisal
Economic viability
Assessing commercial aspects
Financial feasibility
Managerial competence
National contribution
Balancing of various factors
Loan sanction
Loan disbursement
Follow up
Lending procedure of development banks

8. 1. Project Appraisal and
Eligibility of Applicant
 Every financial institution serves a particular
area of activity or there are certain limits
prescribed beyond which they cannot go.
Before processing the application, it is
important to find out whether the applicant
is eligible under the norms of the institution
or not.
 The second aspect which is looked into is to
determine whether the enterprise has
fulfilled various conditions prescribed by the
government. In case some license is required
from the government. It should have been

9. 2.
Technical
Appraisal
Location of the project in
relation to the availability of
raw materials, power, water,
labour, communication
facilities and market for
finished products.
The scale of operations
and its suitability for
the planned project.
The technical
soundness of
the projects.
Sources of purchasing
plant and machinery and
the reputation of
suppliers. etc.
The estimated cost
of the project and
probable selling
price of the
product.
The programmer
for completing
the project.

10. 4. Assessing commercial aspect
The examination of commercial aspects relates to the arrangements for the
purchase of raw materials and sale of finished products. If the concern has
some arrangement for sale then the position of the party should be assessed.
3. Economic viability
The economic appraisal will consider the national and industrial priorities of
the project export potential of the product employment potential, study of
market.

11. The needs for
fixed assets,
working capital
and preliminary
expenses will be
estimated to
find out its
needs.
The financing
plans will be
studied in
relation to
capital
structure,
promoters’
contribution,
debt-equity
ratio.
Projected
profitability
and the like
dividend in
near future.

12. 6. Managerial
Competence
• The success of a concern depends up on the competence of
management. Proper application of various policies will
determine the Success of an enterprise. A lending institution
would see the background, qualifications, business experience
of promoters and other persons associated with management.
The persons forming board of directors should have adequate
technical, financial and business experiences.
7. National
Contribution
• Besides commercial profitability, national contribution .of the
project is also taken into account. The role of the project in the
national economy and its benefits to the society in the form of
good quality products, reasonable prices, employment
generation, helpful in social infrastructure etc. should be
assessed. Development banks aim at the over all welfare of the
society.

13. 8. Balancing of Various Factors :-Various factors should be balanced against
each other. Some factors may be strong as their in-depth analysis should be avoided.
In case a project is profitable, there will be no need to assess cash flow. Weaknesses
located in certain areas may be off set by the good points in the other. An experienced
management and sound economic outlook may compensate some weakness in
financial positions.
9. Loan Sanction:-After the appraisal report on the project is prepared by
the bank’s officers, it is placed before the advisory committee consisting
of experts drawn from various fields of the particular industry. If the
advisory committee is satisfied by proposal then it recommends the case
to the Managing Director or board of Directors along with its own report.
A loan agreement is also got signed by the promoters or directors of the
enterprise.

14. The loan is disbursed after the execution of loan
agreement. The execution of documents of
security or guarantee etc. should precede the
disbursement of loan. In case some property is
pledged to the bank then title deeds of such
property are properly scrutinized. The fulfillment
of various conditions proceeding to disbursement
will determine the time of paying the money to
the party.
The
job of a lending bank does not end by
disbursing the assistance. It has first to see
whether the construction of the project is as
per schedule decided earlier. In case some
delay is taking place in executing the plans
then the reasons for it should be determined.
Later during operations, the result should be
properly followed. It should be seen whether
the revenue earned by the concern will be
sufficient to meet its obligations or not.

15. Conclusion
In conclusion ,we can say that development
bank plays a very important role in economic
development of our country. Development
banks follow a procedure for evaluating a
proposal for a project. The basic objective is
to see whether the applicant fulfils various
conditions prescribed by the lending institution
and the project is viable.