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Development Financial Institutions (DFIs) emerged in India to address gaps in the post-independence financial system. Which of the following were these gaps?
(l) Commercial banks' reluctance to provide long-term finance
(ll) Widespread misuse of funds and speculation in capital markets
(lll) Limited availability of issue houses for securities issuance
(lV) Excessive reliance on foreign investment
  • a)
    l, ll and lll
  • b)
    ll,.lll and lV
  • c)
    l, lll and lV
  • d)
    l,ll, lll and lV
Correct answer is option 'D'. Can you explain this answer?
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Verified Answer
Development Financial Institutions (DFIs) emerged in India to address ...
The following solutions can be implemented to address the gaps that Development Financial Institutions (DFIs) in India aimed to address:
(i) Commercial banks' hesitation to offer long-term finance: DFIs can be established to provide long-term finance to businesses and projects that commercial banks are hesitant to finance. DFIs can provide loans with longer tenures, lower interest rates, and flexible repayment terms. This will encourage businesses to invest in long-term projects and help them avoid the short-term financing constraints of commercial banks.
(ii) Rampant misuse of funds and speculation in capital markets: DFIs can play a crucial role in regulating and monitoring the capital markets. DFIs can invest in securities that are backed by real assets and provide a stable return on investment. This will discourage speculation and reduce the risk of capital market crashes.
(iii) Insufficient availability of issue houses for securities issuance: DFIs can establish issue houses to facilitate securities issuance. Issue houses can provide underwriting services, market-making, and other services related to securities issuance. This will increase the availability of securities for investors and provide a platform for businesses to raise capital.
(iv) Overdependence on foreign investment: DFIs can provide an alternative source of funding for businesses and projects that are overdependent on foreign investment. DFIs can provide funding at lower interest rates and longer tenures, reducing the reliance on foreign investment. This will also help to reduce the risk of foreign exchange fluctuations and provide stability to the economy.
In conclusion, DFIs can play a crucial role in addressing the gaps in the Indian financial system. By providing long-term finance, regulating the capital markets, facilitating securities issuance, and reducing overdependence on foreign investment, DFIs can contribute significantly to the growth and development of the Indian economy.
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Development Financial Institutions (DFIs) emerged in India to address ...
Understanding the Gaps Addressed by DFIs in India
Development Financial Institutions (DFIs) were established in India to fill significant gaps in the financial landscape post-independence. Let's explore the specific gaps that DFIs aimed to address:
1. Commercial Banks Reluctance to Provide Long-Term Finance
- Long-Term Financing Needs: Indian industries required substantial long-term capital for development.
- Bank Hesitation: Commercial banks primarily focused on short-term lending, leaving a void for long-term financial solutions.
2. Widespread Misuse of Funds and Speculation in Capital Markets
- Risk of Speculation: Capital markets faced rampant speculation, diverting funds from productive uses.
- Need for Regulation: DFIs aimed to ensure that funds were used for genuine developmental projects rather than speculative ventures.
3. Limited Availability of Issue Houses for Securities Issuance
- Lack of Infrastructure: The absence of adequate issue houses hindered companies from raising capital through equity.
- DFIs as Facilitators: DFIs played a crucial role in creating an infrastructure that supported securities issuance, thus channeling resources effectively.
4. Excessive Reliance on Foreign Investment
- Sustainability Concerns: Over-dependence on foreign investment posed risks to economic stability.
- Domestic Financing Solutions: DFIs aimed to mobilize domestic resources for financing development, reducing reliance on foreign capital.
Conclusion
In summary, all four gaps—commercial banks' reluctance, misuse of funds, limited issue houses, and excessive reliance on foreign investment—highlighted the need for DFIs in India. Their establishment was pivotal in creating a more robust and sustainable financial ecosystem conducive to long-term development.
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Development Financial Institutions (DFIs) emerged in India to address gaps in the post-independence financial system. Which of the following were these gaps?(l) Commercial banks reluctance to provide long-term finance(ll) Widespread misuse of funds and speculation in capital markets(lll) Limited availability of issue houses for securities issuance(lV) Excessive reliance on foreign investmenta)l, ll and lllb)ll,.lll and lVc)l, lll and lVd)l,ll, lll and lVCorrect answer is option 'D'. Can you explain this answer?
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Development Financial Institutions (DFIs) emerged in India to address gaps in the post-independence financial system. Which of the following were these gaps?(l) Commercial banks reluctance to provide long-term finance(ll) Widespread misuse of funds and speculation in capital markets(lll) Limited availability of issue houses for securities issuance(lV) Excessive reliance on foreign investmenta)l, ll and lllb)ll,.lll and lVc)l, lll and lVd)l,ll, lll and lVCorrect answer is option 'D'. Can you explain this answer? for Bank Exams 2025 is part of Bank Exams preparation. The Question and answers have been prepared according to the Bank Exams exam syllabus. Information about Development Financial Institutions (DFIs) emerged in India to address gaps in the post-independence financial system. Which of the following were these gaps?(l) Commercial banks reluctance to provide long-term finance(ll) Widespread misuse of funds and speculation in capital markets(lll) Limited availability of issue houses for securities issuance(lV) Excessive reliance on foreign investmenta)l, ll and lllb)ll,.lll and lVc)l, lll and lVd)l,ll, lll and lVCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for Bank Exams 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Development Financial Institutions (DFIs) emerged in India to address gaps in the post-independence financial system. Which of the following were these gaps?(l) Commercial banks reluctance to provide long-term finance(ll) Widespread misuse of funds and speculation in capital markets(lll) Limited availability of issue houses for securities issuance(lV) Excessive reliance on foreign investmenta)l, ll and lllb)ll,.lll and lVc)l, lll and lVd)l,ll, lll and lVCorrect answer is option 'D'. Can you explain this answer?.
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