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What are Development Banks?
Development banks are those which have been set up mainly to provide infrastructure facilities for the industrial growth of the country. They provide financial assistance for both public and private sector industries.
Objectives of Development Banks
The main objectives of the development banks are
1. to promote industrial growth,
2. to develop backward areas,
3. to create more employment opportunities,
4. to generate more exports and encourage import substitution,
5. to encourage modernisation and improvement in technology,
6. to promote more self employment projects,
7. to revive sick units,
8. to improve the management of large industries by providing training,
9. to remove regional disparities or regional imbalance,
10. to promote science and technology in new areas by providing risk capital,
11. to improve capital market in the country.
Question for Objectives - Development Banks, Indian Financial SystemTry yourself: What is the main objective of development banks?View Solution
Development Banks in India
Working capital requirements are provided by commercial banks, indigenous bankers, co-operative banks, money lenders, etc. The money market provides short-term funds which mean working capital requirements.
The long term requirements of business concerns are provided by industrial banks, and the various long term lending institutions which are created by government. In India these long term lending institutions are collectively referred as development banks. They are:
- Industrial Finance Corporation of India (IFCI), 1948
- Industrial Credit and Investment Corporation of India (ICICI), 1955
- Industrial Development of Bank of India (IDBI), 1964
- State Finance Corporation (SFC), 1951
- Small Industries Development Bank of India (SIDBI), 1990
- Export Import Bank (EXIM)
- Small Industries Development Corporation (SIDCO)
- National Bank for Agriculture and Rural Development (NABARD).
In addition to these institutions, there are also institutions such as Life Insurance Corporation of India, General Insurance Corporation of India, National Housing Bank, Unit Trust of India, etc., which are providing investment funds.
Question for Objectives - Development Banks, Indian Financial SystemTry yourself: Which institution was established in 1955 to provide long-term financial assistance for industrial growth in India?View Solution
Differences between Commercial banks and Development banks
The following are some of the differences between commercial banks and development banks.
| COMMERCIAL BANKS | DEVELOPMENT BANKS |
|---|---|
| Provide short term loans. | Provide long term loans. |
| Accept deposits from the public. | Accept deposits from commercial banks, Central and State governments. |
| Direct finance to customers. | Provide refinancing tacilities to commercial banks. |
| Plays an important role in the money market. | Play an important role in hire purchase, lease finance, housing loan. |
| Public sector banks have their share capital contributed by the government while private sector banks have share capital contributed by the public. | Central and Statement governments contribute capital. |
| Promote savings among the public and help commercial activities. | They promote economic growth of the country. |
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| 1. What is the role of development banks in the Indian financial system? |  |
Ans. Development banks play a crucial role in the Indian financial system by providing long-term financial assistance to various sectors such as agriculture, industry, infrastructure, and small-scale enterprises. They offer specialized services like project financing, term loans, and refinancing to promote economic development and growth.
| 2. How do development banks differ from commercial banks in India? | |
Ans. Development banks differ from commercial banks in India in terms of their primary objectives and target sectors. While commercial banks focus on providing general banking services to the public, development banks primarily aim at promoting economic development by financing specific sectors and projects that may not be financially viable for commercial banks.
| 3. What are the main functions of development banks in India? | |
Ans. The main functions of development banks in India include providing long-term loans and financial assistance for the establishment and expansion of industries, offering specialized financial products like project finance and venture capital, promoting entrepreneurship and innovation, and supporting infrastructure development in the country.
| 4. How do development banks contribute to inclusive growth in India? | |
Ans. Development banks contribute to inclusive growth in India by focusing on sectors that are crucial for the overall development of the country, such as agriculture, small-scale industries, and rural infrastructure. They provide financial support to marginalized sectors and regions, helping to reduce income inequalities and promote balanced economic growth.
| 5. Can individuals or small businesses approach development banks for loans in India? | |
Ans. Yes, individuals and small businesses can approach development banks for loans in India. Development banks often have specific schemes and programs to support small-scale enterprises and provide financial assistance to individuals for various purposes like education, housing, and entrepreneurship. However, the eligibility criteria and loan terms may vary based on the specific policies and guidelines of each development bank.
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