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Definition of Development Banks

The definition of the term 'development banks' can be stated as follows, 1. In General sense, "Development banks are those financial institutions whose prime goal (motive is to finance the primar! (basic needs of the societ!. "uch funding results in the growth and development of social and economic sectors of the nation. #owever, needs of the societ! var! from region to region due to differences seen in its communal structure, econom! and other aspects." $. %s per Banking sub&ect (mainl! in Indian conte't , "Development banks are financial institutions established to lend (loan finance (mone! on subsidi(ed interest rate. "uch lending is sanctioned to promote and develop important sectors like agriculture, industr!, import)e'port, housing and allied activities."

Development Banks in India


Development banking was started after the *orld *ar II. It provided finance to reconstruct the buildings and industries which were destro!ed in the war. In India, development banking was started immediatel! after independence. The arrangement of development banks in India is depicted below. Development banks in India are classified into following four groups+ 1. Industrial Development Banks + It includes, for e'ample, Industrial ,inance -orporation of India (I,-I , Industrial Development .ank of India (ID.I , and "mall Industries Development .ank of India ("ID.I . $. Agricultural Development Banks + It includes, for e'ample, /ational .ank for %griculture 0 1ural Development (/%.%1D . 2. Export-Import Development Banks + It includes, for e'ample, 3'port)Import .ank of India (34I5 .ank . 6. Housing Development Banks + It includes, for e'ample, /ational #ousing .ank (/#. . Industrial ,inance -orporation of India (I,-I is the first development bank in India. It started in 1768 to provide finance to medium and large)scale industries in India.

Top 5 Major Objectives of Development Banks in India


The major o jectives of development anks in India are as follo!s" Development .anks are those financial institutions that provide funds and financial assistance to new and upcoming business enterprises. Development bank helps in %ccording to *illian Diamond, "development bank is a financial institution to promote and finance enterprises in private sector." Development banks like ID.I, "ID.I, and I,-I etc. were set up to meet long term and short term capital re9uirements of the industr!. Development banks coordinate the activities of those institutions, engaged in financing, promoting and developing industries. The! help in accelerating industrial and economic growth. The follo!ing are the o jectives of development anks"
1. Rapid Industrial growth:

Industrial sector is the d!namic sector of the Indian econom!. This sector contributes to the generation of emplo!ment and income in the countr!. ,unds are provided b! the development banks to start a new business venture, e'pansion and diversification of the business in new sector etc. These funds are utilised to achieve several ob&ectives that leads to accelerate industries and economic growth. Development banking supports the programmes of industrialisation of the countr!, b! promoting entrepreneurial activities.

2. Encouraging entrepreneurs:

Industrialisation helps in curbing economic and social problems thereb! making economies progress. 3merging entrepreneurs are encouraged to give shape to their ideas. Development bank helps those entrepreneurs b! providing funds for commencing new business. :overnment has recognised the importance of entrepreneurs in the industrial development and thus providing number of facilities and incentives to motivate them for undertaking industrial pro&ects.
3. Balanced regional development:

There has been alwa!s an issue related to regional disparities. Development bank helps in curbing these regional disparities b! providing funds to the entrepreneurs at low rate of interest if the organisation is planned in the backward areas. This would lead to the development of all areas thereb! making balanced regional development.
4. Filling gaps:

It is not possible for the commercial banks to fulfill all financial needs of all the customers. %bsence of organised capital market, absence of ade9uate facilities for financing industries arise the problem of slow development of industrialisation. "uch development banks can fulfill the credit gap. The! provide long) term funds for industries where gestation period ma! be longer.
5. elps government:

:overnment formulates financial policies with the help of development banks. The! also help in implementing these policies. ,or e'ample, /%.%1D bank is set up as an ape' development bank for e'tending support to the rural areas. It helps the government in matters relating to the rural development, offers training and research facilities for banks working in the field of rural development, and acts as a regulator for co)operative banks and 11.'s.

#unctions of Development Banks


The role or functions of development banks in India are depicted below. The nine important functions of development banks in India are as follows+ 1. $. 2. 6. <. =. >. 8. 7. To promote and develop small)scale industries (""I in India. To finance the development of the housing sector in India. To facilitate the development of large)scale industries (;"I in India. To help the development of agricultural sector and rural India. To enhance the foreign trade of India. To help to review (cure sick industrial units. To encourage the development of Indian entrepreneurs. To promote economic activities in backward regions of the countr!. To contribute in the growth of capital markets.

/ow let's discuss each important function of development banks one b! one.

$% &mall &cale Industries '&&I(


Development banks pla! an important role in the promotion and development of the small)scale sector. :overnment of India (:?I started "mall industries Development .ank of India ("ID.I to provide medium and long)term loans to "mall "cale Industries (""I units. "ID.I provides direct pro&ect finance, and e9uipment finance to ""I units. It also refinances banks and financial institutions that provide seed capital, e9uipment finance, etc., to ""I units.

)% Development of Housing &ector


Development banks provide finance for the development of the housing sector. :?I started the /ational #ousing .ank (/#. in 1788. /#. promotes the housing sector in the following wa!s+ 1. It promotes and develops housing and financial institutions. $. It refinances banks and financial institutions that provide credit to the housing sector.

*% +arge &cale Industries '+&I(


Development banks promote and develop large)scale industries (;"I . Development financial institutions like ID.I, I,-I, etc., provide medium and long)term finance to the corporate sector. The! provide merchant banking services, such as preparing pro&ect reports, doing feasibilit! studies, advising on location of a pro&ect, and so on.

,% Agriculture and -ural Development


Development banks like /ational .ank for %griculture 0 1ural Development (/%.%1D helps in the development of agriculture. /%.%1D started in 178$ 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. It also provides training to agricultural banks and helps to conduct agricultural research.

.% Enhance #oreign Trade


Development banks help to promote foreign trade. :overnment of India started 3'port)Import .ank of India (34I5 .ank in 178$ to provide medium and long)term loans to e'porters and importers from India. It provides ?verseas .u!ers -redit to bu! Indian capital goods. It also encourages abroad banks to provide finance to the bu!ers in their countr! to bu! capital goods from India.

/% -evie! of &ick 0nits

Development banks help to revive (cure sick)units. :overnment of India (:?I started Industrial investment .ank of India (II.I to help sick units. II.I is the main credit and reconstruction institution for revival of sick units. It facilitates moderni(ation, restructuring and diversification of sick)units b! providing credit and other services.

1% Entrepreneurship Development
5an! development banks facilitate entrepreneurship development. /%.%1D, "tate Industrial Development .anks and "tate ,inance -orporations provide training to entrepreneurs in developing leadership and business management skills. The! conduct seminars and workshops for the benefit of entrepreneurs.

2% -egional Development
Development banks facilitate rural and regional development. The! provide finance for starting companies in backward areas. The! also help the companies in pro&ect management in such less) developed areas.

3% 4ontri ution to 4apital 5arkets


Development banks contribute the growth of capital markets. The! invest in e9uit! shares and debentures of various companies listed in India. The! also invest in mutual funds and facilitate the growth of capital markets in India