DEVELOPMENTAL BANKS

PRESENTED BY:-
KAJAL VERMA (17B080006)
TUSHAR KUMAR(17B080012)
DEVELOPMENTAL BANKS: INTRODUCTION

• Development banks are specialized financial institutions. They provide medium and
long-term finance to both private and public sector in order to promote and develop
important economic sectors.
• These institutions supply capital, knowledge and enterprises, the three major ingredients
of development for business enterprises.
• They are more inclined towards serving public interests rather then earning profits
• They are multipurpose financial institutions
NEED FOR DEVELOPMENT BANKS

• Imbalances after World War 2 and great depression

• To mobilize savings into productive investments
• To channelize government resources in the private sector in a socially desirable
manner.
• Funding for projects(high uncertainty) for future development
HISTORY

• A regulator for Banks in India i.e RBI was set up in 1934.

Development financial institutions such as the IDBI, NABARD, NHB and
SIDBI, etc., with majority ownership of the Reserve Bank were set up at
various point of time.
• International Bank for Reconstruction and Development (IBRD) set up in
1945, and the International Development Association (IDA) set up in 1960,
as a worldwide institution for development and reconstruction
 OBJECTIVES OF DEVELOPMENTAL BANKS
• 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.
• 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.
• 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.
• 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.
 FUNCTIONS OF DEVELOPMENTAL BANKS

• Large Scale Industries (LSI) Development banks promote and develop large-scale industries (LSI). They
provide merchant banking services, such as preparing project reports, doing feasibility studies, advising on
location of a project, and so on.
• 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 (SSI) units.
• 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
 FUNCTIONS OF DEVELOPMENTAL BANKS
• 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.
• 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.
• . Contribution to Capital Markets: Development banks contribute the growth of capital
markets. They invest in equity shares and debentures of various companies in India
FUNCTIONS OF DEVELOPMENTAL BANKS

• 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.
• 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.
ROLE OF DEVELOPMENTAL BANKS IN FINANACIAL SYSTEM

Providing Funds

Employment Infrastructure
Generation Facilities

Accelerating
industrialization Development of
backward areas
 DIFFERENCES BETWEEN COMMERCIAL
BANKS AND DEVELOPMENT BANKS
• Commercial banks provide short term and medium term-loans while development banks
provide medium and long term loans
• Commercial banks raise funds through public deposits, which are payable on demand.
Development banks on the other hand source funds by selling of securities, borrowing, and
grants.
• Commercial banks neglect skills and innovation efficient for long term investment
• Commercial banks are more inclined towards profit through interest earned by lending at a
high-interest rate while Development banks aim at achieving social profit, through effecting
developmental projects.
ROLE IN DEVELOPED COUNTRIES

• During the Eurozone debt crisis, the private lending fell, the European Investment

Bank (EIB) has played a prominent role in the provision of lending.

• Germany’s public development bank, KfW, has played a positive role in increasing

lending during the crisis like funding on significant scale key sectors, such as

investment in renewables.
..RESULTS

• France has just created a new public development bank.

• Ireland has created a large special public vehicle for funding

SMEs
MULTILATERAL DEVELOPMENT BANKS

• Asia Infrastructure Investment Bank (AIIB) : where 69

countries, including all the major European
countries have joined as members, founded in
2016
• The New Development Bank of the BRICS (BRICS: Brazil,
Russia, India, China and South Africa) founded in
2014
ROAD AHEAD

• Proper framework

• Skills and innovation

• Sustainable development
 DEVELOPMENATL
BANKS IN INDIA

INDUSTRIAL AGRICULTURAL EXPORT-IMPORT HOUSING

DEVELOPMENT DEVELOPMENT DEVELOPMENT DEVELOPMENT
BANKS BANKS BANKS BANKS

SIDBI NABARD EXIM NHB

IFCI

IDBI
SIDBI

Small Industries Development Bank of India

• headquartered at Lucknow
• operates under the Department of Financial Services, GOI
• Formed 28 years ago on 2 April, 1990
• State Bank of India is the largest individual shareholder of SIDBI with holding of 16.73%
shares, followed by Government of India and Life Insurance Corporation of India
• Agency Executive-Mohammad Mustafa
NEED OF SIDBI

• The best way of improving rural economy is by creating more employment through
dispersal of various industrial activities so that there will be development of backward
areas and at the same time improvement in the standard of living of the people. The
above object could be achieved easily by the promotion of small scale industry as it
contributes nearly 40% of the manufacturing sector in the country.
• In India, small scale industry’s contribution during 1998-99 was INR 5,38,357 crores as
against INR. 4,65,171 crores in 1997-98. The growth of SSI was 8.43 per cent. It has high
employment potentiality . Hence, it is important to create an apex institution which can
provide finance to small scale industries.
OBJECTIVES OF SIDBI

• To promote marketing of products of small scale sector.

• To upgrade technology and also undertaking modernization of small scale units.
• To provide more financial assistance to small scale ancillary and tiny sector.
• To encourage employment oriented industries.
• To coordinate all the other institutions involved in the promotion of small scale
industries.
 Bill Discounting is
a discount/fee which a bank
takes from a seller to release
FUNCTIONS OF SIDBI funds before the credit period
ends.

• Refinancing loans and advances provided by commercial banks to small scale industrial units.
• Discounting the bills of SSIs
• SIDBI offers assistance to exports :
1. Direct assistance to export oriented units and also to import substituting units in the small
scale sector is given the highest priority.
2. Products of SSI exporters are displayed in international exhibitions with the help of SIDBI
• Leasing, HP Finance, Setting up of Venture Capital Fund to promote entrepreneurs
• Single window scheme: Under this Scheme it provides finance to commercial banks which in
turn will give all kinds of assistance to small scale industries.
NON-FINANCIAL INTERVENTION OF SIDBI

• SIDBI took several measures in MSME sector as part of non-financial intervention.

Recently in association with credit rating agency CRISIL and Credit Information
Company TransUnion CIBIL it has introduced
1. CriSidEx
2. MSME Pulse
• Other being ‘Udyami Mitra’Portal
SENTIMENT INDEX

• A graphical or numerical indicator designed to show how a group feels about the
market.
• Show how bullish or bearish a group of people are.
• Some look at consumer behaviour and beliefs, others look at investor behaviour and
beliefs.
• Sentiment indicators are used to analyse trends, assets, and the economy from a
perspective of the participants involved, instead of just looking the asset, trend or
economy itself.
• Sentiment indicators can be used by investors to see how optimistic or pessimistic
people are about current market or economic conditions.
CRISIDEX

• India’s first sentiment index for micro and small enterprises (MSEs) has been developed jointly
by CRISIL & SIDBI.
• A composite index based on a diffusion index of 8 parameters
• measures MSE business sentiment on a scale of 0 (extremely negative ) to 200 ( extremely
positive)
• its readings will flag potential headwinds and changes in production cycles and thus help
improve market efficiencies.
• by capturing the sentiment of exporters and importers , it will also offer actionable indicators
on foreign trade.
MSME PULSE

• Launched in association with TransUnion CIBIL

• . a quarterly report on MSME credit activity, for closely tracking and monitoring the
MSME segment in the country.
• The report is based on a study done on over five million active MSMEs who have access
to formal credit, with live credit facilities in the Indian banking system.
NEED FOR MSME PULSE

1. MSME IS CRITICAL FOR INDIAN ECONOMY

• It is vibrant, dynamic sector with promising high growth potential for Indian Economy.

• provides large employment opportunities

• contributes significantly to the Gross Domestic Product (GDP) and exports of India.

• We have close to 51 million MSME units in country which employs around 117 million people across various
sectors, constituting 40% of the workforce.

• Another numerical support for it being of paramount importance to nation is its share of 37% in GDP and 47%
in exports based on data of Ministry Of commerce
NEED FOR MSME PULSE

2. DEPENDABLE TRACKING ON MSME ACTIVITY

With high significance of MSME sector to Indian Economy, it is essential to closely track and monitor the health of
MSME portfolio regularly and frequently is vital for tracking the efficacy of policy ,banking, and business decisions while at
the same time ensuring timely intervention for controlling potential losses and crises. Credit Flow and Portfolio
Delinquency levels are widely considered among the most effective, timely, and accurate indicators for economic health.

3. COMPREHENSIVE STUDY ON OVER 5 MILLION ENTITIES

The report is based on study done over 5-million active MSMEs that have access to formal credit, with live credit facilities
in the Indian Banking System. Qualitative and quantative MSME lending is improved across various segments. The insights
gained are crucial strategic and tactical inputs to policy makers and institutional lenders to support them in their MSME
credit risk management while driving sustainable access to finance for the MSME sector
UDYAMI MITRA PORTAL

• launched to improve accessibility of credit and handholding services to MSMEs.

• They can select and apply for preferred banks through this portal.
• Under the portal entrepreneurs can apply for loan without physically visiting any bank
branches and can select from over 1 lakh bank branches, track their application status
and avail multiple loan benefits.
• It also has facility for uploading all necessary documents.
• Through the portal the MSMEs can also seek handholding support for getting finance.
 MICROFINANCE

• Microfinance is a category of financial services targeted at individuals and

small businesses who lack access to conventional banking and related
services. Microfinance includes microcredit (Explain), microinsurance
(explain) and payment systems.
• Microfinance services are designed to be more affordable to poor and
socially marginalized customers and to help them become self-sufficient
• Aims at poverty alleviation
• Reducing Feminization of poverty (Explain) in developing countries
IFCI

• IFCI was 1st specialized financial institution setup in India to provide term finance to large
industries in India.
• Established on July 1948 under the Industrial Finance Corporation Act of 1948.
• In 1993 it was reconstitutes as a company to impart higher degree of operational
flexibility
• To provide medium and long term financial assistance to large scale undertakings in India,
particularly when ordinary bank accommodation does not suit the undertaking or finance
cannot be suitably raised by the concerned by issue of shares
FUNCTIONS OF IFCI

• For setting up a new industrial undertaking

• For expansion and diversification of existing industrial undertaking
• For renovation and modernization of existing concerns
• For meeting the working capital requirements of industrial concerns in exceptional cases
EXIM (EXPORT-IMPORT BANK OF INDIA)

• established in 1982 under Export-Import Bank of India Act 1981.

• has been both a catalyst and a key player in the promotion of cross border trade and
investment.
• Founded on 1 January 1982, 36 years ago
• Headquatered in Mumbai
OBJECTIVE OF EXIM BANK

• providing financial assistance to exporters and importers,

• functioning as the principal financial institution for coordinating the working of institutions
engaged in financing export and import of goods and services with a view to promoting the
country's international trade.
• act on business principles with due regard to public interest.
• Exim Bank's Vision has evolved from a product-centric approach with Export Credits and
Export Capability Creation, to a more customer-centric approach by offering a
comprehensive range of products and services to empower businesses at all stages of a
company's business cycle.
 NABARD

• National Bank for Agriculture and Rural Development

• headquartered at Mumbai with regional offices all over India.
• established on the recommendations of B.Sivaraman Committee, (by Act 61, 1981 of Parliament) on 12 July
1982
• Bank has been entrusted with matters concerning policy, planning and operations in the field of credit
for agriculture and other economic activities in rural areas in India.
• NABARD is active in developing financial inclusion policy.
• The initial corpus of NABARD was Rs.100 crores. Consequent to the revision in the composition of share
capital between Government of India and RBI, the paid up capital as on 31 May 2017, stood at Rs.6,700 crore
with Government of India holding Rs.6,700 crore (100% share). The authorized share capital is Rs.30,000
crore.
MISSION OF NABARD

• Promote sustainable and equitable agriculture and rural development through

participative financial and non-financial interventions, innovations, technology and
institutional development for securing prosperity.
 ROLE OF NABARD
• looks after the development of the cottage industry, small scale industry and village industry, and other rural
industries.
• Serves as an apex financing agency for the institutions providing investment and production credit for promoting
the various developmental activities in rural areas
• refinances the financial institutions which finances the rural sector.
• It regulates the institutions which provide financial help to the rural economy.
• BANK REGULATION-NABARD supervises State Cooperative Banks , District Cooperative Central
Banks (DCCBs), and Regional Rural Banks (RRBs) and conducts statutory inspections of these banks
• REFINANCING-NABARD's refinance fund from World Bank and Asian Development Bank to state co-operative
agriculture and rural development banks , state co-operative banks , regional rural banks, commercial banks and
other financial institutions approved by RBI. While the ultimate beneficiaries of investment credit can be
individuals, partnership concerns, companies, State-owned corporations or co-operative societies, production
credit is generally given to individuals.
 NATIONAL HOUSING BANK

• a wholly owned subsidiary of Reserve Bank of India (RBI)

• set up on 9 July 1988 under the National Housing Bank Act, 1987.
• Headquarters at New Delhi
• Objective:- to promote housing finance institutions both at local and regional levels and to provide
financial and other support incidental to such institutions and for matters connected therewith.
• The Sub-Group on Housing Finance for the Seventh Five Year Plan (1985–90) identified the non-availability
of long-term finance to individual households on any significant scale as a major lacuna impeding progress
of the housing sector and recommended the setting up of a national level institution.
 OBJECTIVES OF NHB

• To promote a sound, healthy, viable and cost effective housing finance system to cater to all segments of the
population
• To promote a network of dedicated housing finance institutions to adequately serve various regions and different
income groups.
• To augment resources for the sector and channelize them for housing.
• To make housing credit more affordable.
• To regulate the activities of housing finance companies based on regulatory and supervisory authority derived under
the Act.
• To encourage augmentation of supply of buildable land and also building materials for housing and to upgrade the
housing stock in the country.
• To encourage public agencies to emerge as facilitators and suppliers of serviced land, for housing.
CONCLUSION

• Although the development bank is a useful instrument of economic development, it is only one of many;
it cannot by itself overcome the host of problems that developing countries encounter on the road to
industrialization. Moreover, certain conditions are a prerequisite to the success of any development bank.
Before a bank is created the needs it is to meet should be identified, to facilitate formation of an
appropriate organization and financial design. Finally, realization of a development bank’s potential
requires government policies—fiscal, monetary, commercial—that support and facilitate the bank’s
activities and that, in particular, create a climate compatible to private enterprise.
• Furthermore, in countries where such development banks do not exist at present, and very much
including low-income countries, it seems desirable to set them up. Collaboration by existing
development banks, whether multilateral, regional or national, can be very valuable, so that good
experiences can be transferred, as well as errors not repeated.
THANKS FOR PAYING ATTENTION!
PRESENTED BY- Tushar Kumar
Kajal Vema

GUIDED BY- Prof. PUJA PADHI

SUBJECT:- Money & Banking