Development Banks
Development Banks in India – Development banks are banks that offer long-term financing for capital-intensive projects with protracted repayment periods, such as irrigation systems, mining and heavy industry, and urban infrastructure.
What are Development Banks?
Development banks are financial institutions that help countries grow by offering long-term money and support for important areas like agriculture, industry, and infrastructure. They focus on projects that contribute to economic development and lasting improvements in people’s lives.
These banks usually offer loans with low, consistent interest rates in an effort to promote long-term investments that have substantial positive social impacts. Development banks are also known as term lending institutions and development finance institutions (DFIs).
Functions of Development Bank in India
The following are a development bank’s main attributes:
- This kind of institution deals with money.
- It offers medium- and long-term financing to business divisions.
- It doesn’t take deposits from the general public like commercial banks do.
- It is more than just a lender for quick cash. It is a financial organization that serves many purposes.
- Fundamentally, it is a bank for development. Its main objective is to encourage investment and entrepreneurship in developing economies in order to advance economic growth. It encourages startup and small enterprises and works to foster balanced regional growth.
- In addition to private sector businesses, it also supports public sector businesses with funding.
- It tries to instill the practice of saving and communal investment.
- It doesn’t compete with conventional financial channels, such as the financing already provided by banks and other conventional financial institutions. Its main role is that of a gap-filler, bridging the gaps in the current financial facilities.
- Instead of being driven by financial gain, it serves the greater good. It benefits the nation as a whole.
Objective of the Development Bank in India
The following are the main objectives of development banks:
- To promote industrial growth,
- To create regressive zones,
- To increase the quantity of available jobs,
- To increase exports and promote import replacement
- To encourage modernization and technical advancement,
- To promote more efforts for self-employment,
- To revive ailing units,
- to enhance training for large industry managers,
- Removing regional inequalities or inequities
- Through providing risk financing, to promote the development of research and technology in new fields,
- To strengthen the nation’s capital market
Types of Development Banks in India
Here is list of development banks in India
- Industrial Finance Corporation of India (IFCI)
- State Finance Corporations (SFCs)
- Industrial Development Bank of India (IDBI)
- Industrial Credit and Investment Corporation of India (ICICI)
- Unit Trust of India (UTI)
- Industrial Reconstruction Bank of India (IRBI)/ Industrial Investment Bank of India (IIBI)
- Export-Import (EXIM) Bank of India and a Few Others.
- Small Industries Development Bank of India (SIDBI)
- National Housing Bank (NHB)
- Life Insurance Corporation (LIC) of India
1. Industrial Finance Corporation of India (IFCI)
The Government of India established the Industrial Finance Corporation, its first industrial development bank, in July 1948. It was created with the intention of offering qualifying industrial units in the nation medium- and long-term loans.
It offers financial support to large and medium-sized businesses in the public and commercial sectors, as well as to cooperatives.
The IFCI, a development bank, also engages in a variety of marketing initiatives, some independently and others in collaboration with other All-India financial institutions.
2. State Finance Corporations (SFCs)
Small and medium-sized businesses are not covered by the Industrial Finance Corporation, which only gives financial support to major public limited corporations and cooperative societies.
The State Finance Corporations Act, which gives state governments the authority to create such Corporations in their states, was passed by the Indian government in 1951 in order to address the diverse financial needs of small and medium-sized businesses.
In Punjab, the first State Finance Corporation was founded in 1953. There are now 18 SFCs active in the nation.
3. Industrial Development Bank of India (IDBI)
The Industrial Development Bank of India (IDBI) is the leading financial organization in the country’s development banking sector. It was founded in July 1964 with the dual goals of (a) addressing the country’s expanding financial demands and (b) coordinating the operations and fostering the expansion of all institutions engaged in financing industries.
It is a sufficiently substantial financial resource organization that supports large and medium-large industrial units directly while also indirectly assisting small and medium-sized enterprises by providing refinancing and rediscounting facilities to other industrial financing organizations.
Therefore, the IDBI’s main goals have been to fill the gap between the country’s demand and supply for term financing as well as to integrate the structure of industrial financing institutions. The IDBI was first established as a fully owned subsidiary of the Reserve Bank of India, but in 1976, the Government of India took control and transformed it into an independent organization.
4. Industrial Credit and Investment Corporation of India (ICICI)
In 1955, a private limited business called the Industrial Credit and Investment Corporation of India was founded. It was established as a private sector development bank to aid and support the nation’s private industrial companies.
5. Unit Trust of India (UTI)
In 1964, the Unit Trust of India was founded as a public sector investment organization. The basic goal of the UTI is to mobilize small- and medium-sized business owners’ savings and direct them toward profitable investments.
As a result, it both helps the economy’s industrial development and diversification while also giving small savers the chance to share in the rewards of that development by investing their money in productive and less hazardous ventures.
6. Industrial Reconstruction Bank of India (IRBI)/ Industrial Investment Bank of India (IIBI)
Growing industrial disease has become a significant issue for some of the nation’s key industries, including textiles, engineering, mining, etc. Due to a variety of factors, including a lack of consumer demand, a shortage of raw materials, labor issues, financial difficulties, managerial inefficiencies, etc., a number of industrial units have been sick in recent years. Industrial unit closures are a major setback for the economy since they diminish output and increase unemployment.
7. Export-Import (EXIM) Bank of India and a Few Others.
The main financial institution in India for coordinating the operations of institutions involved in financing export and import commerce is the Export-Import (EXIM) Bank of India. It is a statutory corporation that belongs entirely to the Indian government.
It was founded on January 1st, 1982 with the intention of facilitating, financing, and promoting Indian exports.
Capital. The EXIM Bank has a Rs. 200 crore authorized capital and a Rs. 100 crore paid up capital, both fully subscribed by the Central Government.
8. Small Industries Development Bank of India (SIDBI):
Under the Small Industries Development of India Act of 1989, the Industrial Development Bank of India (IDBI) formed the Small Industries Development Bank of India (SIDBI) as a totally owned subsidiary.
It serves as the main organization for the development, funding, and promotion of small-scale industries.
Additionally, it organizes the operations of organizations that carry out comparable tasks. Small Industries Development Fund and National Equity Fund administration has been transferred from IDBI to SIDBI for this reason.
9. National Housing Bank (NHB):
On July 9, 1988, the National Housing Bank (NHB) was established in accordance with the national housing strategy, which aimed to construct a workable and accessible institutional framework for delivering housing finance.
An elite institution for home finance is NHB. The RBI fully subscribed for its inaugural share capital of Rs. 100 crore. The paid-up capital of NHB was Rs. 350 crore as of June 30, 1999.
Extending financial support to various qualifying entities in the housing sector via (a) refinance or (b) direct financing is one of National Housing Bank’s (NHB) main activities.
a) Refinance
The NHB offers refinance assistance to the various qualifying main lending institutions, including cooperative sector institutions, scheduled banks, and housing finance companies (HFCs). These institutions are given assistance with refinancing their housing loans that they made to people as well as public and private organizations for the development of land and housing developments.
Up till the end of March 2000, NHB has given the principal lending institutions a total of 4961.48 crore in refinance assistance.
(b) Direct financing
In relation to Land Development and Shelter Projects (LDSPs), Slum Redevelopment Projects (SRPs), and Housing Infrastructure Projects, NHB offers direct financing for integrated land development and shelter projects of governmental agencies (HIPs).
As of the end of March 2000, 61.86 crore rupees have been disbursed through the direct finance window.
In accordance with the Voluntary Deposit (Immunities and Exemptions) Act of 1991, NHB has established a special fund to finance slum rebuilding initiatives. The Government of India has developed a program for NRI investment in housing and real estate within the broader liberalized framework in response to the housing demands of non-resident Indians.
The program aims to encourage NRI investment in numerous projects involving housing and real estate development.
These activities include the creation of serviced plots, the erection of residential and commercial buildings, the development of townships, the creation of urban infrastructure, the production of building materials, and involvement in housing finance firms.
A nodal cell has been established in NHB as part of this plan for coordination of decisions on policy and procedures pertaining to the scheme.
The NHB has subscribed to the Special Rural Housing Debentures (SRHDs) of state level cooperative Land Development Banks (LDBs) to the tune of Rs. 180.91 crore up until the end of April 1996 in its efforts to increase the flow of funds, particularly in rural areas, and its easy accessibility to the needy rural population.
NHB has established a Direct Financing Scheme for Home for Women in recognition of the importance of providing housing finance to women, particularly those belonging to the vulnerable sectors. In accordance with this plan, NHB would directly fund local and public projects that help women who fall under the low-income group (LIG) and economically weaker sections (EWS) categories.
10. Life Insurance Corporation (LIC) of India:
Life Insurance Corporation of India: The Life Insurance Corporation of India (LIC) was founded in 1956 to promote life insurance throughout the nation and to mobilize savings for purposes of nation-building.
9. General Insurance Corporation (GIC) of India:
General Insurance firms sell insurance against specific risks, such as loss from fire and accident, to property of various kinds, including cars, goods, machines, buildings, etc., as well as against risk of personal accidents and illness. These companies’ policies don’t provide a saving feature.
A general insurance customer merely purchases a service, not a financial asset. Because of this, general insurance businesses cannot be thought of as true financial intermediaries. They do, however, amass substantial sums of money via premiums and investment income and manage asset portfolios similarly to other financial institutions.
In November 1972, the government of India nationalized the general insurance sector and established the General Insurance Corporation (GIC) of India.
The 107 foreign and Indian companies that were operating in the nation before it was nationalized were reorganized into four subsidiaries of GIC with effect from January 1, 1973, and they are now known as (a) National Insurance Company Limited, (b) New India Insurance Company Limited, (c) Oriental Insurance Company Limited, and (d) United India Insurance Company Limited.
These four GIC subsidiaries all do various kinds of general insurance business across the nation in direct competition with one another.
Following nationalization, the GIC and its affiliates have made significant strides. They have also developed into significant funding sources for both the public and corporate sectors. According to the law, they must put at least 35% of their invertible money into assets that are sanctioned by the government and other parties, with a minimum of 25% going into central government securities.
The net premium income and net profits for the general insurance sector in 1998–1999 were Rs. 7732 crore and Rs. 1077 crore, respectively. From Rs. 30.8 crore in 1980–81 to Rs. 2983 crore in 2001–02, GIC sanctioned more loans. Similar to how loan amounts climbed, from Rs. 44.0 crore in 1980–81 to Rs. 2809 crore in 2001–02, so did loan disbursements.
The general insurance network had 4166 offices as of March 31, 1999, up from 799 offices in 1973. In addition to the domestic market, the industry currently operates in 14 countries through subsidiaries and partner firms, and 17 nations directly through branches or agents.
India International Insurance Private Limited, a wholly owned subsidiary of GIC founded in Singapore in 1988, has developed into a market leader in that country.
Development Banks in India – Frequently Asked Question
Ans. Development banks are companies that offer long-term financing for capital-intensive projects with protracted repayment periods, such as irrigation systems, mining and heavy industry, and urban infrastructure.
2. These banks usually offer loans with low, consistent interest rates in an effort to promote long-term investments that have substantial positive social impacts.
3. Development banks are also known as term lending institutions and development finance institutions (DFIs).
Ans. Development banks do not take public deposits, in contrast to commercial banks. They are therefore not entirely dependent on saving mobilization. Development banks are specialized financial organizations that make medium- and long-term loans.
Ans. Development banks provide funding for the housing sector’s expansion. It restructures the debt of the banks and other organizations that lend to the housing market. It promotes the expansion of residential and financial establishments.
Ans. The first DFI in India is IFCI. 1948 saw the establishment of the Industrial Corporation of India. Later, the organization was renamed Industrial Financial Corporation of India. It was governed by the Ministry of Finance, which is part of the Indian government.
Ans. There are 18 development banks in India
Ans. These specialist financial entities are called development banks. They give the industrial and agricultural sectors medium- and long-term financing. They engage in term lending, securities investing, and other operations. They even encourage people to develop good investing and saving habits.
Ans. The development banks SIDBI, NABARD, and IFCI are a few examples.
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