Development banks are specialized financial institutions. They provide medium and long-term finance to the industrial and agricultural sector. They do term lending, investment in securities and other activities. They even promote saving and investment habit in the public.
The Narasingham committees aid to perform only the promotional and refinancing role. Specialized development financial institutions (DFIs) such as the IDBI, NABARD, NHB and SIDBI, etc., with majority ownership of the Reserve Bank, were set up to meet the long-term financing requirements of industry and agriculture.
The objective of development banks in the growth of the economy are:
- Increasing capital formation that can contribute towards the growth of economic development.
- Ensure that the investors and entrepreneurs are induced by careful allocation of material and human resources.
- Development activities are undertaken.
- Ensuring that industrial units are promoted in order to fill the gaps in the industry structure. Healthy projects should have enough financial and technical services in order to make the projects work.
- For their financial and social development, the increment advances and investments to its creating partner nations.
- They provide specialized assistance for the arranging and the usage of improvement tasks and programs and for financial advisory services.
- For development, they promote and encourage public and private capital.
- They respond to demands for help with planning development approaches and plans of its expanding nations.
ROLE OF DEVELOPMENT BANKS
1. Providing Funds
The persons who have the capability of starting a business but does not have requisite help approach to financial institutions for help. These institutions help a large number of persons for taking up some industrial activity.
2. Promotional activities
The promotional role of development banks is helpful in increasing the development of a country. They create a new class of entrepreneurs and help the weaker sections of society to be a part of industrial culture. With a view for a long term benefit to social development, banks have new capital schemes which provide financial assistance to the novice entrepreneurs. They help in covering the expense and manpower resources for undertaking the exercise of starting a new unit.
3. Assistance of Backward Units
The development bank encourages rustic and provincial development. They give money to beginning organizations in reverse zones. Likewise, they help organizations which are in the venture in less-developed regions.
4. Employment Generation
Financial institutions have helped both direct and indirect employment generation. They have employed many people in their offices. These institutions help in creating employment by financing new and existing industrial units.
5. Accelerating Industrialization
The setting up of more industrial units will generate direct and indirect employment, make available goods and services in the country and help in increasing the standard of living. Financial institutions provide requisite financial, managerial, technical help for setting up new units.
6. Development of Housing Sector
Development banks provide funding for the development of the housing sector. It refinances banks and financial institutions which provide credit to the housing sector. It promotes and develops housing and financial institutions.
7. Agriculture and Rural Development
It organizes the working of all monetary establishments that give credit to farming and rural development. Development banks like the National Bank for Agriculture and Rural Development (NABARD) which give credit to the agriculture and furthermore for country advancement exercises.
8. Improve Foreign Trade
It gives Overseas Buyers Credit to purchase Indian capital merchandise. Likewise, urges abroad banks to give account to the purchasers in their nation to purchase capital products from India.
9. Revival of Sick Units
Development banks help to resuscitate (fix) wiped out units. It encourages modernization, rebuilding, and broadening of wiped out units by giving credit and different administrations. The public authority of India (GOI) began the Industrial Investment Bank of India (IIBI) to help wipe out units. IIBI is the principal credit and recreation foundation for a restoration of wiped out units.
10. Contribution to Capital Markets
The development bank helps in the growth of capital markets. They invest in equity shares and debentures and mutual funds of several companies listed in India.
Some of the Development Banks in India
Industrial Finance Corporation of India (IFCI): this is for providing medium and long-term credit for the needs of industrial units.
Industrial Credit and Investment Corporation of India (ICICI): it promotes private industry concerns in the country and was set up as a private sector development bank.
Industrial Development Bank of India (IDBI): the IDBI’s it organizes the activities of other development banks and term-financing institutions
Industrial Reconstruction Bank of India (IRBI)’: it provides financial assistance as well as to revive and revitalize sick industrial units in both of the sectors.
Small Industries Development Bank of India (SIDBI): With a view to ensuring a larger flow of financial and non-financial assistance to the small-scale sector.
State-Level Industrial Development Banks:(SFCs and SIDCs): there is a combination of financing agencies and industrial development banks, focusing on backward regions for the development of medium and small-scale industries in respective states.