Development banks are those financial institutions which provide term finance, promote entrepreneurship, enhance organizational effectiveness and upgrade know-how and do-how. In this article, we discuss the developments banks of India and their part in shaping the Indian economy.
The notable financial development of the post-independence India has been a huge growth of development banks in our country. These banks, which are specialized financial institutions, give the loan or financial help to private business and also promote economic development. During the US, War Finance (1918) and Reconstruction Finance Corporation (1932), funded railroads, airlines and exports in addition to the war effort. Development banks have played a significant role in the fast growth of Japan post-war. Now development banks formed the main piece of growth strategy in Indian economy also.
Development Banks are Different from Commercial banks.
- The banks do not take any public money like commercial banks.
- They provide medium and long-term loan unlike commercial banks who also provide a short-term loan.
- These banks, also give the loan to the seller, vendor and traders. These are the main list of differences between normal commercial banks and the development finance institutions.
A bank is a place that will lend you money if you can prove that you don’t need it”
Following are the main features of the development banks.
- They provide a medium and long-term loan to the business.
- They act as a multi-purpose financial Institutions.
- Their main work is to promote economic development.
- They provide financial help to private and public sector undertakings.
- They actually teach savings and investment habits to the people.
- The banks work in general interest of the nation.
- They work in favor of public interest rather than making profits.
The commercial banks could not promote or help industrialization because of some limitations so development banks were given this work of promoting the industries and entrepreneurs.
Development banks play a vital role in the economic growth of the country. They help the business people to invest in real fixed assets. It also helps to establish business people in backward regions of the country. Tiny, small, and new entrepreneurs are greatly benefited because of development bank’s productivity of investment by professionalism in management and consultancy. They also teach skill formation to the small business community. They get together with other financial term lending institutions, who finance, promote and develop industries. Know more about preparation tips for SBI exams
The following are Types of development banks in India.
- Industrial Finance Corporation of India- (IFCI) This bank works on all India level. It was established in 1948. It is a non-banking public sector bank. This manages seven numbers of subsidiaries and one associate under its fold. The financial activities of this bank are various projects like airports, roads, telecom, power, real estate, manufacturing, the services sector, and other industries.
- Industrial Development Bank of India- (IDBI) This banking center was established in 1964. It is owned by the Indian government. It gives credit and other financial help for the development of industries.
- Industrial Reconstruction Bank of India- (IRBI) This bank was established in 1985. It not only provides financial help but also helps to revive the sick industries in both private and public sectors. It also helps the managerial and technical help to sick industries.
- National Small Industries Corporation- (NSIC)– NSIC bank was established in 1955. Its headquarters is in Delhi. It provides a wide range of services. Its main work is to supply machines and types of equipment to small-scale industries for commercial purposes.
- Industrial Investment Bank of India- (IIBI)– This banking center was established in 1971. It is a 100% government-owned bank. Its work is to encourage and promote the participation of private capital, in India and foreign.
- National Bank for Agriculture and Rural Development- (NABARD)- This bank was established in 1982. It provides loan for agriculture purposes.
- Small Industries Development Bank of India- (SIDBI) This bank was established in 1990. Its head-quarter is in Lucknow. It is a subsidiary of IDBI. It helps micro, small and medium business people. This took over the responsibility of taking care of small-scale industries, which were under IDBI.
- Export-Import Bank of India- (EXIM)- It is a main export finance institution in India. This bank was established in 1981. It takes care of the promotion of trade from abroad. It is a semi-government agency. These are the main structures the development banks are divided.
In spite of its Importance in the country’s economy, Development bank does have some drawbacks.
- In spite of its importance in the country’s economy, the development bank does have some drawbacks.
Development banks borrow money from the government. The Reserve Bank of India and other banks.
- They do not take money from the public.
- They do not sell their shares, bonds or debentures in the market.
- As they borrow at low rates of interest, they have led the industries to the high- level intensity.
- As these banks give a loan to the industrial units, they face defaulters in large number. It is difficult for them to get back the money.
- They have failed to develop a corporate bond market because they do not encourage lending on the basis of loan or debenture of industrial units.
- They have not been able to achieve success to balance regional development of India.
- There is an unwanted element in the form of bad influence by some politician. This makes delay in sanctioning and disbursing of loans.
There are many services provided by development banks. The staff has to be equipped with the latest technology and expertise in their field. Development bank plays a very important role in the economic progress of our country. Since Independence, they have contributed greatly to the industrialization and all other technological innovations. Their main aim is to give every kind of help like financial, advisory, technology etc. Development banks in India have achieved a remarkable success in creating a new class of business people and spreading the industrial culture to newer areas and weaker section of the society. Their programmes include upliftment of rural areas, encouraging villager’s cottage industries, artisans and other weaker sections of the society.