Development banks

-

Development banks

are specialized financial institutions designed to provide medium and long-term financing primarily to industrial and agricultural sectors. They play a crucial role in economic development by supporting projects that may not receive adequate funding from commercial banks due to their longer gestation periods or higher risk profiles. Here's a detailed explanation of the types of development banks in India:

1. Industrial Development Banks

Examples:

  • Industrial Finance Corporation of India (IFCI): Established in 1948, IFCI was the first development finance institution in India. It focuses on providing financial assistance to medium and large-scale industries.
  • Industrial Development Bank of India (IDBI): Established in 1964, IDBI serves as the principal financial institution for industrial projects. It offers a range of financial products and services to support industrial growth.
  • Small Industries Development Bank of India (SIDBI): Founded in 1990, SIDBI focuses on promoting, financing, and developing small-scale industries (SSIs) in India. It provides financial assistance through various schemes tailored to the needs of SSIs.

2. Agricultural Development Banks

Example:

  • National Bank for Agriculture and Rural Development (NABARD): Established in 1982, NABARD is dedicated to promoting rural development by providing credit and other facilities for the development of agriculture, cottage industries, small-scale industries, handicrafts, and other rural crafts.

3. Export-Import Development Banks

Example:

  • Export-Import Bank of India (EXIM Bank): Established in 1982, EXIM Bank facilitates India’s international trade by providing financial assistance, including export credits, export market research, and export promotion activities.

4. Housing Development Banks

Example:

  • National Housing Bank (NHB): Established in 1988, NHB operates as the principal agency to promote housing finance institutions and provide financial and other support to institutions engaged in housing finance.

Functions and Roles

  • Term Lending: Development banks provide medium to long-term loans to industries and sectors that require substantial capital investment, such as infrastructure projects, manufacturing units, and agriculture.
  • Investment in Securities: They invest in securities issued by industries, government bodies, and other financial institutions to earn returns and support liquidity management.
  • Promotion of Saving and Investment: Development banks encourage saving habits among the public and mobilize funds for investment in productive sectors.
  • Sector-Specific Support: Each type of development bank focuses on its designated sector, ensuring tailored financial products and support that meet the unique needs of industries, agriculture, exports, or housing.

Significance

Development banks in India have historically played a pivotal role in financing critical sectors that are crucial for economic growth and development. They bridge the gap between commercial banks, which may be reluctant to provide long-term financing, and sectors that require substantial investment over extended periods. By supporting industrialization, agricultural growth, export competitiveness, and housing development, these banks contribute significantly to economic progress and employment generation.

Overall, development banks in India form a vital component of the financial system, fostering inclusive growth and addressing developmental challenges across various sectors of the economy.