SAMRITI GOEL

MBA LECTURER
FM 305
 INTRODUCTION
 Development banks are the institutions engaged in the promotion and
development of industry, agriculture and other key sectors.
 National or regional financial institution designed to provide medium- and
long-term capital for productive investment. Such investment is usually
accompanied by technical assistance.
 Some development banks are government-owned, while others are private.
Many have been established under the auspices of the World Bank.
 Among the largest are the Inter-American Development Bank, the Asian
Development Bank, and the African Development Bank.

MANAGEMENT OF FINANCIAL INSTITUTIONS

SAMRITI GOEL 2
 DEFINITION
D.M. Mithani:

“A development bank may be defined as a

financial institution concerned with providing all types of
financial assistance (medium as well as long-term) to
business units in the form of loans, underwriting,
investment and guarantee operations and development in
general and industrial area”.

MANAGEMENT OF FINANCIAL INSTITUTIONS

SAMRITI GOEL 3
 FEATURES
 A development bank does not accept deposits from the public
like commercial banks and other financial institutions who
entirely depend upon saving mobilization.
 It is a specialized financial institution which provides medium
term and long-term lending facilities.
 It is a multipurpose financial institution. Besides providing
financial help it undertakes promotional activities also. It
helps an enterprises from planning to operational level.
 It provides financial assistance to both private as well as
public sector institutions.

MANAGEMENT OF FINANCIAL INSTITUTIONS

SAMRITI GOEL 4
 CONTD…
 The role of a development bank is of gap filler, when assistance from other
sources is not sufficient then this channel helps. It does not compete with
normal channels of finance.
 Development banks primarily aim to accelerate the rate of growth. It helps
industrialization specific and economic development in general.
 The objective of these banks is to serve public interest rather than earning
profits.
 Development banks react to the socio-economic needs of development.

MANAGEMENT OF FINANCIAL INSTITUTIONS

SAMRITI GOEL 5
 OBJECTIVES

 Lay Foundations for Industrialization

 Meet Capital Needs

 Need for Promotional Activities

 Help Small and Medium Sectors'

MANAGEMENT OF FINANCIAL INSTITUTIONS

SAMRITI GOEL 6
 FUNCTIONS

 Financial Gap Fillers

 Undertake Entrepreneurial Role
 Joint Finance
 Refinance Facility
 Credit Guarantee
 Underwriting of Securities

MANAGEMENT OF FINANCIAL INSTITUTIONS

SAMRITI GOEL 7
DEVELOPMENT BANKING IN INDIA
 The “recommendation for setting up industrial financing institutions was made in
1931 by Central Banking Enquiry Committee but no concrete steps were taken.
 In 1949, Reserve Bank had undertaken a detailed study to find out the need for
specialized institutions.
 It was in 1949 that the first development bank i.e. Industrial Finance Corporation
of India (IFCI) was established.
 In 1951, Parliament passed State Financial Corporation Act. Under this Act state
governments could establish financial corporations for their respective regions.
 The IFCI and state financial corporations served only a limited purpose. There was
a need for dynamic institutions which could operate as true development agencies.

MANAGEMENT OF FINANCIAL INSTITUTIONS

SAMRITI GOEL 8
 CONTD….
 The Industrial Credit and Investment Corporation of India (ICICI) were established in 1955 as

a Joint Stock Company. Though ICICI was established in private sector but its pattern of
shareholding and methods of raising funds gives it the characteristic of a public sector financial
institution.
 Another institution ,Refinance Corporation for Industry Ltd. (RCI) was set up in 1958 by

Reserve’ Bank of India, LIC and Commercial Banks.

 In 1964, Industrial Development Bank of India (IDBI) was set up as an apex institution in the

area of industrial finance, RCI was merged with IDBI. IDBI was a wholly owned subsidiary of
RBI and was expected to co-ordinate the activities of the institutions engaged in financing,
promoting or developing industry.
 The State Industrial Development Corporations (SIDC's) were established in the sixties to

promote medium scale industrial units.

MANAGEMENT OF FINANCIAL INSTITUTIONS

SAMRITI GOEL 9
 CONTD…
 The State Small Industries Development Corporations (SSIDC's) were also

set up to cater to the needs of industry at state level.

 The Unit Trust of India (UTI) established in 1964, Life Insurance

Corporation of India (1956) and General Insurance Corporation of India

(GIC) set up in 1973 also finance industrial activities at all India level.
 In 1982 the Export-Import Bank of India (Exim Bank) was established to
provide financial assistance to exporters and importers.
 In order to meet credit needs of agriculture and rural sector, National' Bank

for Agriculture and Rural Development (NABARD) was set up in 1982.

MANAGEMENT OF FINANCIAL INSTITUTIONS

SAMRITI GOEL 10
Role of development banks in financial system
 Providing Funds

 Infrastructural Facilities

 Promotional Activities

 Development of Backward Areas

 Planned Development

 Accelerating Industrialization

 Employment Generation
MANAGEMENT OF FINANCIAL INSTITUTIONS
SAMRITI GOEL 11
ALL INDIA DEVELPOMENTS BANKS
In India, various financial institutions were set up after independence only. The
Government of India has taken steps to set up institutions which assist various
sectors of the economy. At present the country has 12 institutions at the national
level and 46 at the state level. The All India Financial Institutions comprise All-
India Development Banks, namely:
 Industrial Development Bank of India,

 Industrial Finance Corporation of India Ltd.,

 Industrial Credit and Investment Corporation of India Ltd.,

 Small Industries Development Bank of India,

 Industrial Reconstruction And Development Bank of India,

 NABARD

MANAGEMENT OF FINANCIAL INSTITUTIONS

SAMRITI GOEL 12
There are three investment institutions:
 Life Insurance Corporation of India Ltd.,

 Unit Trust of India and

 General Insurance Corporation of India.

At state level there are 18 State Finance Corporations

and 28 state industry development corporations.

MANAGEMENT OF FINANCIAL INSTITUTIONS

SAMRITI GOEL 13