Development Banks

Development banks, or development finance institutions (DFIs), are

specialized financial institutions that provide financial resources,
technical support, and policy guidance to promote economic
development, reduce poverty, and address development challenges in
countries or regions. They focus on funding projects in sectors like
infrastructure, energy, agriculture, and SMEs, and prioritize projects
with positive social, economic, and environmental impacts.
Development banks also facilitate knowledge sharing, capacity building,
and collaboration with governments, private sector entities, and other
stakeholders to foster sustainable and inclusive development.
The development banks are responsible to provide medium and long-
term finances to the industrial as well as agricultural sectors. As well,
they finance both private and public sectors.
Features
• Unlike commercial banks, the development banks do not accept
deposits from the public. Hence, they do not entirely depend upon
saving mobilization.
• Development banks are specialized institutions that provide medium
and long-term credit lending facilities.
• Their main objective is to serve the public interest instead of earning
profits.
• They provide financial assistance to both public as well as private
sector institutions.
functions of development banks
• Infrastructure Development: Development banks often focus on financing
infrastructure projects such as roads, bridges, ports, airports, and utilities. These
projects are essential for the overall economic development of a nation.
• Industrial and Entrepreneurial Support: They provide financial assistance to
industries, especially those in the early stages of development or those facing
difficulties accessing capital from commercial banks. This support can include
loans, equity investments, and technical assistance.
• Agricultural Development: Many development banks have a specific mandate to
support the agricultural sector. They offer loans, grants, and technical expertise to
farmers, agricultural cooperatives, and agribusinesses to increase agricultural
productivity and food security.
• Export Promotion: Development banks often play a role in facilitating
international trade by providing financial products and services to exporters,
including export credit guarantees, working capital financing, and market
research.
• Small and Medium-sized Enterprises (SMEs): They support the growth and
development of SMEs, which are essential for job creation and economic
diversification. Development banks offer SMEs access to capital, technical
assistance, and training programs.
• Environmental and Sustainable Development: Many development banks
have started to focus on environmentally sustainable projects and
initiatives. They fund projects that promote clean energy, conservation,
and sustainable resource management.
• Regional Development: They may contribute to reducing regional
disparities by investing in less developed regions, which can help in
achieving balanced economic growth across the country.
• Financial Inclusion: Some development banks work towards expanding
financial services to underserved and marginalized populations, aiming to
improve financial inclusion and reduce poverty.
Objectives
• Promotion of industrial growth
• Creation of employment opportunities
• Promotion of self-employment projects
• Reviving sick units
• Improving the capital market in the country
• To generate more exports and promote import substitution
• To promote science and technology in new areas by extending risk capital
• Improving the management of large industries by providing them adequate
training
• Encouraging modernization and improvement in the technology sector
Various Types of Development Banks in India

• SIDBI (Small Industries Development Bank of India): SIDBI is dedicated to

promoting and financing small and medium-sized enterprises (SMEs) in India. It
provides loans, credit guarantees, and equity support to SMEs across different
sectors.
• EXIM (Export-Import Bank of India): EXIM Bank supports India's international
trade by providing export credit, export guarantees, and financial assistance to
Indian exporters and importers. It also supports overseas investment and project
financing.
• NABARD (National Bank for Agriculture & Rural Development): NABARD is
responsible for promoting rural and agricultural development. It provides credit
and financial support to farmers, agricultural cooperatives, and rural
development projects.
• NHB (National Housing Bank): NHB is focused on promoting the housing sector
in India. It regulates and provides financial support to housing finance institutions
and banks involved in housing finance.
• IFCI (Industrial Finance Corporation of India): Founded in 1948 as India's
first development finance institution, IFCI transformed into a government-
owned non-banking financial company (NBFC), providing financial services,
including term loans and project finance, with a focus on sectors like
MSMEs and infrastructure development.
• IDBI (Industrial Development Bank of India): IDBI is one of the oldest and
most prominent development banks in India. It provides financial and
technical assistance to various industries, with a focus on large and
medium-sized enterprises. Over time, it has transformed into a full-fledged
commercial bank known as IDBI Bank Limited.
• ICICI(Industrial Credit and Investment Corporation of India): Originally
established in 1955 for industrial development, ICICI transitioned into ICICI
Bank, a leading private sector bank in India, offering a wide range of
financial services, both domestically and internationally.