Development Banks | Meaning | Objectives | Commercial vs Development Banks

What are Development Banks?

Development banks are those which have been set up mainly to provide infrastructure facilities for the industrial growth of the country. They provide financial assistance for both public and private sector industries.

Development Banks - Meaning, Objectives, Commercial Banks vs Development Banks
Development Banks – Meaning, Objectives, Commercial Banks vs Development Banks

Objectives of Development Banks

The main objectives of the development banks are

1. to promote industrial growth,

2. to develop backward areas,

3. to create more employment opportunities,

4. to generate more exports and encourage import substitution,

5. to encourage modernisation and improvement in technology,

6. to promote more self employment projects,

7. to revive sick units,

8. to improve the management of large industries by providing training,

9. to remove regional disparities or regional imbalance,

10. to promote science and technology in new areas by providing risk capital,

11. to improve capital market in the country.

Development Banks in India

Working capital requirements are provided by commercial banks, indigenous bankers, co-operative banks, money lenders, etc. The money market provides short-term funds which mean working capital requirements.

The long term requirements of business concerns are provided by industrial banks, and the various long term lending institutions which are created by government. In India these long term lending institutions are collectively referred as development banks. They are:

  1. Industrial Finance Corporation of India (IFCI), 1948
  2. Industrial Credit and Investment Corporation of India (ICICI), 1955
  3. Industrial Development of Bank of India (IDBI), 1964
  4. State Finance Corporation (SFC), 1951
  5. Small Industries Development Bank of India (SIDBI), 1990
  6. Export Import Bank (EXIM)
  7. Small Industries Development Corporation (SIDCO)
  8. National Bank for Agriculture and Rural Development (NABARD).

In addition to these institutions, there are also institutions such as Life Insurance Corporation of India, General Insurance Corporation of India, National Housing Bank, Unit Trust of India, etc., which are providing investment funds.

Differences between Commercial banks and Development banks

The following are some of the differences between commercial banks and development banks.

Provide short term loans. Provide long term loans.
Accept deposits from the public. Accept deposits from commercial banks, Central and State governments.
Direct finance to customers. Provide refinancing tacilities to commercial banks.
Plays an important role in the money market.Play an important role in hire purchase, lease finance, housing loan.
Public sector banks have their share capital contributed by the government while private sector banks have share capital contributed by the public. Central and Statement governments contribute capital.
Promote savings among the public and help commercial activities. They promote economic growth of the country.
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