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.
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:
Industrial Finance Corporation of India (IFCI), 1948
Industrial Credit and Investment Corporation of India (ICICI), 1955
Industrial Development of Bank of India (IDBI), 1964
State Finance Corporation (SFC), 1951
Small Industries Development Bank of India (SIDBI), 1990
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.