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Development banks are specialized industrial financial institution. Ø These banks are mostly set up after World War II in both developed and both underdeveloped countries. Ø Developed banks do not mobilize savings like other banks but invest the resources in a productive manner. Ø These banks make significant contribution to industrial development.
Development Banks are the institutions engaged in the promotions and development of industrial,agricultural and other key sectors. Ø A development bank is a financial institution which takes up the job of developing industrial enterprises from its beginning to completion. DEFINITION In general sense, “Development banks are those financial institutions whose prime goal (motive) is to finance the primary (basic) needs of the society. Such funding results in the growth and development of social and economic sectors of the nation. However, needs of the society vary from region to region due to differences seen in its communal structure, economy and other aspects.” D.M. Mithani states that, “ 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 unit.” As per banking subject ( mainly in Indian context), “Development banks are financial institutions established to lend (loan) finance (money) on subsidized interest rate. Such lending is sanctioned to promote and develop important sectors like agriculture, industry, import-export and allied activities.”
It is a specialzed financial institution which provide medium term and long- term lending facilities. Ø It is a multipurpose financial institution as,it undertakes promotional activities also. Ø Development bank provides financial assistance to both public and private institution. Ø The role of a development bank is that of gap filler. Ø Development bank accelerates the rate of growth by helping in industrialization in specific and economic development in general. Ø The objectives of development banks is to serve the public interest rather than earning profits. Ø Development banks react to socio-economic needs of development. Ø Development bank is essentially a multi-purpose financial institution with a broad development outlook . THE CONCEPT OF A DEVELOPMENT BANK
In the field of industrial finance, the concept of development bank is of recent origin. In a country like India, the emergence of development banking is a post independence phenomenon. In the western countries however, development banking had a long period of evolution. The origin of development banking may be traced to the establishment of ‘Society General Pour Favoriser I’ lndustrie Nationale’ in Belgium in 1822. But the notable institution was the ‘Credit Mobiliser’ of France, established in 1852, which acted as industrial financier. In 1920, Japan established the Industrial Bank of Japan to cater to the financial needs of her industrial development. In the post-war era, the Industrial Development Bank of Canada (1944), the Finance Corporation for Industry Ltd. (FCI) and the Industrial and Commercial Finance Corporation Ltd. (ICFC) of England (1945), etc., were established as modern development banks to provide term loans to industry. In 1966, the U.K. Government set up the Industrial Reorganisation Corporation (IRC). In India, the first development bank called the Industrial Finance Corporation of India was established in 1948. Development bank constitutes an important institutional machinery intended to help in accelerating the pace of economy development of a country. They have been established in both developed and underdeveloped countries of the world. Especially in underdeveloped countries they have become very popular as an effective instrument of quick economic development. It istherefore of great interest to study the theory and practice of development banking. Need for development banks Ø Lay foundations for industrialization. Ø Help small and medium sectors. Ø Need for promotional activities. Meet capital needs.
Development Banks in India Development banks in India are classified into following four groups: 1. Industrial Development Banks : It includes,Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (IDBI), and Small Industries Development Bank of India (SIDBI). 2. Agricultural Development Banks : It includes, for example, National Bank for Agriculture & Rural Development (NABARD). 3. Export-Import Development Banks : It includes, for example, Export-Import Bank of India (EXIM Bank). 4. Housing Development Banks : It includes, for example, National Housing Bank (NHB).
6. To help to cure sick industrial units : Development banks help to revive cure sick-units. Government of India started Industrial investment Bank of India (IIBI) to help sick units. IIBI is the main credit and reconstruction institution for revival of sick units. It facilitates modernization, restructuring and diversification of sick-units by providing credit and other services.
For example, NABARD bank is set up as an apex development bank for extending support to the rural areas. It helps the government in matters relating to the rural development, offers training and research facilities for banks working in the field of rural development, and acts as a regulator for co-operative banks and RRB’s.
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