Roles of Development Banks of India

The Development Banks of India is the country’s apex regulatory organisation for licensing and regulating micro, small, and medium-sized enterprise finance companies. It is governed by the Ministry of Finance of the Government of India. Its mission is to offer refinance facilities to banks and financial organisations and participate in term lending and working capital finance to industries. It acts as the MSME sector’s primary financial institution.

What is a Development Bank?

Banks that concentrate on development are known as development banks. They lend to the industrial and agricultural sectors on a medium and long-term basis. They lend money to both the commercial and public sectors. Development banks are financial entities that serve a variety of purposes. They engage in a term loan, securities investing, and other operations. They even encourage people to save and invest money. In other words, we can say, “Development banks are financial entities whose main purpose (motivation) is to fund society’s primary (basic) needs. As a result of this investment, the nation’s social and economic sectors flourish and thrive. However, due to variances in community organisation, economics, and other factors, society’s demands vary from place to region.”

*Acts of parliament establish development banks. IDBI, a public-sector development bank, has been transformed into a commercial bank. ICICI Bank began as a private sector development bank and later became a commercial bank. NABARD is currently an apex development bank. Development banks include SIDBI and State Finance Corporations established under the SFC Act. Land Development Banks are long-term lending institutions in the cooperative sector that are sometimes referred to as development banks.

Examples of some Development banks in India

*India’s Industrial Development Bank (IDBI)

*India’s Industrial Credit and Investment Corporation (ICICI)

*India’s Unit Trust (UTI)

*Industrial Investment Bank of India (IIBI)/ Industrial Reconstruction *Bank of India (IRBI) (IIBI)

*The Export-Import Bank of India (EXIM) and a Few Others.

Development Bank Functions

Take up an entrepreneurial role

Developing countries are short on entrepreneurs who can start new businesses. It might be due to a lack of knowledge and management skills. The task of bridging the entrepreneurship gap has been allocated to development banks. They are in charge of locating investment opportunities, promoting industrial firms, providing technical and managerial support, performing economic and technological research, conducting surveys, and conducting feasibility studies, among other things. The development bank’s promotional function is critical for speeding up the pace of industrialisation.

Commercial Banking

Development banks typically lend to industrial businesses on a medium- and long-term basis. Commercial banks meet the units’ operating capital requirements. Commercial banks in emerging nations have struggled to meet this challenge. The sector has not benefited from its typical strategy of dealing with lending proposals and securities assistance.

Gap Fillers in the Financial Sector

Development banks aid industrial firms in various ways, not just by providing medium- and long-term loans. These banks buy the firms’ bonds and debentures, underwrite their shares and debentures and guarantee loans from local and international sources.

Securities underwriting

Development banks purchase industrial unit securities by direct subscribing, underwriting, or both. The securities can also be obtained by working as a promoter or converting debts into equity or preference shares. As a result, as you learn more about development banks, you may start building a portfolio of industrial stocks and bonds. Banks for development have become a global phenomenon. Their functions are determined by the economy’s needs and the country’s stage of development. They’ve established themselves as well-known financial market categories. They play a critical role in developing industries in emerging and developing countries.

Credit Guarantee

The small-scale sector cannot obtain adequate financial services due to a high level of risk. Because these businesses lack sufficient collateral to secure loans, lending institutions are unwilling to issue credit. Many nations, notably India and Japan, have established credit guarantees and credit insurance schemes to address this issue.

Refinancing Facility

Development banks provide lending institutions with a refinancing facility. There is no direct loan to the business under this arrangement. Development banks give capital to lending institutions in exchange for loans made to industrial firms.

Conclusion

Finally, we can conclude that Development banks are financial entities that lend (loan) financing (money) at a reduced interest rate. Agriculture, industry, import-export, housing, and related activities are among the areas for approval of such credit. Development banks are specialist institutions that lend money for medium and long periods. Instead of making money, their primary goal is to serve the public good. They offer financial support to both public and private sector organisations.