Development Banks: Indian Economy
INTRODUCTION
Development banks are financial organizations (DFIs) that offer long-term financing for capital-intensive projects with protracted repayment periods, like irrigation systems, mining, and heavy industry. It establishes the framework for the nation's industrial expansion and development. An illustration of an agriculture development bank is NABARD.
The definition of a development bank, its origins in history, the goals of DFIs, and the different kinds of DFIs will all be covered in this article.
A DEVELOPMENT BANK IS WHAT?
• Development banks are companies that offer long-term financing for capital-intensive projects with protracted repayment periods, such as irrigation systems, mining and heavy industry, and urban infrastructure.
• These banks usually offer loans with low, consistent interest rates in an effort to promote long-term investments that have substantial positive social impacts.
• Development banks are also known as term lending institutions and development finance institutions (DFIs).
BACKGROUND HISTORY OF DFIS
• The Industrial Corporation of India, presently known as IFCI (Industrial Finance Corporation of India), was established in 1949.
• Probably the first development bank in India to finance industrial investments was this one.
• The Industrial Credit and Investment Corporation of India (ICICI) was founded in 1955 as a result of a World Bank initiative. The largest private commercial bank in India at the time is ICICI Bank, this is its parent firm.
• The government, which controlled the vast majority of the stock, worked along with India's top businessmen, who only owned a small fraction of the company.
• Funding for contemporary, comparatively large private corporate enterprises was the aim.
• The Industrial Development Bank of India (IDBI) was founded in 1964 and serves as the umbrella organization for all development finance organizations.
FEATURES
The following are a development bank's main attributes:
• This kind of institution deals with money.
• It offers medium- and long-term financing to business divisions.
• It doesn't take deposits from the general public like commercial banks do.
• It is more than just a lender for quick cash. It is a financial organization that serves many purposes.
• Fundamentally, it is a bank for development. Its main objective is to encourage investment and entrepreneurship in developing economies in order to advance economic growth. It encourages startup and small enterprises and works to foster balanced regional growth.
• In addition to private sector businesses, it also supports public sector businesses with funding.
• It tries to instill the practice of saving and communal investment.
• The financing already provided by banks and other conventional financial institutions is not in competition with it. Its main job is to fill in the gaps left by the absence of certain financial facilities.
• Instead of being driven by financial gain, it serves the greater welfare of society. It benefits the entire nation and serves its best interests.
OBJECTIVES
The following are the main objectives of development banks:
• To promote technological development and modernization, to encourage more self-employment initiatives, to revive sick units, to improve large-industry management through training, to eliminate regional disparities or imbalances, to encourage the advancement of science and technology in new areas by promoting industrial development, developing regressive areas, increasing the number of job opportunities, boosting exports, and encouraging import substitution.
LIST OF DEVELOPMENT BANKS
In India, we have a few development banks or development financial institutions (DFIs). Some of them are,
|
Development Bank/DFI |
|
Important information regarding DFI |
|
IFCI |
|
|
|
ICICI |
|
|
|
IDBI |
|
|
|
IRCI |
|
|
|
SIDBI |
|
|
|
EXIM Bank |
|
|
|
NABARD |
|
|
|
NHB |
|
|
NEED OF DEVELOPMENT BANK IN THE CURRENT CONTEXT
• To assist the economy recover from the Covid-19 pandemic's damage, infrastructural investments are more important than ever. A development finance organization is required since few commercial lenders are willing to take on infrastructure risk, particularly in light of the previous lending cycle's experience.
• India will revisit a previous test of the idea by creating a DFI. Both ICICI and IDBI were initially created as DFIs but later changed their status to become universal banks because it was thought that they needed access to public deposits.
• Due to banks' monopoly over retail deposit access and the limited supply of long-term financing without government guarantees, the older generation of DFIs had trouble raising money.
• Now that the capital market is growing, getting money is simple. We have access to the entire world because investing in India is really appealing. We have access there as a result.
• Additionally, this development bank might borrow from multilateral development banks with government backing.
• In order to help the nation reach a $5 trillion economy by 2025, the DFI is anticipated to act as a catalyst in financing projects under the Rs 111 lakh crore National Infrastructure Pipeline.
CONCLUSION
The state's role in economic development increases with the degree of a nation's backwardness. The political and administrative leadership should carefully consider the lessons learned from the past in order to establish a strong basis for the new organization. The most crucial of these is the source of funding. The plan to create a development bank is positive in this sense. This is particularly true when long-term finance is offered to help developing economies catch up to advanced economies as rapidly as feasible.