Meaning of Development Banks
Development banks are specialized financial institutions. They provide medium and long-term finance to the industrial and agricultural sector. They provide finance to both private and public sector. Development banks are multipurpose financial institutions. They do term lending, investment in securities and other activities. They even promote saving and investment habit in the public.
Image credits © tonyhall.
Definition of Development Banks
The definition of the term 'development banks' can be stated as follows,
1. 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."
2. 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, housing and allied activities."
Development Banks in India
Development banking was started after the World War II. It provided finance to reconstruct the buildings and industries which were destroyed in the war.
In India, development banking was started immediately after independence.
The arrangement of development banks in India is depicted below.
Development banks in India are classified into following four groups:
- Industrial Development Banks : It includes, for example, Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (IDBI), and Small Industries Development Bank of India (SIDBI).
- Agricultural Development Banks : It includes, for example, National Bank for Agriculture & Rural Development (NABARD).
- Export-Import Development Banks : It includes, for example, Export-Import Bank of India (EXIM Bank).
- Housing Development Banks : It includes, for example, National Housing Bank (NHB).
Industrial Finance Corporation of India (IFCI) is the first development bank in India. It started in 1948 to provide finance to medium and large-scale industries in India.