KALYAN CITY LIFE

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Kalyan City is a fast emerging residential township in the Thane district of Maharashtra state, India. It is a central suburban town and resides 54 kms north-east of Mumbai. This blog regularly shares quality academic materials. Here we also document our unique experiences and vivid memories of life. Read our lucid informative articles to excel your understanding, knowledge and success.

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Articles published on Kalyan City Life blog are inspired from our work experience, field research, study of various good books and papers, seminars and consultations from subject scholars. Our unique collection of useful study notes is an outcome of a team effort and hard work of Gaurav Akrani, Prof. Mudit Katyani and Manoj Patil.

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What are Functions of Development Banks?



square Functions of Development Banks


The role or functions of development banks in India are depicted below.

functions of development banks

The nine important functions of development banks in India are as follows:

  1. To promote and develop small-scale industries (SSI) in India.
  2. To finance the development of the housing sector in India.
  3. To facilitate the development of large-scale industries (LSI) in India.
  4. To help the development of agricultural sector and rural India.
  5. To enhance the foreign trade of India.
  6. To help to review (cure) sick industrial units.
  7. To encourage the development of Indian entrepreneurs.
  8. To promote economic activities in backward regions of the country.
  9. To contribute in the growth of capital markets.

Now let's discuss each important function of development banks one by one.


1. Small Scale Industries (SSI)


Development banks play an important role in the promotion and development of the small-scale sector. Government of India (GOI) started Small industries Development Bank of India (SIDBI) to provide medium and long-term loans to Small Scale Industries (SSI) units. SIDBI provides direct project finance, and equipment finance to SSI units. It also refinances banks and financial institutions that provide seed capital, equipment finance, etc., to SSI units.


2. Development of Housing Sector


Development banks provide finance for the development of the housing sector. GOI started the National Housing Bank (NHB) in 1988.

NHB promotes the housing sector in the following ways:

  1. It promotes and develops housing and financial institutions.
  2. It refinances banks and financial institutions that provide credit to the housing sector.

3. Large Scale Industries (LSI)


Development banks promote and develop large-scale industries (LSI). Development financial institutions like IDBI, IFCI, etc., provide medium and long-term finance to the corporate sector. They provide merchant banking services, such as preparing project reports, doing feasibility studies, advising on location of a project, and so on.


4. Agriculture and Rural Development


Development banks like National Bank for Agriculture & Rural Development (NABARD) helps in the development of agriculture. NABARD started in 1982 to provide refinance to banks, which provide credit to the agriculture sector and also for rural development activities. It coordinates the working of all financial institutions that provide credit to agriculture and rural development. It also provides training to agricultural banks and helps to conduct agricultural research.


5. Enhance Foreign Trade


Development banks help to promote foreign trade. Government of India started Export-Import Bank of India (EXIM Bank) in 1982 to provide medium and long-term loans to exporters and importers from India. It provides Overseas Buyers Credit to buy Indian capital goods. It also encourages abroad banks to provide finance to the buyers in their country to buy capital goods from India.


6. Review of Sick Units


Development banks help to revive (cure) sick-units. Government of India (GOI) 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.


7. Entrepreneurship Development


Many development banks facilitate entrepreneurship development. NABARD, State Industrial Development Banks and State Finance Corporations provide training to entrepreneurs in developing leadership and business management skills. They conduct seminars and workshops for the benefit of entrepreneurs.


8. Regional Development


Development banks facilitate rural and regional development. They provide finance for starting companies in backward areas. They also help the companies in project management in such less-developed areas.


9. Contribution to Capital Markets


Development banks contribute the growth of capital markets. They invest in equity shares and debentures of various companies listed in India. They also invest in mutual funds and facilitate the growth of capital markets in India.





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