PREFACE

M.B.A is one of the most reputed professional courses in the field of management. This course
includes both theory and its application contents of curriculum. Project Report is an integral part
of the M.B.A. at Uttar Pradesh Technical University, Lucknow. Each student is required to
prepare research report in his or her 4 th semester. MBA intends to get familiar with practical
aspect of management through research. The importance of any academic course would give
advantage and acceptance of the true from only through practical experience. The topic assigned
for the research report is: A STUDY ON THE GROWTH AND CHALLENGES OF
DEVELOPMENT BANKING IN INDIA. The Research programmed is an integral constant
of the cause curriculum of programmed in Management
It has been said that Finance is the life blood of business; without finance the heart and brain of
business cannot function implying there by its natural death.
In present scenario financial market, investment has became, complicated and is both art and a
science. One make investments for a return higher than what he can get by keeping the money in
commercial or cooperative Bank or even in an Investment Bank. In Finance field, it is common
knowledge that money is scarce and investor try to maximize their return But the return is higher
if the risk is also higher Return and risk go together and they have a trade off. The art of
investment is to see that return is maximized with the minimum of risk if the investor keep his
money in a Bank in saving account, he takes the least risk as the money is safe and he will get
back when he want it but he runs the risk that the return in real terms, adjusted for inflation
negative or small and even if positive it may not come up to his expectations or needs.
1

To utilize the theoretical knowledge, I decided to choose my topic which may cover all and as
result

selected

A STUDY ON

THE

GROWTH AND

CHALLENGES

OF

DEVELOPMENT BANKING IN INDIA.

This research report is divided into five chapters.
First chapter
The chapters are divided and defined in a logical, systematic and scientific manner to cover every
Book and corner of the topic. The Introductory stage of this research report is based on
introduction of Development bank in India, its objective, importance, scope & limitation.
Second chapter dealt with Research Methodology. The process of carrying out the whole
research problem is defined in it. It contains information about the tools techniques used for
collecting the secondary data.
Third chapter Data analysis & interpretation.
Fourth Chapter is finding and recommendation. Contains the findings and recommendation of
the study. This based on the data analyzed and interrelated in previous chapters. This is the most
important section of the report, for repot is evaluated on the validity and correctness of its
findings. Depicted conclusion which concludes the whole repot, that is, gives a brief description
of the process employed so far.
Fifth Chapter one title conclusion contains the personal conclusion for the study.

ACKNOWLEDGEMENT
Any attempt at any level can't be satisfactorily completed without the support and guidance of
learned people. I am overwhelmed in all humbleness and gratefulness to acknowledge all those
people who helped me to put these ideas, well above the level of simplicity and into something
concrete. Only with their support and help, I have been able to complete my survey effectively
and moreover on time.
I take immense pleasure in thanking Respected, Mr.Rahul Anand Singh, Head of Department for
having permitted me to carry out this project work. He was always there to show me the right
track whenever I needed his help. With the help of his valuable suggestions, guidance and
encouragement, I was able to perform this project work.
I wish to express my deep sense of gratitude to my Supervisor, Dr. Neetu Singh. She gave me
moral support and guided me in different matters regarding the topic.. She had been a source of
inspiration and their timely guidance helped me a lot in the conduct of my project work. She gave
useful suggestions, her able guidance and her constant support and motivation encouraged me a
lot to come up with the successful completion of the project. I thank her for her overall support.
Deepak Kumar Gupta
`MBA 4th Semester

INTRODUCTION
The economic development of any country depends up on the extent to which its financial system
efficiently & effectively mobilizes & allocates resources. There are a number of banks and
financial institution that performs this function, one of them is the development of bank.
Development banks are unique financial institution that performs the special task of promoting
the development of a nation.
Development banks are financial agencies that provide medium and long term financial
assistance and at as a motivational agent in promoting balance development of the country. They
are engage in promotion and development of industry, agriculture and other key sectors, they also
provide development services that can aid in the accelerate growth of economic.
There has been more than 50 years of development banking experience in the Caribbean. It
started in 1951 with the establishment of the Development Finance Corporation in Jamaica.
Under one name or another, development banking institutions spread across the Caribbean in the
1970s. By 1980, virtually every country had a development banking entity.
Development banking was a deliberate public policy initiative to accelerate economic growth and
social and economic development by facilitating more access to investment capital by business
enterprises. The existing conditions were a financial sector comprised almost entirely of highly
risk averse commercial banks operating as short term lenders to established businesses mainly in
commerce. The raison detre for development banking is to be found in discordance between the
credit allocation practices of the private financial institutions and the financial requirements for
rapid and sustained economic growth. The era was one of plantation agriculture, mineral enclaves
and oligopolistic market structures in foreign trade and commerce. Governments when
confronted by the social and economic challenges presented by slow and unstable economic
4

growth sought strategic solutions in terms of economic diversification and development of small
farm agriculture. These sectors and sub-sectors did not attract funding from commercial banks.
The creation of development banks was the answer. Caribbean development banks are Stateowned enterprises, with only one or a few exceptions. Governments appoint their Boards of
Directors and through this mechanism can hold them accountable for their performance as well as
provide policy directives.

OBJECTIVE OF DEVELOPMENT BANKS

The objective of development banks are as follows.
1) To serve as an agent are development various sector like industry agricultural international
trade.
2) To accelerate the growth of economic.
3) To allocate resources to high privately arias.
4) To promote rapid industrialization, particularly in the private sector, so as to private
employment opportunity as well as higher production.
5) To develop entrepreneurial skill.
6) To promote the development of rural aria.
7) To finance housing, small scale industries, infrastructure social utility

Role of development bank

Among the institutions whose role in the development of the less developed regions is well
Recognized but inadequately emphasized are the development banks. Playing multiple roles,
these institutions have helped promote, nurture, support and monitor a range of activities, though
their most important function has been as drivers of industrial development. All underdeveloped
countries launching on national development strategies, often in the aftermath of decolonization,
were keen on accelerating the pace of growth of productivity and per capita GDP. This was the
obvious requirement for alleviating poverty and reducing the developmental gap that separated
them from the developed countries. To realize this goal, they considered industrialization to be an
important prerequisite. This stemmed from the perspective that modern economic growth was a
process characterized by an increase in the share of employment in the non-agricultural sector,
and within the latter by a change in the scale of productive units, the growth of factory production
and a shift from personal enterprise to the impersonal organization of economic firms. Given
these features, the financial sector must be designed to include institutions, sources of finance and
instruments that can bridge the significant mismatches in the expectations with regard to
maturity, liquidity, risk and interest rates between savers and investors. One way to deal with this
problem is to encourage the growth of equity markets. This is seen as attractive because, unlike in
the case of debt, risk is shared between the financial investor and the entrepreneur. This enhances
the viability of the firm in periods of recession. However, the evidence shows that even in
developed countries equity markets play a relatively small role in mobilizing capital for new
investments. Even where markets are active, it is the secondary
Market that is of significance.
6

An important institutional innovation in many late-industrializing developing countries was

the creation of what are broadly called development banks, which most often are public or
Joint sector institutions. Development banks are in the nature of universal banks Undertaking a
wide range of activities besides those undertaken by commercial banking Institutions.
In addition, they are assigning a special role in
1) Planning, promoting and developing industries to fill the gap in industrial sector.
2) Coordinative the working of institution engage financing, promote or developing industries
agriculture or trade.
3) Providing promotional services such as discovering project ideas, under taking feasibility
study and managerial and providing technical financial managerial for the implementation of
project.
4) Its meager role is of a gap filler that is to full up the efficiency of the existing finance facility.
5) It is not just a term landing institution. It is a multipurpose financial institution.
6) Its provide financial assistance not only to the private sector but also to the public sector
undertaking.
7) It is a specialize financial institution. It provides medium and long term finance to business
unique.

Growth of Development Bank of India

Development Banking differs from commercial banking in several ways. Commercial Banking is
primarily concerned with short-term lending for financing working capital requirements of a

concern. Development banking, on the other hand, is concerned with lending funds for medium
to long-term for financing the investments in fixed assets of
All India Financial Institutions the company. Commercial banking is security-oriented, while
development banking is project-oriented. Development banks also finance large-scale projects
jointly with commercial banks. Developments Banks have recently been permitted to grant shortterm working capital finance to the corporate. They .have entered into various other types of
financial activities and have undertaken various financial services as well.
In 1948 first industrial development bank of India establish for purpose of financing her
industrial development. This bank undertake functions of issue a commercial bank and mortgage
institution .world war second Indian country developed specialized institution to industrial
finance for reconstruction modernization a development of war regard industries. These banks
were mainly mortgage bank which extended long term loan to industries.

ORGANISATIONAL STRUCTURE OF DEVELOPMENT

BANK OF INDIA

INDUSTRIAL DEVELOPMENT BANKS

AGRICULTURAL DEVELOPMENT BANKS

EXPORT IMPORT DEVELOPMENT BANKS

All India level

All
India
level

State
level
SFC
s
SID
Cs
STI
Cs

NABA
-RD

State level

Local level

All India level

PLDBs
SLDBs

EXIM
BANK

SLDB;s

Large
Scale
10

Industries

Small
Scale
Industries
IFCI
IDBI
ICICI
IRBI

DEVELOPMENT BANKS IN INDIA

During the- for independent period, India is well served by a network of development banks at a
national as well as state level. The industrial finance corporation of India (IFCI).The first
development bank of country was establish in 1948. Many other financial institution where also
setup.
Development bank in India may be classified into three groups.
1) Industrial development banks.
2) Agricultural banks.
3) Export Import development banks.
There are five all Industrial development banks.
11

These are ..
1) The industrial finance corporation of India (IFCI)
2) The industrial development bank of India (IDBI)
3) The industrial reconstruction bank of India (IRBI)
4) The national small industries corporation (NSIC)
5) The industrial credit and investment corporation of India (ICICI)
The first four institutions are owned by government by the last one is the private sector
institution. All these institutions accept NSIC, full fill the financial and development need of the
large institutes, by the NSIC deed with small scale industries.
The state level industrial development banks include.
1) The state financial corporation (SFC)
2) The state industrial development corporation (SIDC)
3) The state industrial investment corporation (SIIC)
The Agricultural development banks are also classified in to three group.
1) All India level
2) State level.
3) Local level institution.
At there is only one all India level Agricultural development bank called National Bank for
Agricultural and Rural Development (NABARD).
In early base there was agricultural and refinance development for maximization (ARDF)
establish in 1963 to provide medium and long term finance for the development of agricultural. It
was replace the NABARD IN 1982.

12

At the state level, there are the state land development banks (SLAD) for supplying medium and
long term credit for agricultural. Further, and local level there are primary and development bank
(PLDB) and the for promoting and development at export and import, all India an level
institution for export import bank of India (EXIM) for establish in 1982.
A Development Bank is a polygonal development finance institution devoted to improving the
social and monetary development of its associate nations. Its main emphasis is the welfare of the
people. For example the Asian Development Bank's overarching goal is to decrease poverty in
Asia and the Pacific. It helps improve the value of people's lives by providing loans and scientific
support for a broad variety of development activities.
A development bank's policies or programs center on the following priorities:
a) Economic Growth
b) Human Development
c) Gender and Development
d) Good Governance
e) Environmental Protection
f) Private Sector Development
g) Regional cooperation
The main functions of a Development Bank:

13

a) Increase loans and equity investments to its developing associate countries (DMCs) for their
monetary and social development.
b) Provides technical help for the planning and implementation of development projects and
programs and for advisory services.
c) Promotes and facilitates speculation of public and private capital for growth and development.
d) Responds to requests for assistance in coordinating growth policies and plans of its increasing
member countries.
Formation of Development Banks in India:
Development banks were set up in India at various points of time starting from the late 1940s to
cater to the medium to long term financing requirements of industry as the capital market in India
had not developed sufficiently. The endorsement of planned industrialization at the national level
provided the critical enticement for organization of Development banks at both all-India and state
levels. In order to perform their role, Development Banks were extended funds in the shape of
Long Term Operations (LTO) Fund of the Reserve bank of India and government guaranteed
bonds, which constituted main sources of their funds. Funds from these sources were not only
available at concessional rates, but also on a long term basis with their maturity period ranging
from 10-15 years. On the asset side, their operations were marked by near absence of
competition. A large variety of economic institutions have come into existence over the years to
perform a type of financial actions While some of them operate at all-India level, others are state
level institutions.
14

Besides providing direct loans, financial institutions also extend economic assistance by way of
underwriting and direct contribution and by issuing guarantees. Recently, some Development
Banks have started extending short term/working capital finance, although long term lending
continues to be their major activity. To promote harmonious personnel relations in banking
industry and to devise ways and means for involving banking personnel in the endeavors of banks
for growth and development of banking and the economy of the country.

Overview of development banking in India

The concept of development banking rose only after Second World War, after the Great
Depression in 1930s. The demand for reconstruction funds for the affected nations compelled in
setting up a worldwide institution for reconstruction. As a result the IBRD was set up in 1945 as a
worldwide institution for development and reconstruction. This concept has been widened all
over the world and resulted in setting up of large number of banks around the world which
coordinating the developmental activities of different nations with different objectives among the
world. The Narashimam committee had recommended to give up its direct financing functions
and to perform only the promotional and refinancing role. However, the S.H.Khan committee,
appointed by the RBI, recommended its transformation into a universal bank.[6]
The course of development of financial institutions and markets during the post-Independence
period was largely guided by the process of planned development pursued in India with emphasis
on mobilization of savings and channeling investment to meet Plan priorities. At the time of
Independence in 1947, India had a fairly well developed banking system. The adoption of bank
dominated financial development strategy was aimed at meeting the sectoral credit needs,
15

particularly of agriculture and industry. Towards this end, the Reserve Bank concentrated on
regulating and developing mechanisms for institution building. The commercial banking network
was expanded to cater to the requirements of general banking and for meeting the short-term
working capital requirements of industry and agriculture. Specialized development financial
institutions (DFIs) such as the IDBI, NABARD, NHB and SIDBI, etc., with majority ownership
of the Reserve Bank were set up to meet the long-term financing requirements of industry and
agriculture. To facilitate the growth of these institutions, a mechanism to provide concessional
finance to these institutions was also put in place by the Reserve Bank.
The first development bank In India incorporated immediately after independence in 1948 under
the Industrial Finance Corporation Act as a statutory corporation to pioneer institutional credit to
medium and large-scale. Then after in regular intervals the government started new and different
development financial institutions to attain the different objectives and helpful to five-year plans.
The early history of Indian banking and finance was marked by strong governmental regulation
and control. The roots of the national system were in the State Bank of India Act of 1955, which
nationalized the former Imperial Bank of India and its seven associate banks. In the early days,
this national system operated alongside of a large private banking system. Banks were limited in
their operational flexibility by the governments desire to maintain employment in the banking
system and were often drawn into troublesome loans in order to further the governments social
goals.
The financial institutions in India were set up under the strong control of both central and state
Governments, and the Government utilized these institutions for the achievements in planning

16

and development of the nation as a whole. Thus India financial institutions can be classified
under five heads according to their economic importance:

All-India Development Banks

Specialized Financial Institutions

Investment Institutions

State-level institutions

Other institution

CHALLENGES FOR DEVELOPMENT BANKS

Development banks are likely to be seriously challenged in this decade. On the lending
side of their operations, one challenge is competition from commercial banks and
merchant banks. The growth in size of non-financial enterprises and the associated growth
in the average size of their loan demands will bring them into a range which attracts the
interest of private financial institutions. Paradoxically too, the success of development
banks in demonstrating the feasibility of doing good investment financing business will
also encourage the interest of potential competitors. Development banks should see these
prospects as both challenges and opportunities. The opportunities in here in the possibility
of joint financing arrangements in which development banks bring their comparative
strength in appraising and monitoring investment projects. In situations of competition,
development banks would need to increase their average loan sizes to remain competitive.
17

If they do not, there is the danger of their clients out-growing them. Larger loan sizes
might generate reductions in unit costs which would provide scope for competitive loan
pricing and higher rates of return.
Another challenge on the lending side is the greater complexity of enterprise risk
evaluation when the enterprises are cross border enterprises operating in non-uniform
regulatory and legal jurisdictions. On the funding side, development banks may
increasingly need to rely on their own financial strength for market access of funds since
governments may become reluctant to guarantee their debt and might not have the debt
bearing capacity or sufficiently strong credit ratings. If development banks are to rely on
their own financial strength, it becomes imperative that they become more efficient and
that they adopt loan pricing policies which ensure adequate rates of return on their asset
portfolios.
Development banks should also consider engaging their traditional funding partners on
different modalities of funding as alternatives to lines of credit. For instance,
consideration could be given to fixed term debt and to bond issues both of which might
lower costs of funds mobilization and transactions costs associated with reporting on lines
of credit.

IFCI (Industrial Finance Corporation of India)

Industrial Finance Corporation of India (IFCI) was the first development bank established in
India in the year 1948. It was established as a statutory corporation under the IFCI Act, 1948 with
the objective of making middle and long term funds more readily available to industrial concern
18

in India. IFCI was converted into public lignite company on July 1, 1993 and is now known as
the Industry -in1T" l Nance Corporation of India Ltd. Every shareholder" of IFCI became. The
shareholder of the company with effect from the date. The necessity for IFCI's conversion into a
limited company was felt to ensure greater flexibility and ability of IFCI to
Respond to the needs of the changing financial system. After its conversion into a public limited
company, IFCI now has the flexibility to reshape its business strategies with greater
Operational autonomy and in providing quality services to customers and tapping the capital
markets. Under the IFCI Act, 1948, IFCI was prohibited to enter into the capital
Market except when belted by a Government guarantee and was thus prevented from raising
resources on competitive basis. As a joint stock company IFCI is now able to enter.
The capital market for resources, through debt and equity instruments. After becoming a
company, IFCI made a public issue of equity shares aggregating Rs. 525 crore during the Year 1993-94... The IFCI assists the financial needs of large and medium/size ltd company in the
public and private sector and cooperative society engaged.

Functions of IFCI
The main functions of Industrial Finance Corporation of India Limited are as follows:
To grant medium and long-term loans ranging between Rs. 30 lakhs to Rs. 2 crores to
large-sized industrial units which are repayable within a period of 25 years?
To guarantee loans raised by the industrial units which are repayable within a period of 25
years.
To underwrite the issue of stocks, shares, debentures or bonds b industrial units but must
dispose of such securities within 7 years.
To issue debentures.
To accept public deposits up to Rs. 10 crores for a period of five years only.
19

 To act as an agent for the Central Government and for the World Bank in respect of loans
sanctioned by them to industrial units.
To guarantee deferred payments by importers of capital goods, who are able to obtain this
concession from foreign manufacturers?
Miscellaneous: (I) to provide technical guidance to industrial units as to finance (loans), (ii) to
guarantee loans in foreign currency. (iii) To examine utility of loans granted to industrial units,
(IV) to guarantee loans raised from scheduled banks and State Co-operative Bank
Objects
The main object of Industrial Finance Corporation of India Limited is to provide financial
assistance to large-scale industrial units particularly at a time when the normal banking
accommodation is inadequate and not forthcoming to assist these industrial units. Industrial
enterprises, organized on the basis of proprietary or private limited company basis, cannot take
loans from this corporation. Only the public limited companies are eligible to take loans from it.

Management
The Industrial Finance Corporation or India is managed by a board of directors consisting of 13
members in all, both nominated and elected. The head of the board of directors is called chairman
appointed by the Central Government with the consultation of board of directors for a period of
three years only. Besides this board of directors, there is also a central committee consisting of
five members in all, including president.
Financial Resources
The main financial resources of Industrial Finance Corporation of India Ltd. are as follows:
Share Capital: The authorized capital of the corporation is Rs. 1,000 corers divided into 2 lakhs
shares of Rs. 5,000 each. Its paid-up capital on 31st March, 1997 was Rs. 352.81 crores.
20

Debentures: The Corporation is also authorized to issue debentures and bonds. But their total
amount should not exceed ten times of its paid-up share capital plus reserve funds.
Loans: The Corporation has the power to borrow funds (loans) from Industrial Development
Bank of India. Foreign investment Institutions, Central Government and Reserve Bank of India.
Public Deposits: The Corporation can accept public deposits for a maximum period of five years.
Further, the amount of public deposits cannot exceed Rs. 10 crores.
Reserve Fund: It is another source of finance of the Corporation.
Foreign Currency Loans: The Corporation can also accept loans in foreign currency with the
prior approval of the central government, such as, loans from International Bank and other
International Financial Institutions.

Critical Evaluation
Although the Corporation has been an important source of long-term finance to the large-sized
and medium-sized industrial units of the country, yet it has been criticized on several grounds.
The main points of criticism are as follows:

Nepotism and favoritism in granting loans.

Undue preference to well-established large business concerns.
Overlooking interests of small business and development of backward regions almost

ignored.
Granting loans to business unit not covered by Five year Plans.
Very high interest rate.
Delay in sanctioning loans.
No participation in equity capital.
21

Most of the loans sanctioned to those industrial units which are already organized and

financially strong.
Lays greater emphasis upon giving assistance to consumer goods industries as against

basic and capital goods industries.

The corporation has failed in regional and territorial economic development.
The assistance is insignificant as compared to the requirements of the industrial unit and

hence it has knocked at the doors of other financial institutions.

The recurring expenses of the corporation are quite high.
In spite of the above criticism, we must recognize that the corporation has done a good
job. It has entered in new lines of business. Loans one concession rates are granted to
industries situated in backward areas.

INDUSTRIAL DEVELOPMENT BANK OF INDIA ACT 1964

(IDBI)
THE INDUSTRIAL DEVELOPMENT BANK OF INDIA ACT, 1964
ACT NO. 18 OF 1964
[16th May, 1964.] BE
An Act to establish the Industrial Development Bank of India 1*[as the principal financial
Institution for co-coordinating, in conformity with national priorities, the working of institutions
Engaged in financing, promoting or developing industry, for assisting the development of such
Institutions] for providing credit and other facilities for the development of industry and for
Matters connected therewith and further to amend certain enactments. CHAP PRELIMINARY
CHAPTER I PRELIMINARY
Short title, extent and commencement.
1. Short title, extent and commencement.22

(1) This Act may be called the Industrial Development

Bank of India Act, 1964.
(2) It extends to the whole of India.
(3) It shall come into force on such date 2* as the Central Government may, by notification in
the Official Gazette, appoint and different dates may be appointed for different provisions of this
Act. The Industrial Development Bank of India (IDBI) was established on 1 July 1964 under an
Act of Parliament as a wholly owned subsidiary of the Reserve Bank of India. In 16 February
1976, the ownership of IDBI was transferred to the Government of India and it was made the
principal financial institution for coordinating the activities of institutions engaged in financing,
promoting and developing industry in the country. Although Government shareholding in the
Bank came down below 100% following IDBIs public issue in July 1995, the former continues
to be the major shareholder (current shareholding: 65.14%). IDBI provides financial assistance,
both in rupee and foreign currencies, for green-field projects as also for expansion, modernization
and diversification purposes. In the wake of financial sector reforms unveiled by the government
since 1992, IDBI also provides indirect financial assistance by way of refinancing of loans
extended by State-level financial institutions and banks and by way of rediscounting of bills of
exchange arising out of sale of indigenous machinery on deferred payment terms.
IDBI has played a pioneering role, particularly in the pre-reform era (196491),in catalyzing
broad based industrial development in the country in keeping with its Government-ordained
development banking charter.
Narasimam committee [7] recommends that IDBI should give up its direct financing functions and
concentrate only in promotional and refinancing role. But this recommendation was rejected by
23

the government. Later RBI constituted a committee under the chairmanship of S.H.Khan to
examine the concept of development financing in the changed global challenges. This committee
is the first to recommend the concept of universal banking. The committee wanted the
development financial institution to diversify its activity. It recommended to harmonies the role
of development financing and banking activities by getting away from the conventional
distinction between commercial banking and developmental banking.
In September 2003, IDBI diversified its business domain further by acquiring the entire
shareholding of Tata Finance Limited in Tata Home finance Ltd., signaling IDBIs foray into the
retail finance sector. The fully owned housing finance subsidiary has since been renamed IDBI
Home finance Limited. In view of the signal changes in the operating environment, following
initiation of reforms since the early 1990s, Government of India has decided to transform IDBI
into a commercial bank without eschewing its secular development finance obligations. The
migration to the new business model of commercial banking, with its gateway to low-cost
current, savings bank deposits, would help overcome most of the limitations of the current
business model of development finance while simultaneously enabling it to diversify its client/
asset base. Towards this end, the IDB (Transfer of Undertaking and Repeal) Act 2003 was passed
by Parliament in December 2003. The Act provides for repeal of IDBI Act, corporatization of
IDBI (with majority Government holding; current share: 58.47%) and transformation into a
commercial bank. The provisions of the Act have come into force from 2 July 2004 in terms of a
Government Notification to this effect. The Notification facilitated formation, incorporation and
registration of Industrial Development Bank of India Ltd. as a company under the Companies
Act, 1956 and a deemed Banking Company under the Banking Regulation Act 1949 and helped
24

in obtaining requisite regulatory and statutory clearances, including those from RBI. IDBI would
commence banking business in accordance with the provisions of the new Act in addition to the
business being transacted under IDBI Act, 1964 from 1 October 2004, the Appointed Date
notified by the Central Government.
IDBI Bank, with which the parent IDBI was merged, was a new generation Bank. The Pvt Bank
was the fastest growing banking company in India. The bank was pioneer in adapting to policy of
first mover in tier 2 cities. The Bank has one of the highest productivity per employee in Indian
banking industry.
On 29 July 2004, the Board of Directors of IDBI and IDBI Bank accorded in principle approval
to the merger of IDBI Bank with the Industrial Development Bank of India Ltd. to be formed
incorporated under the Companies Act, 1956 pursuant to the IDB (Transfer of Undertaking and
Repeal) Act, 2003 (53 of 2003), subject to the approval of shareholders and other regulatory and
statutory approvals. A mutually gainful proposition with positive implications for all stakeholders
and clients, the merger process is expected to be completed during the current financial year
ending 31 March 2005.
The immediate fall out of the merger of IDBI and IDBI Bank was the exit of employees of IDBI
bank. The cultures in the two organizations have taken its toll. The IDBI Bank now is in a
growing fold. With its retail banking arm expanding further after the merger of United western
Bank.
IDBI would continue to provide the extant products and services as part of its development
finance role even after its conversion into a banking company. In addition, the new entity would
25

also provide an array of wholesale and retail banking products, designed to suit the specific needs
cash flow requirements of corporate and individuals. In particular, IDBI would leverage the
strong corporate relationships built up over the years to offer customized and total financial
solutions for all corporate business needs, single-window appraisal for term loans and working
capital finance, strategic advisory and hand-holding support at the implementation phase of
projects, among others.[citation needed]
IDBIs transformation into a commercial bank would provide a gateway to low-cost deposits like
Current and Savings Bank Deposits. This would have a positive impact on the Banks overall cost
of funds and facilitate lending at more competitive rates to its clients. The new entity would offer
various retail products, leveraging upon its existing relationship with retail investors under its
existing Suvidha Flexi-bond schemes.
The responsibility for maintaining standards of corporate governance lies with its Board of
Directors. Two Committees of the Board viz. the Executive Committee and the Audit Committee
are adequately empowered to monitor implementation of good corporate governance practices
and making necessary disclosures within the framework of legal provisions and banking
conventions.
IDBI Bank Limited (BSE: 500116) is an Indian financial service company headquartered
Mumbai, India. RBI categorized IDBI as an "other public sector bank". It was established in 1964
by an Act of Parliament to provide credit and other facilities for the development of the fledgling
Indian industry.[2] It is currently 10th largest development bank in the world in terms of reach
with 1514 ATMs, 923 branches including one overseas branch at DIFC, Dubai and 621 centers
26

including two overseas centers at Singapore & Beijing. [3] Some of the institutions built by IDBI
are the Securities and Exchange Board of India (SEBI), National Stock Exchange of India (NSE),
the National Securities Depository Limited (NSDL), the Stock Holding Corporation of India
Limited (SHCIL), the Credit Analysis & Research Ltd, the Exim Bank (India)(Exim Bank), the
Small Industries Development Bank of India(SIDBI), the Entrepreneurship Development
Institute of India, and IDBI BANK, which is owned by the Indian Government.IDBI Bank is on a
par with nationalized banks and the SBI Group as far as government ownership is concerned. It is
one among the 26 commercial banks owned by the Government of India. The Bank has an
aggregate balance sheet size of Rs. 2, 53,378 crore as on March 31, 2011. IDBI Bank's operations
during the financial year ended March 31,

Functions of IDBI
(i) Provides medium and long term loans in local and foreign currency for the establishment of
new industrial units and for modernization and replacement of existing units in the private sector.
ii) Guarantee loans, debts and credits raised or incurred by an industrial concern.
(iii) Undertakes complete commercial banking business.
(iv) Undertakes merchant banking business (under writing of public issue of shares, leasing etc.)
(v) Administers the Equity Participation Funds.
(vi) Acts as refinancing agency in respect of the world. Bank and Asian Development Bank,
Credit to small scale industrial units.
27

(vii) Extends consultancy and technical assistance service to clients in the execution and
management of projects.
The functions of the IDBI can be broadly grouped into three categories, viz.
Direct assistance to industrial units in the form of loans and advances. Indirect assistance through
refinancing of the loans and advances given by other financial institution. Promotional activities
in respect of industrialization of backward areas, small industrial units etc.
Direct Assistance: The industrial development bank of India provides direct assistance to
industrial units in the form of loans and advances. Besides, it also subscribes to their shares and
debentures thereby giving then strong financial support. The bank can guarantee the loans and
advances raised by the industrial concerns from the scheduled banks, IFCI and other notified
sources. It can also underwrite the shares and debentures issued by the industrial concern.
Indirect Financial Assistance: The promotional activities of the Industrial Development bank of
India include Special assistance for industrial development in the backward areas.
Assistance to small scale industries and Special assistance by way of soft loan scheme with a
view to promoting the industrial development of the backward areas the IDBI provides
confessional finance assistance to the small and medium projects in these areas. This concession
assistance is available up to an account of Rs. 2 crores and has a longer repayment period.

28

`
National Bank for Agriculture and Rural Development (NABARD)
History
NABARD was established on the recommendations of Shivaraman Committee, by an act of
Parliament on 12 July 1982 to implement the National Bank for Agriculture and Rural
Development Act 1981. It replaced the Agricultural Credit Department (ACD) and Rural
Planning and Credit Cell (RPCC) of Reserve Bank of India, and Agricultural Refinance and
Development Corporation (ARDC). It is one of the premiere agencies to provide credit in rural
areas.
International associates of NABARD ranges from World Bank-affiliated organizations to global
developmental agencies working in the field of agriculture and rural development. These
organizations help NABARD by advising and giving monetary aid for the upliftment of the
people in the rural areas and optimizing the agricultural process
29

National Bank for Agriculture and Rural Development (NABARD) is an apex development
bank in India having headquarters based in Mumbai (Maharashtra)[3] and other branches are all
over the country. It was established on 12 July 1982 by a special act by the parliament and its
main focus was to uplift rural India by increasing the credit flow for elevation of agriculture &
rural non farm sector and completed its 25 years on 12 July 2007. [4] It has been accredited with
"matters concerning policy, planning and operations in the field of credit for agriculture and other
economic activities in rural areas in India". RBI sold its stake in NABARD to the Government of
India, which now holds 99% stake

Unique features of NABARD

Mobilizes resources from urban areas to facilitate credit flow for rural development
Promotes financial inclusion through the largest microfinance movement of the world
Providing consultancy services to banks, government and private enterprise.

Laying special emphasis on development of tribal people

Role of (NABARD)

NABARD is the apex institution in the country which looks after the development of the cottage
industry, small industry and village industry, and other rural industries. NABARD also reaches
out to allied economies and supports and promotes integrated development. And to help
NABARD discharge its duty, it has been given certain roles as follows:
30

1. Serves as an apex financing agency for the institutions providing investment and
production credit for promoting the various developmental activities in rural areas
2. Takes measures towards institution building for improving absorptive capacity of the
credit delivery system, including monitoring, formulation of rehabilitation schemes,
restructuring of credit institutions, training of personnel, etc.
3. Co-ordinates the rural financing activities of all institutions engaged in developmental
work at the field level and maintains liaison with Government of India, State
Governments, Reserve Bank of India (RBI) and other national level institutions concerned
with policy formulation
4. Undertakes monitoring and evaluation of projects refinanced by it.
5. NABARD refinances the financial institutions which finances the rural sector.
6. The institutions which help the rural economy, NABARD helps develop.
7. NABARD also keeps a check on its client institutes.
8. It regulates the institution which provides financial help to the rural economy.
9. It provides training facilities to the institutions working the field of rural upliftment.
10. It regulates the cooperative banks and the RRBs.[7]

Rural innovation
31

NABARD role in rural development in India is phenomenal. [9] National Bank For Agriculture &
Rural Development (NABARD) is set up as an apex Development Bank by the Government of
India with a mandate for facilitating credit flow for promotion and development of agriculture,
cottage and village industries. The credit flow to agriculture activities sanctioned by NABARD
reached Rs 1,574,800 million in 2005-2006. The overall GDP is estimated to grow at 8.4 per cent.
The Indian economy as a whole is poised for higher growth in the coming years. Role of
NABARD in overall development of India in general and rural & agricultural in specific is highly
pivotal.
Through assistance of Swiss Agency for Development and Cooperation, NABARD set up the
Rural Infrastructure Development Fund. Under the RIDF scheme Rs. 512830 million have been
sanctioned for 2,44,651 projects covering irrigation, rural roads and bridges, health and
education, soil conservation, water schemes etc. Rural Innovation Fund is a fund designed to
support innovative, risk friendly, unconventional experiments in these sectors that would have the
potential to promote livelihood opportunities and employment in rural areas. [10] The assistance is
extended to Individuals, NGOs, Cooperatives, Self Help Group, and Panchayati Raj Institutions
who have the expertise and willingness to implement innovative ideas for improving the quality
of life in rural areas. Through member base of 250 million, 600000 cooperatives are working in
India at grass root level in almost every sector of economy. There are linkages between SHG and
other type institutes with that of cooperatives.
The purpose of RIDF is to promote innovation in rural & agricultural sector through viable
means. Effectiveness of the program depends upon many factors, but the type of organization to
which the assistance is extended is crucial one in generating, executing ideas in optimum
32

commercial way. Cooperative is member driven formal organization for socio-economic purpose,
while SHG is informal one. NGO have more of social color while that of PRI is political one.
Does the legal status of an institute influences effectiveness of the program.

Microfinance and NABARD

For a better reach of microfinance program a continuous check of the status, progress, trends,
qualitative and quantitative performance comprehensively is required. Thus the Reserve Bank of
INDIA and NABARD has laid out certain guidelines in 06-07 for the commercial banks,
Regional Rural Banks and Cooperative Banks to provide the data to RBI and NABARD about the
progress of the microfinance program. There are three aspects on which the data was collected,
savings of self-help groups with banks, loan disbursed by banks to self-help groups default by
self-help groups repayment of the loans taken from banks. Banks also provides data regarding
loans given by banks to the microfinance institutions

Organization Structure

33

Industrial investment bank of India ltd (IIBI)

Industrial reconstruction bank of India (IRBI) was set up under industrial reconstruction bank of
India act 1984 as the principle credit and reconstruction agency for industrial revival in the
country.
Its primary task was the revival the sick industrial units. To provide financial assistance as well as
to revive reconstruct the sick industrial units public or private sector and institution for the
industrial reconstruction corporation India (IRCI) was set up in 1971. In March 1985 it was
converted into a corporation called IRBI.
IRBI was renaming as industrial investment bank of India ltd with afford on March, 27, 1997.

Functions of IRBI
Following are the main function of the IRBI
1) To provide financial assistance to sick industrial units.
34

2) To provide managerial and technical assistant to sick industrial unit.

3) To secure the assistance of other financial institution & govt agencies for the revival &
reconstruction of sick industrial unit.
4) To promote merchant banking services for meager reconstruction etc.
5) To provide concomitancy services to the banks in the matter of such unit.
6) To undertake leasing business.
In a similar trend, the IRBI is to function as the principal credit & reconstruction agencies for
industrial revival and quardination the activity of other institutions engaged in the revival of
industries and also to assists to promote industrial development and reconstruction of industrial
unit.
The IRBI is empowering to take over the management of assistant sick industrial unit lease than
out or sale those as running concern or to prepare the scheme or reconstruction by scaling down
the govt of India.

Small Industries Development Bank of India (SIDBI)

Small Industries Development Bank of India is an independent financial institution aimed to aid
the growth and development of micro, small and medium-scale enterprises in India. Set up on
April 2, 1990 through an act of parliament, it was incorporated initially as a wholly owned
subsidiary of Industrial Development Bank of India. Current shareholding is widely spread
among various state-owned banks, insurance companies and financial institutions.[citation
needed] Beginning as a refinancing agency to banks and state level financial institutions for their
credit to small industries, it has expanded its activities, including direct credit to the SME through
100 branches in all major industrial clusters in India.[citation needed] Besides, it has been
playing the development role in several ways such as support to micro-finance institutions for
35

capacity building and on lending. Recently it has opened seven branches christened as Micro
Finance branches, aimed especially at dispensing loans up to Rs. 5.00 lakh.[citation needed] It is
an apex body[clarification needed] and nodal agency for formulating(citation needed),
coordination and monitoring the policies and programmed for promotion and development of
small scale industries.
SIDBI has also floated several other entities for related activities. Credit Guarantee Fund Trust
for Micro and Small Enterprises ([1]) provides guarantees to banks for collateral-free loans
extended to SME. SIDBI Venture Capital Ltd.([2]) is a venture capital company focused at SME.
SME Rating Agency of India Ltd. (SMERA - [3]) provides composite ratings to SME. Another
entity founded by SIDBI is ISARC - India SME Asset Reconstruction Company in 2009, as
specialized entities for NPA resolution for SME.
SIDBI was set up by an Act of Parliament, as an apex institution for promotion, financing and
development of industries in small scale sector and for coordinating the functions of other
institutions engaged in similar activities. It commenced operations on April 2, 1990. SIDBI
extends direct/indirect financial assistance to SSIs, assisting the entire spectrum of small and tiny
sector industries on All India basis. The range of assistance comprising financing, extension
support and promotional, are made available through appropriate schemes of direct and indirect
assistance for the following purposes:Setting up of new projects.
Expansion, diversification, modernization, technology up gradation, quality improvement,
rehabilitation of existing units Strengthening of marketing capabilities of SSI units.
Development of infrastructure for SSIs and Export promotion. Direct Assistance Schemes

36

SIDBI directly assists SSIs under Project Finance Scheme, Equipment Finance Scheme,
Marketing Scheme, Vendor Development Scheme, Infrastructural Development Scheme, ISO9000, Technology Development & Modernization Fund, Venture Capital Scheme, assistance for
leasing to NBFCs, SFCs, SIDCs and resource support to institutions involved in the development
and financing of small scale sector.
These Schemes are mainly targeted at addressing some of the major problems of SSIs in areas
such as high tech project, marketing, infrastructural development, delayed realization of bills,
obsolescence of technology, quality improvement, export financing and venture capital
assistance. Direct Assistance Schemes.

Promotional and Development Activities

SIDBI is actively involved in promoting tiny and small scale industries by means of its
promotional and developmental activities through suitable professional agencies for organizing
Entrepreneurship Development Programmers, Technology Up gradation & Modernization
Programmers, Micro Credit Schemes and assistance under Mahila Vikas Nidhi to bring about
economic empowerment of women specially the rural poor by providing them avenues for
training and employment opportunities.

37

ICICI BANK
ICICI Bank was established in 1996 by the Industrial Credit and Investment Corporation of India,
an Indian financial institution, as a wholly owned subsidiary. The parent company was formed in
1955 as a joint-venture of the World Bank, India's public-sector banks and public-sector
insurance companies to provide project financing to Indian industry. The bank was initially
known as the Industrial Credit and Investment Corporation of India Bank, before it changed its
name to the abbreviated ICICI Bank. The parent company was later merged into ICICI Bank.
ICICI Bank launched internet banking operations in 1998.
ICICI's shareholding in ICICI Bank was reduced to 46 percent, through a public offering of
shares in India in 1998, followed by an equity offering in the form of American Depositary

38

Receipts on the NYSE in 2000. ICICI Bank acquired the Bank of Madura Limited in an all-stock
deal in 2001, and sold additional stakes to institutional investors during 2001-02.
In the 1990s, ICICI transformed its business from a development financial institution offering
only project finance to a diversified financial services group, offering a wide variety of products
and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In
1999, ICICI become the first Indian company and the first bank or financial institution from nonJapan Asia to be listed on the NYSE.
In 2000, ICICI Bank became the first Indian bank to list on the New York Stock Exchange with
its five million American depository shares issue generating a demand book 13 times the offer
size. In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of
ICICI and two of its wholly owned retail finance subsidiaries, ICICI Personal Financial Services
Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by
shareholders of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at
Ahmadabad in March 2002, and by the High Court of Judicature at Mumbai and the Reserve
Bank of India in April 2002.
In 2008, following the 2008 financial crisis, customers rushed to ATM's and branches in some
locations due to rumors of adverse financial position of ICICI Bank. The Reserve Bank of India
issued a clarification on the financial strength of ICICI Bank to dispel the rumors. It is establish a
private sector company in 1955.ICICI was a leading development bank in India on March 13,
2002. ICICI ltd merges in its subsidiary ICICI bank ltd which is a private sector bank in India.

39

It was the first development bank in private sector to be set up as a joint stock company in India
in1955.

OBJECTIVE OF ICICI
The main aim of ICICI was to promote industrial in the private sector by providing financial
technical administrative and other services. The major objective of ICICI is as follow
1) To asses in the promotion expansion and mobilizes of industrial enterprise in the private sector.
2) To encourage and private the participation of private capital both Indian and foreign currency
in such enterprise.
3) To stimulated the private ownership of industrial investment and expansion of investment in
market.
The primary object of ICICI is to assist industrial units in the private-sector. The main objects of
ICICI are as follows:
40

 To assist in the creation, expansion and modernization at industrial units in the private
sector.
To encourage the inflow and participation of foreign capital in the private sector industrial
units.
To expand the investment market in India

Functions of ICICI bank

ICICI provide the assistance in the following base.
1) Guaranteeing (allocate) medium and long term assistance (long) to industrial units.
2) Advancing loan in foreign currency towards the cost of important capital equipment.
3) Providing the guaranty to the loans to raise by company in the open market.
4) Sponging and under write new issue of industrial security.

Management
The ICICI is managed by a board of 11 directors out of whom 7 directors are elected by Indian
shareholders, 2 by British shareholders, 1 by American shareholders and the remaining 1 is
nominated by Government of India, It has a full-time chairman and a general manager.

Financial Resources (Capital)

41

The authorized capital of ICICI is Rs. 25 crores which was raised to Rs. 60 crores. The present
subscribed capital is Rs. 22 crores. The capital has been subscribed by (I) Indian banks and
insurance companies, (ii) general public in India, (iii) foreigners including British and American
investors.

Loans
The ICICI is empowered to accept foreign currency loans. Loan provided by the World Bank is
dominating feature. Besides World Bank loan, the ICICI is also obtaining loans from IDBI,
IBRD, AID and KFW of the Federal Republic of Germany, America, Britain and also from
Government of India.

Objectives of the study

The objective of development banks are as follows.
1) To check the individual contribution of each development bank.
2) To assess the role of development banking in Indians economic development.
3) To study about the growth the development banking.
4) To know about various development banks and services.
5) To study about the challenges of development banking.

42

IMPORTANCE
We have studied that banking is an important aid to industry and trade, and that it also provides a
variety of services to the public in general. Indeed banking may be regarded as an indispensable
part of the economy of every Country. The significance of banking has increased all over the
world with the rise in income levels and growth in the volume of financial transactions.

It discusses the concept of Development banking in India.

It throws light on the government efforts to promote development banking in India.

It traces the growth of development banking only in India and not worldwide.

It tries to analyses the problems faced in development banking in India and suggest
remedies for further growth of such markets.

43

Scope of the study

The purpose of the study is to obtain information about the development bank in India...
The scope of the study also provides information about the role and growth of development
bank in India. With the study I conclude that development bank growth economy of country
is uplifting day by day. Development bank provided much facilities & financial support to
the urban & local people. It provides some special schemes to the agriculture sector. It also
helps in upliftment of other banking sectors. It has to provide resources of private region.

44

Limitation of the study

Although lets of care and efforts are made to ensure the fault free study but still there remains
certain limitation which possibly may accrue such as
Lack of time acted as constraint in study.
Lack of development bank in nearby areas also acts as constraint as its not possible to get the real
exposure.
The study is based on secondary data any kind of discrepancy in the will cause same in the study.

Researcher is only on indicator and cannot solve the problem.

45

RESEARCH METHODOLOGY
Research
Research is a purposeful investigation. It is a scientific & systematic search for knowledge &
intimation on a specific topic research is use full & research objective can be achieved if it is
done in proposes process.
Methodology
The world methodology spell the meaning itself if the method used by the researches in obtaining
information. The data (information can be collected from primary sources & secondary sources.)
By primary data we mean data collected by researches him for the first time to collaborate the
data which has previously not been used is known as primary data by secondary data we mean
the data collected from various published matters, a Magazine newspapers status of previous
research report etc. In other words we can say that the data which has already been used your
different purpose by different people is known as secondary Primary data can be collected
46

through questionnaire and personal interview as for as concern my research is limited to dealers
personality Secondary data are collected from the various books journals new spaper editional
expert suggestions web sites & internet & etc.
Research Methodology:-

Research is a common language refers to a search of knowledge.

Research is scientific & systematic search for pertinent information on a pacific topic, infect
research is an art of scientific investigation. Research methodology is a scientific way to solve
research problem. It may be understood as a science of studying how research is doing
scientifically. In it we study various steps that are generally adopted by research by research in
studying their research problem it is necessary for researchers to know not only know research
method techniques but also technology.
The scope of Research Methodology is wider than of research methods.
The research problem consists of series of closely related activities. At a times. The first step
determines the native of the last step to be undertaken, why a research has been defined what data
has been collected and what a particular methods have been adopted and a host of similar other
questions are usually answered when we talk of research methodology concerning a research
problem or study. The project is a study where focus is on the following points:

Research design
A research design is defined, as the specification of methods and procedures for acquiring the
information needed. It is a plant or organizing framework for doing the study and collecting the
data. Designing a research plan requires decision all the data sources, research approaches,
Research instruments, sampling plan and contact methods.
Research design is mainly of following types:Exploratory research
Descriptive studies
Casual studies
47

EXPLORATORY RESEARCH
The major purposes of exploratory studies are the identification of problems, the more precise
formulation of problems and the formulation of new alternative courses of action. The design of
exploratory studies us characterized by a great amount of flexibility and ad hoc veracity.
DESCRIPTIVE RESEARCH
Descriptive research in contrast to exploratory research is marked by the prior formulation of
specific research Questions. The investigator already knows a substantial amount about the
research problem, perhaps as a Result of an exploratory study, before the project is initiated;
Descriptive research is also characterized by a preplanned and structured design.

CASUAL OR EXERIMENTAL RESEARCH

A casual design investigates the cause and effect relationships between two or more
variables. The hypothesis is tested and the experiment is done. There are following types of
casual designs:
I.
II.

After only design

Before after design

III.

Before after with control group design

IV.

Four groups, six studies design

V.

After only with control group design

48

VI.

Consumer panel design

DATA COLLECTION METHOD

PRIMARY
Direct personal Interview
Indirect personal Interview
Information from correspondents
Mailed questionnaire
Question filled by enumerators.

SECONDARY
Unpublished Sources
Published Sources
Govt. publication
Report Committees & Commissions
Private Publication

PRIMARY DATA
These data are collected first time as original data. The data is recorded as observed or
encountered. Essentially they are raw materials. They may be combined, totaled but they have not
extensively been statistically processed. For example, data obtained by the peoples.

49

SECONDARY DATA
Secondary data on the other hand are those which are collected by someone which have been
passed through statistical process.
Sources of Secondary Data are:JOURNALS/NEWSPAPER

etc:- Some newspapers /Journals collect their own data.

E.g. Indian Journals of economics, Economic Times, Advertising Today, etc.

Data may be obtained through websites.
Data may be obtained from Library (Books & Articles)
Period of Study:
This study has been carried out for a maximum period of 4 weeks.
Area of study: The study is exclusively done in the area of finance. It is a process requiring care,
sophistication, experience, business judgment, and imagination for which there can be no
mechanical substitutes.

This report is based on descriptive research and the sources of data is on secondary data
http://www.idbi.com
http://www.sidbi.com

http://www.google.com
http://www.banknetindia.com

50

1) The individual contribution of each development bank.

Table 1.1

Data analysis of IFCI BANK

Data analysis of IFCI in concern with various sectors as per assistance providing by it to them
YEAR

SANCTIONS

GROWTH RATE DISBURSEMENT

GROWTH RATE

%
1989-1990

206.6

108.9

19.7

1990-1991

218.1

49.8

169.4

55.6

1991-1992

230.2

5.6

196.1

15.8

1992-1993

321.9

5.5

224.5

14.5

1993-1994

415.4

39.8

272.9

21.5

51

1994-1995

499.2

29

403.9

48

1995-1996

798.1

20.2

451.6

11.8

1996-1997

922.6

59.9

657.1

45.5

1997-1998

1635.6

15.6

997.8

51.8

1998-1999

1817

177.3

1121.8

12.5

1999-2000

2429.8

11.1

1574.3

40.6

2000-2001

2421.2

33.7

1604.4

1.9

2001-2002

2347.9

-0.4

1733.4

-8

2002-2003

3745.9

-3

2163.1

24.2

2003-2004

4327

59.5

2838.7

32.4

2004-2005

6579.7

15.5

4586.5

61.6

2005-2006

3952.2

52.1

5175.5

12.5

2006-2007

5708.2

-39.9

5615

8.5

2007-2008

3622.8

44.4

4836.4

-13.9

52

2008-2009

2045.6

-36.5

3374.3

-30.5

2009-2010

1417.9

-43.5

2152.7

-36.9

2010-2011

778

-30.5

1069.9

-49

2011-2012

2035.1

-45.1

1796.5

63.8

161.6

44169.2

TOTAL FROM 45426.7

1989-2012

12000
10000
8000
6000

DISBURSEMENT
GROWTH RATE %

4000

SANCTIONS

2000
0
-2000

53

Interpretation: IFCI and industrial finance section of IFCI went up to Rs.6579.7crore in

2004 from 32.3crore in 1980-1981 but it declined to Rs. 728crore by 2010-2011 up to march
2012 total sanctioned assistance was Rs. 45426.7crore while disbursements were Rs. 44169crore

Table 1.2
IFCI and sector wise assistance
Serial number

Sector

Sanction

Disbursements

Public

1541.1

1539.1

Joint

2192

2146

Cooperative

867.1

838.4

Private

40660.9

39480.1

Total

44007.6

54

45000
40000
35000
30000
25000

Sanction
Disbursements

20000
15000
10000
5000
0
Public

Joint

Cooperative

Private

Interpretation: The IFCI provided maximum assistance to private sector by giving

Rs.40660.9cr as a march 2012. This constitutes our 89% at total assistance by IFCI. This public
sector gets very little out of the total sections of IFCI.

Table 1.3
IFCI and product wise assistance
YEAR

SANCTION

DISTURSUMENT

2007-2008

3129.6

4224.3

2008-2009

1900.3

3027.4

2009-2010

1371.2

2093.2

2010-2011

721.4

1065.6
55

2011-2012

2021.7

1783.1

UP TO MARCH 2012

371226

35926.4

4500
4000
3500
3000
2500

SANCTION

2000

Column1

1500
1000
500
0
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

Interpretation
IFCI provide direct financial assistance for financing projects in term of rupee loan, foreign
currency loan and by underwriting and direct subscription to shares debenture and bonds.
Table 1.4
IFCI AND PURPUSE WISE ASSISTANCE
Serial number

Purpose

Sanctions

Disbursements

New

15919.6

15611.3

56

Expansion

6649.6

6547.5

Rehabilitation

115.7

144.2

Modernization

5459.8

5480.4

Working capital

837.5

774.2

Other

16279.4

15476.1

Total

4526.11

44003.6

18000
16000
14000
12000
10000
8000

Sanctions

6000

Disbursements

4000
2000
0

57

Interpretation: In the purpose of wise sanctions and disbursements new projects @ Rs

15919crore which in 35.17% of total sanctions up to march 2012.
Table 4.4
IDBI AND SECTOR WISE ASSITANCE
SERIAL

SECTOR

AMMOUNT

PERCENTAGE

Public

34963

16.05

Joint

11753.7

5.39

Cooperative

1802.2

.83

Private

169304.2

77.71

Trust

50

.02

Total

217873.3

100

58

180000
160000
140000
120000
100000

AMMOUNT
PERCENTAGE

80000
60000
40000
20000
0
Public

Interpretation:

Joint

Cooperative

Private

The IDBI provided maximum assistance to private sector by giving

Rs169304.2cr as a march 2012. This constitutes our 77% at total assistance by IDBI. This
cooperative sector gets very little out of the total sections of IDBI
Table 1.5

IDBI data analysis.

IDBI AND PURPOSE WISE ASSISTANCE
SERIAL

PURPOSE

YEAR

SANCTIONS

New

2007-2012

67498.8

NUMBER
1

2007-2012
2

Expansion

50627.3
2007-2012

Rehabilitation

Modernization

12976.5
2007-2012
1415.8
59

2007-2012
5

Working capital

44086.5

Total

176604.9

80000
70000
60000
50000
40000
YEAR

30000

SANCTIONS

20000
10000
0

Interpretation:

The main objective of IDBI is to provide term financial service to

establishment of new project as well as the expunction diversification movelization

and

technology up gradation of existing industrial enterprises it is one of the most imported financial
institution which has provide lot of funds for industrial activities in country

Table 1.7
IDBI AND INSTITUTION WISE ASSISTANCE
SERIAL NUMBER

INSTITUTION

2010-2011

60

2011-2012

SFC

129.8

87.7

SIDC

233.2

99.6

TOTAL

363

187.3

250

200

150
2010-2011
2011-2012
100

50

0
SFC

SIDC

Interpretation: The IDBI institution wise assistance is SIDC which has large institution in
2010-2011 in comparison to SFC institution but it decline in later year 2011-2012.

Table 1.8
SIDBI finance assistance
61

YEAR

SANCTION

GROWTH %

DISBURSEMENT

GROWTH

2006-2007

295

279

2007-2008

1764.8

498.2

672.4

2008-2009

1620.4

3.2

766.5

141.1

2009-2010

3276.5

79.4

1506.2

13.9

2010-2011

3008.1

-79

949.3

96.5

2011-2012

12459.7

-23.9

4173.6

-37

UP

TO

MARCH 2012

62

14000
12000
10000
8000
SANCTION

6000

GROWTH %
DISBURSEMENT

4000
2000
0
-2000

Interpretation: The sanctions of SIDBI are generally given to those entrepreneurs who have
business of small scale and fulfill the criteria of SIDBI. It undertakes large variety of promotional
and developmental activities in order to improve the strength of small scale units creating
employment opportunities and new way for economic development of poor.

Table 1.9
SIDBI Analysis
Serial number

Purpose

Earlier

Present

Investment limits for 200000

500000

tiny unit for

2

Refinances size of 500000

projects
63

1000000

Eligible

for

assist 75000

150000

quantum of
4

Equity

assistance 1000000

project

out

2000000

lay

component for
5

Eligibility

200000

Eligible loan limit 7500000

to

under

500000
1000000

normal

refinance scheme

2500000
2000000
1500000
1000000
500000
Earlier

Present

64

Interpretation: SIDBI has some eligibility criteria for industries as to seek any kinds of
assistance or founding and from the recent times SIDBI has raised it eligibility criteria for every
institution to gain financial assistance. Here follows the change in the criteria of the SIDBI

Data Analysis of NABARD

It is responsible for short term medium term and long term financing of agriculture and
allied activities. The institutions such as film Finance Corporation, tea plantation
finance scheme, shipping development fund news paper finance corporation handloom
finance corporation housing development Finance Corporation also provide financial
varies areas. There the various financial activity of NABARD is giving and analyzed in
accordance with each other.

65

 With its effective overseeing and monitoring of the implementation of government of

INDIA program double the flow of credit to agriculture over a three year period from
2010-2011 at total disbursement .

2) The growth the development banking.

In 1948 first industrial development bank of India establish for purpose of financing her
industrial development. This bank undertake functions of issue a commercial bank and mortgage
institution .world war second Indian country developed specialized institution to industrial
finance for reconstruction modernization a development of war regard industries. These banks
were mainly mortgage bank which extended long term loan to industries.
66

IDBI, IFCI, ICICI, and IIBI provide financial assistance to medium and large industries, whereas
SIDBI caters to the financial needs of small-scale sector. AIIIBs also undertake
Promotional and developmental activities. among the SFIs, RCTC and TDICI provide risk
capital, venture capital and technology finance, mostly to start-up companies in the knowledgebased IT and related sectors.

Institution

2009-2010

(A)

Amount
(RE.

2010-2011
% age

in Share

crore
IDBI

14,470

% age

Amount

% age

in $hare

(RS. in
crore)

$hare`

17498

33.9

Amount
(RS.

2011-2012

crore)
37.6

17,059
67

37

ICICI

19,22

49.9

25,836

55.9

31965

62

IFCI

4,8 19

12.5

3,272

7.1

2,121

4.1

TOTAL

38,514

100

46,167

100

51,504

100

Institution

2009-2010

2010-2011

2011-2012

(B) All India financial

56296

67594

72528

64.4

68.3

71.1

institute
(C) A as %B

Source: Report on Trends & Progress of Banking in India, 2011-12

Interpretation: It is evident from the table that the three All-India Financial Institutions
account for 71% of the total disbursement of all India Financial Institutions. Even amongst them
the share of ICICI Ltd. is predominant and has consistent.ly increased over the last years.

3) Various development banks and services.

68

The development bank in India divided in to three parts.

i) Industrial development bank. ii) Agricultural bank. iii) Export Import development banks.
Services of Industrial Development Bank of India
In order to increase its customer base, the Industrial Development Bank of India offers a number
of customized and innovative banking services. The services are meant to offer cent percent
satisfaction to the customers. Some of the well known services offered by the bank are:
Wholesale Banking services: The wholesale banking services form a major part of the banking
services of the bank. The services that are offered under the wholesale division are:

Cash Management

Transactional services

Finance of working capital

Agro based business transactions

Trade services

The wholesale banking services are an important source of income in a number of infrastructure
projects such as power, transport, telecom, railways, roadways, and logistics and so on.

Retail Banking Services: The Industrial Development Bank of India is also a leader in the retail
banking services. The Net Interest Income amounted to around ` 2166 Crores while the Net Profit
amounted to around ` 187 Crores. The main objective of the retail services is to provide high
69

quality financial products to the target market to give that one-stop-solution to the banking needs.
The retail products offered by the bank include:

Housing loans

Personal loans

Securities loans

Mortgage loans

Educational loans

Merchant establishment overdrafts

Holiday travel plans

Commercial property loans

Treasury facilities and services: The net interest income of this sector amounts to around ` 1283
Crores while the net profit amounts to around ` 44.8 Crores. One can get an array of financial
products such as cash management services, deposit, treasury products, trade finance services and
so on. The three segments in this sector are:

Local Currency Money Market

Debt Securities and equities

Foreign Exchange and Derivatives

70

Exina Bank undertakes a variety of lending and service programmers, which are meant for
Indian entities, Commercial banks and overseas entities. Exam Bank operates a wide
variety of schemes for the benefit of Indian exporters. Some of these are as follows:
i) Export (Supplier's) Credit: Such credit is granted to Indian exporters to enable them to
extend term credit to overseas importers of eligible Indian goods.
ii) Finance for Consultancy and Technology Services : Such credit is granted to Indian
exporters of consultancy and technology services to enable them to extend term credit to
Overseas importers.
iii) Pre-shipment Credit: Such credit is granted to Indian exporters to enable them to buy raw
materials and other inputs for export contracts extending over a period of six months
iv) Foreign Currency Pre-shipment Credit: This is granted to eligible exporters to enable them
to access finance for import of raw materials and other inputs needed for export production.
v) Finance for Export Oriented Units and Units in Export Processing Zones : This credit is
granted to Indian Companies to acquire indigenous and imported machinery and other assets for
export production.
vi) Foreign Currency Lines of Credit for Imports: Under this scheme, eligible export oriented
units get foreign currency loans to acquire imported machinery for export production.
vii) Overseas Investment Finance: Such finance is provided to Indian promoters of joint
ventures or subsidiary set up abroad. It enables them to finance equity contribution in such
ventures. Exim Bank is one of the agencies to carry out technical appraisal to establish viability
of overseas projects for approval by Govt. / RBI.
viii) Export Marketing Finance: Such finance is provided to exporters to implement market
development programmers and finance productive capabilities through loan financing.
71

Companies can upgrade their production facilities and implement their strategic export market
development plants to penetrate and sustain their presence in industrialized country markets.

ix] Production Equipment Finance: Under this scheme eligible export-oriented units are
granted loans to acquire equipment.
x) Programme for Financing Product/ Process Quality Certiflcrrtion: Under this programme,
50% of the. Eligible expenditure incurred by corporate to obtain product/
Process quality certification is reimbursed.
xi) Export Vendor Development Finance: This facility enables the vendors of export-oriented
units to acquire plant and machinery and other assets for increasing
Export capability.
xii) Export Product Development Finance: This scheme is meant to enable Indian firms to
undertake product development, Research and Development for exports.

Interpretation: From the above data it is clear that industrial bank provide Long term and
short term loans to the industries and Agriculture development bank NABARD provides financial
assistance to the farm sector by way of refinance for various agriculture and allied activities, like
minor irrigation, plantation and horticulture, land development and EXIM bank provide credit
granted to Indian exporters to enable them to extend term credit to overseas importers of eligible
Indian goods.

72

4) The role of development banking in Indians economic development.

The economic development of our country depends more on real factors like the industrial
development, modernization of agriculture, organization of internal trade and expansion of
foreign trade, especially exports, and less on the monetary factors contributed by banking
Economic planning like laying down of specific targets and allocating particular sums of money
that constitute the economic policy of the government also plays a significant role. Still we
cannot under-estimate the importance of banking and the monetary mechanism.
One of the major considerations that led to the nationalization of the fourteen major development
banks of India in 1948 was the fact that banks, in general, had been negligent of the vital priority
sectors of the economy, viz., agriculture and small-scale industries. The commercial banks had
remained largely indifferent to the credit needs of the farmers for agricultural operations and land
improvement. A handful of people were able to exploit the bank finance to serve their own
individual interests and convenience. Very often, they used bank funds for the hoarding of
essential articles and for specialization, thus nurturing anti-social elements. Nationalization
brought about a major policy shift in the working of these banks.
One of the most important problems of a developing economy is that of capital formation. There
is a good deal of difference between hoarding and saving and the people in the countryside have
to be made to realize the difference. This can be easily done by banks. They can undertake to
educate the rural populace and thus mobilize their savings. A number of leading economists have
confirmed the fact that the amount of capital available in India for investment is surprisingly and
73

inexplicably large. Only we need exploiting this idle capital. Who else can exploit it, if not
banks? Both in rural and urban areas, huge amounts of money are wasted on celebrations like
marriages and births. If banks can offer handsome interest on savings, people can be induced to
direct their savings from wasteful activities to banks. Promoting attractive deposit schemes needs
some very active work on the part of the banks, but it can certainly mobilize a large amount of
saving for capital formation.
The Government of India has now undertaken a large number of projects for the economic
reconstruction of the country. Banks can generate an adequate volume of credit and conduct it
along useful productive channels. They can distinguish between the essential and non-essential
factors of the economy between productive and non-productive investment, between speculative
arid non-speculative borrowings and thus help in the growth of the economy.
Before nationalization, our banks could not play this constructive role expected of them. But after
nationalization, the entire banking machinery has now been geared to the economic development
of the country. They have started looking after the needs of the small farmer and the new
entrepreneur. It is earnestly hoped that the Government will take some more positive steps to
ensure that the real benefits of an organized banking system percolate down to the poor illiterate
masses of India.

Interpretation: : From the above data it is clear that development banking help in countries
development such as modernization of agriculture, organization of internal trade and expansion
of foreign trade and thus Nationalization brought about a major policy shift in the working of
these banks.

74

5) To study about the challenges of development banking.

Development banks are likely to be seriously challenged in this decade. On the lending side of
their operations, one challenge is competition from commercial banks and merchant banks. The
growth in size of non-financial enterprises and the associated growth in the average size of their
loan demands will bring them into a range which attracts the interest of private financial
institutions. Paradoxically too, the success of development banks in demonstrating the feasibility
of doing good investment financing business will also encourage the interest of potential
competitors. Development banks should see these prospects as both challenges and opportunities.
The opportunities in here in the possibility of joint financing arrangements in which development
banks bring their comparative strength in appraising and monitoring investment projects. In
situations of competition, development banks would need to increase their average loan sizes to
remain competitive. If they do not, there is the danger of their clients out-growing them. Larger
loan sizes might generate reductions in unit costs which would provide scope for competitive
loan pricing and higher rates of return.
Another challenge on the lending side is the greater complexity of enterprise risk evaluation
when the enterprises are cross border enterprises operating in non-uniform regulatory and legal
jurisdictions. On the funding side, development banks may increasingly need to rely on their own
financial strength for market access of funds since governments may become reluctant to
guarantee their debt and might not have the debt bearing capacity or sufficiently strong credit
75

ratings. If development banks are to rely on their own financial strength, it becomes imperative
that they become more efficient and that they adopt loan pricing policies which ensure adequate
rates of return on their asset portfolios.
Development banks should also consider engaging their traditional funding partners on different
modalities of funding as alternatives to lines of credit. For instance, consideration could be given
to fixed term debt and to bond issues both of which might lower costs of funds mobilization and
transactions costs associated with reporting on lines of credit.

Interpretation:

From the above data it is clear the development banks are likely to be seriously

challenged in this decade. On the lending side of their operations, one challenge is competition from
commercial banks and merchant banks. Development banks should also consider engaging their

traditional funding partners on different modalities of funding as alternatives to lines of credit.

76

FINDINGS
The researcher found that IFCI and industrial finance section of IFCI went up to
Rs.6579.7crore in 2004 from 32.3crore in 1980-1981 but it declined to Rs. 728crore by
2010-2011 up to march 2012 total sanctioned assistance was Rs. 45426.7crore while
disbursements were Rs. 44169crore.
The researcher found that IFCI provide direct financial assistance for financing projects
in term of rupee loan, foreign currency loan and by underwriting and direct subscription
to shares debenture and bonds.

The researcher found that the three All-India Financial Institutions account for 71% of
the total disbursement of all India Financial Institutions. Even amongst them the share
of ICICI Ltd. is predominant and has consistent.ly increased over the last years.

The researcher found that industrial bank provide Long term and short term loans to the
industries and Agriculture development bank NABARD provides financial assistance to
the farm sector by way of refinance for various agriculture and allied activities, like
minor irrigation, plantation and horticulture, land development and EXIM bank provide
credit granted to Indian exporters to enable them to extend term credit to overseas
importers of eligible Indian goods.
The researcher found that development banking help in countries development such as
modernization of agriculture, organization of internal trade and expansion of foreign
77

trade and thus Nationalization brought about a major policy shift in the working of these
banks.

Recommendations
1. According to me development banking should need to provide most effective services to
its customer through developing their own new strategies and improvements.
2. According to me most of the consumer preferred for quick and fast services from the
dealer. So bank need to provide quick facility to its customer.
3. Online sales promotion have been booming in recent years due to over-whelming
popularity of internet so banking must inculcate this promotion activity for increasing the
no. of their customers.
4. According to me bank should need to provide more facility to satisfy their customer.

78

CONCLUSION
The course of development of financial institutions and markets during the post-Independence
period was largely guided by the process of planned development pursued in India with emphasis
on mobilization of savings and channeling investment to meet Plan priorities. At the time of
Independence in 1947, India had a fairly well developed banking system. The adoption of bank
dominated financial development strategy was aimed at meeting the sect oral credit needs,
particularly of agriculture and industry. Towards this end, the Reserve Bank concentrated on
regulating and developing mechanisms for institution building. The commercial banking network
was expanded to cater to the requirements of general banking and for meeting the short-term
working capital requirements of industry and agriculture. Specialized development financial
institutions (DFIs) such as the IDBI, NABARD, NHB and SIDBI, etc., with majority ownership
of the Reserve Bank were set up to meet the long-term financing requirements of industry and
agriculture. To facilitate the growth of these institutions, a mechanism to provide concessional
finance to these institutions was also put in place by the Reserve Bank. India has witnessed an
absolute metamorphosis over the last decade. Sprawling cities, flourishing businesses, higher
standard of living are all indicators of unprecedented growth, globalization, urbanization,
expansion and diversification. Infrastructure modernization and development is said to be the key
driver of all the growth and economic activity. The public sectors alone cant meet the required
funds and technology for the projects. So the Government decided to accomplish this business by
collaborating with the sector which could provide this requirement which was none other than the
private parties. Thus development banking emerged as a joint collaboration of the public and
private sectors. The Indian infrastructure sector is at an inflection point and there are immense
opportunities for the private sector.
79

Limitations of the study

The study is limited up to some specific sectors and does not cover the whole area where
development banking is involved. Since the study is based on the secondary data any faulty data
will be forwarded as the data is extracted from here only. The study has the time constraints too
which leads to its limited scope.

80

Bibliography
BOOKS :

Krishnaswami, O. R. ; Methodology of Research in Social Sciences ; 2007 ; Himalaya

Publishing House

Kothari, C. R. ; Research Methodology ; 1999 ; Wishwa Prakashan

MAGZINES :

Business & economics

Business India

Business today

India today

Websites
http://www.idbi.com
http://www.sidbi.com

http://www.google.com
http://www.banknetindia.com

News paper
Financial express basis line
The economic times
Business standard

81