ROLE OF DEVELOPMENT BANKS IN INDUSTRIAL FINANCING

Developement bank is a national or regional financial institution designed to

provide medium- and long-term capital for productive investment, often
accompanied by technical assistance, in poor countries. In India there is IFCI
(Industrial financial corporation of india),IDBI (Industrial development bank of
india),SIDBI (Small industries development bank of india )to provide necessary
capital for the purposes…

Main functions of Development banks would include:-

1. It is a specialised financial institution.

2. It provides medium and long term finance to business units.

3. Unlike commercial banks, it does not accept deposits from the public.

4. It is not just a term-lending institution. It is a multi-purpose financial

institution.

5. It is essentially a development-oriented bank. Its primary object is to promote

economic development by promoting investment and entrepreneurial activity in
a developing economy. It encourages new and small entrepreneurs and seeks
balanced regional growth.

6. It provides financial assistance not only to the private sector but also to the
public sector undertakings.

7. It aims at promoting the saving and investment habit in the community.

8. It does not compete with the normal channels of finance, i.e., finance already
made available by the banks and other conventional financial institutions. Its
major role is of a gap-filler, i. e., to fill up the deficiencies of the existing financial
facilities.

9. Its motive is to serve public interest rather than to make profits. It works in the
general interest of the nation.

For example : The Role of IDBI in industrial promotion of India

Development banks are of recent origin. The conclusion of World War - 11 saw the
ravages and destruction of many nations across the globe. This called for an urgent
rebuilding of such economies. Not only this, emergence of many independent nation
states during the 40's also called for their balanced development. These two events
across the globe called for setting up of development banks. India had the first
experience of a

full-fledged development bank in 1948 with the setting up of Industrial Finance

Corporation of India (IFCA) in 1948. This was soon followed by the
establishment of State Financial Corporation (SFCs) in almost all the states of the
union anda development bank in the private sector i.e., Industrial Credit and
Investment Corporation of India (ICICI). As of now, a well-integrated structure of
development financial institutions and banks have evolved in the country over
the years dedicating to the cause of industrial promotion.
IDBI, a premier term-lending financial institution was set up in 1964 to
coordinate the activities of a plethora of development banks that came up in the
country. Development financial institutions including IDBI have played a vital
and significant role in building up of country's strong vibrant and varied
industrial edifice. They have achieved tremendous growth since independence.
IDBI provides financial assistance to industrial concerns primarily for the
following three
reasons.
1. To set up new industrial units for any good or service.
2. For modernization and technological up gradation of the existing units.
3. For rehabilitation of the sick industrial units.