See, it is somewhat true that not a lot of people know anything about Development Banks in India, like what they are, why they exist, and things like that. Just to be clear from the get-go, you see, development banks aren’t like those regular banks (mostly the commercial banks) that are out there just for profits, and you can open a bank account with them. Nah! That’s not how it works with development banks. If you go by the definition, a Development Bank or Development Finance Institution (DFI) is there to provide risk capital for economic development projects.
If you still don’t get it, well, just know that where the commercial banks are just out there for making profits, these development banks are there to fund some economic development projects that are usually high risk in nature and don’t immediately provide any profits or benefits. Though there usually are long-term benefits from these projects, and by funding these projects, these Development Banks try to help the economic growth right here in the country. We truly hope that now you understand what a Development Bank is, let’s now get to how many types of them are in India, how they function, what their structure is, and things like that. Alright then, here we go.
Why Do We Even Need Development Banks?
See, there are many sectors in India that have a lot of potential for the money to grow, and if you don’t know, we’re talking about sectors such as farming, small businesses, factories, and infrastructure. But the thing is, the regular commercial banks that you as a regular citizen of the country use don’t fund or provide loans to these sectors because, you know, they’re kinda high risk in nature and might not provide quick returns.
That is precisely why we need development banks. Get it now? Just to put it simply one more time, you see, these banks are out there to offer long-term financial help for these economic projects. With these Development Banks, it is not just about making profits now, nah, they usually aim to develop the whole country and not just the cities.
What Makes These Development Banks So Special?
First of all, just know that these Development Banks usually are set up by the government or non-profit organizations out there. And if you’re thinking like, where do these banks get funding from, then? Well, it is not like they take money from public deposits, you know, like those regular commercial banks? Nah! Instead of going down that route, they actually get funds from the government or RBI, or they even issue bonds.
Again, as we have said it many times now, see, these banks, well, they are not here to make profits. Their main job is to help people, industries, and the economy, simple as that! And it is not like they only work with public sectors; nah, they’re involved in private sector projects too.
How These Banks Are Organised in India (Aka Structure Of Development Banks)
Alright, so let’s talk about the structure part of these development Banks, shall we? So, it is not that complicated to understand; the reason for that is that the structure of these banks in India is pretty simple, actually. Like, most of them are grouped based on what they do and who they help, like, you might have seen some of these development banks only focusing on industries, whereas some others focus on specific sectors such as farming or housing or anything like that. In the end, though, they all have different goals within these industries and sectors, but if you look at the full picture, their mission is just to support the development of the nation. That’s all!
Talking about who controls these banks in India, well, the thing is that most of these banks are regulated by the RBI or directly supported by the Indian government. Though there are some banks too that work under specific ministries in the country, that just depends upon their role.
Types of Development Banks in India
Let’s now talk about what different types of development banks exist in India, shall we? So, let’s just get to it right away. Here:
1. Industrial Development Banks
As you can pretty much tell by the name, these types of banks are usually involved in the industrial segment of the country, and for example, there are banks like IFCI, IDBI, and SIDBI that come under this category. And for those who don’t know, it was actually IFCI that was the first ever development bank in India set up back in 1948.
2. Agricultural and Rural Development Banks
Within this type or category, there is one big bank you must have already heard of, and yes, we’re talking about NABARD, which is short for National Bank for Agriculture and Rural Development. This was started back in 1982, and as you can already tell, this was set up just to help the agriculture and rural infrastructure scene of the country.
3. Export-Import Development Bank
Then, there are financial institutions that only help in the export-import segment of the country, and a big name would be the Export-Import Bank of India (EXIM Bank), which was formed in 1982.
4. Infrastructure Development Banks
No need to explain this one as well because these are just the banks out there to support/fund infrastructure projects, and a prime example of that would be the National Housing Bank (NHB) and India Infrastructure Finance Company Limited (IIFCL).
5. Sector-Specific Development Banks
Alright, so lastly, there are some sector-specific development banks, too, like Power Finance Corporation (PFC) and Rural Electrification Corporation (REC). Get it now?
What Exactly Do These Banks Do? (Aka Functions Of Development Banks)
By this point, you already know a ton about these development banks, but still, let’s just go over what these banks are exactly involved in. Here:
- They’re also there to fund long-term projects to build factories, irrigation systems, roads, and things like that.
- They even refinance smaller banks and institutions.
- When it comes to reducing risks, they can also invest in company shares, buy debentures, or underwrite projects.
- It’s not always about big risky projects; they sometimes also provide support or advise new entrepreneurs.
- To some extent, you see, they help the government in policy-making and planning big economic projects.