What are Development Banks?

Development Banks are also known as Term-Lending Institutions (TLIs) or Development Finance
Institutions (DFIs).

They are specialized financial institutions under the Banking System in India that provide long-term
finance and support to the sectors of the Indian economy which possess higher risks and cannot
have access to adequate loans from Commercial Banks.

Objectives of Development Banks in India

Development banks in India have been established with several key objectives as can be seen below:

Promoting Economic Growth: They are primarily aimed at fostering economic growth by financing
long-term investments in key sectors like infrastructure, agriculture, and industry.

Facilitating Infrastructure Development: They play a key role in financing the construction and
development of essential infrastructure projects such as roads, bridges, power plants, and irrigation
systems.

Supporting Strategic Sectors: They also aim to support the development of strategic sectors that are
critical for a nation’s economic well-being, such as renewable energy, transportation networks, etc.

Encouraging Entrepreneurship and SMEs: By offering loans, equity investments, and advisory
services, they help entrepreneurs and SMEs grow and create jobs.

Balanced Regional Development: They strive to bridge regional disparities by directing investments
towards underdeveloped or lagging regions.

Roles of Development Banks in India

These banks play a multifaceted role in India’s economic landscape as can be seen as follows:

Infrastructure Creation: Their long-term funding enables the development of critical infrastructure
projects, laying the foundation for future economic activity.

Empowering Businesses: They provide loans for capital investments, infrastructure development, and
technological upgrades. This empowers businesses to grow and modernize.

Promotional Activities: Much more than just simple lending activities, these banks offer advisory
services, and partner with industry bodies to develop specific sectors.

Promotion of SMEs: Institutions like SIDBI focus specifically on the SME sector, providing them with
necessary financial services and support to help them grow and thrive.

Export Promotion: The EXIM Bank provides financial assistance to exporters and importers, and helps
in promoting cross-border trade.

Social Development: By facilitating financing for rural and agricultural projects, they contribute to
inclusive growth and poverty alleviation.

Agricultural and Rural Development: NABARD plays a crucial role in financing agricultural and rural
development, supporting a range of activities from irrigation infrastructure to microfinance
institutions that lend to small farmers.
Innovation and Technology Upgradation: These banks also fund research and development activities,
facilitating the adoption of new technologies and innovations across various sectors.

Types of DFIs

Development Financial Institutions (DFIs) in India

1. Industrial Development Bank of India (IDBI)

Introduction

The Industrial Development Bank of India (IDBI) was established in 1964 under the Industrial
Development Bank of India Act to provide financial assistance for industrial development in India.
Initially, it operated as a subsidiary of the Reserve Bank of India (RBI) but later became an
independent entity under the Government of India in 1976. Over time, IDBI transformed into a
commercial bank, offering a wide range of financial services.

Functions

 Providing Financial Assistance – IDBI offers long-term loans and credit facilities to industries
for expansion and modernization.

 Promoting Industrial Growth – It supports industrial enterprises by financing infrastructure

 Encouraging Entrepreneurship – IDBI provides funding and advisory services to startups and
small businesses.

 Market and Investment Research – It conducts surveys and research to assess industrial
trends and investment opportunities.

 Refinancing Loans – IDBI refinances loans given by other financial institutions to industrial
concerns.

 Guaranteeing Loans – It guarantees loans raised by industries from banks and financial
institutions.

 Supporting Development Institutions – IDBI has played a key role in establishing institutions
like the National Stock Exchange (NSE) and National Securities Depository Limited (NSDL).

You can find more details here.

2. Industrial Finance Corporation of India (IFCI)

Introduction

The Industrial Finance Corporation of India (IFCI) was established in 1948 as the first development
financial institution in India. It was set up under a special Act to provide medium and long-term
credit to industrial enterprises. Initially, IFCI was a statutory corporation, but in 1993, it was
converted into a public limited company under the Companies Act, 1956.

Functions

 Providing Medium and Long-Term Loans – IFCI offers financial assistance to industrial
projects for expansion and modernization.
  Underwriting Securities – It underwrites the issue of stocks, bonds, and shares of industrial
enterprises.

 Encouraging Industrial Development – IFCI supports industries by financing infrastructure

 Foreign Currency Loans – It provides loans in foreign currencies to industries for

 Advisory Services – IFCI offers financial and technical consultancy services to businesses.

 Promoting Small and Medium Enterprises (SMEs) – It provides financial support to SMEs to
enhance their competitiveness.

 Supporting Infrastructure Development – IFCI finances projects related to power, telecom,

You can find more details here.

3. Small Industries Development Bank of India (SIDBI)

Introduction

The Small Industries Development Bank of India (SIDBI) was set up in 1990 under an Act of
Parliament to promote, finance, and develop the Micro, Small, and Medium Enterprises (MSME)
sector in India. It was initially a subsidiary of IDBI but later became an independent financial
institution.

Functions

 Providing Financial Assistance – SIDBI offers loans and credit facilities to MSMEs for business
expansion.

 Supporting Entrepreneurship – It provides funding and advisory services to startups and

 Encouraging Technological Upgradation – SIDBI helps MSMEs adopt modern technology for
better productivity.

 Promoting Export-Oriented Units – It provides financial support to MSMEs engaged in

 Facilitating Credit Flow – SIDBI ensures timely credit availability to MSMEs through banks
and financial institutions.

 Providing Venture Capital – It supports innovative startups through venture capital funding.

You can find more details here.

4. National Bank for Agriculture and Rural Development (NABARD)

Introduction

The National Bank for Agriculture and Rural Development (NABARD) was established in 1982 to
provide financial support for agriculture and rural development in India. It was set up by taking over
the functions of the Agricultural Credit Department (ACD) of RBI and the Agricultural Refinance and
Development Corporation (ARDC).
Functions

 Providing Refinance Support – NABARD offers refinance assistance to banks and financial
institutions for agricultural and rural development projects.

 Developing Rural Infrastructure – It finances rural infrastructure projects such as irrigation,

 Encouraging Rural Entrepreneurship – NABARD supports rural enterprises and self-help

 Supervising Cooperative Banks and RRBs – It monitors and regulates cooperative banks and
regional rural banks (RRBs).

 Implementing Government Schemes – NABARD plays a key role in executing government-

 Promoting Financial Inclusion – It works towards improving access to financial services in

You can find more details here.

5. Export-Import Bank of India (EXIM Bank)

Introduction

The Export-Import Bank of India (EXIM Bank) was established in 1982 to facilitate and promote
India’s international trade. It provides financial assistance to exporters and importers to enhance
India’s global trade competitiveness.

Functions

 Providing Export Credit – EXIM Bank offers credit facilities to exporters to boost
international trade.

 Encouraging Overseas Investments – It provides financial support to Indian companies

 Supporting Project Exports – EXIM Bank helps Indian companies secure contracts for
overseas projects.

 Offering Buyer’s Credit – It provides credit to foreign buyers to encourage imports from
India.

 Providing Market Expansion Support – EXIM Bank assists Indian businesses in expanding
their presence in global markets.

 Conducting Trade Research – It conducts research on international trade trends and

You can find more details here.

6. Industrial Reconstruction Corporation of India (IRCI)

Introduction
The Industrial Reconstruction Corporation of India (IRCI) was established in 1971 to assist in the
rehabilitation of sick industrial units. It was later converted into the Industrial Reconstruction Bank
of India (IRBI) in 1985.

Functions

 Restructuring Management – IRCI helps restructure the management of sick industrial units.

 Providing Technical and Managerial Assistance – It offers guidance to industries for revival.

 Facilitating Financial Assistance – IRCI helps industries secure financial support from banks
and government agencies.

 Reviving Weak Industrial Units – It provides solutions to labor and operational problems in
struggling industries.

 Supporting Industrial Growth – IRCI plays a role in ensuring the sustainability of industrial
enterprises.

You can find more details here.