What is Development Banks? Meaning and Definition!

Development banks are those which have been set up mainly to provide infrastructure facilities for the industrial growth of the country. The Concept of Development Banks: Meaning of Development Banks, Definition of Development Banks, and Development Banking in India: Definition and Features! They provide financial assistance for both public and private sector industries. Also learned, Commercial Paper, What is Development Banks? Meaning and Definition!

Learn, Explain What is Development Banks? Meaning and Definition!

Meaning of Development Banks:

Development banks are specialized financial institutions. They provide medium and long-term finance to the industrial and agricultural sector. They provide finance to both private and public sector. Development banks are multipurpose financial institutions. They do term lending, investment in securities and other activities. They even promote saving and investment habit in the public.

Definition of Development Banks:

There is no precise definition of the development bank. William Diamond and Shirley Bosky consider industrial finance and development corporations as ‘development banks’ Fundamentally a development bank is a term lending institution.

Development bank is essentially a multi-purpose financial institution with a broad development outlook. A development bank may, thus, be defined as a financial institution concerned with providing all types of financial assistance (medium as well as long-term) to business units, in the form of loans, underwriting, investment and guarantee operations, and promotional activities — economic development in general, and industrial development, in particular. “In short, a development bank is a development-oriented bank.”

The definition of the term ‘development banks’ can be stated as follows:

In General Sense:

“Development banks are those financial institutions whose prime goal (motive) is to finance the primary (basic) needs of the society. Such funding results in the growth and development of the social and economic sectors of the nation. However, needs of the society vary from region to region due to differences were seen in its communal structure, economy and other aspects.”

As per Banking subject (mainly in the Indian context):

“Development banks are financial institutions established to lend (loan) finance (money) on the subsidized interest rate. Such lending is sanctioned to promote and develop important sectors like agriculture, industry, import-export, housing, and allied activities.”

Development Banks in India:

Working capital requirements are provided by commercial banks, indigenous bankers, co-operative banks, money lenders, etc. The money market provides short-term funds which mean working capital requirements.

The long-term requirements of business concerns are provided by industrial banks and the various long-term lending institutions which are created by the government. In India, these long-term lending institutions are collectively referred to as development banks.

They are:

1. Industrial Finance Corporation of India (IFCI), 1948
2. Industrial Credit and Investment Corporation of India (ICICI), 1955
3. Industrial Development of Bank of India (IDBI), 1964
4. State Finance Corporation (SFC), 1951
5. Small Industries Development Bank of India (SIDBI), 1990
6. Export-Import Bank (EXIM)
7. Small Industries Development Corporation (SIDCO)
8. National Bank for Agriculture and Rural Development (NABARD).

In addition to these institutions, there are also institutions such as Life Insurance Corporation of India, General Insurance Corporation of India, National Housing Bank, Unit Trust of India, etc., which are providing investment funds.

Development banks in India are classified into the following four groups:

• Industrial Development Banks: It includes, for example, Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (IDBI), and Small Industries Development Bank of India (SIDBI).
• Agricultural Development Banks: It includes, for example, National Bank for Agriculture & Rural Development (NABARD).
• Export-Import Development Banks: It includes, for example, Export-Import Bank of India (EXIM Bank).
• Housing Development Banks: It includes, for example, the National Housing Bank (NHB).

Industrial Finance Corporation of India (IFCI) is the first development bank in India. It started in 1948 to provide finance to medium and large-scale industries in India.

Development Banking in India: Definition and Features!

In the field of industrial finance, the concept of the development bank is of recent origin. In a country like India, the emergence of development banking is a post­-independence phenomenon.

In Western countries, however, development banking had a long period of evolution. The origin of development banking may be traced to the establishment of ‘Society General Pour Favoriser I’ lndustrie Nationale’ in Belgium in 1822. But the notable institution was the ‘Credit Mobiliser’ of France, established in 1852, which acted as the industrial financier.

In 1920, Japan established the Industrial Bank of Japan to cater to the financial needs of her industrial development. In the post-war era, the Industrial Development Bank of Canada (1944), the Finance Corporation for Industry Ltd. (FCI) and the Industrial and Commercial Finance Corporation Ltd. (ICFC) of England (1945), etc., were established as modern development banks to provide term loans to industry. In 1966, the U.K. Government set up the Industrial Reorganisation Corporation (IRC). In India, the first development bank called the Industrial Finance Corporation of India was established in 1948.