Development Banks are the financial institutions that provide funds and financial assistance to new and upcoming business enterprises. Development banks like IDBI, SIDBI, and IFCI etc. were setup to meet long term capital requirements of the industry. They help in accelerating industrial and economic growth.
These are the financial institutions concerned with providing all types of financial assistance (medium as well as longterm) 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.
In our country development banks were started with the objective of increasing the pace of industrialization. To help all round industrialization development banks were made multipurpose institutions. Besides financing, they were assigned promotional work also. The traditional financial institutions could not take up this challenge because of their limitations.
An outstanding financial development of the post-independence period has been the rapid growth of development banks in the country. These banks are specialized financial institutions which perform the twin functions of providing medium and long-term finance to private entrepreneurs and of performing various promotional roles conducive to economic development. As the name clearly suggests, they are development-oriented banks. As banks, they provide finance. But they are unlike ordinary commercial banks.
The financial assistance to industry is given in the following four main forms:
- Term loans and advances,
- Subscription to shares and debentures,
- Underwriting of new issues, and
- Guarantees for term loans and deferred payments.
At present, at the all-India level, there are five industrial development banks:
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