Functions of Development Banks In India

functions of development banks

The role or functions of development banks in India are are depicted below. Now lets discuss important function of Development Banks one by one. The 9 important function of development banks in India are as follows:-

1. To promote and develop small-scale industries (SSI) in India-

Development banks play an important role in the promotion and development of the small-scale sector. Government of India (GOI) started Small Industries development Bank of India (SIDBI) to provide medium and long-term loans to Small Scale Industries (SSI) Units. SIDBl provides direct project finance, and equipment finance to SSI units.

2. To finance the development of the housing sector in India-

Development banks provide finance for the development of the housing sector. GOI started the National Housing Bank (NHB) In 1988. NHB promotes the housing sector in the following ways:

  • It promotes and develops housing and financial institutions.
  • It refinances banks and financial institutions that provide credit to the housing sector.

3. To facilitate the development of large scale industries (LSI) in India-

Development banks promote and develop large-scale industries (LSI). Development financial institutions like lDBI, lFCl, etc., provide medium and long-term finance to the corporate sector. They provide merchant banking services, such as preparing project reports, doing feasibility studies, advising on location of a project, and so on.

4. To help the development of agricultural sector and rural India-

Development banks like National Banks for Agriculture & Rural Development (NABARD) helps in the development of agriculture. NABARD start d in 1982 to provide refinance to banks, which provide credit to the agriculture sector and also for rural development activities. lt provides training to agricultural banks and helps to conduct agriculture research. 

5. To enhance the foreign trade of India-

Development banks help to promote foreign trade. Government of India started Export-import Bank of India (EXIM Bank) in 1982 to provide medium and long-term loans to exporters and importers from India. It provides overseas buyers credit to buy Indian capital goods. It also encourages abroad banks to provide finance to the buyers in their country to buy Capital goods from India.

6. To help to revive (Cure) sick industrial units-

Development banks help to revive (cure) sick-units. Government of India (GOI) started Industrial investment Bank of India (IIBI) to help sick units. IIBI is the main credit and reconstruction institution for revival of sick units. It facilitates modernization, restructuring and diversification of sick-units by providing credit and other services.

7. To encourage the development of Indian entrepreneurs-

Many development banks facilitate entrepreneurship development. NABARD, State Industrial Development Banks and State Finance Corporations provide training to entrepreneurs in developing leadership and business management skills. They conduct seminars and workshops for the benefit of entrepreneurs.

8. To promote economic activities in backward regions of the country-

Development banks facilitate rural and regional development. They provide finance for starting companies in backward areas. They also help the companies in project management in such less-developed areas.

9. To contribute in the growth of capital markets-

Development banks contribute the growth of capital markets. They invest in equity shares and debentures of various companies listed in India. They also invest in mutual funds and facilitate the growth of capital markets m India.

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