There are a lot of steps taken by the Indian Government to deal with the current slowdown of the economy. One such step is the establishment of development banks in India. This article tries to explore the important concepts about development banks.
About Development Banks
- It is a financial institution that provides long-term credit for the overall industrial growth of the country such as urban infrastructure, mining and heavy industries, etc.
- Unlike commercial banks, it does not accept deposit from the public.
- These banks often lend at low and stable rates of interest in order to promote investment with considerable social benefits.
- These banks are supported by governments or international institutions.
- They provide financial assistance for both public sector and private sector industries.
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Difference between Commerical banks and development banks.
|Commercial Banks||Development banks|
|They are generally set up as companies under the Act of the company.||They are usually set up by the government under some special Act.|
|They mainly provide short and medium terms loans.||They provide medium and long term loans.|
|They are an ordinary financial institution.||They are specialized multi-purpose institutions.|
|Deposit is taken from the public.||Deposit is taken from Central and State governments.|
Major Objective of Development Banks in India
- To provide funds to start a new business venture, expansion, and diversification of the business in the new sector in order to promote rapid industrial growth.
- To promote development in backward areas by providing funds to the entrepreneurs at low interest.
- To provide long term funds for industries where the gestation period may be longer.
- Their efforts ultimately result in an increase in employment.
- The main disadvantage of these banks is that this increases the Non-Performing Assets(NPAs) as the fund provided by these banks are invested in the infrastructure.
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