Project Report ON "Development Bank'': Master of Business Administration SESSION 2009-2011

PROJECT ON DEVELOPMENT BANK
PROJECT REPORT
ON
“DEVELOPMENT BANK’’
SUBMITTED IN PARTIAL FULFILLMENT OF REQUIREMENT

FOR THE AWARD OF THE DEGREE OF
MASTER OF BUSINESS ADMINISTRATION
SESSION 2009-2011
Submitted by: Submitted to:
Name Ajay Mrs. Monisha Gupta vashishta

Roll no. MBA/09/03 MBA Faculty
BHAGWAN MAHAVIR INSTITUTE OF ENG. & TECH.

(SONIPAT)
AFFILIATED TO MAHARSHI DAYANAND

UNIVERSITY (ROHTAK).
1
Table of Contents
Chapter no. Particulars Page no.

a. Title page a
b. Declaration b
c. Acknowledgements c
d. Executive summary d
Chapter 1 Introduction to project 1
 Significance of study
 Objectives of study
 Review of existing literature
 Focus of study
 Conceptualization
Chapter 2 Research methodology
Chapter 3 Introduction to development banks
Chapter 4 Development banking in India
Banks under study
 IDBI
 IFCI
 SIDBI
 NABARD
Chapter 5 Data analysis
2
Chapter 6 Finding of study
Chapter 7 Limitation of study
Chapter 8 conclusion
Chapter 9 Bibliography
3
DECLARATION
I AJAY Roll No. MBA/09/03, MBA 2Year 4th Semester of BHAGWAN

MAHAVIR INSTITUTE OF ENGG. & TECH. Sonipat. Affiliated to
M.D.U Rohtak here by declared that the Project training report entitled
“Development Bank” is an original work and the same as not been submitted
to any other institute for the award of any other degree.
The presentation of report was made on date………………………under the
suggestions given by the faculty members were duly incorporated.
Signature of Project Incharge Signature of the Candidate

Mrs. Monisha Gupta vashishta
Signature of Head of Deptt.

Mrs. Priyanka Sehgal
Director
BMIET, Sonepat
4
ACKNOWLEDGEMENTS
The study is not the work of individual but a number of persons are directly
or indirectly help me in preparation of this project report. So it is my duty of
express my gratitude to those that helped and assisted me in giving shape to
this project report.
First an foremost, my intellectual debt is to those persons who have

contributed significantly to the emerging field of my project and whose work
has been quoted copiously and used extensively by me in completing this
book.
I am thankful to Mrs. Monisha Gupta Vashishta, who guided me to

complete my project report having very friendly nature.
I would also like to thank my HOD Mrs. Priyanka Sehgal. Who helped me
in the preparation of my project report. In spite of her busy schedule, gave
me time and valuable guidance through out of my guidance work.
However, I accept the sole responsibility for any possible errors of omission
and commission and would be extremely grateful to the readers of these
projects.
[AJAY]
5
Executive Summary
Development bank plays a very important role in economic development of

our country. Since independence they have contributed a lot to the inception
of industrialization and all other technological innovations. There basic
objective is to assist the development in country which perform by proving
every kind of help possible i.e. financial, advisory, technological etc.
This study helps in portraying the current picture of development banks in
India and shows their role in economy. It also helps in showing the various
schemes that banks have and their whole procedure to provide the assistance
to people.
This study also shows the various lacks in the system of development banks
due which they fail in some sphere to achieve their set targets. There are
various drawbacks in our own financial system that hinderers the growth of
these development banks such as lack of funds with government, lack of
project, lack of efficient machinery,
In this study all the possible measure to remove these hindrances are
described through which we can move more speedily then other economies
in world.
In this study four major development banks in India are taken into research
work i.e. IDBI, IFCI, SIDBI, and NABARD. All the schemes, assistances
and programs are studied and highligtened. Every bank differs from his
objective with each other so as the assistance provided by them.
6
INTRODUCTION TO TOPIC
INDIAN FINANCIAL SYSTEM

Indian financial system is one of the world largest financial systems. Indian
economy is world 4th biggest economy but this Indian financial system has
under gone through various changes or we can say that it has different stages
since its inception.
Basically Indian financial system can be divided into 3 categories:
 Before independence
 Pre- 1991 era
 Post-1991 era
BEFORE INDEPENDENCE
In British rule India first time seen the organized financial system, although
all that was meant for britishers but that provided us the layout for future
course of action i.e. to build our own financial system. At that time banks
and other financial institutions were at their infantry stage but the given a
base to build the whole system on them. That time can be considered as the
preliminary stage of Indian financial system and at that time there were no
development banks as the motive of colonial rule was to draw the wealth not
to make country developing.
PRE 1991 ERA

This era has seen the gradual rise in the economy of India. After
independence banks and other financial institutions to provide funds were
7
established and development banks were also a part of them which were
established specially to provide financial aid to industrial sector and to
promote entrepreneurship in India.
The financial system in this era was based on socialistic pattern of society
and the economy was of mixed type but basically it was public sector based
economy. The motive was to promote every sector of society to uplift and
earn for himself. Indian financial system continued with this pattern for
about 40 years but in true sense the economic growth never boosted up as
there was so many hindrances and lacks in system itself which taken country
in such a crisis that it has to borrow funds by pledging its gold that was
called the crisis of 1991
POST 1991 ERA

To come out the crisis, India has to adopt the new policy regarding the
financial system to speed up the growth and to raise the economy and in
order to perform that a new policy of LIBERALIZATION-
PRIVATIZATION- GLOBALIZATION i.e. LPG was adopted. The basic
motive was to reduce the government control over the economy and to let it
flourish itself. Indian financial system is currently working on this policy
and now the economic growth rate has also risen. Now the development
banks are working in accordance with the industry in order to satisfy their
need of funds and to provide every possible help required. Although the
growth is still slow in comparison with other countries but soon India will
become the strongest economy of world.
8
SIGNIFICANCE OF STUDY
 To check the contribution of development banks in economic growth.

 To give check the current stature of Indian financial system.
 To find out the role of development banks in Indian financial system.
 To find the similarities and difference between various development
bank.
9
OBJECTIVES OF STUDY
 To find out the role of development banks in Indian financial system
 To study the various development banks operating in India
 To give glance at the working of development banks
 To check the contribution of development banks in economic growth
 To check the individual contribution of each development bank
 To give check the current stature of Indian financial system
 To make a comparative study among various development banks
 To find out the weaknesses in financial system regarding with

development banks
10
Review of Existing literature

Source:1
Rural Financial Reform Needed to Ease Poverty in PRC, Says ADB
Book
MANILA, PHILIPPINES - The People's Republic of China (PRC) needs to
reform its rural financial system if it is to tackle poverty in the countryside
and allow agriculture and local businesses to play a strong, long-term role in
the domestic economy, says a new book from the Asian Development Bank
(ADB).
Source:2
NABARD: Need for custom hiring of farm machinery

Posted: Fri Jan 28 2011, 01:50 hrs
Chandigarh
The National Bank for Agriculture and Rural Development’s (NABARD)
focus paper on Punjab for the financial year 2011-12 has stressed upon the
need for custom hiring of farm machinery
The paper, released at the state credit seminar organized by the bank on
Thursday, highlighted that tractors and other farm equipment are being not
used to their optimum level, and thus, custom hiring should be encouraged
and popularized. The NABARD has also recommended that finance for farm
machinery should be given only to farmers’ groups or cooperatives. Farmers
should also be educated to avail group loans, it added
11
Source:3
Raising venture funding for rainy day
17 Aug, 2008, 06.23AM IST,ET Bureau
Amity Innovation Incubator (AII), aiming to foster entrepreneurship,
conducted a day long workshop on "Rising venture funding: Bridging the
last mile," at Amity university campus, Noida. The workshop brought
together entrepreneurs, start- ups looking for fund raising for their existing
or new ventures.
While inaugurating the workshop, Aseem Chauhan, chief executive, AII,

emphasised on the importance of the understanding of the concept of venture
funding for the start- ups and the perspective of the investor before a start -
up goes to a venture capitalist for raising funds for his/ her venture. He also
announced that good companies at Indian Angel Network would be given an
opportunity to be incubated at AII and raise finds
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FOCUS OF STUDY
INDIAN FINANCIAL SYSTEM

Indian financial system is one of the world largest financial systems.
Indian economy is world 4th biggest economy but this Indian financial
system has under gone through various changes. The focus of my study
revolves what are the similarities and difference between various
development banks and to find out the role of development banks in
Indian financial system.
13
CONCEPTUALIZATION
The concept of development banking rose only after Second World War ,
Successive of the Great Depression in 1930s. The demand for reconstruction
funds for the affected nations compelled in setting up a worldwide institution
for reconstructions. As a result the IBRD was set up in 1945 as a worldwide
institution for development and reconstruction. This concept has been
widened all over the world and resulted in setting up of large number of
banks around the world which coordinating the developmental activities of
different nations with different objectives among the world.
(IFCI)
At the same time raw industrial units were to be set up for industrializing the
country. Government of India came forward to set up the Industrial Finance
Corporation of India (IFCI) in July 1948 under a Special Act. The Industrial
Development Bank of India, scheduled banks, insurance companies,
investment trusts and co-operative banks are the shareholders of IFCI.
(IDBI)
Industrial Development Bank of India was set up to accelerate the

development of the country. A number of financial institutions came into
existence after independence and were catering to a variety of needs of the
industry. There was a lack of co-coordinating different institutions and it led
to overlapping and duplication in their efforts: At the same time some
gigantic projects of national importance were not getting required financial
14
assistance. It was in response to this need that the Industrial Development
Bank of India (IDBI) was established in 1964 as a wholly owned subsidiary
of Reserve Bank of India.
(NABARD)
NABARD is set up as an apex Development Bank with a mandate for
facilitating credit flow for promotion and development of agriculture, small-
scale industries, cottage and village industries, handicrafts and other rural
crafts. It also has the mandate to support all other allied economic activities
in rural areas, promote integrated and sustainable rural development and
secure prosperity of rural areas
(SIDBI)
SIDBI is a Principal Development Financial Institution for:
-- Promotion
-- Financing and
-- Development of Industries in the small scale sector and
--Co-coordinating the functions of other institutions engaged in similar
activities.
15
RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the research

problem. It may be understood as a science of studying how research is done
scientifically. In it we study the various steps that are generally adopted by a
researcher in studying his research problem along with logic behind him.
Why a research study has been undertaken, how a research problem has been
defined, in what way and why the hypothesis has been formulated, what data
have been collected and what particular method has been adopted, why
particular technique of analyzing data has been used and a host of similar
other questions are usually answered when we talk of research methodology
concerning a research problem or study.
RESEARCH DESIGN:
A research design is the arrangement of conditions for collection and
analysis of in a manner and aims to combine relevance to the research
purpose with economy in procedure. In fact the research design is the
conceptual structure within which research I conducted. Research Design is
needed because it facilitates the smooth sailing of the various research
operations thereby making research as efficient as possible yielding
maximum information with minimal expenditure of effort, time and money.
I have adopted descriptive and conclusive research design. Descriptive
research is those studies, which are concerned with describing the
characteristics of a particular individual or a group.
16
Since the aim is to obtain the accurate information about the development
banks in terms of their role in Indian financial system, I have studied the
various data available in books, journals, magazines and on internet.
DATA SOURCES:
The researcher can gather primary data, secondary data or both. Secondary
data are data that were collected for another purpose and already exist
somewhere. Primary data are data specially gathered for a specific purpose
or for a specific research project. Since the study is based on already existing
facts and figures, so all the sources of data are secondary
SECONDARY DATA
The main source of information for the study was
 Weekly magazines
 RBI bulletin
 Information available in form of articles
 Information available on internet
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INTRODUCTION TO DEVELOPMENT BANKS
DEVELOPMENT banks in India have had a chequered and not always a

happy history. Some have managed to come back from the brink by taking
to universal banking, or merging with a normal bank. In general, it may be
said that development banking has lost its charm. So much so that when an
official was shifted from the none-too-healthy Indian Bank to NABARD, a
banking veteran said that she deserved not congratulations but
commiseration.
Political interference and flawed industrial policy have been the main
reasons why development banks have fared badly. At the same time, it needs
to be said that some conceptual errors about the nature of development
banking have made matters worse.
From the time of Independence, political interference in the functioning of

banks has been both overt and covert. For instance, loan melas made many
banks sick. Even now, many villagers think that a loan from a government
bank is a gift; it need not be repaid. In spite of such impressive sounding
institutions as Debt Recovery Tribunals, it is still difficult for banks to
recover in full the amounts due; more often than not, banks have no option
but write-off most of the dues. Periodic concessions to borrowers ordered by
the Reserve Bank of India have made debt recovery quite difficult. In
consequence, ill health has dogged the banks in India.
18
Though development banks did not have to suffer from loan melas, they too
were subject to political pressure to fund projects of dubious value. For long
years, there was no culture of financial closure; many projects started more
with hope and hype than with calculated design, and with no clear idea of
where the funds would be found to complete them. Even if the project had
been well conceived, administrative delays made many projects unviable.
During the License Raj, getting a manufacturing license was an end in itself.
Licenses were obtained or bought merely because they were there and not
because they made economic sense. It was also possible to control a
company by investing no more than a small fraction of the total cost. It was
not uncommon in those days for not-so-scrupulous-businessmen to recover
their entire investment by extracting commissions. There was no
competition to enforce efficiency. Under such circumstances, the surprise is
not that development banks performed badly but that they survived at all.
Notwithstanding these handicaps, development banks made the situation

worse by a faulty appreciation of their role. Normally, bankers are cautious.
They lend only to the wealthy who can offer safe and substantial collateral.
Bankers are not ambitious: they are content charging a fixed interest even if
the borrower makes a killing and multiples the investment several times.
They also accept as normal the erosion of asset value by inflation.
Development banking is different: Loans are made not to those who have
accumulated wealth in the past but to those who show promise to become
wealthy in the future. Normal banking looks for safety in assets accumulated
19
from the past; in development banking, possible accumulation of assets in
the future is the true collateral. Thus, while in normal banking, the collateral
is real and tangible, in development banking, the collateral is a dream; it is
intangible. In normal banking, an interest default of more than 90 days
becomes a non-performing asset. In the case of development, growth is
rarely smooth; development happens in fits and starts; cash flows are subject
to wild fluctuations and become negative at times.
Hence, development banks need to have a longer perspective than three

months; they should show patience for years. Normal banks can afford to be
myopic; development banks should take the long view. For development
banks, it is the trend line and not the current surplus that is important. As one
development banker blithely explained: "When I see any risk, I take my
money and run away." But that is not development banking; development
banks take risks that ordinary banks will not.
There is some truth in the well-worn cliché that bankers lend when the
borrower does not need any money, and foreclose when the borrower is in
distress. Development bankers should be different; they should lend a
helping hand in moments of distress, and make up for the risk they take by
extracting larger returns when the borrower recovers.
For that reason, development banks should not operate on a fixed rate of
interest. They should evolve a mechanism which depends on the health of
the borrower. One possibility is to take a share of the profits. However, that
is highly risky. Profit-related investment is best left to venture capitalists. In
risk taking, development banks fall midway between safety-conscious
traditional banks and the daredevil venture capitalists. In seeking returns,
20
they need to follow a via media — neither be inflexible with a fixed rate of
interest, nor be volatile and bet on equity.
For development banks, a charge on the running costs of the firm could be
that via media, specifically two of them, (a) rents which include the cost of
all outsourcing of materials and services, and (b) wages. Then, a charge on
the rent and wage costs of the borrowing firm, a charge levied only when the
firm has a surplus to pay, could be the via media that development banks
could adopt.
In other words, development banks should think differently, and should have
a long time horizon. They should acquire the expertise to assess the optimum
waiting period and fix the rate of charge on wage costs and rents paid
accordingly. Incidentally, this kind of charge is not only transparent; it will
also make firms cost-conscious. That is an added benefit, additional safety.
If development banks charge variable returns, they will need a

complementary deposit regime. Pensioners like to have constant real returns
that are protected against erosion by inflation. Hence, they need returns that
rise with time. Thus, development banks would do well to devise a Pension
Fund with inflation-linked returns. Then, they will have a matched
programme for assets and liabilities.
Traditional banking is lending to the real estate developer at a fixed rate of

interest. Venture funding is taking a share in his profits, but development
banking is the policy of placing a charge on the rents collected. That is not
normal and requires a change in the mindset, a new vision, which could give
development banks a new life.
21
Definition of a development bank
Development banks are .the institutions engaged in the promotion and

development of industry, agriculture and other key sectors. In the words of
A.G. Kheradjou "A development bank is like a living organism that reacts to
the social-economic environment and Its success depends on reacting most
aptly to that environment". Kheradjou assigns an important task to the
development banks. He feels that these banks should react to the socio-
economic needs. They should satisfy the developmental needs of the
economy and their success is linked to the satisfactory growth of the
economy. In the views of William' Diamond" A development bank has the
opportunity to promote enterprises i.e. to conceive investment proposals and
to stimulate others to pursue tI1em or' itself to carry them through, from
'conception' to 'realization'. In principle, a development bank is well suited to
assume this kind of role. Yet, enterprise creation is fraught with costs and
risks which development bank cannot neglect. Development banks can
prudently undertake them only when they have the requisite financial
strength, technical expertise and the managerial skill to bank. ", In his views,
a developl1!enLbank is an institution which takes up the job of developing
industrial enterprises from its inception to completion. This process involves
costs as well as risks. The bank should have sufficient financial sources and
expertise to promote a new unit. D.M. Mithani states that. "A development
bank may be defined as a financial institution concerned with providing all
types of financial assistance (medium as well as long-term) to business units.
22
I the form of loans, underwriting, investment and guarantee operations and
development in general and industrial
The role of a development bank has been emphasised in this definition. In

this view a development bank aims to provide financial and promotional
facilities for the overall development of a country.
Features of a development bank.

A development bank has the following features or characteristics:
1) A development bank does not accept deposits from the public like
commercial banks and other financial institutions who entirely depend
upon saving mobilization.
2) It is a specialized financial institution which provides medium term
and long-term lending facilities.
3) It is a multipurpose financial institution. Besides providing financial
help it undertakes promotional activities also. It helps an enterprise
from planning to operational level.
4) It provides financial assistance to both private as well as public sector
institutions.
5) The role of a development bank is of gap filler. When assistance from
other sources is not sufficient then this channel helps. It does not
compete with normal channels of finance.
6) Development banks primarily aim to accelerate the rate of growth. It
helps industrialization specific and economic development in general
23
GROWTH OF DEVELOPMENT BANKS
Although development banks attracted great attention after World War II but
there one insurances or such institutions even much earlier, First
development bank was found in belgium in 1822 under the name of Societ a
de General de Belgique with the purpose of financing and promoting
industry. It was a joint stock bank which nursed funds through the sale of
shares and bonds in order to finance; commercial and industrial enterprises.
This new technique of banking got impetus only in 1852 when 'Credit
Mobilize of France' was set up. It mobilized resources through the sale of
bonds and promissory notes and made long-term investments particularly in
public utility undertakings, railways, insurance companies and banks.
Financing industrialization but it could not strictly be called a development
bank. World War I, European countries developed specialized institutions to
provide industrial finance for reconstruction, modernization and
development of war regard industries. These banks were mainly mortgage
banks which extended long-term loans to industrial undertakings upon first
mortgage of industrial property. Among the important institutions were
Bank of Finland Ltd., National Hungarian Industrial Mortgage Institute Ltd.,
and National Economic Bank of Poland.
Some institutions developed during this period were Industrial Development

Bank of Canada (1944), France Corporation for Industry Ltd. and industrial
and Commercial Finance Corporation Ltd., England (1945), Industrial
Finance Department of Common wealth Bank of Australia (1945). These
institutions not only provided term loans to industry but also participated in
24
the share capital of companies. The institutions in England even have the
option to convert their loans into preference or equity shares. Though
English and Canadian institutions could at best be described as finance
corporations but that of Australia could be called a development bank
because it could assist in the establishment and development of industrial
undertakings. Despite the differences in the organization, Scope and
methods of various institutions the main thrust of all of them was to access,
those enterprises where sufficient help was not forthcoming from traditional
sources. They acted essentially as gap fillers in peculiar circumstances of the
pest-war years.
In the last 50 years developing countries have promoted many development
thanks. These banks have been developed with special purpose in mind.
They differ in ownership, organization, scope etc. Some' are exclusively
owned by government (Industrial Development Bank of Nepal, 1959,
National Development Bank of Brazil, 1965) others by private interests
(Industrial Credit and Investment Corporation of India, Industrial Finance
Corporation of Thailand, etc.) Some other Banks (Summer Bank of Turkey)
are meant to promote and finance government ' undertakings only, some
exclusively for private enterprises while some for both. Some banks can
only lend while some can lend and take equities besides underwriting. Some
are concerned with entire economy while some are for specific sectors only.
Some banks are regional; some are national while a few are inter-regional
(Asian Development Bank) or international such as World Bank,
International Finance Corporation, International Development Association
etc. Some banks provide only local currency while some deal in both local
and foreign currencies, etc.
25
OBJECTIVES OF DEVELOPMENT BANKS
Every country felt the need to accelerate the rate of development in post
world war era. Some countries were directly involved in war while many
others were indirectly affected by it. There was a need for reconstructing
economics at a faster speed. The existing machinery for developmental
activities was not sufficient to the requirements of industry. There was a
need to set up such institutions which would take up promotional activities
besides financing. In this background developmental banks were needed for
the following reasons:
1. Lay Foundations for Industrialization
A number of countries got independence from colonial rule. Their
economies needed to be rehabilitated. Other underdeveloped and developing
countries too needed to accelerate the pace of industrialization. To lay a
solid foundation for growth, establishment of certain key industries such as
cement, engineering, machine making, chemicals, etc. is essential. Private
entrepreneurs were not forthcoming to invest in these vital' areas due to risk
involved and Ibng gestation period in those industries. Moreover, it was
beyond the means and capacity of private individuals to take up these
projects. They needed special facilities from institutions which could extend
long-tenn help. The governments of under developed countries set up
development and institutions to fill the vacuum.
26
2. Meet Capital Needs

1'nere was a dearth of capital needed to foster industrial growth in
underdeveloped countries. Owing to the low level of income of the people
there were no sufficient surpluses for capitalization. There was a need for
institutions which could meet this gap between demand and supply for
capital.
3. Need for Promotional Activities

Besides capital needs, underdeveloped countries suffered from lack of
expertise, managerial and technical know-how. Developmental banks could
take up the job of and joint sectors and provide managerial and resources
and skills and of channeling them into approved fields under private
auspices are needed in these countries.
4. Help Small and Medium Sectors'

The large scale was, to some extent, able to meet its needs. There was a need
to mitigate sufferings of small and medium size industries which form a
sizeable sector of the industrial economy. Despite the important role played
by these sectors they experience scarcity of capital owing to the apathy of
investors to invest their savings because of their credit worthiness and
profitability. There was a need for special institutions to help these sectors in
playing vital role in the industrialization of developing and under developed
countries.
27
FUNCTIONS OF DEVELOPMENT BANKS
Development banks have been started with the motive of increasing the pace
of industrialization. The traditional financial institutions could not take up
this challenge because of their limitations. In order to help all round
industrialization development banks were made multipurpose institutions.
Besides financing they were assigned promotional work also. Some
important functions of these institutions are discussed as follows:
1. Financial Gap Fillers

Development banks do not provide medium-tenn and long-tenn loans only
but they help industrial enterprises in many other ways too. These banks
subscribe to the bonds and debentures of the companies, underwrite to their
shares and debentures and, guarantee the loans raised from foreign and
domestic sources. They also help 'undertakings to acquire machinery from
within and outside the country.
2. Undertake Entrepreneurial Role

Developing countries lack entrepreneurs who can take up the job of setting
up new projects. It may be due to lack of expertise and managerial ability.
Development banks were assigned the job of entrepreneurial gap filling.
They undertake the task of discovering investment projects, promotion of
industrial enterprises, provide technical and managerial assistance,
undertaking economic and technical research, conducting surveys, feasibility
studies etc. The promotional role of development bank is very significant for
increasing the pace of industrialization.
28
3. Commercial Banking Business

Development banks normally provide medium and long-term funds to
industrial enterprises. The working capital needs of the units are met by
commercial banks. In developing countries, commercial banks have not been
able to take up this job properly. Their traditional approach in dealing with
lending proposals and assistance on securities has not helped the industry.
4. Joint Finance
Another feature of development bank's operations is to take up joint
financing along with other financial institutions. There may be constraints of
financial resources and legal problems (prescribing maximum limits of
lending) which may force banks to associate with other institutions for
taking up the financing of some projects jointly.
5. Refinance Facility
Development banks also extend refinance facility to the lending institutions.
In this scheme there is no direct lending to the enterprise. The lending
institutions are provided funds by development banks against loans
extended' to industrial concerns. In this way the institutions which provide
funds to units are refinanced by development banks.
6. Credit Guarantee
The small scale sector is not getting proper financial facilities due to the
clement of risk since these units do not have sufficient securities to offer for
loans, lending institutions are hesitant to extend them loans. To overcome
this difficulty many countries including India and Japan have devised credit
guarantee scheme and credit insurance scheme.
29
LENDING PROCEDURES OF DEVELOPMENT BANKS

OPERATIONAL ACTIVITIES)
Development banks follow a procedure for evaluating a proposal for a
project. The basic objective is to check whether the applicant fulfils various
conditions prescribed by the lending institution and the project is viable. The
acceptance of a wrong proposal will result in the wastage of scarce
resources. These banks adopt the following procedure for lending:
1. Project Appraisal and Eligibility of Applicant

Every financial institution serves a particular area of activity or there are
certain limits prescribed beyond which they cannot go. Before processing
the application, it is important to find out whether the applicant is eligible
under the norms of the institution or not. The second aspect which is looked
into is to determine whether the enterprise has fulfilled various conditions
prescribed by the government. The bank institution considers financial
assistance in the light of
(I) Guidelines for assistance to industries issued by the government or others
concerned from time to time
(ii) Guidelines issued by the bank
(iii) Policy decisions of the Board of Directors of the bank.
2. Technical Appraisal
A technical appraisal involves the study of:
1) Feasibility and suitability of technical process in Indian conditions.
30
2) Location, of the project in relation to the availability of raw materials,
power: water. labour, fuel, transport, communication facilities and
market for finished products.
3) The scale of operations and its suitability for the planned project.
4) The technical soundness of the projects.
5) Sources of purchasing plant and machinery and the reputation of
suppliers. etc.
6) Arrangement for the disposal of factory affluent and use of bye
products, if any.
7) The estimated cost of the project and probable selling price of the
product.
8) The programme for completing the project.
9) The sources of supplying various inputs and marketing arrangements.
10) Details of any technical collaboration and its practical aspects.
The technical appraisal determines the suitability of the project.
3. Economic Viability
The economic appraisal will consider the national and industrial priorities of
the project export potential of the product employment potential, study of
market.
4. Assessing Commercial Aspects

The examination of commercial aspects relates to the arrangements for the
purchase of raw materials and sale of finished products. If the concern has
some arrangement for sale then the position of the party should be assessed.
31
5. Financial Feasibility
The financial feasibility of a new and an existing concern will be assessed
differently. The assessment for a new concern will involve:
1) The needs for fixed assets, working capital and preliminary expenses
will be estimated to find out its needs.
2) The financing plans will be studied in relation to capital structure,
promoters' contribution, debt-equity ratio.
3) Projected cash flow statements both during the construction and
.operation periods
4) Projected profitability and the like dividend in near future.
6. Managerial Competence
The success .of a concern depends up on the competence of management.
Proper application of various policies will determine the Success of an
enterprise. A lending institution would see the background, qualifications,
business experience of promoters and other persons associated with
management.
7. National Contribution
Besides commercial profitability, national contribution .of the project is also
taken into account. The role of the project in the national economy and its
benefits to the society in the form of good quality products, reasonable
prices, employment generation, helpful in social infrastructure etc. should be
assessed. Development banks aim at the over all welfare of the society.
32
8. Balancing of Various Factors

Various factors should be balanced against each other. The circumstances .of
the individual project will help in weighing various factors. Some factors
may be strong as their in-depth analysis should be avoided. In case a project
is profitable, there will be no need to assess cash flow. Weaknesses located
in certain areas may be .offset by the good points in the .other. An
experienced management and sound economic outlook may compensate
some weakness in financial positions. The responsibility of lending bank lies
in balancing judiciously different considerations for arriving at a consensus.
9. Loan Sanction
After the appraisal report on the project is prepared by the bank's officers, it
is placed before the advisory committee consisting of experts drawn from
various fields of the particular industry. If the advisory committee is
satisfied tile proposal then it recommends the case to the Managing Director
or board of Directors along with its own report. When the assistance is
sanctioned hen a letter to this effect is issued to the pay giving details of
conditions.
10. Loan Disbursement

The loan is disbursed after the execution of loan agreement. The execution
of documents of security or guarantee etc. should precede the disbursement
of loan.
33
DEVELOPMENT BANKING IN INDIA
The foreign rulers in India did not take much interest in the industrial
development of the country. They were interested to take raw materials to
England and bring back finished goods to India. The government did not
show any interest for securing up institutions needed for industrial financing.
The “recommendation for setting up industrial financing institutions was
made in 1931 by Central Banking Enquiry Committee but no concrete steps
were taken. In 1949, Reserve Bank had undertaken a detailed study to find
out the need for specialized institutions. It was in 1948 that the first
development bank i.e. Industrial Finance Corporation of India (IFCI) was
established. IFCI was assigned the role of a gap-filler which implied that it
was not expected to compete with the existing channels of industrial finance.
It was expected to provide medium and long-term credit to industrial
concerns only when they could not raise sufficient finances by raising capital
or normal banking accommodation. In view of the vast size of the country
and needs of the economy it was decided 10 set up regional development
banks to cater to the needs of the small and medium enterprises. In 1951,
Parliament passed State Financial Corporation Act. Under this Act state
governments could establish financial corporation’s for their respective
regions. At present there are 18 State Financial Corporation’s (SFC's) in
India.
The IFCI and state financial corporation’s served only a limited purpose.
There was a need for dynamic institutions which could operate as true
development agencies. National Industrial Development Corporation
34
(NIDC) was established in 1954 with the objective of promoting industries
which could not serve the ambitious role assigned to it and soon turned to be
a financing agency restricting itself to modernization and rehabilitation of
and jute textile industries.
The Industrial Credit and Investment Corporation of India (ICICI) were
established in 1955 as a Joint Stock Company. ICICI was supported by
Government of India, World Bank, Common wealth Development Finance
Corporation and other, foreign institutions. It provides term loans and takes
an active part in the underwriting of and direct investments in the shares of
industrial units. Though ICICI was established in private sector but its
pattern of shareholding and methods of raising funds gives it the
characteristic of a public sector financial institution. .
Another institution, Refinance Corporation for Industry Ltd. (RCI) was set
up in 1958 by Reserve’ Bank of India, LIC and Commercial Banks. The
purpose of RCI was to provide refinance to commercial banks and SFC's
against term loans granted by them to industrial concerns in private sector.
In 1964, Industrial Development Bank of India (IOBI) was set up as an apex
institution in the area of industrial finance, RCI was merged with IDBI.
IDBI was a wholly owned subsidiary of RBI and was expected to co-
ordinate the activities of the institutions engaged in financing, promoting or
developing industry.
However, it is no longer a wholly owned subsidiary of the Reserve Bank of
India. Recently, it made a public issue of shares to increase its capital. In
order to promote industries in the slate another type of institutions, namely,
the State Industrial Development Corporations (SIDC's) were established in
the sixties to promote medium scale industrial units.
35
PROMOTIONAL ROLE OF DEVELOPMENT BANKS IN

INDIA
The pace of development cannot be accelerated by providing financial
assistance alone. There are factors which inhibit industrialization of an
underdeveloped country. It is essential to make a correct diagnosis of those
factors and plan things accordingly. The growth potential of different areas,
the availability of natural resources, demand conditions, infrastructure
facilities, etc. should be taken into account before deciding the pattern .of
industrialization of various places. In addition to providing the traditional
role of providing financial assistance, development banks in India are
undertaking promotional role also. Some of the areas where these banks are
participating are:
(1) Surveys of Backward Areas

Under the Industrial Development Bank of India, development institutions
conducted industrial potential surveys in June, 1970 with a view to identify
specific project ideas for implementation in those areas. These surveys
studied the availability of resources, demand potential and availability of
infrastructures facilities. In 1982, Government .of India identified 83
districts in the country where no medium or large scale industrial units
existed. IOBI jointly with IFCI and ICICI launched a programme for
identifying industrial opportunities and needs for. These project ideas were
further screened and developed for arriving at some firm decision about their
implementation. IDBI conducted feasibility studies and cleared projects for
implementation.
36
(2) Inter-Institutional Groups (IIG's)

With a view to provide a forum to the national and state financial
institutions, IDBI constituted 23 IIG's in various states and union territories
These groups aimed to help accelerate the process of industrial development
in a state with particular emphasis on less developed areas, An attempt was
also made to evolve suitable strategies for industrial development within the
framework of national and state policies and local requirements. IDBI has
been constantly reviewing the functioning of these groups so as to evolve
suitable measures for malting them effective.
(3) Establishing Technical Consultancy Organizations (TCO's),

There is a need for technical consultancy at the time of selling up a new unit
and at the time of making change like modernization, expansion,
diversification, etc. The small and medium scale units cannot pay high fees
of consultancy agencies. With a view to help these entrepreneurs, financial
institutions set up 17 consultancy organization for providing consultancy at
nominal rates. These organizations provide consultancy services to small
and medium entrepreneurs, commercial banks, state-level financial
institutions and other agencies engaged in industrial promotion and
development.
(4) Entrepreneurial Development Programmers (EPP's)

Industrial development of a country is directly influenced by the quality of
entrepreneurs it has produced, with a view to impart requisite training to
entrepreneurs. IDBI has been encouraging entrepreneurial development
programmed.
37
Role of development banks in financial system

Financial institutions provide means and mechanism of transferring
resources from those who have an excess of income over expenditure to
those who can make productive use of the same. The commercial banks and
investment institutions mobilize savings of people and channel them into
productive uses. Financial institutions provide all type of assistant required
infrastructural facilities Institutions e p economic persons who can take the
development in the following ways.
1. Providing Funds:-
The underdeveloped countries have low levels of capital formation. Due to
low incomes, people are not able to save sufficient funds which are needed
for sensing up new units and also for expansion diversification and
modernization of existing units. The persons who have the capability of
starting a business but does not have requisite help approach to financial
institutions for help. These institutions help large number of persons for
taking up some industrial activity.
2. Infrastructural Facilities
Economic development of a country is linked to the availability of
infrastructural facilities. There is a need for roads, water, sewerage,
communication facilities, electricity etc. Financial institutions prepare their
investment policies by keeping national priorities in miner-The institutions
invest in those aim is which can help in increasing the development of the
country. Indian industry and agriculture is facing acute shortage of
electricity.
3. Promotional Activities
38
An entrepreneur faces many problems while setting up a new unit. One has
to undertake a feasibility report, prepare project report, complete registration
formalities, seek approval from various agencies etc. All these things require
time, money and energy. Some people are not able to undertake this exercise
or some do not even take initiative.
Some units may not have come up had they not received promotional help
from financial institutions. The promotional role of financial institutions is
helpful in increasing the development of a country.
4. Development of Backward Areas

Some areas remain neglected because facilities needed for setting up new
units are not available here. The entrepreneurs set up new units at those
places which are already developed. It causes imbalance in economic
development of some areas. In order to help the development of backward
areas, financial institutions provide special assistance to entrepreneurs for
setting up new units in these areas. IDBI, IFCI, ICICI give priority in giving
assistance to units set up in backward areas and even charge lower interest
rates on lending. Such efforts certainly encourage entrepreneurs to set up
new units in backward areas.
5. Planned Development
Financial institutions help in planned development of the economy.
Different institutions earmark their spheres of activities so that every
business activity is helped. Some institutions like SIDBI, SFCI's especially
help small scale sector while IFCI and SIDC's finance large scale sector or
extend loans above a certain limit. Some institutions help different segments
like foreign trade, tourism etc. In this way financial institutions devise their
39
roles and help the development in their own way. Financial institutions also
follow the development priorities set by central and state governments.
6. Accelerating Industrialization
Economic development of a country is linked to the level of industrialization
there. The setting up of more industrial units will generate direct and indirect
employment, make available goods and services in the country and help in
increasing the standard of living. Financial institutions provide requisite
financial, managerial, technical help for setting up new units. In some areas
private entrepreneurs do not want to risk their funds or gestation period His
long but the industries are needed for the development of the area. The
country has progressed in almost all areas of economic development.
7. Employment Generation
Financial institutions have helped both Direct and indirect employment
generation. They have employed many persons to man their offices. Besides
office staff, institutions need the services of experts which help them in
finalizing lending proposals. These institutions help in creating employment
by financing new and existing industrial units. They also help in creating
employment opportunities in backward areas by encouraging the setting
up of units in those areas, Thus financial institutions have helped in creating
new and better job opportunities.
40
INDUSTRIAL FINANCE CORPORATION OF INDIA

(IFCI)
At the same time raw industrial units were to be set up for industrializing the
country. Government of India came forward to set up the Industrial Finance
Corporation of India (IFCI) in July 1948 under a Special Act. The Industrial
Development Bank of India, scheduled banks, insurance companies,
investment trusts and co-operative banks are the shareholders of IFCI. The
Government of India has guaranteed the repayment of capital and the
payment of a minimum annual dividend. Since July I, 1993, the corporation
has been converted into a company and it has been given the status of a Ltd.
Company with the name Industrial Finance Corporations of India Ltd. IFCI
has got itself registered with Companies Act, 1956. Before July I, 1993,
general public was not permitted to hold shares of IFCI, only Government of
India, RBI, Scheduled Banks, Insurance Companies and Co-operative
Societies were holding the shares of IFCI.
Management of IFCI
The corporation has 13 members Board of Directors, including Chairman.
The Chairman is appointed by Government of India after consulting
Industrial Development Bank of India. He works on a whole time basis and
has tenure of 3 years. Out of the 12 directors, four are nominated by the
IDBI, two by scheduled banks, two by co-operative banks and two by other
financial institutions like insurance companies, investment trusts, etc. IDBI
normally nominates three outside persons as directors who are experts in the
fields of industry, labor and economics, the fourth nominee is the Central
Manager of IDBI.
41
The Board is assisted by the Central Committee which consists of the
chairman, two directors elected by nominated directors and the Board of
directors elected by the elected directors. This committee assists the Board
in discharge of its functions. It .can act on all matters under the competence
of the Board, So this committee practically transacts the entire business of
the corporation. IFCI also has Standing Advisory Committees one each for
textile, sugar, jute, hotels, engineering and chemical processes and allied
industries. The experts in different fields appointed on Advisory
Committees. The chairman is the ex-officio member of all Advisory
Committees. All applications for assistance are first discussed by Advisory
Committees before they go to Central Committees.
Financial Resources of IFCI

The financial resources of the corporation consist of share capital bonds and
debentures and borrowings.'
a) Share Capital
The IFCI was set up with an authorised capital of Rs. 10crores
consisting of 20,000 shares of Rs. 5,000 each. This capital was later on
increased at different times and by March, 2003 it was Rs. 1068 crores.
The capital was subscribed by Central Government, Reserve Bank of
India, scheduled banks, Life Insurance Corporation, investment trusts,
co-operative banks are other financial institutions. In 1964, the share
capital held by the central government and RBI was transferred to the
Industrial Development Bank. The corporation thus became a subsidiary
of IDBI. The central government had guaranteed the shares of the
corporation both for repayment of the principal and for the payment of a
dividend at 2.5 per cent on the original issue and 4 per cent on the
42
additional issues. However, since July I, 1993IFC has been converted
into a limited company.
b) Bonds and Debentures

The corporation is authorized to issue bonds and debentures to
supplement its resources but these should not exceed ten times of paid-up
capital and reserve fund. The bonds and debentures stood at a figure of
Rs. 57.69 crores 1971 and rose to Rs. 15366.5 crores as on 31st March
2003. The bonds and debentures are also guaranteed by the central
government for both payment of interest at such rates as may be fixed at
the time the bonds and debentures are issued.
c) Borrowings
The corporation is authorized to borrow from government IDBI and
financial institutions. Its borrowings from IDBI and Govt. of India were
Rs. 975.6 crore on March 31, 2003. Total assets of IFCI as on March 31,
2003 aggregated Rs. 22866 crore including investments of Rs. 3820.3
crore and loans and advances of Rs. 13212.8crore.
Priority Criterion for Investments

IFCI plans its financing policies as per the priorities set by the government
through Industrial Policy Statements. The Industries which are in high
priority are given more importance. Following considerations are taken into
account while selecting a financial proposal:
i. Importance of the project for national economy.
ii. Employment-oriented and labour-intensive nature of the project.
iii. Export potential of the unit,
43
iv. Projects located in backward areas or 'no industry districts.
v. Projects initiated by new or technician entrepreneurs.
vi. Projects which will harness indigellously available technology,
technical knowhow and raw materials.
vii. Projects which will help rural areas.
viii. Projects which help in conserving energy or which manufacture
renewable energy systems or devices.
ix. Projects to be set up in co-operative sector.
Eligibility for Assistance under Direct Financing

Following types of industrial concerns are eligible for direct finance under
IFCI Act, amended from time to time:
i. Limited companies incorporated in India, in private, public or joint
Sector
ii. Co-operative societies registered in India, which are engaged or
propose to engage in any of the activities related to
a. Manufacture, preservation or processing of goods
b. Shipping
c. Mining
d. Hotel industry
e. Generation or distribution of electricity or any other form of
power
f. Transport of passengers or goods.
g. Maintenance, repair or servicing of machinery or vehicles.
h. Assembling, repairing or packing of articles.
i. Development of contiguous area of land as an industrial estate.
j. Fishing or providing shore facilities for fishing.
44
FUNCTIONS OF IFCI
IFCI is authorized to render financial assistance in one or more of the
following forms:
i. Granting loans or advances to or subscribing to debentures of
industrial concerns repayable within 25 years. Also it can convert part
of such loans or debentures into equity share capital at its option.
ii. Underwriting the issue of industrial securities i.e. shares, stock, bonds,
0r debentures to be disposed off within 7 years.
iii. Subscribing directly to the shares and debentures of public limited
companies.
iv. Guaranteeing of deferred payments for the purchase of capital goods
from abroad or within India.
v. Guaranteeing of loans raised by industrial concerns from scheduled
balls or state co-operative banks.
vi. Acting as an agent of the Central Government or the World Bank in
respect of loans sanctioned to the industrial concerns.
IFCI provides financial assistance to eligible industrial concerns regardless

of their size. However, now-a-days, it entertains applications from those
industrial concerns whose project cost is about Rs. 2 crores because upto
project cost of Rs. 2 crores various state level institutions (such as Financial
Corporations, SIDCs and banks) are expected to meet the financial
requirements of viable concerns. While approving a loan application, IFCI
gives due consideration to the feasibility of the project, its importance to the
nation, development of the backward areas, social and economic viability,
etc.
45
Promotional Activities
The promotional role of IFCI has been to fill the gaps, either in the
institutional infrastructure for the promotion and growth of industries, or in
the provision of the much needed guidance in project intensification,
formulation, implementation and operation, etc. to the new tiny, small-scale
or medium scale entrepreneurs or in the efforts at improving the productivity
of human and material resources.
(a)Development of Backward Areas
The main thrust of all financial institutions has been to remover
regional imbalances by promoting industrialization of backward areas.
IFCI. All these categories were eligible for concessional finance.
Nearly 50 per cent of total lending of IFCI has been to develop
backward areas.
(b) Promotional Schemes

IFCI has been operating six promotional schemes with the object of
helping entrepreneurs to set up new units, broadening the
entrepreneurial base, encouraging the adoption of new technology,
tackling 'the problem of sickness and promoting opportunities for self
development and . Self employment of unemployed persons etc.
These schemes are as such:
a. Subsidy for Adopting Indigenous Technology:- The
projects which use indigenously developed technology are
entitled to a concession in the form of subsidy covering interest
payments due to IFCI during the first three years of operations,
extendable to five years.
46
b. Meeting Cost of Market Studies: - The entrepreneurs setting

up medium sized industrial projects for the first time can avail 75
per cent of the cost of market survey/study subject to a ceiling of
Rs. 15,000 provided it is handled by Technical Consultancy
Organization. .
c. Meeting Cost of Feasibility Studies: - IFCI provides subsidy
for the fees paid for consultancy assignments relating to
feasibility, project reports etc. The amount allowable is 80 per
cent of the fees of Rs. 7,500 whichever is less. This limit is Rs.
8,500 or 100 per cent of the total fees whichever is less for
handicapped or scheduled caste persons.
47
INDUSTRIAL DEVELOPMENT BANK OF INDIA

(IDBI)
Industrial Development Bank of India was set up to accelerate the
development of the country. A number of financial institutions came into
existence after independence and were catering to a variety of needs of the
industry. There was a lack of co-coordinating different institutions and it led
to overlapping and duplication in their efforts: At the same time some
gigantic projects of national importance were not getting required financial
assistance. It was in response to this need that the Industrial Development
Bank of India (IDBI) was established in 1964 as a wholly owned subsidiary
of Reserve Bank of India.
The ownership of IDBI was transferred to Central Government on February
16, 1976. It is now working as state owned autonomous corporation. Besides
acting as a reserviour on which other financial institutions can draw, IDBI
provides direct financial assistance to industrial units to bridge the gap
between supply and demand of medium and long term finance.
The IDBI Act was amended, in 1994, to permit public ownership upto 49
percent., In 1995, it raised more than Rs. 20 billion through its first initial
public offer (IPO) of equity. It reduced the stake of the government to 72.14
percent. Further, in June 2000, a pan of the equity shareholding of the
government was convened into preference share capital which was redeemed
in March 2001, resulting into further reduction of government stake to
58.47 percent.
48
Financial Resources of IDBI

a. Share Capital. IDBI was formed with an authorized capital of Rs. 50
crores which was raised a number of times. In October, 1994,
Government of India's amended certain provisions of IDBI Act under
which its authorised capital has been increased to Rs. 2000 crore
which can further be increased to Rs. 5000 crore. A pan of equity
capital (Rs. 253 crore) has been convened into preference capital.
IDBI has been permitted to issue equity capital to public with a
stipulation that at no time Government holding will be less than 51 per
cent. As on March 31,2003 the paid up capital of IDBI stood at Rs.
652.8 crores and reserve funds at Rs. 6325.3 crore.
b. Borrowings. The bank is authorised to raise its resources through
borrowings from Government of India, Reserve Bank of India and
other fmancia1 institutions. On March 31, 2003, the bank had
borrowings of Rs. 41798.0 crore by way of bonds and debentures,
deposits of Rs. 4329.9 crore and borrowings of Rs. 5359.9 crore from
Government of India and other sources.
Management of IDBI
The management of IDBI is vested in a Board of Directors consisting of 22
persons including a full-time Chairman-cum-Managing Director appointed
by the Central Government. The other members of the Board comprise of a
representative of the RBI, a representative each of the all-India financial
institutions, two officials of the Central Government, three representative
search of he public sector banks and SFCs and five representatives having
special knowledge and experience of industry; The .Board has constituted an
49
Executive Committee consisting of ten directors. Ad-hoc committees of
Advisers are also constituted to advise it on. specific projects.
Recently, Government of India ha9 sought to repeal the IDBI Act. 1964. by
introducing The Industrial Development Bank.(Transfer of Undertaking and
Repeal) Bill 2002 is Lok Sabha. The Bill is aimed at convening IDBI into a
company under the Companies Act as also enabling it to undertake banking
business.
Functions of IDBI
The main functions of IDBI are as follows:
1) To co-ordinate the activities of other institutions providing term
finance to industry and to act as an apex institution.
2) To provide refinance to financial institutions granting medium and
long-term loans to industry.
3) To provide refinance to scheduled banks or co-operative banks.
4) To provide refinance for export credit granted by banks and financial
institutions
5) To provide technical and administrative assistance for promotion
management or growth of industry.
6) To undertake market surveys and techno-economic studies for the
development of industry.
7) To grant direct loans and advances to industrial concerns. IDBI is
empowered to finance all types of industrial concerns engaged or
proposed to be engaged in the manufacture, preservation or processing
of goods, mining, hotel, industry, fishing, shipping transport,
generation or distribution of power, etc..
50
OPERATIONS OF IDBI
Since its inception in 1964, IDBI has extended its operations to various areas
of industrial sector. It provides direct as well as indirect financial assistance
for increasing the pace of industrial development. Aggregate assistance
sanctioned by March. 2003 amounted to Rs. 223932.1 crore and
disbursements amounted to Rs. 168166.5crores. The operation
1. Direct Assistance
Direct financial assistance includes project finance assistal1ce, soft-loan
assistance, assistance under technical development fund scheme and
rehabilitation assistance for sick units. Various schemes under direct
assistance are discussed as follows:-
1) Project Finance Assistance

Under project finance scheme. The IDBI extends direct assistance to
industrial concerns in the form of :
a. Project loans
b. Subscription to and/or underwriting of issues of shares and
debentures.
c. Guarantee for loans and deferred payments.
51
2) Soft Loan Scheme

IDBI introduced in 1976 the soft loan scheme to provide financial assistance
to product units in selected industries viz., cement, cotton, textiles. jute,
sugar and certain engineering industries to modernize. Financial replace and
renovate their plant and equipment so as to achieve higher and more
economic levels of production.
This scheme was modified in Jan. 1984 and was named as Soft Loan
Scheme for modernization so as to cover deserving units in all industries.
Under this scheme assist3nce is available to production units for financing
modernization especially to upgrade technology, Export orientation, import
substitution, Energy saving, prevention of pollution, recycling of wastes, etc.
The performance under this scheme has not been encouraging because of
convertibility clause.
3) Technical Development Fund Scheme

The Government of India introduced the Technical Development Fund
(TDF) Scheme in March. 1976 for issue of import licenses for import of
small value balancing equipment, technical knowhow, foreign consultancy
services and drawings and designs by industrial units to enable them to
achieve fuller capacity utilization, technological up gradation and higher
exports. Some industrial units found it difficult to take advantage of the
import license issued under this scheme for want of rupee resources. In
January, 1977, IDBI introduced a scheme for providing matching rupee
loans to industrial units to enable them to utilize import licenses issued
under TDF scheme.
52
Rehabilitation Assistance to Sick Units

The problem of growing industrial sickness in India is a cause of worry. It
adversely affects production, employment, generation of income and
utilization of productive resources. With a view to combat sickness, IDBI
has devised the Refinance Scheme for Industrial Rehabilitation. The units
which have been assisted by State Financial Corporation or State Industrial
Development Corporations and are classified as sick are eligible under this
scheme. Capital, working capital term loan, payment of statutory liabilities,
cash losses during rehabilitation period etc. are met by the bank. The bank
has also been trying to bring merger of sick units with healthy units.
1) Refinance of Industrial Loans

IDBI provides refinance facility against term loans granted by the
eligible credit institutions to industrial concerns for setting up of
industrial projects as also for their expansion, modernization and
diversification. IDBI provides refinance to commercial banks, regional
rural banks, state, co-operative banks, state financial corporations, state
industrial development corporations or other institutions extending term
loan assistance to industrial units. Industrial units seeking term loan
approach the eligible financial institutions which, after sanctioning the
loans, approach the IDBI for refinance facility. The bank relies in the
appraisal done by the primary lending institutions that have to bear
primary responsibility for the loans granted by them. IDBI sanctioned a
sum of Rs. 20712.3 crores up to March 2003 under refinance of industrial
loans. Since 1967, IDBI has been extending indirect financial help to
53
small scale sector principally through its schemes of refinance of
industrial loans and bills discounting.
2) Rediscounting of Bills
IDBI introduced another indirect financing' scheme in 1965, whereby
rediscounting facility of machinery bills was, introduced. This scheme
was to help indigenous machinery manufacturers and their purchases.
The purchaser of machinery accepts bills of exchange or promissory
notes of the seller and undertakes to take the payment in installments.
The seller gets the bills discounted with his banker who in turn
rediscounts these bills with min. The rediscounting facility has been
made available to imported machinery also where bills will be required to
be drawn by local agents of foreign firms.
3) Seed Capital Assistance

With a view to help first generation entrepreneurs who have the skills but
lack financial resources, IDBI started seed capital assistance scheme in
September, 1976. Under the first scheme, Financial Corporations provide
seed capital assistance to projects in small scale sector from their special
class of share capital contributed by IDBI and the state government. The
maximum amount of assistance under this scheme is to meet the gap in
the equity contribution which is 20 per cent of the cost of the project or
Rs. 2 lakhs whichever, is less.
54
NATIONAL BANK FOR AGRICULTURE AND

RURAL DEVELOPMENT
(NABARD)
NABARD is set up as an apex Development Bank with a mandate for
facilitating credit flow for promotion and development of agriculture, small-
scale industries, cottage and village industries, handicrafts and other rural
crafts. It also has the mandate to support all other allied economic activities
in rural areas, promote integrated and sustainable rural development and
secure prosperity of rural areas. In discharging its role as a facilitator for
rural prosperity NABARD is entrusted with
1. Providing refinance to lending institutions in rural areas
2. Bringing about or promoting institutional development and
3. Evaluating, monitoring and inspecting the client banks
Besides this pivotal role, NABARD also:

 Acts as a coordinator in the operations of rural credit institutions
 Extends assistance to the government, the Reserve Bank of India and
other organizations in matters relating to rural development
 Offers training and research facilities for banks, cooperatives and
organizations working in the field of rural development
 Helps the state governments in reaching their targets of providing
assistance to eligible institutions in agriculture and rural development
 Acts as regulator for cooperative banks and RRBs
55
FUNCATIONS
Promoting sustainable and equitable agriculture and rural development

through effective credit support, related services, institution building and
other innovative initiatives
In pursuing this mission, NABARD focuses its activities on:
Credit functions
Involving preparation of potential-linked credit plans annually for all
districts of the country for identification of credit potential, monitoring
the flow of ground level rural credit, issuing policy and operational
guidelines to rural financing institutions and providing credit facilities to
eligible institutions under various programmes.
NABARD's credit functions cover planning, dispensation and monitoring
of credit.
This activity involves:
 Framing policy and guidelines for rural financial institutions
 Providing credit facilities to issuing organizations
 Preparation of potential-linked credit plans annually for all districts
for identification of credit potential
 Monitoring the flow of ground level rural credit
56
Development functions
Credit is a critical factor in development of agriculture and rural sector as it
enables investment in capital formation and technological up gradation,
Hence strengthening of rural financial institutions, which deliver credit to
the sector, has been identified by NABARD as a thrust area. Various
initiatives have been taken to strengthen the cooperative credit structure and
the regional rural banks, so that adequate and timely credit is made available
to the needy.
In order to reinforce the credit functions and to make credit more productive,
NABARD has been undertaking a number of developmental and
promotional activities such as:-
• Help cooperative banks and Regional Rural Banks to prepare development

actions plans for them
• Enter into MoU with state governments and cooperative banks specifying
their respective obligations to improve the affairs of the banks in a stipulated
timeframe
• Help Regional Rural Banks and the sponsor banks to enter into MoUs
specifying their respective obligations to improve the affairs of the Regional
Rural Banks in a stipulated timeframe
• Monitor implementation of development action plans of banks and
fulfillment of obligations under MoUs
• Provide financial assistance to cooperatives and Regional Rural Banks for
establishment of technical, monitoring and evaluations cells
57
• Create awareness among the borrowers on ethics of repayment through
Vikas Volunteer Vahini and Farmer’s clubs
• Provide financial assistance to cooperative banks for building improved
management information system, computerization of operations and
development of human resources
Supervisory functions
As an apex bank involved in refinancing credit needs of major financial
institutions in the country engaged in offering financial assistance to
agriculture and rural development operations and programmes, NABARD
has been sharing with the Reserve Bank of India certain supervisory
functions in respect of cooperative banks and Regional Rural Banks (RRBs).
As part of these functions, it

• Undertakes inspection of Regional Rural Banks (RRBs) and cooperative
banks (other than urban/primary cooperative banks) under the provisions of
Banking Regulation Act, 1949.
• Undertakes inspection of State Cooperative Agriculture and Rural
Development Banks (SCARDBs) and apex non-credit cooperative societies
on a voluntary basis
• Provides recommendations to Reserve Bank of India on opening of new
branches by State Cooperative Banks and Regional Rural Banks (RRBs)
58
Core Functions
NABARD has been entrusted with the statutory responsibility of conducting
inspections of State Cooperative Banks (SCBs), District Central Cooperative
Banks (DCCBs) and Regional Rural Banks (RRBs) under the provision of
the Banking Regulation Act, 1949. In addition, NABARD has also been
conducting periodic inspections of state level cooperative institutions such as
State Cooperative Agriculture and Rural Development Banks (SCARDBs),
Apex Weavers Societies, Marketing Federations, etc. on a voluntary basis.
Objectives of Inspection
• To protect the interest of the present and future depositors
• To ensure that the business conducted by these banks is in conformity with
the provisions of the relevant Acts/Rules, regulations/Bye-Laws, etc
• To ensure observance of rules, guidelines, etc. formulated and issued by
NABARD/RBI/Government
• To examine the financial soundness of the banks
• To suggest ways and means for strengthening the institutions so as to
enable them to play more efficient role in rural credit
Current Focus
Under the revised strategy, a sharper focus of the NABARD’s inspection
was given on the core areas of the functioning of banks pertaining to Capital
Adequacy, Asset Quality, Management Earnings, Liquidity and Systems
Compliance (CAMELSC). Thus, NABARD’s focus in its statutory ‘on-site’
inspections is on core assessments leaving the collateral appraisals to
supplementary inspections. NABARD attempted to ensure that the other
areas, particularly relating to the internal checks and controls, revenue and
59
income realization by way of interest on loans and deposits and other routine
features of carrying out general banking transactions were suitably taken
care of by the respective banks and their concurrent/statutory audit systems.
BOARD OF SUPERVISION (for SCBs, DCCBs and RRBs)

Board of Supervision (for SCBs, DCCBs and RRBs) has been constituted by
NABARD under Section 13(3) of NABARD Act, 1981 as an Internal
Committee to the Board of Directors of NABARD.
The broad powers and functions of the Board of Supervision are:
• Giving directions and guidance in respect of policies and on matters

relating to supervision and inspection, reviewing the inspection findings,
suggesting appropriate measures
• Reviewing the follow-up action taken by Department of Supervision (DoS)
on matters of frauds and internal checks and control
• Identifying the emerging supervisory issues in the functioning of
cooperative banks/RRBs such as NPAs recovery, investment portfolio,
credit monitoring system, management practices, frauds, etc.
The Board of Supervision, since its formation on 20 November 1999 , has
held 31 meetings till 1 0 January 2007 and reviewed the financial position of
Cooperative Banks and RRBs. Based on the observations of BoS, authorities
concerned have been apprised of the weaknesses.
60
Other Initiatives
• The day-to-day functioning of the supervised banks is being monitored
through various statutory returns prescribed by the RBI/NABARD including
OSS returns
• Periodic coordination Meets are conducted with RPCD, RBI to discuss the
policy and operational matters relating to supervision
• Periodic discussions are held with the MD, Apex Banks, RCS, and State
Government etc. to discuss the supervisory concerns.
OBJECTIVES
NABARD was established in terms of the Preamble to the Act, "for

providing credit for the promotion of agriculture, small scale industries,
cottage and village industries, handicrafts and other rural crafts and other
allied economic activities in rural areas with a view to promoting IRDP and
securing prosperity of rural areas and for matters connected therewith in
incidental thereto".
The main objectives of the NABARD as stated in the statement of objectives

while placing the bill before the Lok Sabha were categorized as under:
1. The National Bank will be an apex organization in respect of all matters

relating to policy, planning operational aspects in the field of credit for
promotion of Agriculture, Small Scale Industries, Cottage and Village
Industries, Handicrafts and other rural crafts and other allied economic
activities in rural areas.
61
2. The Bank will serve as a refinancing institution for institutional credit

such as long-term, short-term for the promotion of activities in the rural
areas.
3. The Bank will also provide direct lending to any institution as may
approve by the Central Government.
MAJOR ACTIVITIES
• Preparing of Potential Linked Credit Plans for identification of exploitable

potentials under agriculture and other activities available for development
through bank credit.
• Refinancing banks for extending loans for investment and production
purpose in rural areas.
• Providing loans to State Government/Non Government Organizations
(NGOs)/Panchayati Raj Institutions (PRIs) for developing rural
infrastructure.
• Supporting credit innovations of Non Government Organizations (NGOs)
and other non-formal agencies.
• Extending formal banking services to the unreached rural poor by evolving
a supplementary credit delivery strategy in a cost effective manner by
promoting Self Help Groups (SHGs)
• Promoting participatory watershed development for enhancing productivity
and profitability of rain fed agriculture in a sustainable manner.
• On-site inspection of cooperative banks and Regional Rural Banks (RRBs)

and iff-site surveillance over health of cooperatives and RRBs.
62
ROLE AND FUNCTIONS OF NABARD
• NABARD is an apex institution accredited with all matters concerning

policy, planning and operations in the field of credit for agriculture and other
economic activities in rural areas.
• It is an apex refinancing agency for the institutions providing investment
and production credit for promoting the various developmental activities in
rural areas
• It takes measures towards institution building for improving absorptive
capacity of the credit delivery system, including monitoring, formulation of
rehabilitation schemes, restructuring of credit institutions, training of
personnel, etc.
• It co-ordinates the rural financing activities of all the institutions engaged
in developmental work at the field level and maintains liaison with
Government of India, State Governments, Reserve Bank of India and other
national level institutions concerned with policy formulation.
• It prepares, on annual basis, rural credit plans for all districts in the
country; these plans form the base for annual credit plans of all rural
financial institutions
• It undertakes monitoring and evaluation of projects refinanced by it.
63
SMALL INDUSTRIES DEVELOPMENT BANK OF

INDIA
(SIDBI)
SIDBI is a Principal Development Financial Institution for:
-- Promotion
-- Financing and
-- Development of Industries in the small scale sector and
--Co-coordinating the functions of other institutions engaged in similar
activities.
Provision of Charter
SIDBI was established on April 2, 1990. The Charter establishing it, The
Small Industries Development Bank of India Act, 1989 envisaged SIDBI to
be "the principal financial institution for the promotion, financing and
development of industry in the small scale sector and to co-ordinate the
functions of the institutions engaged in the promotion and financing or
developing industry in the small scale sector and for matters connected
therewith or incidental thereto.
Business Domain of SIDBI

The business domain of SIDBI consists of small scale industrial units, which
contribute significantly to the national economy in terms of production,
employment and exports. Small scale industries are the industrial units in
which the investment in plant and machinery does not exceed Rs.10 million .
About 3.1 million such units, employing 17.2 million persons account for a
64
share of 36 per cent of India's exports and 40 per cent of industrial
manufacture. In addition, SIDBI's assistance flows to the transport, health
care and tourism sectors and also to the professional and self-employed
persons setting up small-sized professional ventures.
SIDBI among Top 30 Development Banks of the World

SIDBI retained its position in the top 30 Development Banks of the World in
the latest ranking of The Banker, London. As per the May 2001 issue of The
Banker, London, SIDBI ranked 25th both in terms of Capital and Assets
Mission
To empower the Micro, Small and Medium Enterprises (MSME) sector with
a view to contributing to the process of economic growth, employment
generation and balanced regional development
Vision
To emerge as a single window for meeting the financial and developmental
needs of the MSME sector to make it strong, vibrant and globally
competitive, to position SIDBI Brand as the preferred and customer -
friendly institution and for enhancement of share - holder wealth and highest
corporate values through modern technology platform
65
OBJECTIVES
Mandatory Objectives
Four basic objectives are set out in the SIDBI Charter. They are:
 Financing
 Promotion
 Development
 Co-ordination
For orderly growth of industry in the small scale sector, The Charter has
provided SIDBI considerable flexibility in adopting appropriate operational
strategies to meet these objectives. The activities of SIDBI, as they have
evolved over the period of time, now meet almost all the requirements of
small scale industries which fall into a wide spectrum constituting modern
and technologically superior units at one end and traditional units at the
other.
Development Outlook
The major issues confronting SSIs are identified to be:
 Technology obsolescence
 Managerial inadequacies
 Delayed Payments
 Poor Quality
 Incidence of Sickness
 Lack of Appropriate Infrastructure and
 Lack of Marketing Network
66
SHAREHOLDING
The entire issued capital of Rs.450 crore has been divided into 45 crore
shares of Rs.10 each. Of the total Rs.450 crore subscribed by IDBI, while
setting up of SIDBI, 19.21% has been retained by it and balance 80.79% has
been transferred / divested in favor of banks / institutions / insurance
companies owned and controlled by the Central Government.
PRODUCTS AND SERVICES
 DIRECT FINANCE
SIDBI had been providing refinance to State Level Finance Corporations /
State Industrial Development Corporations / Banks etc., against their loans
granted to small scale units.
Since the formation of SIDBI in April, 1990 a need was felt/ representations
were made that SIDBI being the principal financial institution for the small
sector, should take up the financing of SSI projects directly on a selective
basis.
 BILLS FINANCE
Bills Finance Scheme involves provision of medium and short-term finance
for the benefit of the small-scale sector. Bills Finance seeks to provide
finance, to manufacturers of indigenous machinery, capital equipment,
components sub-assemblies etc, based on compliance to the various
eligibility criteria, norms etc as applicable to the respective schemes.
67
 REFINANCE
Refinance scheme is introduced for catering to the need of funds of
Primary Lending Institutes for financing small-scale industries. Under
the scheme, SIDBI grants refinance against term loans granted by the
eligible PLIs to industrial concerns for setting up industrial projects in
the small scale sector as also for their expansion / modernization /
diversification. Term loans granted by the PLIs for other specified
eligible activities / purposes are also eligible for refinance.
 INTERNATIONAL FINANCE
The main objective of the various International Finance schemes is to
enable small-scale industries to raise finance at internationally
competitive rates to fulfill their export commitments. The financial
assistance is being offered in USD and Euro currencies. Assistance in
Rupees is also considered, independent of foreign currency limits.
SIDBI has a license to deal in foreign exchange as a "restricted"
Authorised Dealer (i.e. SIDBI confines its foreign exchange activities
only to its own exposures and to exposures for its customers. The
Mumbai Head Office (MHO) of SIDBI operates as a Category 'A'
branch that maintains foreign currency positions, nostro account with
foreign correspondent banks and provides cover to other branches
(Category 'B' branches) that carry out forex business.
68
DATA ANALYSIS
Data analysis of IFCI in concern with various sectors as per the assistance
provided by it to them
IFCI AND INDUSTRIAL FINANCE
Year Sanctions Growth Disbursements Growth rate
1980-81 206.6 49.8 108.9 19.7

1990-91 2429.8 33.7 1574.3 40.6
2000-01 1417.9 -30.7 2152.7 -36.9
2002-03 2035.1 161.6 1796.5 63.8
2500
2000
1500 Sanction
1000 Growth
Disbursement
500
Growth rate
0
-500
1980-81 1990-91 2000-01 2002-03
Interoperation
The sanctions of IFCI went up to Rs. 6579.7 crore in 1995-96 from 32.3
crore in 1970-71, but it declined to Rs. 778 crore by 2001-02. up to march
2003, total sanctioned assistance was Rs. 45426.7 crore while disbursements
were Rs. 44169.2 crore.
69
IFCI AND PRODUCT WISE ASSISTANCE

IFCI provides direct financial assistance for financing projects in terms of
rupee loans, foreign currency loans, and by underwriting and direct
subscription to shares, debentures and bonds.
Years Sanctions Disbursements

1998-99 3129.6 4229.3
1999-00 1900.3 3027.4
2000-01 1371.2 2093.2
2001-02 721.4 1065.6
2002-03 2021.7 1783.1
4500
4000
3500
3000
2500 sanctions
2000 dDisbursements
1500
1000
500
0
1998- 1998- 1999- 2000- 2001- 2002-
99 99 00 01 02 03
The IFCI provided maximum assistance to private sector by giving Rs.

3129.9 cr as on march 2003. This constitutes over 59% of total assistance by
IFCI. The public sector got very little out of the total sanctions of IFCI.
70
IFCI AND PURPOSE WISE ASSISTANCE
Purpose Sanctions Disbursements

New 15919.6 15611.3
Expansion 6649.2 6547.5
Rehabilitation 115.7 114.2
Modernization 5459.8 5480.4
Working capital 837.5 774.2
Others 16279.4 15476.1
18000
16000
14000
12000
10000 Sanction
8000 Disbursements
6000
4000
2000
0
new Rehabilitation work.cap
Interpretation
In the purpose wise sanctions and disbursements, new projects got Rs.
15919.6 cr which is 35.17 % of total sanctions up to march 2003.
71
IFCI AND SECTOR WISE ASSISTANCE
Sector Sanction Disbursements

Public 1541.1 1539.1
Joint 2192 2146
Cooperative 867,1 8384
Private 40660.9 39480.1
50000
40000
30000 sanction
Disbursements
20000
10000
0
public joint cooperative private
Interpretation
The IFCI provided maximum assistance to private sector by giving Rs.
40660.9 cr as on march 2003. This constitutes over 89% of total assistance
by IFCI. The public sector got very little out of the total sanctions of IFCI.
72
DATA ANALYSIS OF IDBI

The main objective of IDBI is to provide term finance and financial services
for establishment of new projects as well as the expansion, diversification,
modernization and technology up gradation of existing industrial enterprises.
It is one of the most important financial institutions which has provided lot
of funds for industrial activities in the country.
IDBI AND PURPOSE WISE ASSISTANCE
Purpose sanction Disbursements
New 67498.8 613582
Expansion 50627.3 42016.3
Rehabilitation 12976.5 9176.5
Modernization 1415.8 805.8
Working capital 44086.5 40076.8
700000
600000
500000
400000 sanction
300000 Disbursements
200000
100000
0
new Rehabilitation work.cap.
Interpretation
The IDBI provided maximum assistance to new projects by giving Rs.
67498.8 cr as on march 2003. This constitutes over 56% of total assistance
by IDBI. The new projects got very little out of the total sanctions of IDBI.
73
IDBI AND SECTOR WISE ASSISTANCE
Sectors Amount Percentage

Public 34963 16.05
Joint 11753.7 5.39
Cooperative 1802.2 .83
Private 169304.2 77.71
Trust 50 .02
200000
150000
Amount
100000
percentage
50000
0
public cooprerative trust
Interpretation
The IDBI provided maximum assistance to private sector by giving Rs.

169304.2 cr as on march 2003. This constitutes over 77.71% of total
assistance by IDBI. The public sector got very little out of the total sanctions
of IDBI.
74
DATA ANALYSIS OF SIDBI
SMALL INDUSTRY DEVELOPMENT BANK OF INDIA

SIDBI has some eligibility criteria for industries to seek any kind of
assistance or funding and from the recent times SIDBI has raised it
eligibility criteria for every institution to gain financial assistance. Here
follows the change in the criteria of SIDBI
SIDBI AND FINANCIAL ASSISTANCE

The sanctions of SIDBI are generally given to those entrepreneurs who have
business of small scale and fulfill the criteria of SIDBI. It undertakes a large
variety of promotional and developmental activities in order to improve the
strength of small scale units, creating employment opportunities and new
way for economic development of poor.
Year Sanctions Disbursements
1997-98 295 279

1999-00 1820.4 672.4
2000-01 2376.5 1766.5
2002-03 3304.1 1949.3
75
3500
3000
2500
2000 SANCTIONS
1500 Disbursements
1000
500
0
1977-98 1999-00 2000-01 2002-03
Interpretation
As on 31 January 2003 through the small Industrial Development Fund

(SIDF), Rs,3304.1 crore have been sanctioned for 231,70 projects covering
for the small industries development.
76
FINDING OF STUDY
 The sanctions of IFCI went up to Rs. 6579.7 crore in 1995-96 from

32.3 crore in 1970-71, but it declined to Rs. 778 crore by 2001-02. up to
march 2003, total sanctioned assistance was Rs. 45426.7 crore while
disbursements were Rs. 44169.2 crore.
 In the purpose wise sanctions and disbursements, new projects got Rs.
15919.6 cr which is 35.17 % of total sanctions up to march 2003.
 The IDBI provided maximum assistance to new projects by giving Rs.
67498.8 cr as on march 2003. This constitutes over 56% of total
assistance by IDBI. The new projects got very little out of the total
sanctions of IDBI.
 With its effective overseeing and monitoring of the implementation of
the Government of India's programme to double the flow of credit to
agriculture over a three-year period from 2004-2005, the total
disbursement of credit reached Rs 1,25,309 during 2004-2005.
Ground level credit flow to agriculture and allied activities reached Rs
1,57,480 crore in 2005-2006.
 Refinance disbursement to commercial banks, state cooperative
banks, state cooperative agriculture and rural development banks,
RRBs and other eligible financial institutions aggregated Rs 8,622.37
crore.
77
LIMITATIONS OF STUDY
Although lots of care and efforts are made to ensure the fault free study but
still there remains certain limitations which possibly may occur such as
 Lack of time acted as constraint in study
 Lack of development banks in nearby areas also acts as constraint as
it’s not possible to get the real exposure.
 Researcher limitations in knowledge are also the limitations of study.
 The study is based on secondary data so any kind of discrepancy in
that will cause same in the study.
78
Conclusion
Development bank plays a very important role in economic development of

our country. Since independence they have contributed a lot to the inception
of industrialization and all other technological innovations. There basic
objective is to assist the development in country which perform by proving
every kind of help possible i.e. financial, advisory, technological etc.
This study helps in portraying the current picture of development banks in
India and shows their role in economy. It also helps in showing the various
schemes that banks have and their whole procedure to provide the assistance
to people.
In this study all the possible measure to remove these hindrances are
described through which we can move more speedily then other economies
in world.
In this study four major development banks in India are taken into research
work i.e. IDBI, IFCI, SIDBI, and NABARD. All the schemes, assistances
and programs are studied and highligtened. Every bank differs from his
objective with each other so as the assistance provided by them.
Every bank has separate guidelines and management to take care of
activities which are performing and work areas are also different, although
their main motive is same which the development of country through
balanced economic growth.This study throws light on the working of these
development banks and how they performed their activities in past.
79
BIBLOGRAPHY
Books
 Financial Institutions and Markets,, 12th edition, written by Bhole,
L. M.
 Financial Services, 8th edition, written by Khan, M. Y
 Indian Financial System, 11edition, written by Khan, M.Y
WEBSITIES
 http: //www.idbi.com
 http: //www.sidbi.com
 http: //www.google.com
 http: //www.banknetindia.com
NEWSPAPERS
 Financial express
 Business line
 The economic times
 Business standard
80

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PROJECT ON DEVELOPMENT BANK

SUBMITTED IN PARTIAL FULFILLMENT OF REQUIREMENT

Name Ajay Mrs. Monisha Gupta vashishta

BHAGWAN MAHAVIR INSTITUTE OF ENG. & TECH.

AFFILIATED TO MAHARSHI DAYANAND

Chapter no. Particulars Page no.

Chapter 4 Development banking in India

Banks under study

Chapter 5 Data analysis

Chapter 7 Limitation of study

I AJAY Roll No. MBA/09/03, MBA 2Year 4th Semester of BHAGWAN

Signature of Project Incharge Signature of the Candidate

Signature of Head of Deptt.

First an foremost, my intellectual debt is to those persons who have

I am thankful to Mrs. Monisha Gupta Vashishta, who guided me to

Development bank plays a very important role in economic development of

INDIAN FINANCIAL SYSTEM

PRE 1991 ERA

POST 1991 ERA

 To check the contribution of development banks in economic growth.

 To find out the role of development banks in Indian financial system

 To study the various development banks operating in India

 To give glance at the working of development banks

 To check the contribution of development banks in economic growth

 To check the individual contribution of each development bank

 To give check the current stature of Indian financial system

 To make a comparative study among various development banks

 To find out the weaknesses in financial system regarding with

Review of Existing literature

NABARD: Need for custom hiring of farm machinery

While inaugurating the workshop, Aseem Chauhan, chief executive, AII,

INDIAN FINANCIAL SYSTEM

Industrial Development Bank of India was set up to accelerate the

Research methodology is a way to systematically solve the research

INTRODUCTION TO DEVELOPMENT BANKS

DEVELOPMENT banks in India have had a chequered and not always a

From the time of Independence, political interference in the functioning of

Notwithstanding these handicaps, development banks made the situation

Hence, development banks need to have a longer perspective than three

If development banks charge variable returns, they will need a

Traditional banking is lending to the real estate developer at a fixed rate of

Definition of a development bank

Development banks are .the institutions engaged in the promotion and

The role of a development bank has been emphasised in this definition. In

Features of a development bank.

GROWTH OF DEVELOPMENT BANKS

Some institutions developed during this period were Industrial Development

OBJECTIVES OF DEVELOPMENT BANKS

2. Meet Capital Needs

3. Need for Promotional Activities

4. Help Small and Medium Sectors'

FUNCTIONS OF DEVELOPMENT BANKS

1. Financial Gap Fillers

2. Undertake Entrepreneurial Role

3. Commercial Banking Business

LENDING PROCEDURES OF DEVELOPMENT BANKS

1. Project Appraisal and Eligibility of Applicant

4. Assessing Commercial Aspects

8. Balancing of Various Factors

10. Loan Disbursement

DEVELOPMENT BANKING IN INDIA

PROMOTIONAL ROLE OF DEVELOPMENT BANKS IN