DEVELOPMENTAL BANKS IN INDIA PROJECT

List of developmental banks IDBI EXIM Bank NABARD SIDBI NHB HDFC

DEVELOPMENTAL BANKS Introduction A development bank provides capital for the investment needs of a country or a group of countries. Development banks operate on a national or regional scale. Financing is either medium or long-term, and geared towards the development needs of its area of concern. Financing also comes with technical assistance, if necessary. The number of development banks worldwide has risen since the 1950s Beginning in 1955, several financial institutions (Development Finance Institutions (DFIs) were established to provide funds to the large medium and small industry in India. The DFIs provide finance for the establishment of new industrial projects as well as for expansion, diversification, and modernization of existing industrial enterprises. In 1997-98, the Industrial Development Bank of India (IDBI) and the Industrial Credit and Investment Corporation of India (ICICI), the two largest DFIs, for instance, provided $12 billion worth of financing. 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 British 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 established and development banks were also a part of them which were established specially top 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-PRIVATIZATIONGLOBALIZATION 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 curren tlyworking 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. HISTORY OF DEVELOPMENT BANKS

The concept of development banking rose only after Second World War,Succ essive 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. The course of development of financial institutions and markets during the post-Independence period was largely guided by the process of planned development pursued in India with emphasis on mobilization of savings and channelizing investment to meet Plan priorities. At the time of Independence in 1947, India had a fairly well-developed banking system. The adoption of bank dominated financial development strategy was aimed at meeting the sectorial credit needs, particularly of agriculture and industry. Towards this end, the Reserve Bank concentrated on regulating and developing mechanisms for institution building. The commercial banking network was expanded to cater to the requirements of general banking and for meeting the short-term working capital requirements of industry and agriculture. Specialized development financial institutions (DFIs) such as the IDBI, NABARD, NHB and SIDBI, etc., with majority ownership of the Reserve Bank were set up to meet the long-term financing requirements ofin dustry and agriculture. To facilitate the growth of these institutions, amecha nism to provide concessional finance to these institutions was also put in place by the Reserve Bank. The first development bank In India incorporated immediately after independence in 1948 under the Industrial Finance Corporation Act as a statutory corporation to pioneer institutional credit to medium and largescale. Then after in regular intervals the government started new and different development financial institutions to attain the different objectives and helpful to five-year plans. The early history of Indian banking and finance was marked by strong governmental regulation and control. The roots of the national system were in the State Bank of India Act of 1955, which nationalized the former Imperial Bank of India and its seven associate banks. In the early days, this national system operated along side of a large private banking system. Banks were limited in their operational flexibility by

the governments desire to maintain employment in the banking system and were often drawn into troublesome loans in order to further the governments social goals. The financial institutions in India were set up under the strong control of both central and state Governments, and the Government utilized these institutions for the achievements in planning and development of the nation as a whole. The all India financial institutions can be classified under four heads according to their economic importance that are: All-India Development Banks Specialized Financial Institutions Investment Institutions State-level institutions Other institutions

Meaning A Development Bank is a polygonal development finance institution devoted to improving the social and monetary development of its associate nations. Its main emphasis is the welfare of the people.

Definition 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 in the form of loans, underwriting, investment and guarantee operations and development in general and industrial. DFIs is defined as Financial institutions dedicated to fund new and upcoming businesses and economic development projects by providing equity capital and/or loan capital. 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. 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 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 forth coming to invest in these vital areas due to risk involved and long gestation period in those industries. The governments of under developed countries set up development and institutions to fill the vacuum. 2. Meet Capital Needs there 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.

THE MAIN FUNCTIONS OF A DEVELOPMENT BANK:

1. Increase loans and equity investments to its developing associate countries (DMCs) for their monetary and social development. 2. Provides technical help for the planning and implementation of development projects and programs and for advisory services. 3. Promotes and facilitates speculation of public and private capital for growth and development. 4. Responds to requests for assistance in coordinating growth policies and plans of its increasing member countries. A development bank's policies or programs center on the following priorities: a) Economic Growth b) Human Development c) Gender and Development d) Good Governance e) Environmental Protection f) Private Sector Development g) Regional cooperation Formation of Development Banks In India: Development banks were set up in India at various points of time starting from the late 1940s to cater to the medium to long term financing requirements of industry as the capital market in India had not developed sufficiently. The endorsement of planned industrialization at the national level provided the critical enticement for organization of Development banks at both all-India and state levels. In order to perform their role, Development Banks were extended funds in the shape of Long Term Operations (LTO) Fund of the Reserve bank of India and government guaranteed bonds, which constituted main sources of their funds. Funds from these sources were not only available at concessional rates, but also on a long term basis with their maturity period ranging from 10-15 years. On the asset side, their operations were marked by near absence of competition. A large variety of economic institutions have come into

existence over the years to perform a type of financial actions While some of them operate at all-India level, others are state level institutions. Besides providing direct loans, financial institutions also extend economic assistance by way of underwriting and direct contribution and by issuing guarantees. Recently, some Development Banks have started extending short term/working capital finance, although long term lending continues to be their major activity. INDUSTRIAL DEVELOPMENTAL BANKS OF INDIA (IDBI)

The IDBI Bank Limited (IDBI Bank) is one of India's leading public sector banks and 4th largest Bank in overall ratings. RBI categorized IDBI as an "other public sector bank". It was established in 1964 by an Act of Parliament to provide credit and other facilities for the development of the fledgling Indian industry. It is currently 10th largest development bank in the world in terms of reach with 1514 ATMs, 923 branches including one overseas branch at DIFC, Dubai and 621 centers including two overseas centers at Singapore & Beijing. Some of the institutions built by IDBI are the Securities & Exchange Board of India (SEBI), National Stock Exchange of India (NSE), the National Securities Depository Services Ltd (NSDL), the Stock Holding Corporation of India (SHCIL), the Credit Analysis & Research Ltd, the Export-Import Bank of India (Exim Bank), the Small Industries Development Bank of India(SIDBI), the Entrepreneurship Development Institute of India, and IDBI BANK, which is owned by the Indian Government. IDBI Bank is on a par with nationalized banks and the SBI Group as far as government ownership is concerned. It is one among the 26 commercial banks owned by the Government of India. The Bank has an aggregate balance sheet size of Rs. 2,53,378 crore as on March 31, 2011. IDBI Bank's operations during the financial year ended March 31, This bank was bankrupt in past and government had to bail it out. The Present Today, IDBI Bank is counted amongst the leading public sector banks of India, apart from claiming the distinction of being the 4th largest bank, in overall ratings. It is presently regarded as the tenth largest development

bank in the world, mainly in terms of reach. This is because of its wide network of 509 branches, 900 ATMs and 319 centers. Apart from being involved in banking services, IDBI has set up institutions like The National Stock Exchange of India (NSE), The National Securities Depository Services Ltd. (NSDL) and the Stock Holding Corporation of India (SHCIL). Products & Services Personal Banking

Deposits Loans Payments - Tax Payments, Stamp Duty Payments, Easy Fill, Bill Payment, Card to Card Money Transfer, PayMate, Online Payments Mutual Fund Demat Account IPO Insurance - Family Care, Weathsurance Cards - Debit Card, Credit Card, Cash Card, Gift Card, International Debit-cum-ATM Card, World Currency Card Institutional Banking Lockers India Post NRI Services Phone Banking SMS Banking Account Alerts Internet Banking Project Finance Infrastructure Finance Syndication, Underwriting & Advisory Services Carbon Credits Business Working Capital Cash Management Services

Corporate Banking

Trade Finance Tax Payments Derivatives Technology Upgradation Fund Scheme (TUFS) Film Financing Scheme Direct Discounting Bills Rehabilitation Finance SME Finance Agri-business Products

Others

EXIM BANK Export-Import Bank of India is the premier export finance institution of the country, established in 1982 under the Export-Import Bank of India Act 1981.

Eg-A cricket stadium under construction in Georgetown, Guyana, Shapoorji Pallonji and Co Ltd., Mumbai. The design and construction of stadium, at which several matches of the World Cup 2007, were played, been financed by Exim Bank under a Line of Credit extended to Government of Guyana.

by this has the

Government of India launched the institution with a mandate, not just to enhance exports from India, but to integrate the countrys foreign trade and investment with the overall economic growth. Since its inception, Exim Bank of India has been both a catalyst and a key player in the promotion of cross border trade and investment. Commencing operations as a purveyor of export credit, like other Export Credit Agencies in the world, Exim Bank of India has, over the period, evolved into an institution that plays a major role in partnering Indian industries, particularly the Small and Medium

Enterprises, in their globalisation efforts, through a wide range of products and services offered at all stages of the business cycle, starting from import of technology and export product development to export production, export marketing, pre-shipment and post-shipment and overseas investment.

Leverage intrinsic complementarities Natural counterparties in Lines of Credit transactions Exim Banks provide MLT, export finance for capital goods, projects; DFI on-lend to domestic enterprises as MLT (domestic ) loans Exim Banks can also co-finance with DFIs, domestic projects through buyers credits. Exim Banks can finance OFDI from respective countries by way of co-financing with DFIs in the host countries. Exim Banks who provide short-term trade finance can collaborate with DFIs for facilitating imports /finance for exports of the clients of DFIs. Where DFIs open import letters of credit, they can be confirmed by Exim Bank in the country of the exporter.

NABARD Overview NABARD is set up by the Government of India as a development bank with the mandate of facilitating credit flow for promotion and development of agriculture and integrated rural development. The mandate also covers supporting all other allied economic activities in rural areas, promoting sustainable rural development and ushering in prosperity in the rural areas. With a capital base of Rs 2,000 crore provided by the Government of India and Reserve Bank of India , it operates through its head office at Mumbai, 28 regional offices situated in state capitals and 391 district offices at districts. NABARD is set up as an apex Development Bank with a mandate for facilitating credit flow for promotion and development of agriculture, smallscale 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 pivotal role, NABARD also:

Besides this

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 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 SIDBI Background About SIDBI SIDBI is a principal financial institution for the promotion, financing and development of industry in the Micro, Small and Medium enterprises (MSME) and to co-ordinate the functions of the institutions engaged in the promotion and financing and developing industry in the MSME sector and for matters connected therewith or incidental thereto. Presently SIDBI has 86 branches and 5 Zonal offices and 1 Regional Office. Current Scenario SIDBI runs several financing for Small and Medium Enterprises (SMEs) schemes across the following broad areas: Direct Finance Bills Finance

Refinance International Finance Promotion and Development Micro-finance

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 i n d u s t r y in the small scale sector and to co-ordinate the functions of t h e 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 p r o d u c t i o n , 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 3.1million such units, employing 17.2 million persons account for a share of 36 per cent of India's exports and 40 per cent of industrial manufacture.. 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 There can be many more similar issues hindering the orderly growth of SSIs. Over the years, SIDBI has put in place financing schemes either through its direct financing mechanism or through indirect assistance mechanism and special focus programmes under its P&D initiatives. In its approach, SIDBI has struck a good balance between financing and providing other support services.

PRODUCTS AND SERVICES DIRECT FINANCE Objective :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 Objectives: . To be eligible under 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 subassemblies etc, based on compliance to the various eligibility criteria, norms etc as applicable to the respective schemes the various bills schemes REFINANCE Objective Refinance scheme is introduced for catering to the need of funds of P r i m a r y L e n d i n g I n s t i t u t e s f o r f i n a n c i n g s m a l l - s c a l e i n d u s t r i e s . U n d e r t h e 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. INTERNATIONAL FINANCE Objective The main objective of the various International Finance schemes is to enables mall-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" Authorized Dealer PROMOTIONAL ACTIVITIES Objective As an apex financial institution for promotion, financing and development of industry in the small scale sector, SIDBI meets the varied developmental needs of the Indian SSI sector by its wide-ranging Promotional and Developmental (P&D) activities. P&D initiatives of the Bank aim at improving the inherent strength of small scale sector on one hand as also economic development of poor through promotion of micro-enterprises. NHB The Sub-Group on Housing Finance for the Seventh Five Year Plan (1985-90) identified the non-availability of long-term finance to individual households on any significant scale as a major lacuna impeding progress of the housing sector and recommended the setting up of a national level institution. The Committee of Secretaries considered' the recommendation and set up the High Level Group under the Chairmanship of Dr. C. Rangarajan, the then Deputy Governor, RBI to examine the proposal and recommended the setting up of National Housing Bank as an autonomous housing finance

institution. The recommendations of the High Level Group were accepted by the Government of India. he National Housing Policy, 1988 envisaged the setting up of NHB as the Apex level institution for housing. In pursuance of the above, NHB was set up on July 9, 1988 under the National Housing Bank Act, 1987. NHB is wholly owned by Reserve Bank of India, which contributed the entire paid-up capital. The Head Office of NHB is at New Delhi. The objectives of the NHB are To promote a sound, healthy, viable and efficient housing finance system to cater to all segments of the population. To establish a network of housing finance outlets to adequately serve different regions and different income groups. To promote savings from housing. To make housing more affordable. To promote appropriate technologies for housing. To augment the supply of land and of building materials for housing. To enable public agencies to emerge, primarily, as facilitators and suppliers of serviced land. To augment and upgrade the housing stock in the country. To strengthen the backward and forward linkages of the housing sector with rest of the economy. To augment the financial resources for the sector. To enable the housing finance system to access the capital market for resources.

FUNCTIONS OF NHB NHB supports housing finance sector by: Extending refinance to different primary lenders in respect of Eligible housing loans extended by them to individual beneficiaries, for project loans extended by them to various implementing agencies. Lending directly in respect of projects undertaken by public housing agencies for housing construction and development of housing related infrastructure. Guaranteeing the repayment of principal and payment of interest on bonds issued by Housing Finance Companies.

Acting as Special Purpose Vehicle for securitizing the housing loan receivables. Promotion and Development The principal mandate of the Bank is to promote housing finance institutions to improve/strengthen the credit delivery network for housing finance in the country. The Bank has played a facilitator role in this regard instead of itself opening such dedicated housing finance institutions. For this purpose, NHB has issued the Model Memorandum and Articles of Association. NHB has also issued guidelines for participating in the equity of housing finance companies. All housing finance companies registered with NHB u/s 29A of the National Housing Bank Act, 1987 and scheduled commercial/co-operative banks are eligible for refinance support subject to terms and conditions as laid down under the respective refinance schemes. As a part of its promotional role NHB has also formulated a scheme for guaranteeing the bonds to be issued by the housing finance companies. Considering the need for trained personnel for the sector NHB has designed and conducted various training programmes. HDFC Housing Development Finance Corporation Limited, more popularly known as HDFC Bank Ltd, was established in the year 1994, as a part of the liberalization of the Indian Banking Industry by Reserve Bank of India (RBI). It was one of the first banks to receive an 'in principle' approval from RBI, for setting up a bank in the private sector. The bank was incorporated with the name 'HDFC Bank Limited', with its registered office in Mumbai. The following year, it started its operations as a Scheduled Commercial Bank. Today, the bank boasts of as many as 1412 branches and over 3275 ATMs across India. Amalgamations In 2002, HDFC Bank witnessed its merger with Times Bank Limited (a private sector bank promoted by Bennett, Coleman & Co. / Times Group). With this, HDFC and Times became the first two private banks in the New Generation Private Sector Banks to have gone through a merger. In 2008, RBI approved the amalgamation of Centurion Bank of Punjab with HDFC Bank. With this, the Deposits of the merged entity became Rs. 1,22,000 crore, while the Advances were Rs. 89,000 crore and Balance Sheet size was Rs. 1,63,000 crore. Products & Services Personal Banking

Savings Accounts Salary Accounts Current Accounts Fixed Deposits Demat Account Safe Deposit Lockers

Loans Credit Cards Debit Cards Prepaid Cards Investments & Insurance Forex Services Payment Services NetBanking InstaAlerts MobileBanking InstaQuery ATM PhoneBanking Rupee Savings Accounts Rupee Current Accounts Rupee Fixed Deposits Foreign Currency Deposits Accounts for Returning Indians Quickremit (North America, UK, Europe, Southeast Asia) IndiaLink (Middle East, Africa) Cheque LockBox Telegraphic / Wire Transfer Funds Transfer through Cheques / DDs / TCs Mutual Funds Private Banking Portfolio Investment Schemes Loans Payment Services NetBanking InstaAlerts MobileBanking InstaQuery ATM PhoneBanking

NRI Banking

DISTRIBUTION NETWORK HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable network of over 1412 branches spread over 528 cities across India. All branches are linked on anonline real-time basis. Customers in over 500 locations are also serviced through TelephoneBanking. The Bank's expansion plans take into account the need to have a presence in allmajor industrial and commercial centres where its corporate customers are located as well asthe need to build a strong retail customer base for both deposits and loan products. Being aclearing/settlement bank to various leading stock exchanges, the Bank has branches in thecentres where the NSE/BSE have a strong and active member base.The Bank also has a network of about over 3295 networked ATMs across these cities.Moreover, HDFC Bank's ATM network can be accessed by all domestic and internationalVisa/MasterCard, Visa Electron/Maestro, Plus/Cirrus and American Express Credit/Chargecardholders