Banking Awareness 07: Development of Financial Institutions.

Candidates who are very Anxious to know about the Development of Financial Institutions, then this article provides you the clean and clear information about it. A development finance institution or development bank or development finance-company (DFC) is a financial institution that provides risk capital for economic development projects. DFIs are typically backed by countries with developed economies. Development of Institutions are Specialized and set up into primarily to provide development of project finance especially in Developing Countries. These developments of Banks are usually majority which is owned by the National governments. These sources of capital of the banks are National (or) International Development Funds. They ensure their CreditWorthiness and their Ability to Provide Project Finance at a very Competitive rate.

Here we are Mentioning the Contents of the Development of Financial Institutions, they are:-

1. Difference From Commercial Banks
2. Classification 
3. Role of DFIS in Indian Economy.
4. Evolution of DFIs in India.
5. The declining role of DFIs post Liberalization.
6. Universal Banking for replacing DFIs in India.
7. Conclusion.

Difference From Commercial Banks:-

Development of Financial Institutions differentiates from Commercial banks as it strikes a balance between Commercial and Operational Norms as followed by Commercial Banks on one hand and development responsibilities on the other. They provide long-term loans, guarantees, and underwriting functions. Development of Financial Institutions provides long term finance to fund the activities to those sectors where the risk is higher for the commercial banks to finance. After independence, as the role of commercial banks were limited to providing working capital financing for short periods, the DFIs were set up to finance the development on a long term basis for the significant sectors of the economy like infrastructure sector.

Classification:-

Here in the Development of Financial Institutions, they were classified into four categories, they are:- 

• National Development Banks like IDBI, ICICI, IFCI, IRBI, IDFC.
• The Sector Specifies Financial Institutions like TFCI, EXIM Bank, NABARD, HDFC, NHB.
• There are some of the Investment Institutions like ELC, GIC, and UTI.
• Here we have some of the State Level Institutions like State Finance Corporations and SIDCs.

Role of DFIS in Indian Economy:- 

In India, the role of the Development of Financial Institutions is to support the long term infrastructures of industry and agriculture. The DFIs were set up under the full control of both central and State Governments. These Institutions were used by the Government for Spurring Economic Growth and Aid Social Development.

Evolution of DFIs in India.

The Development of Financial Institutions was Operationalised in 1948, with the setting up of the Industrial Finance Corporation. After the passage of the State Financial Corporations Act, in 1951, state-level small and medium-sized financial corporations were established. It was succeeded by the establishment of the Industrial Finance Corporation in Idna in 1955, and the first DFI in the private sector, and the Industrial Credit and Investment Corporation of India, was set with the backing of the World Bank, in 1958, Refinance corporation for the industry, which was taken over by the Industrial Development of India was Established.

These are some of the Following major Institutions which were set up after 1947:-

The declining role of DFIs post Liberalization:-

After 200-2001, the Prominence of development banking has started to decline as many firms from the development of banking which has quit the post of liberalization. During 2002-2004, ICICI and IDBI were turned into Commercial Banks. So the DFIs has to rely on a variety of method to fulfill the gap created by the reduced state funding. There were growing reliance on bank credit, private equity incorporation financing, and external commercial Borrowing.

Universal Banking for replacing DFIs in India:-

At present, the line between the role of DFIs and commercial banks have blurred due to the overlapping of their functions. Nowadays, commercial banks are actively involved in developmental financing similar to that of the DFIs, especially after the merger of ICICI and IDBI within the banking system.

Conclusion:- 

The DFIs role of industrialization and developmental finance until the onset of liberalization cannot be denied. They were very crucial to realize the larger development goals as prescribed by the 5-year plans. though, as of now, the commercial banks have largely taken the place of the development of financing,  they are unlikely to emphasize environmental and social concerns while making investments decisions and leading, especially if they result in a reduction in profitability. Hence, it would be wise to revive the concept of DFI if the government wishes to keep societal, cultural, regional, rural and environmental concerns intact while financing long term development of projects.