ms-03 mba assignment july dec 2010 Question5

1.      What are the functions of Development Banks? Describe its Quantitative and  Qualitative roles. 

Development Banks in India

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. For example the Asian Development Bank's overarching goal is to decrease poverty in Asia and the Pacific. It helps improve the value of people's lives by providing loans and scientific support for a broad variety of development activities.
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
The main functions of a Development Bank:
a) Increase loans and equity investments to its developing associate countries (DMCs) for their monetary and social development.
b) Provides technical help for the planning and implementation of development projects and programs and for advisory services.
c) Promotes and facilitates speculation of public and private capital for growth and development.
d) Responds to requests for assistance in coordinating growth policies and plans of its increasing member countries

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.