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ESSENTIALS OF BUSINESS ENVIRONMENT

Chapter 24
DEVELOPMENT BANKS

Analyse the operations and describe the trends of DFIs.Chapter 24 Development Banks Learning Objectives      Understand the meaning of development banks. Recollect the findings of the expert committee on DFIs. Make a critical evaluation of the role played by DFIs. Aswathappa . Himalaya Publishing House Essentials of Business Environment K. Carve the role of DFIs during the days ahead.

Chapter 24 Development Banks Himalaya Publishing House Essentials of Business Environment K. Aswathappa .

Aswathappa .Chapter 24 Development Banks Assessment of Development Banks     Promotion of SSI units Promotion of entrepreneurs Development of backward areas Industrial development Himalaya Publishing House Essentials of Business Environment K.

Aswathappa .Weaknesses  Chapter 24 Development Banks Low profitability  Operating in competition-free environment  Government control and political interference  Regional imbalances still persist  Could not remove sickness  As nominee directors of lendee companies. their role is minimal Himalaya Publishing House Essentials of Business Environment K.

The DFIs should supervise their own loan implementation.Narasimham Committee Recommendations Chapter 24 Development Banks (i) The ownership pattern of DFIs should be broad-based. (vi) The DFIs should raise their funds from the capital market at market-related rates. In all cases. Essentials of Business Environment Himalaya Publishing House K. the DFIs should exercise their individual professional judgements free of any pressures. competence and integrity. (v) In the case of state-level financial institutions. (vii) As regards loan sanctions. The cross-representation in each other’s boards is no more necessary with the giving up of consortium funding. the link with the State Governments should be broken and these institutions should be helped to work with improved efficiency. The IDBI should retain only its apex refinancing role and its direct lending function should be transferred to a separate institution which could be incorporated as a company. Aswathappa . (ix) The role and functions of IDBI should be changed. They should also mobilise the savings of the household sector through some schemes which do not conflict with the commercial banks. (iii) The appointment of chief executives of DFIs (as in the case of banks) should be men of proven professional competence and should be selected on the recommendations of a panel of eminent persons. each DFI should have the sole responsibility in loan sanctions. (viii) The present system of consortium funding should be given up. (iv) The boards of DFIs should include representatives from the industrial sector. take up only that number of projects which they can efficiently follow up and recover their dues and approach the capital market for their funds. It should be guided by professional appraisal of the technical and economic aspects of the project evaluation of the promoters. (x) In the matter of corporate take-overs. except in these cases where the new management can do better. like that of ICICI. (ii) The government should work out an action plan to be implemented in the next three years which would usher in a measure of autonomy of the DFIs in matters of internal administration. DFIs should lend support to existing managements with proven record beneficial to all concerned.

Aswathappa . Similarly. communications. Two major institutions. On May 3. medicare. ICICI merged into ICICI Bank. the name by which it is presently known. Securitisation of assets has a potential to resolve the resource crisis through the faster turnover of assets. With the maturing of the Indian economy. insurance and investment banking would assure greater importance in the future. DFIs are forced to mobilise their own resources. recreation and tourism. viz. (vi) (vii) Himalaya Publishing House Essentials of Business Environment K. Optimising the use of scarce resources. Concessional funds having dried up. service sectors like transportation. FDIs need to align themselves with these emerging areas. the IDBI Bank has been merged into IDBI. the Industrial Development Bank of India Act has been repealed towards the end 2003 and consequently. 2002. DFIs themselves need to restructure themselves. ICICI and IDBI have converted themselves into commercial banks. Preventing concentration of economic power.. Promoting industrialisation of backward and neglected regions. new and technical entrepreneurs in the country.Chapter 24 Development Banks Road ahead (i) (ii) (iii) (iv) (v) Promoting the growth of small. consultancy and computer software services. The ICICI is now a universal bank which is active in every area of finance.