DFI is different from commercial banks as it strikes a balance between commercial operational norms as followed by commercial banks on the one hand, and developmental responsibilities on the other. It is not just simply commercial banks but acts as partner in the development of significant sectors of the economy.
In India, the first DFI was the Industrial Financial Corporation of India (IFC) that was set up in 1948. After the passage of the State Financial corporations (SFcs) Act, 1951, state level small and medium-sized financial corporations were established. It was succeeded by the establishment of Industrial Finance Corporation of India (IFCI). In 1955, the first DFI in the private sector, the Industrial Credit and Investment Corporation of India (ICICI), was set up with the backing of the World Bank. In 1958, Refinance Corporation for Industry, which was taken over by the Industrial Development Bank of India (IDBI) was established. In 1963, Agriculture Refinance Corporation was established.
After 2000-2001, the prominence of development banking started to decline as many firms from development banking had quit post liberalisation. During 2002-2004, ICICI and IDBI were turned into commercial banks.
The government found that the DFIs failed miserably to provide credit to the small-scale and rural farm sectors for the long term. Also, they did not have low-cost deposits in the form of current and savings accounts similar to that of commercial banks.
Currently, there are sector-specific DFIs in the economy such as National Housing Bank (NHB), EXIM bank for import export operations. Other DFIs include Nabard, Indian Renewable Energy Development Agency (Ireda), Small Industries Development Bank of India (Sidbi).
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.