Development banks: Recently in press briefing Finance Minister Nirmala Sitharaman announced to set up a development bank in India.
Let’s just try to understand what development banks are, how they work, and what future they have in India?
We all know India is a developing country and infrastructure is the basic requirement of any economy. Continuously large scales of construction are going on in India. And to sustain that pace unrestricted flow of capital is a must.
Development banks are also a financial institution which engages in lending activities and financial activities. But their speciality is they provide long term credits. From their name, one can easily understand why they provide long term loans. They provide loans to undertake development activities and are also known as term lending institutes. And also they charge low-interest rates on long term loans. That makes them different from other Banks.
The government has proposed to establish and organization or development bank which will enhance infrastructural and housing investment. According to the proposal, the bank will ensure adequate debt flow to the projects. This decision was taken in a wake of that India has not complete or fully-fledged development bank and also we need to have Institutional mechanism in this regard.
Although we have some industrial development banks like ICICI, IDBI, IFCI but not fully-fledged.
Now that government has taken decision it is most likely that the problem of getting capital on a regular basis resolve.