- 1 Development Bank
- 2 Difference between NBFCs and Banks
- 3 FAQs Development Bank
- 3.1 What are the key financial entities providing long-term assistance for economic growth and infrastructure development?
- 3.2 What is the role of NABARD, and when was it established?
- 3.3 What is the mandate of SIDBI, and when was it founded?
- 3.4 What is the function of EXIM Bank, and when was it established?
- 3.5 What is the purpose of National Housing Bank, and how is it structured?
- 3.6 What is MUDRA Bank, and what role does it play in the financial ecosystem?
- 3.7 What is NaBFID, and when was it established?
- 3.8 What distinguishes NBFCs from banks?
- 3.9 How are NBFCs and banks regulated?
- 3.10 Do NBFCs and banks have different foreign investment limits?
- 3.11 Are deposit insurance facilities available for both NBFCs and banks?
- 3.12 What role do NBFCs and banks play in credit creation?
- 3.13 What services do Micro Finance Institutions (MFIs) provide, and who are their primary clients?
- 3.14 What are Neo Banks, and how do they differ from traditional banks?
- 3.15 What is the Lead Bank Scheme, and how does it function in India’s banking system?
- 4 More Articles
Development Bank
Financial entities that cater to the economy’s needs by providing long-term financial assistance, especially to sectors crucial for economic growth and infrastructure development.
- NABARD: Born in 1982 following the recommendations of the B. Sivaraman Committee; fully owned entity of the Government of India.
- Small Industries Development Bank of India (SIDBI): Established in 1990; owned by Government of India.
- Export-Import Bank (EXIM Bank): Established in 1982; wholly-owned subsidiary of the Central Government.
- National Housing Bank: Instituted in 1988 under the National Housing Bank Act, 1987; wholly owned by the Government of India (GOI).
- MUDRA Bank: Set up under the Pradhan Mantri MUDRA Yojana scheme; Offer low-interest loans to Micro Finance Institutions (MFIs) and non-banking financial institutions.
- National Bank for Financing Infrastructure and Development (NaBFID): Established in 2021 through the enactment of The National Bank for Financing Infrastructure and Development (NaBFID) Act, 2021.
Difference between NBFCs and Banks
| Feature | NBFCs | Banks |
|---|---|---|
| Licensing Requirement | Provide banking services without holding a bank license | Government authorized financial intermediary |
| Regulatory Framework | Regulated under Companies Act 2013 | Regulated under Banking Regulation Act 1949 |
| Acceptance of Demand Deposits | Cannot accept demand deposits | Demand deposits can be accepted |
| Foreign Investment Limit | Foreign investment allowed up to 100% | Private sector banks: up to 74% |
| Payment and Settlement Systems | Not part of the system | Integral part of the system |
| Reserve Ratios Maintenance | Not required | Mandatory |
| Deposit Insurance Facility | Not available | Available |
| Credit Creation | Does not create credit | Creates credit |
| Transaction Services Provision | Cannot provide transaction services | Can provide transaction services |
- Micro Finance Institutions: Specialized financial institutions dedicated to providing services like micro-loans, microsavings and microinsurance to low-income individuals and groups at lower interest rates;. In India, all loans that are below Rs.1 lakh can be considered microloans.
- Neo Banks: Completely online-based digital banking platforms that lack any physical presence. Eg: Yono by SBI, RazorpayX
- Lead Bank Scheme: envisages assignment of lead roles to individual banks (both in public sector and private sector) for the districts allotted to them; On the recommendation of the Gadgil Study Group and Banker’s Committee, the Scheme was introduced by RBI.
FAQs Development Bank
What are the key financial entities providing long-term assistance for economic growth and infrastructure development?
NABARD, SIDBI, EXIM Bank, National Housing Bank, MUDRA Bank, and the recently established National Bank for Financing Infrastructure and Development (NaBFID) play crucial roles in providing long-term financial assistance to sectors vital for economic growth and infrastructure development.
What is the role of NABARD, and when was it established?
NABARD, established in 1982 based on recommendations from the B. Sivaraman Committee, is a fully owned entity of the Government of India. It focuses on providing financial assistance to agriculture and rural development sectors.
What is the mandate of SIDBI, and when was it founded?
SIDBI, established in 1990 and owned by the Government of India, specializes in providing financial assistance to small-scale industries. It plays a crucial role in fostering entrepreneurship and supporting the growth of MSMEs.
What is the function of EXIM Bank, and when was it established?
EXIM Bank, founded in 1982 as a wholly-owned subsidiary of the Central Government, facilitates India’s international trade by providing financial assistance, including export credit, export finance, and foreign investment.
What is the purpose of National Housing Bank, and how is it structured?
National Housing Bank, established in 1988 under the National Housing Bank Act, is wholly owned by the Government of India. It focuses on promoting housing finance institutions and facilitating housing-related financial services.
What is MUDRA Bank, and what role does it play in the financial ecosystem?
MUDRA Bank, set up under the Pradhan Mantri MUDRA Yojana scheme, provides low-interest loans to Micro Finance Institutions (MFIs) and non-banking financial institutions, with a focus on supporting micro-enterprises and small businesses.
What is NaBFID, and when was it established?
NaBFID, established in 2021 through the enactment of The National Bank for Financing Infrastructure and Development (NaBFID) Act, focuses on financing infrastructure projects and driving sustainable development in India.
What distinguishes NBFCs from banks?
NBFCs (Non-Banking Financial Companies) provide banking services without holding a bank license, while banks are government-authorized financial intermediaries. NBFCs cannot accept demand deposits, unlike banks.
How are NBFCs and banks regulated?
NBFCs are regulated under the Companies Act 2013, while banks are regulated under the Banking Regulation Act 1949.
Do NBFCs and banks have different foreign investment limits?
Yes, foreign investment is allowed up to 100% in NBFCs, whereas for private sector banks, the limit is up to 74%.
Are deposit insurance facilities available for both NBFCs and banks?
No, deposit insurance facility is not available for NBFCs, whereas it is available for banks.
What role do NBFCs and banks play in credit creation?
NBFCs do not create credit, while banks are responsible for creating credit in the economy.
What services do Micro Finance Institutions (MFIs) provide, and who are their primary clients?
MFIs specialize in offering micro-loans, microsavings, and microinsurance to low-income individuals and groups at lower interest rates. In India, any loan below Rs.1 lakh falls under the category of microloans, making them accessible to economically marginalized communities.
What are Neo Banks, and how do they differ from traditional banks?
Neo Banks are fully digital banking platforms that operate exclusively online without any physical branches. Examples include Yono by SBI and RazorpayX. Unlike traditional banks, Neo Banks offer banking services solely through digital channels, providing convenience and accessibility to their customers.
What is the Lead Bank Scheme, and how does it function in India’s banking system?
The Lead Bank Scheme, introduced by the RBI based on recommendations from the Gadgil Study Group and Banker’s Committee, assigns lead roles to individual banks (both public and private sector) for specific districts. These lead banks are responsible for coordinating the efforts of all banks operating in the allotted districts, ensuring the effective implementation of various banking and development programs to promote financial inclusion and economic growth.
