Development Financial Institutions (DFIs)
IFCI, ICICI, IDBI, SIDBI, Exim Bank, NABARD, NHB and NaBFID — the institutions that built India’s industrial and agricultural backbone when commercial banks wouldn’t lend long-term.
What Are DFIs and Why Were They Needed?
Commercial banks mobilise short-term deposits and hence cannot comfortably lend for long periods (10-15 years) needed by infrastructure projects. Development Financial Institutions (DFIs), also called Development Banks, were set up to bridge this gap — providing long-term credit for capital formation in industry, agriculture, housing and infrastructure. Post-1991 liberalisation, most DFIs converted into Universal Banks as the concept of Universal Banking emerged (DFIs lend long + banks lend short = one entity doing both).
Classification of DFIs (Four Categories)
| Category | Institutions | Purpose |
|---|---|---|
| Development Banks | IFCI, IDBI, ICICI, SCICI, SIDBI, NaBFID | Long-term finance for industry and infrastructure |
| Specialised Financial Institutions | Exim Bank, NABARD, TFCI, TDICI | Specialised sectors: exports, agriculture, tourism, technology |
| Investment Institutions | LIC | Long-term savings mobilisation and investment |
| State-Level Institutions | State Financial Corporations (SFCs), State Industrial Development Corporations (SIDCs) | State-level DFI role for small/medium enterprises |
Major DFIs — Key Facts and Milestones
IFCI — Industrial Finance Corporation of India
- Set up under Industrial Finance Corporation Act, 1948
- First Development Financial Institution of India
- Initial authorised capital: Rs 10 crores
- Changed constitution: statutory corporation → company (IFCI Limited) from October 1999
- Amended Act 1986: authorised capital increased to Rs 250 crores
- Founded/promoted: MDI, ICRA, TFCI, RGVN, NSE, SHCIL, LIC Housing Finance
- Now focused on SMEs — mid-corporate specialist
ICICI — Industrial Credit & Investment Corporation of India
- Set up 1955 at initiative of World Bank + Govt of India + Indian industry
- Principal objective: medium and long-term project financing to Indian businesses
- In 1999: first Indian company and first bank/FI from non-Japan Asia listed on NYSE
- March 2002: ICICI merged with ICICI Bank → created first Universal Bank in India
- Founded/promoted: HDFC, CRISIL (with UTI), TDICI, ICICI Brokerage, SCICI Securities
- ICICI Bank incorporated: 1994 (as part of ICICI group)
- ICICI ceased to exist as DFI after March 2002 merger
IDBI — Industrial Development Bank of India
- Established 1964 as wholly owned subsidiary of RBI
- Ownership transferred to Central Government: 16th February 1976
- 1994 amendment: allowed public ownership up to 49%
- 1995 IPO: Raised Rs 2,000 crores; Govt stake reduced to 72%
- Converted to IDBI Bank: 1st October 2004 (Universal Bank)
- Founded: Entrepreneurship Development Institute of India
- SIDBI and Exim Bank were both carved out of IDBI
- Authorised capital: Rs 50 crores initially → increased to Rs 2,000 crores (1994)
SIDBI — Small Industries Development Bank of India
- Set up under SIDBI Act, 1989 | Commenced operations: April 2, 1990
- Principal Financial Institution for MSME sector
- Initially a subsidiary of IDBI; took over IDBI’s small-scale portfolio
- Shareholders: Govt of India + 22 financial institutions (largest: GoI, SBI, LIC)
- Functions: Direct finance, Indirect finance (refinance to PLIs), Micro Finance
- Also promotes cleaner production and energy efficiency
- Fund of Funds for Start-ups | India Aspiration Fund
Exim Bank — Export Import Bank of India
- Established under Export-Import Bank Act, 1981 | Commenced operations: March 1982
- Wholly owned by Government of India
- Principal FI for coordinating export-import financing
- 9 overseas offices
- Products: Buyers Credit, Lines of Credit, Overseas Investment Finance, Project Exports
- Services: Market Advisory, Research and Analysis, Export Advisory
- Carves out of IDBI; carved out similarly to SIDBI
NABARD — National Bank for Agriculture & Rural Development
- Set up July 1982 by Act of Parliament
- Based on recommendations of CRAFICARD Committee (Chairman: B Sivaraman)
- Took over functions of Agricultural Refinance and Development Corporation and RBI’s refinancing of cooperative banks/RRBs
- Functions: Credit (refinancing), Promotional/Developmental, Institutional Development, Supervisory (inspects SCBs, DCCBs, RRBs under Section 35 BR Act)
- Rural cooperative banks supervised by NABARD
- Financing to SHGs and JLGs 100% refinanced by NABARD
Announced in Union Budget 1987-88 on February 28, 1987. Established under National Housing Bank Act, 1987. Set up on July 9, 1988. Initially fully owned by RBI; in 2019, RBI divested its share → now fully owned by Government of India. Functions: Financing role (refinance to housing finance companies/HFCs and primary lenders); Promotion and Development role (promote housing finance institutions); Supervisory and Regulatory role (regulate HFCs — though RBI will be regulator and NHB will supervise). The NHB Act requires registration of housing finance companies under Section 29A.
NaBFID Act 2021 — divided into 7 Chapters, 48 Sections. Regulated and supervised as an All India Financial Institution (AIFI) by RBI under Sections 45L and 45N of RBI Act, 1934. It is the fifth AIFI after Exim Bank, NABARD, NHB and SIDBI. Authorised share capital: Rs 1 lakh crore (divided into 10,000 crore shares of Rs 10 each). Central Government shall hold at least 26% at all times (initially holds 100%; may reduce to 26%). Board: Chairperson + MD + max 3 Deputy MDs + 2 Central Govt nominees + max 3 elected by shareholders + max 3 independent directors. Cannot be liquidated except by order of Central Government.
Chapter 23 — Exam Points and PYQs
✅ Must-Know DFI Facts
- First DFI in India: IFCI — Industrial Finance Corporation of India | July 1, 1948 (Q1 PYQ: answer = IFCI)
- Investing Institution (category): LIC — Life Insurance Corporation of India (Q2 PYQ: answer = LIC)
- DFIs post-liberalisation adopted: Universal Bank structure (Q3 PYQ: answer = Universal banks)
- IFCI initial capital: Rs 10 crores (Q4 PYQ: answer = Rs 10 crores)
- NRI counselling DFI: ICICI (Q5 PYQ: answer = ICICI — started Merchant Banking Division 1973, NRI counselling from 1982)
- NABARD set up: July 1982 | CRAFICARD Committee (B Sivaraman) | Took over Agricultural Refinance functions from RBI
- NHB set up: July 9, 1988 | Now fully owned by GoI (RBI divested 2019)
- SIDBI commenced: April 2, 1990 | Principal FI for MSME sector
- Exim Bank commenced: March 1982 | Wholly owned by GoI | 9 overseas offices
- ICICI → Universal Bank: March 2002 | First universal bank in India
- IDBI → Bank: October 1, 2004 | Ownership transferred to Central Govt: February 16, 1976
- NaBFID 2021: Fifth AIFI | Regulated under Sections 45L and 45N of RBI Act | Authorised capital Rs 1 lakh crore | Govt holds min 26%