Which of the following Development Financial Institutions were set up in India between 1950s and 1960s ? 1. Industrial Finance Corporation of India (IFCI) 2. Industrial Credit and Investment Corporation of India (ICICI) 3. Industrial Development Bank of India (IDBI) 4. National Bank for Financing Infrastructure and Development (NaBFID) Select the answer using the codes given below :

Correct — C, (c) 2 and 3 only.

The four institutions and their dates:

IFCI, the Industrial Finance Corporation of India, was established in 1948 as a statutory corporation under the Industrial Finance Corporation Act of that year. It was India's first development financial institution, set up in the year after independence to provide medium and long-term finance to industry when the capital market could not.

ICICI, the Industrial Credit and Investment Corporation of India, was established on 5 January 1955, as a joint venture promoted at the initiative of the World Bank, with the Government of India and Indian industry as participants. It was intended to encourage private industrial investment and to develop the capital market, and its first chairman was Sir Arcot Ramasamy Mudaliar.

IDBI, the Industrial Development Bank of India, was established on 1 July 1964, initially as a wholly owned subsidiary of the Reserve Bank of India, and became the apex institution for industrial finance, coordinating the work of the others.

NaBFID, the National Bank for Financing Infrastructure and Development, was established in 2021 under the National Bank for Financing Infrastructure and Development Act of that year, as a development financial institution for long-term infrastructure finance - a revival of the model after two decades in which the older institutions had been converted into banks.

The stem asks which of them were set up between the 1950s and the 1960s. ICICI in 1955 and IDBI in 1964 fall inside that window. NaBFID, in 2021, is more than half a century outside it. IFCI, in 1948, falls in the decade before it.

So the item turns entirely on IFCI's date, and it is worth being explicit about that. The temptation is to include IFCI because it is the earliest of the Indian development financial institutions and is always named first in any account of them; but being first is not the same as being inside the stated window, and 1948 belongs to the 1940s. That leaves entries 2 and 3, which is option (c).

Why the others are wrong

• (a)1, 2 and 3 only — This option adds IFCI to the two institutions that do belong, and it is the trap the item is built around. IFCI is the natural first entry in any list of development financial institutions and is often described loosely as belonging to the early planning era, which runs together in memory with the First and Second Plans of the 1950s. Its statutory foundation is nonetheless dated 1948, under the Industrial Finance Corporation Act of that year - before the Planning Commission was constituted, before the First Plan, and a decade before ICICI. The stem names a window, and IFCI stands outside it by seven years.
• (b)1 and 4 only — This option pairs the earliest of the four with the latest, which is the one combination that could not describe a window of two decades in the middle of the century. IFCI belongs to 1948 and NaBFID to 2021, seventy-three years apart, and the two lie on opposite sides of the whole history of Indian development finance - one at its beginning, the other at its revival after the older institutions had been converted into commercial banks. An option that spans the extremes of a list while excluding its middle is worth checking against the stem's stated period before anything else.
• (d)1, 2, 3 and 4 — This option accepts all four, which requires NaBFID to have been set up in the 1950s or 1960s. It was established in 2021 under an Act of that year, and it exists precisely because the earlier generation of institutions no longer performs the function: ICICI became a bank in 2002 and IDBI in 2004, leaving the long-term infrastructure financing gap that NaBFID was created to fill. Its mixed-case initialism, printed in the paper as NaBFID against the all-capital forms of the other three, is itself a modern convention and a small hint that it belongs to a later period.

Development financial institutions are specialised lenders created to provide long-term finance where commercial banks will not, because their liabilities are short and the projects are long. India built a network of them from 1948 onward and then dismantled most of it.

The sequence: IFCI in 1948, the first, under its own Act; the State Financial Corporations from 1951 under the State Financial Corporations Act; ICICI in 1955, promoted with World Bank encouragement to finance private industry; the Refinance Corporation for Industry in 1958; IDBI in 1964 as the apex institution, first under the Reserve Bank and later transferred to the Government; and specialised institutions afterwards - the Industrial Reconstruction Corporation, NABARD in 1982, SIDBI in 1990, EXIM Bank and the National Housing Bank.

How they were funded matters. These institutions did not take deposits; they raised money through bonds subscribed by the Reserve Bank and the Government at concessional rates, which is what allowed them to lend long and cheap.

Why they ended. Financial liberalisation removed the concessional funding, and an institution lending long without cheap long money cannot survive. ICICI reverse-merged into ICICI Bank in 2002 and IDBI became a bank in 2004; both became universal banks and their development role lapsed. IFCI was converted into a company in 1993.

Why the model returned. Infrastructure needs finance of twenty and thirty years' tenure that banks cannot supply without a maturity mismatch, and after two decades the gap was addressed by creating NaBFID in 2021 under its own Act - a deliberate return to a form that had been retired.

Key facts

• IFCI, the Industrial Finance Corporation of India, was established in 1948 under the Industrial Finance Corporation Act as India's first development financial institution.
• ICICI, the Industrial Credit and Investment Corporation of India, was established on 5 January 1955 as a joint venture promoted at the initiative of the World Bank, with Sir Arcot Ramasamy Mudaliar as its first chairman.
• IDBI, the Industrial Development Bank of India, was established on 1 July 1964, initially as a wholly owned subsidiary of the Reserve Bank of India, and served as the apex industrial finance institution.
• NaBFID, the National Bank for Financing Infrastructure and Development, was established in 2021 under its own Act, to provide long-term infrastructure finance after the earlier institutions had been converted into banks.
• The older institutions ceased to be development lenders when their concessional funding ended: ICICI merged into ICICI Bank in 2002 and IDBI became a bank in 2004.

Common traps

• Including IFCI because it is the first and best-known development financial institution, when its date of 1948 lies outside the window the stem names.
• Associating IFCI with the planning era and therefore with the 1950s; it predates the Planning Commission and the First Five Year Plan.
• Reading NaBFID as an older institution because its name resembles those of the development banks of the 1980s and 1990s.
• Confusing an institution's establishment with its later transformation - ICICI in 1955 and ICICI Bank in the 1990s are different events, as are IDBI in 1964 and IDBI Bank in 2004.
• Treating the stem's loose phrase 'between 1950s and 1960s' as covering the whole period from 1948 onwards.

• practice — not a real PYQ

  Which one of the following was established as a wholly owned subsidiary of the Reserve Bank of India in 1964 ?

  • (a)Industrial Finance Corporation of India
  • (b)Industrial Development Bank of India
  • (c)Industrial Credit and Investment Corporation of India
  • (d)Small Industries Development Bank of India

  Answer(b) Industrial Development Bank of India - established on 1 July 1964, initially under the Reserve Bank and later transferred to the Government, as the apex institution for industrial finance.

• practice — not a real PYQ

  The National Bank for Financing Infrastructure and Development was created in 2021 principally because :

  • (a)Commercial banks cannot lend at the tenures infrastructure projects require without a maturity mismatch
  • (b)The Reserve Bank was prohibited from regulating infrastructure lending
  • (c)Foreign investment in infrastructure had been banned
  • (d)The State Financial Corporations had been wound up

  Answer(a) Commercial banks cannot lend at the tenures infrastructure projects require without a maturity mismatch - the older development institutions had become banks, leaving a gap in long-term project finance that NaBFID was created to fill.