Chapter 23 - Development Financial Institutions (JAIIB - MODULE C)

1. Which was the first Development Financial Institution (DFI) set up in India after independence?

• A. Industrial Finance Corporation of India (IFCI)
• B. Industrial Credit and Investment Corporation of India (ICICI)
• C. Industrial Development Bank of India (IDBI)
• D. Small Industries Development Bank of India (SIDBI)

IFCI was the first DFI established in 1948 to provide medium and long-term finance to industries in India.

2. One major gap in the Indian financial system after independence was:

• A. Excessive long-term capital availability
• B. Fully developed bond market
• C. Lack of institutions providing long-term industrial finance
• D. Surplus of venture capital institutions

Post-independence, Indian banks mainly provided short-term working capital. There was a major gap in long-term industrial financing, leading to the creation of DFIs.

3. Which of the following was NOT an objective of Development Financial Institutions in India?

• A. Promote balanced regional development
• B. Provide only short-term credit to traders
• C. Support industrial growth through long-term finance
• D. Encourage entrepreneurship and innovation

DFIs were primarily established to fill the gap in long-term finance for industries, promote regional balance, and support entrepreneurship. Short-term trading finance was never their objective.

4. In 1964, which apex institution was set up to coordinate the activities of other DFIs?

• A. NABARD
• B. IFCI
• C. ICICI
• D. IDBI

Industrial Development Bank of India (IDBI) was set up in 1964 as an apex institution to coordinate and provide refinance support to other DFIs.

5. A company in the 1970s wanted long-term project finance for setting up a steel plant. Which type of institution would it most likely approach?

• A. Commercial Bank
• B. Regional Rural Bank
• C. Development Financial Institution
• D. Cooperative Society

For long-term project finance in heavy industries, DFIs like IFCI, ICICI, and IDBI were the primary institutions catering to such needs.

6. Which of the following is an example of an All-India Development Financial Institution (DFI)?

• A. State Finance Corporation (SFC)
• B. Industrial Development Bank of India (IDBI)
• C. Tamil Nadu Industrial Investment Corporation (TIIC)
• D. Delhi Financial Corporation (DFC)

IDBI is an All-India DFI, while SFCs and State Industrial Corporations operate at the state level.

7. State Finance Corporations (SFCs) mainly provide financial assistance to:

• A. Large infrastructure projects
• B. Agriculture and rural credit
• C. Export-import trade
• D. Small and medium enterprises (SMEs)

SFCs were established at the state level to support small and medium enterprises with term loans and working capital finance.

8. Which of the following best describes the role of DFIs in the Indian economy?

• A. Providing long-term capital for industrial and infrastructure growth
• B. Offering only short-term agricultural loans
• C. Acting as microfinance institutions
• D. Engaging solely in stock market investments

DFIs were created to fill the gap in long-term project financing for industries and infrastructure, supporting economic development.

9. Over time, many DFIs in India converted into commercial banks. What was the main reason for this transformation?

• A. To focus exclusively on agriculture lending
• B. Declining demand for industrial finance
• C. To diversify sources of funds and improve profitability
• D. To operate only at the state level

DFIs faced challenges in mobilizing low-cost funds and sustaining profits. Conversion into commercial banks allowed them to diversify funding and services.

10. ICICI, originally a Development Financial Institution, was later transformed into:

• A. A cooperative bank
• B. A universal bank (ICICI Bank)
• C. A regional rural bank
• D. A payment bank

ICICI was originally set up as a DFI in 1955 but later converted into ICICI Bank, a universal bank, to expand its scope of operations.

11. The Industrial Finance Corporation of India (IFCI), established in 1948, was primarily set up to:

• A. Provide agricultural credit
• B. Regulate stock exchanges
• C. Provide medium and long-term finance to industries
• D. Manage rural development projects

IFCI was India’s first DFI, set up in 1948 to bridge the gap in medium and long-term industrial finance.

12. The Industrial Credit and Investment Corporation of India (ICICI) was established in 1955 with support from:

• A. World Bank, Government of India, and Indian industry
• B. Reserve Bank of India alone
• C. International Monetary Fund (IMF)
• D. Asian Development Bank (ADB)

ICICI was set up in 1955 with support from the World Bank, Government of India, and Indian industry to provide project finance and promote private sector industrialization.

13. Which of the following statements is correct regarding ICICI’s transformation?

• A. It continues as a DFI
• B. It merged with IFCI
• C. It became a cooperative bank
• D. It merged into ICICI Bank, becoming a universal bank

ICICI merged into ICICI Bank in 2002, transitioning from a DFI into a universal bank to expand its financial services.

14. The Industrial Development Bank of India (IDBI) was established in 1964 as a subsidiary of:

• A. IFCI
• B. Reserve Bank of India
• C. Ministry of Finance
• D. ICICI

IDBI was established in 1964 as a wholly owned subsidiary of RBI to act as an apex institution for coordinating and supporting other DFIs.

15. Which of the following was a major function of IDBI in the early years?

• A. Providing refinance to other financial institutions
• B. Issuing currency notes
• C. Monitoring foreign trade policies
• D. Controlling monetary policy

IDBI acted as an apex body for DFIs, providing refinance support to institutions like IFCI, ICICI, and SFCs to promote industrial development.

16. The Small Industries Development Bank of India (SIDBI) was established in 1990 as a subsidiary of:

• A. IFCI
• B. RBI
• C. Ministry of Finance
• D. IDBI

SIDBI was established in 1990 as a wholly owned subsidiary of IDBI to promote, finance, and develop the MSME sector in India.

17. Which of the following is a key function of SIDBI?

• A. Providing long-term loans to large infrastructure projects
• B. Promoting and financing micro, small and medium enterprises (MSMEs)
• C. Regulating foreign exchange transactions
• D. Issuing currency notes

SIDBI focuses on the MSME sector, offering refinance, direct lending, and development support to strengthen small-scale industries.

18. The Export-Import Bank of India (EXIM Bank) was set up in 1982 with the primary objective of:

• A. Promoting foreign trade by providing financial assistance to exporters and importers
• B. Regulating stock exchanges in India
• C. Providing short-term agricultural loans
• D. Supervising cooperative banks

EXIM Bank was set up in 1982 to promote India’s international trade by providing credit, guarantees, and advisory services to exporters and importers.

19. Which of the following is NOT a function of EXIM Bank?

• A. Financing export-oriented units
• B. Extending lines of credit to foreign governments
• C. Issuing currency notes
• D. Providing overseas investment finance

Currency issuance is the function of RBI, not EXIM Bank. EXIM Bank deals with export-import financing, guarantees, and foreign trade promotion.

20. A company in India wants to expand its business by setting up a manufacturing unit in Africa. Which institution would it most likely approach for overseas investment finance?

• A. NABARD
• B. EXIM Bank
• C. SIDBI
• D. State Finance Corporation

EXIM Bank provides finance for Indian companies investing abroad, including loans for setting up overseas ventures and joint collaborations.

21. The National Bank for Agriculture and Rural Development (NABARD) was established in 1982 on the recommendations of which committee?

• A. Shivaraman Committee
• B. Narasimham Committee
• C. Rangarajan Committee
• D. Chakravarty Committee

NABARD was set up in 1982 based on the recommendations of the Shivaraman Committee to finance and support agriculture and rural development.

22. Which of the following is a primary function of NABARD?

• A. Regulating foreign exchange
• B. Providing housing loans directly to individuals
• C. Refinancing credit institutions engaged in agriculture and rural development
• D. Issuing government securities

NABARD primarily refinances cooperative banks, RRBs, and other institutions that provide loans for agriculture and rural development projects.

23. The National Housing Bank (NHB) was established in 1988 under the ownership of:

• A. IFCI
• B. Reserve Bank of India
• C. Ministry of Rural Development
• D. IDBI

NHB was set up in 1988 as a wholly owned subsidiary of RBI to promote housing finance institutions and regulate housing finance companies.

24. Which of the following is NOT a role of NHB?

• A. Regulating housing finance companies
• B. Refinancing housing finance institutions
• C. Promoting housing finance activities
• D. Issuing currency notes for housing finance

Currency issuance is solely the role of RBI. NHB’s role is to refinance and regulate housing finance companies, not to issue currency.

25. The National Bank for Financing Infrastructure and Development (NaBFID), set up in 2021, was created mainly to:

• A. Provide long-term infrastructure financing
• B. Replace NABARD in agriculture financing
• C. Regulate cooperative banks
• D. Supervise housing finance institutions

NaBFID was established in 2021 as a Development Financial Institution to provide long-term infrastructure financing and help achieve India’s infrastructure goals.