establish institutions specifically to cater to the requirements of financial resources for long term developmental efforts. bis central bankers ’ speeches international experience 10. having seen the context in which the dfis were set up, let me now give you some global perspective on the dfis. two distinct models of development financing have been followed internationally. at one end of the spectrum is the anglo - american model, which is purely market based with financial markets playing an important role in allocating resources for competing uses, including the industry and long term projects. at the other end is the model adopted by continental europe and south east asian economies, in which financial savings were channelized and allocated through financial intermediaries like banks and dfis. the dfis played a very significant role in the rapid reconstruction and industrialization of germany and japan after the 2nd world war by providing long - term credit. in japan, the government owned japan development bank was established in 1951 for reconstruction of the economy. in korea and singapore also dfis were set up in 1960s with the main aim of rapid industrial development. the emergence of dfis in the then developing economies also coincided with a period when the capital market, as a source of long term funding, was yet to stabilize. based on the european model, the success of the dfis in the overseas territories provided strong impetus for creation of dfis in india after independence. 11. the initial mission for which the dfis were set up in the developed economies were complete by the 1980s and most of them have since been wound down or their roles have been redefined. most of the surviving dfis now operate in niche segments of financial market where the entry barriers are relatively very stringent. india has also witnessed several structural changes in the banking and financial system, especially in the post reform period which has undermined the objectives for which the dfis were established. commercial banks, which traditionally refrained from lending for the long term or infrastructure projects gradually improved their project appraisal skills, their risk management capabilities and slowly developed appetite for long term lending. the stable retail deposit base built by the banks also aided their asset - liability management function. further, the development of the bond markets also enabled commercial banks to raise long term funds from the insurance and pension funds. these structural changes in the economy meant that the dfis lost their competitive edge in the long term finance market and started facing challenges on solvency and liquidity fronts. the non - performing

k c chakrabarty : transformation of dfis into commercial banks – the case of the idbi and the role of employee unions special address by dr k c chakrabarty, deputy governor of the reserve bank of india, at a seminar on “ idbi ’ s role as development financial institution ” organised by the united forum of idbi officers & employees, kolkata, 27 september 2013. * * * 1. shri basudeb achariya, hon ’ ble mp, lok sabha ; comrade rajen nagar, president, aibea ; shri b. p. kanungo, regional director for west bengal and sikkim, reserve bank of india ; shri samir ghosh, general secretary, all indian reserve bank employees association ; principal office bearers of the united forum of idbi officers and employees ; officers and employees of idbi and other delegates to the seminar ; ladies and gentlemen! i am pleased to note that the united forum of idbi officers and employees has taken this initiative to organize a seminar on the subject of “ idbi ’ s role as development finance institution for the social and economic development of the country ” in commemoration of the golden jubilee of idbi. 2. i observe that there is lot of confusion and misconception about the role of development finance institutions ( dfis ) not only in india but also across the globe, especially in the post reform period. in fact, there is a feeling among the public that in the post reform period, regulators and policymakers are not encouraging the role of financial institutions as developmental agents and have oriented their policies towards a market led economy by sacrificing the developmental role, whereas, the fact is that policymakers and regulators in india continue to have a firm belief that the role of finance is to encourage development and that the financial institutions must promote this basic role. the objective of developmental finance, thus, continues to remain the same and only the outer cover in the form of the institutional structure needs to undergo a change from time to time. 3. i am extremely happy to be here to address the delegates to this important seminar in this historic city of kolkata which has always been the nerve centre of the all types of movements in the country – be it the freedom movement, the labour movement, the trade union movement or any other movement related to financial sector or politics. i am sure, befitting the glorious traditions of this historic city, this seminar would also throw up pertinent issues