What do you understand by Development Financial Institutions (DFIs)? Examine their contribution to the economy? Why they become unviable after liberalization? Critically examine the need to resurrect them again.

Approach:

Explain what DFI are in the introduction with emphasis on how they are different from banks.

Then in the body explain their contribution in building the infrastructure.

Then explain why they became unviable using two Narasimham Committee on Financial Sector Reforms in the 1990s. The committee noted that the DFIs may not be viable, since these institutions were raising funds at the current market rates and lending to businesses with long gestation and often high risk of failure with high credit cost.

The last part of the answer examines why the needs to resurrect them in backdrop of banks failing to meet the demand of infrastructure finance and huge NPAs pilling.