A Development Bank is a multilateral development finance institution dedicated to improving the social and economic development of its member nations. Its primary emphasis is the welfare of the people. For example the Asian Development Bank's overarching goal is to reduce poverty in Asia and the Pacific. It helps improve the quality of people's lives by providing loans and technical assistance for a broad range of development activities.

A development bank's policies or programs center on the following priorities:

Economic growth

Human development

Gender and development

Good governance

Environmental protection

Private sector development

Regional cooperation

Given below are the principal functions of a development bank:

• Extend loans and equity investments to its developing member countries (DMCs) for their economic and social development.
• Provides technical assistance for the planning and execution of development projects and programs and for advisory services.
• Promotes and facilitates investment of public and private capital for development, and
• Responds to requests for assistance in coordinating development policies and plans of its developing member countries.

Formation of Development banks In India:

Development banks were set up in India at various points of time starting from the late 1940s to cater to the medium to long term financing requirements of industry as the capital market in India had not developed sufficiently. The endorsement of planned industrialization at the national level provided the critical inducement for establishment of Development banks at both all-India and state levels. In order to perform their role, DBs were extended funds in the form of Long Term Operations (LTO) Fund of the Reserve bank of India and government guaranteed bonds, which constituted major sources of their funds. Funds from these sources were not only available at concessional rates, but also on a long term basis with their maturity period ranging from 10-15 years. On the asset side, their operations were marked by near absence of competition.

A large variety of financial institutions have come into existence over the years to perform a variety of financial activities. While some of them operate at all-India level, others are state level institutions. Besides providing direct loans, financial institutions also extend financial assistance by way of underwriting and direct subscription and by issuing guarantees. Recently, some DBs have started extending short term/working capital finance, although long term lending continues to be their major activity.