MUMBAI, April 7 India's central bank on Friday
released a discussion paper on a proposal to set up
"differentiated banks" in the form of wholesale and long-term
finance banks to fund large projects.
The new banks will focus on lending long-term and cater to
the funding needs of sectors such as infrastructure and core
industries, where projects take longer to complete, the Reserve
Bank of India stated in the discussion paper.
"These sectors traditionally remain deprived of regular bank
credit due to asset-liability mismatch issues, which arise on
the balance sheet of banks because of long gestation/repayment
period of assets in such sectors," the RBI said, seeking public
comments on the proposed framework by May 19.
Last year in April, the RBI had said it would explore
possibility of setting up more differentiated banks, including
those concentrating on wholesale and long-term financing.
Banks account for most of India's project funding in the
absence of a deep bond market. Due to asset quality pressure on
the banks' balance sheets, there is an overall declining trend
in bank credit to sectors including services and industries, the
RBI said, adding there had been a decline in the share of banks'
long-term assets with maturity of more than three years.
"This scenario, thus, presents an opportunity for
specialized banks to take up long-term financing of the
corporate and refinancing of the MSME (micro, small and medium
enterprises) sector lenders within the existing banking
structure," the central bank said.
The new banks can also act as market-makers in securities
such as corporate bonds, credit derivatives, warehouse receipts,
and take-out financing, the RBI said. They would also provide
refinance to lending institutions and will be present in capital
markets in the form of aggregators, it said.
For the discussion paper, see bit.ly/2nSflDq
(Reporting by Abhirup Roy and Devidutta Tripathy; Editing by