Sucheta Dalal :Infrastructure financing a big challenge for banks: Subbarao
Sucheta Dalal

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Infrastructure financing a big challenge for banks: Subbarao  

November 25, 2009


The Reserve Bank of India on Wednesday said that the asset-liability mismatch may pose a huge challenge for banks involved in infrastructure lending, and they need to sharpen their risk management tools to avoid defaults, reports PTI.
"Going forward, financing infrastructure is going to be a big challenge for the banking sector. A big issue is the asset-liability mismatch. Apart from finding resources, banks will also need to hone their skills in appraisal and management of risks inherent in infrastructure lending," Reserve Bank governor, D Subbarao told an IMC-organised banking conference in Mumbai.
Asserting that the major task for Indian banks is to further improve efficiency, Mr Subbarao said that banks are not “properly utilising resources efficiently” and lending rates continue to be “sticky and non-transparent” to a degree.
"Although overall efficiency and productivity have improved, resources are not being utilised in the most efficient manner. There is a degree of stickiness and non-transparency in bank lending rates," he said.
In the view of the global financial meltdown, Indian banks will have to buffer their capital base as it is “obviously a standard and much-needed response to risk management," the governor said.
On the migration to more advanced approaches, the governor said the apex bank, in consultation with other banks, has finalised a time frame—starting April 2010 and ending in March 2014, to move towards the advanced approaches.
However, in the first phase, the migration to advanced approaches should be confined to larger banks as it is both skill and technology intensive, Mr Subbarao said.
The central bank expects to come up with final guidelines on repos in corporate bonds by end-November, which is expected to boost the liquidity in the corporate debt market.
The participant can pledge a corporate paper in exchange of funds for a certain period and at a rate determined by the market.
As of now, repo transactions are allowed only in central government securities, treasury bills and state development loans.
Moving ahead, Indian banks are set to increase their presence abroad, while foreign banks will have a larger presence in India, Mr Subbarao said.
Commenting on the ongoing financial inclusion programmes, the governor said, the efforts should be to give access to at least minimal financial services to the excluded rather than chasing a target.
-Yogesh Sapkale [email protected]

-- Sucheta Dalal