Mumbai: The Reserve Bank of India 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.
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