The banks don’t have long-term funds for the projects, the bankers said.
The government’s proposal to create a development finance institution (DFI) is expected to solve the country’s infrastructure financing needs, as banks do not have the long-term funds to finance such projects, the bankers said.
Finance Minister Nirmala Sitharaman on Friday announced a series of measures to boost economic growth, including increasing capital flows and boosting capital markets.
Commenting on the need to deepen the bond markets, Ms. Sitharaman said: âIn order to improve access to long-term finance, it is proposed to create an organization to provide credit enhancement for the projects of infrastructure and housing, especially in the context of India no longer has a development bank and also for the need for us to have an institutional mechanism. This will therefore increase the flow of debt to such projects. ”
She said the organization’s name would be released in “a day or two.”
âBanks don’t have long-term funds. The maturity of our liabilities is five years on average. So financing infrastructure projects is difficult for us, âsaid a senior official at a public sector bank.
Merger with banks
Over the years, some of the major development finance institutions have merged with their banking structures such as ICICI and IDBI.
The Reserve Bank of India published a discussion paper on wholesale and long-term funding banks in 2017 in which it was observed that there was a decline in the share of long-term assets, compared to the total. of assets, on bank balance sheets.
The RBI had said specialty banks could meet the large and long-term funding needs of the growing economy and possibly close the long-term funding gap.