IBA DEMANDS EASIER NORMS FOR LENDING TO INFRA SECTOR

While speaking at the inaugural section of the BANCON 2009, Mr. M.V. Nair, Chairman, IBA has asked RBI for fiscal sops to enable the banks to provide 43% of the required funding to the infrastructure sector as envisaged  under the 11th Five Year Plan. The share of bank finance in infrastructure in gross bank credit has increased from just 1.8% in 2001 to 10.2% in 2009. IBA has also made a plea for a credit guarantee fund to secure education loans up to Rs.4 lakh since current norms do not allow banks to seek security, despite the possibility of defaults.


Mr Nair said that the constraints faced by banks in stretching their exposure to infrastructure financing can be put under three major heads viz., asset-liability mismatch (ALM), exposure limitations and pricing. Banks have short-term resources and infrastructure projects have long gestation periods. This creates an ALM mis-match for banks. Banks have been asking permission from the Reserve Bank of India (RBI) for raising funds by issuing long-term bonds. RBI has, however, told banks that they should not get into long-term commitments and try to get out of the loans in a few years using take-out financing. 

The other problem that banks face is that of exposure limits as most banks are nearing the prudential exposure limits fixed by RBI and sectoral caps set by bank boards from the risk management angle. Since the number of established developers are limited, group exposure limits of even larger banks are becoming inadequate to fund new projects.


Source: http://economictimes.indiatimes.com/news/economy/finance/IBA-demands-easier-norms-for-lending-to-infra-sector/articleshow/5434924.cms