Tuesday , April 23 2019

RBI Recommends WLTFB to Fund Infrastructure & Core Industries

RBI Suggest Wholesale and Long-term Finance Bank to finance Infrastructure & Core Industries. These banks is not forced to lend agriculture and weaker sections of the society.

A Reserve Bank of India (RBI) discussion paper has suggested for initiating long-term finance banks to provide the fund to infrastructure and greenfield projects of industries. The minimum capital requirement is declared as Rs 1,000 crore.

According to RBI the promoters for a Wholesale and Long-term Finance Bank (WLTFB) can equally avail the opportunity like  ‘on tap’ universal banking license, released in the month of August last year.

That suggests that large industrial houses cannot take more than 10 per cent stake in these banks.
The Individuals who have served banking and finance industry for 10 years at a senior level with an impeccable track record can also avail the license and businesses with total assets summed up to Rs 5,000 crore and which do not own more than 40 percent of their total income from non-financial sources can also avail the opportunity.
These Banks will not be allowed opening branches in rural and semi-urban areas and is not enforced to lend agriculture and weaker sections of the society. These banks would lend to infrastructure and core industries instead, as they might not possess regular bank credit due to asset-liability mismatch issues because of long gestation repayment period of assets in such sectors. So, to help the sectors and avail credit from WLTF from a percentage of their total credit portfolio may be set for infrastructure and long-term projects, As told by RBI.  WLTFBs will not allow savings deposits, and there could be a threshold of Rs 10 crore for term deposits.

“There could be reasonable restrictions on premature withdrawal of these deposits,” the discussion paper said.

WLTFBs can obtain funds from by selling rupee denominated bonds either locally or abroad. And they can raise funds from commercial bank borrowing, certificate of deposits and assets. securitisation of assets.

These banks need to maintain cash reserve ratio (CRR) just like other commercial banks. However, they do not need to maintain CRR for funds raised through infrastructure bonds. Presently, commercial banks have to maintain 4 per cent of their deposits for CRR and 20.5% of their deposits in government securities. WLTFBs will not be maintaining the statutory liquidity ratio (SLR), which is a number of deposits banks have to compulsorily invest in government securities.


Stay tuned for more Banking and Finance News updates.

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