Banks seek to float core sector bonds

Commercial banks are seeking the Reserve Bank of India's (RBI) permission to issue long-term infrastructure bonds with tax benefits.

To facilitate the flow of bank credit to the core sector, S S Kohli, chairman and managing director, India Infrastructure Finance Company (IIFCL), on behalf of the bankers, has urged the finance minister to consider granting cash reserve ratio (CRR) and statutory liquidity ratio (SLR) exemptions to banks on deposits used to finance infrastructure projects.

Bankers placed this demand before Finance Minister P Chidambaram at a meeting held on April 19.

"Infrastructure financing necessitates long-term funding by banks, which creates asset-liability mismatch for the banking system. In many cases, banks are exposed to interest rate risk also in view of long tenure of funding. In the wake of increased demand from the infrastructure sector, we have asked the RBI to consider permitting banks to issue long-term infrastructure bonds with tax benefits," said a senior official from Indian Banks' Association.

"Raising long-term funds is a challenge for banks. If the system provides some tax incentives, it would facilitate the flow of funds to this sector. CRR and SLR exemptions are something the RBI will have to decide. I am not very hopeful of getting this benefit,'' said the CMD of a public sector bank.

Bankers, in a letter given to RBI Governor Y V Reddy, have said, "Term Loans are required to be restructured / rephased to take care of the variation in project cash flows. Hence, the RBI should consider framing liberal norms to facilitate restructuring/ rephasing without the assets being classified as non-performing assets.''

Further they have also sought the RBI consent on establishment of infrastructure development fund for the small scale industries on the lines of RIDF (Rural Infrastructure Development Fund).