In a bid to deal with the asset-liability mismatch (ALM), banks today sought concessions from the Reserve Bank of India (RBI) for lending to the infrastructure sector.
The country’s top bankers today met RBI Deputy Governor Subir Gokarn for the customary pre-policy meeting, where bankers pitched for a cut in savings bank rate, which will help them improve their net interest margins.
“Huge support is expected from the banking sector for infrastructure lending but we are facing roadblocks because of exposure norms, pricing and ALM,” MV Nair, chairman and managing director of Union Bank of India and chairman of the Indian Banks’ Association said after the meeting.
While in the last few months, most new deposits have been of shorter maturities such as one year, loans to infrastructure projects have tenures of 15-20 years. As a result, the asset-liability gap is on the rise.
Banks, which have already urged the finance ministry for permission to issue tax-free bonds, have requested the central bank to exempt such bonds from cash reserve ratio and statutory liquidity requirements.
The funding requirements for the infrastructure sector, including power, roads and ports, are huge. The government has estimated that the sector will need $550 billion investment in this five-year Plan (2007-2012).
The government has begun work on take-out financing to address banks’ ALM concerns. India Infrastructure Finance Company Ltd (IIFCL) is finalising the guidelines for take-out financing, an arrangement where banks initially fund a long-term project and another funding body buys these loans at later date.
Bankers also said that liquidity was expected to be abundant till the end of the current financial year and interest rates were not expected to rise.
“Our request was that even if there is tightening by the central bank, it should not affect liquidity conditions as we expect the undisbursed loans to start flowing from the next financial year,” a bank chief said.
Bankers also sought a cut in the interest rate that they paid on deposits in savings bank accounts. They have suggested that the rate be lowered to 3 per cent from 3.5 per cent at present to improve their margins. At the start of the current financial year, RBI had said that from April 2010, the interest rate on savings would be calculated on a daily basis. As a result, bankers said that their cost would rise by around 75 basis points.
Bankers also voiced a demand for funding expenses incurred for financial inclusion. They sought support from the government to take care of the cost incurred to create infrastructure for financial inclusion. One public sector bank chief who attended the meeting said banks were creating the capacity by expanding their reach but the cost incurred for this was proving to be a burden.
