'Wholesale Banks' on cards to tackle NPAs

New banks to help fund long-term infra projects

'Wholesale Banks' on cards to tackle NPAs
To deal with knotty non-performing assets (NPAs) and stressed balance sheet of banks, India may soon have a new category of differentiated banks or ‘wholesale banks’ to fund large projects and give long-term loans to the infrastructure sector.

The new banks, which may also be known as ‘custodian banks’, will ease pressure on the current loan exposure of the lenders to stressed sectors such as steel, textiles, power and others.

Bad loans of public sector banks rose by over Rs 1 lakh crore during April-December of 2016-17, the bulk of which came from power, steel, road infrastructure and textiles sectors.

The government is expected to give its nod to the Reserve Bank of India’s (RBI) proposal for these specialised banks that could cater to the wholesale and long-term financing needs of the growing economy and fill the gap in long-term financing, sources said.

The RBI floated a discussion paper on such custodian banks, saying that the financial sector has been unable to meet the scale or sophistication of the needs of large corporates, as well as of public infrastructure, and does not penetrate deeply enough to meet the needs of small and medium-sized enterprises in many parts of India.

“This scenario, thus, presents an opportunity for specialised banks to take up long-term financing of the corporate and refinancing of the MSME sector lenders within the existing banking structure.,” RBI said.

The initial minimum paid up capital of these banks could be Rs 1,000 crore or more. These banks will not be expected to accept saving deposits. Their major source of funding could be from current account deposits, term deposits, bond markets and securitisation of assets.

The concept of differentiated banks was first discussed in a RBI Technical Paper on Differentiated Bank Licences in 2007, but it was then concluded that the time was not ripe for such banks. However, in 2008, the Committee on Financial Sector Reforms had envisaged differentiated banks to further financial inclusion.

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