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Infrastructure financing a challenge for banks: RBI

Mumbai: The Reserve Bank Wednesday asked banks to take due care while lending to infrastructure sector, as any asset-liability mismatch may lead to defaults. "Going forward financing infrastructure is going to be a big challenge for the banking sector... a big issue is the asset-liability mismatch...apart from finding resources, banks will also need to hone their skills in appraisal and management of risks inherent in infrastructure lending," Reserve Bank Governor D. Subbarao told an IMC-organised banking conference here. The infrastructure sector has long gestation period and if resources are utilised on short term basis it may lead to asset-liability mismatch. Asking banks to further improve efficiency, Subbarao said, banks are not utilising resources efficiently and lending rates continue to be 'sticky' and non-transparent' to a degree. "Although overall efficiency and productivity have improved, resources are not being utilised in the most efficient manner. There is a degree of stickiness and non-transparency in bank lending rates," Subbarao said. In the view of the global financial meltdown, Indian banks will have to buffer their capital base as it 'is obviously a standard and much needed response to risk management," Subbarao said. However, in the first phase, the migration to advanced approaches should be confined to larger banks as it is both skill and technology intensive, Subbarao said. The Central bank expects to come with final guidelines on repos in corporate bonds by end-November, which is expected to boost the liquidity in the corporate debt market. The participant can pledge a corporate paper in exchange of funds for a certain period and at a rate determined by the market. As of now, repo transactions are allowed only in central government securities, treasury bills and state development loans. Moving ahead, Indian banks are set to increase their presence abroad, while foreign banks will have a larger presence in India, Subbarao said. Commenting on the ongoing financial inclusion programmes, the Governor said, the efforts should be to give access to atleast minimal financial services to the excluded rather than chasing a target.

                                                                                                               
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