< Previous | Contents | Next >
Banks have been faced with Asset-Liability Management (ALM) problems in recent times due to their existing long-term loans forwarded to certain sectors, viz., infrastructure, core sector and real estate sector. Again, raising new funds for new projects in these sectors had become quite difficult for the banks. These sectors constitute the major portion of banks’ non-performing assests.
Banks have been seeking permission for longer tenor amortisation of the loan with periodic refinancing of balance debt. Banks have been raising resources in a significant way, issuance of long-term bonds for funding loans to infrastructure sector has not picked up at all. Infrastructure and core industries projects are characterised by long gestation periods and large capital investments. The long maturities of such project loans consist of the initial construction period and the economic life of the asset/underlying
concession period (usually 25–30 years).
In pursuance of the Union Budget 2015–16, the RBI announced ‘eased’ norms in July 2015 for the banks to take care of the Asset–Liability Management issues of the banks, which are as follows:
(i) Banks allowed to raise fund through long-term bonds (with maturity period of not less than 7 years),
(ii) Such bonds exempted from the mandatory regulatory norms such as the CRR, SLR and PSL.
(iii) Such funds to be used to finance long-term projects in infrastructure, core sector and affordable housing. Affordable housing means loans eligible under the priority sector lending (PSL), and loans up to Rs.50 lakh to individuals for houses costing up to Rs.65 lakh located in the six metropolitan centres. For other areas, it covers loans of Rs.40 lakh for houses with values up to Rs.50 lakh.
(iv) Banks can extend long term loans with flexible structuring to absorb potential adverse contingencies, known as the 5/25 structure. Under the 5/25 structure, bank may fix longer amortisation period (25 years) with periodic refinancing (every 5 years.
India is looking at investing US $1 trillion in infrastructure development by 2017, half of which is expected to come from the private sector. The instructions announced by the RBI are in pursuance of the Union Budget 2015–16 announcement.