The Reserve Bank of India is proposing the setting up of long term finance banks. The central bank has issued a discussion paper in this regard and has mentioned that the proposal is specifically for the funding of infrastructure and greenfield projects of industries, with a minimum capital requirement of Rs 1000 crore. The discussion paper says the eligibility of promoters for these banks, described as ‘Wholesale and Long Term Finance Banks (WLTFB)’, will be the same as for the ‘on tap’ universal banking license. Individuals with 10 years of experience in banking and finance at a senior level with a successful track record can apply for the license along with business groups which have total assets of at least Rs 5000 crore and which do not own more than 40% of their total income from non-financial sources. These banks would be exempt from opening branches in rural and semi-urban areas and not be forced to lend to agriculture and weaker sections of the society under the priority sector lending norms. The discussion paper explained that WLTF banks shall focus on lending to infrastructure and core industries. These sectors traditionally remain deprived of regular bank credit due to asset-liability mismatch issues which arise on the balance sheet of banks because of long gestation/repayment period of assets in such sectors. Therefore, to channel necessary credit from WLTF banks to these sectors of the economy, a target percentage of their total credit portfolio may be prescribed for infrastructure and long term projects. These banks are unlikely to be allowed to accept savings deposits and there could be a threshold of Rs 10 crore for term deposits.
