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Letters: Look before you leap

The WLTF bank should estimate risk-adjusted returns a priority on issued capital

Business Standard 

With reference to “Can WLTF fill the void?” (July 14), the aims at funding long-term projects, especially in the infrastructure and manufacturing sectors. The authors’ conjecture on the success of WLTF bank mainly draws upon the issues of fund raising or acquisition and the nature and profile of promoter groups. 

Two major issues can arise that could challenge WLTF banks’ existence. First, resource acquisition or fund-raising and nuances of credit rating for the debt instrument receive attention. Eligible promoters of WLTF banks should have a required net worth and maintain a minimum of Rs 1,000 crore and attract a deposit of Rs 10 crore in the current account. They can raise either through issuance of AA rated or an grade bond. As issued bonds have longer maturity compared to treasury or short-term bonds, banks need to pay higher risk premium on maturity. In other words, the WLTF bank should estimate risk-adjusted returns a priority on issued when lending to long-term projects.

Second, the lending protocol to eligible borrowers is important. With an entry-barrier, an “on-tap licencing” mechanism can be followed. Now the terms of lending including loan period, interest rates, loan-to-value margin, and recovery mechanism determine WLTF banks’ competitive edge over universal banks.

Kushankur Dey  Bhubaneswar

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First Published: Mon, July 17 2017. 22:36 IST