Need to lower infra funding burden on banks: Gokarn

Reserve bank of India (RBI) Deputy Governor Subir Gokarn on Thursday said the central bank recognised the need to take the burden of financing infrastructure away from banks and into a much more diversified and consistent set of channels like the corporate bond market.

“Long gestation projects are not what banks, that basically rely on short-term deposits for their funding, are going to be financing very efficiently,” Gokarn said. “There is a huge risk in terms of asset liability management mismatches and unless there is a very effective way to deal with it, there is going to be a major constraint on the system to finance it.”

Gokarn was speaking at an Asia Investment meet here on Thursday.

He said RBI had been trying to deal with the lack of adequate channels of finance for long-term infrastructure investments in India and stressed the need to look at other institutions and mechanisms.

“The most important of which is the development of a corporate bond market...We do see the bond market as something that will supplement the capacity of the banking system and over time displace it as the primary vehicle of a large quantity of finance moving into infrastructure,” he said.

Gokarn said RBI was “very focused” on trying to do that in conjunction with other regulatory authorities.

Banks have recently been dependent on credit demand from infrastructure to boost their loan growth, raising concerns over asset liability mismatches in the system as such projects tend to have a gestation period of 10-20 years while bank deposits are mostly short-term in nature.

The large size of infrastructure projects also makes it easy for banks to hit their exposure limits to the sector.