Rbi Working Group Moots Setting Of Working Capital Institution
A venture capital institution jointly owned by Indian banks, financial institutions and industry must be set up to cater exclusively to the emerging demand of industry for venture capital funds, a Reserve Bank of India (RBI) working group has recommended.
The group, under the leadership of the State Bank of India (SBI), was set up by the central bank to frame fresh guidelines for extending working capital finance to software units. It also made some recommendations relating directly to venture capital financing. The institutions may introduce hybrid financing instruments _ having both debt and equity elements _ at the lender's option, and cross currency derivative products as a means of hedging risk, RBI's deputy governor, Y V Reddy said.
Reddy delivered the keynote address at the National Venture Capital Seminar organised by the Centre for Technology Development at Bangalore on Sunday.Reddy said the group recommended an independent agency be set up with offices at the software activity intensive centres.
It may be assigned the function of providing technical support to the financing institutions, including venture capital institutions, he added.The Indian Banks' Association was examining the report, he said. Reddy said, while he would not discuss the committee's suggestions as it was under examination, the recommendations raised broader issues.
The first was whether there should be venture capital funds exclusively dedicated to an industry. The second issue he raised was whether special hedging facilities should be permitted to venture capital units in general or specialist ones in particular.
Thirdly, Reddy suggested the creation of independent agencies to evaluate the viability of ventures so that banks and venture capital companies can be helped.