The Reserve Bank of India (RBI) has issued a discussion paper that moots the idea of long-term finance banks. This would amount to seriously turning the clock back to the early 2000s.
We then had three development financial institutions (DFIs) that focused on term finance, namely, IFCI, ICICI and IDBI. Commercial banks confined themselves mainly to providing working capital.
There were reasons for separating the two roles. Banks’ funds are mostly short-term in nature. So their getting into term finance results in long-term assets being financed by short-term funds. This exposes banks to interest rate and liquidity risks.
Secondly, providing project finance requires
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