According to a recent press report, Government is likely to allow banks’ to raise long term resources for infrastructure financing through issue of development bonds. The Department of Industrial Policy and Promotion (DIPP) in a discussion paper said that banks would be permitted to raise long term resources through issuance of development bonds, for the purpose of long term project finance. It said that the banks may be encouraged to finance for the high risk project with the support of suitable Central Government by diversifying the risk and funding sources.
The infrastructure sector requires a huge funding of $1 trillion in the 12th Plan (2012-17). At present, the banks have the problem of financing the infrastructure projects, which obtain extensive growth period. The gestation period of these projects is moderately long and it takes 7-10 years for attaining the revenue.
The maturity period for source of financing from the customers in every bank’s would be limited that is normally from three- five years. This creates a problem of “asset-liability mismatch” discouraging banks to fund the infrastructure projects. It said that if banks are allowed to raise long term resources through development bonds it would solve the problem of asset-liability management.
Recently banks have asked the RBI to take a break from its monetary tightening cycle which has made home loan and other loans very expensive.