There is a need to have an institutional focus for providing long-term financing support to infrastructure segment as it is the basic foundation for achieving faster economic growth, pointed out C Rangarajan, former Governor of the Reserve Bank of India.
“For promoting infrastructure investments or even long-term investments in manufacturing, we, perhaps, need to go back to earlier system that we had in terms of long-term finance institutions providing long-term credit to the companies,” he said while addressing CII’s TN Finance Conclave 2014 here.
In the earlier system, the working capital was provided by the bank. And, the long-term capital was primarily provided by specialised financial institutions.
“It was hoped that with the development of capital market and with universal banking becoming the new mode, adequate long-term capital will be forthcoming to the companies. But it is not happening.
“The equity market has developed, but the corporate debt market has not developed that much. Also, the banks themselves have run into a number of problems. They raise deposits with rather shorter-term maturity, and for them to lend to infrastructure and other long-term investments creates a maturity mismatch,” he added.
Mr. Rangarajan also said banks had reached a point where this mismatch would really become an issue.
However, he admitted that the recent announcement of RBI to allow banks to raise infrastructure bonds would partially solve the problems.
But, he was of the firm opinion that creating or going back to set up institutions specially focusing on providing long-term credit to companies could be a useful thing. “Earlier, RBI was also providing some amount of long-term funds to the financial institutions at concessional rates. Therefore, we need to find an alternative mechanism in relation to that also,” he added.
Mr. Rangarajan was trying to drive home the point that infrastructure along with agriculture required greater attention to achieve faster economic growth, which would help India solve many social and economic issues.
In this context, he said ironing out the deficiencies in credit availability to the infrastructure sector was very crucial.
