Government may allow banks to raise long term resources for infrastructure financing through issue of development bonds.
“It is envisaged that banks may be permitted to raise long term resources through issuance of development bonds, for the purpose of long term project finance,” the Department of Industrial Policy and Promotion (DIPP) said in a discussion paper on ways to fund infrastructure projects.
It said that the banks may be encouraged to extend high risk project finance “with suitable Central Government support” with a view to distributing 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 are of long gestation period.
While the gestation period of these projects is quite long and it takes 7-10 years for the revenue streams to materialise, banks’ sources of finance are time deposits which have generally a maturity period of three-five years.
This creates a problem of “asset-liability mismatch” discouraging banks to fund the infrastructure projects.
Permitting banks to raise long term resources through development bonds can help solve the problem of asset-liability management, it said.