Date:27/04/2005 URL: http://www.thehindubusinessline.com/2005/04/27/stories/2005042701060600.htm

Back NBFCs seek long-term funding

Our Bureau

Kolkata , April 26

CALLING for greater private-public partnerships for speedy infrastructure development, a few mid-size NBFCs (non-banking finance Companies) have suggested that banks and other lending institutions should be able to provide long-term funds for eight-12 years, and not limit them to just five years, as it is now.

Talking to Business Line here on Tuesday on credit policy (slack season) expectations, Mr Sunil Kanoria, Director, Srei Infrastructure Finance Ltd, said it was absolutely essential that projects in the infrastructure sector are not stalled for lack of long-term funds.

The Government, as per the Union Budget announcements, has proposed to set up a special purpose vehicle to finance infrastructure projects with a corpus of Rs 10,000 crore and a Rs 8,000-crore rural infrastructure development fund, besides setting aside Rs 1,400 crore towards national highway development and an additional Rs 450 crore for the North East under the same head.

Mr Kanoria suggested that the concept of PLR (primary lending rates) should be abolished and a more realistic way must be found to link banks' lending rates to a floating internationally recognised measure.

He said all commercial banks today followed the practice of charging interest on their loan assets on the basis of their PLR, whose average currently is 11 per cent, despite deposit rates having nearly halved in the last two years.

Mr Kanoria said fixing of PLR by banks on the basis of the risk profile of the borrower gave a free hand to the banks to charge interest rates arbitrarily rather than by judicious decision-making.

He said that although the RBI had now permitted banks to charge below their PLR, it had also stipulated that banks should have a transparent and objective policy approved by their boards. Suggesting Mibor (Mumbai Inter-bank Offered Rate) as a kind of floating rate fixed by each bank at periodic intervals on their own parameters, as an alternative to PLR, Mr Kanoria said such rates were totally transparent.

"A cue can be taken from the international markets where call money rates or Libor are used as benchmarks."

According to Mr Sanjay Chamria, a recent meeting of managing committee members of the Finance Industry Development Council with the RBI Governor in Mumbai had discussed in detail the urgent need to provide a refinance window in the shape of institutional funding for NBFCs.

He was hopeful of some direction towards this in the forthcoming slack season credit policy.

He expected the RBI to take up, with the Finance Ministry, the issue of providing some kind of a recovery mechanism for NBFCs (coverage under DRTs and SARFAESI Act), as is available to banks, financial institutions and housing finance companies.