What is the issue?
RBI specified eligibility criteria of projects that can be funded by WLTF
What are WLTF banks?
- In April 2017, the RBI released a discussion paper on setting up of wholesale and long-term finance (WLTF) banks.
- The objective of these banks is to fund long-term infrastructure and corporate projects.
- This banks will fill the funding gaps which are left by the commercial banks.
What is the need for this new type of banks?
- The Indian banking system has significantly high percentage of non-performing assets (NPAs).
- Recently, the RBI also identified 12 insolvent accounts, which are responsible for 25 per cent of the NPAs in the Indian banking system.
- Due to the ongoing NPA issues, commercial banks are already wary to take further long-term exposures, thus creating a critical funding gap for huge projects.
How this banks are designed?
- The RBI proposes an initial minimum capital of Rs 1,000 crore.
- In the long term, these banks are funded appropriately to the risk in their assets.
- The promoter group for WLTF banks has deep expertise in appraising long-term credits and tackling associated challenges.
What are the issues with WLTF banks?
- This banks will be counter-productive for the commercial banks.
- There will be greater challenges for payment banks and small finance banks.
- The funds which are received by small marginal banks from RBI will be diverted due to this new banks.
How WLTF banks can be made successful?
- These banks can raise current account and deposits above Rs 10 crore as one of the funding sources.
- The best-suited source of capital for WLTF banks would be insurance companies, pension funds, sovereign wealth funds, international capital markets and long-term bond markets.
- Selecting the right promoter group for granting the licence holds the efficiency of this banks.
- Framing suitable financial structures for raising long-term funds would go a long way in making WLTF banks a success.
Source: Business Standard
