Finance Minister Nirmala Sitharaman has said that scheduled commercial banks should focus on core banking rather than high-risk long-term project financing. In an interview to businessline, the FM clarified that she was not commenting on a specific policy but on the general principle that banks should focus on their core banking functions.
On May 3, the RBI issued a draft harmonised prudential framework for lenders’ financing of projects in infrastructure, non-infrastructure and commercial real estate sectors. As per this framework, lenders would be required to set aside provisions of up to 5 per cent of outstanding exposures in phases by March 2027, compared to the current 0.4 per cent.
This has evoked a strong reaction from project developers as they fear it can affect financing and also raise their costs of borrowing. However, the FM feels there are dedicated institutions for long term financing. “National Bank for Financing Infrastructure and Development (NaBFID) was brought on board for long-term financing and that too with deep pockets. We were very clear that public sector banks or scheduled commercial banks should not lend for long term from the money borrowed for short term and get into asset-liability mismatch situation,” she said.
According to the FM, NaBFID is working well. “We are strongly of the view that we should take that route for funding infrastructure. It is not just funding infrastructure but also enabling development finance. We don’t expect banks to go for anything other than their typical core banking business,” she said.
Further, she advised that banks should focus on core banking activity and not go for high-risk development and infrastructure lending.
“Use resources you are getting through CASA (Current Account-Saving Account) effectively, so that you better service CASA and especially from eastern States. There deposits are high but lending is less. We are very clear that banks should focus on core banking activity and not go for high-risk development and infrastructure lending,” she said.
GST
Asked about the next phase of GST reform, Sitharaman said the process for rate rationalisation has to kick in soon. “It has to happen sometime. It has not happened so far because of certain changes in the Group of Ministers. There were elections in different States which meant that ministers who were part of the GoM were busy in campaign. And all the time, we were having to start all over again. Then you had the Lok Sabha elections. As soon as the new government is formed, this will be taken up,” she said. Besides, a more effective mechanism through new KYC system to check shell companies at the initial level itself is also expected to be in place soon. This will help to curb tax evasion.
Bond index
On the expected surge in inflows following inclusion of Indian bonds in global indices, Sitharaman said that she was not particularly worried about it. “I do not think it is going to make life difficult but a general oversight would definitely help. You want to be sure that fluctuations do not hurt you badly. We decided to open up only after a lot of discussion and ground work.”
Crypto
In response to reports about suggestions from SEBI on regulating crypto currency, Sitharaman said that there is no confusion. The government’s position is very clear that unless there is a global understanding, any effort by any single country will not help.
“Use resources you are getting through CASA (Current Account-Saving Account) effectively, so that you better service CASA and especially from eastern States.“Nirmala SitharamanFinance Minister
Meanwhile, a panel is collecting suggestions, and every regulator has its own views. “These are opinions, no harm in that. We have not yet reached a stage where we are saying, yes this is what we want to do. At that stage, if there are differences among regulators, then that would be a matter of concern. We are nowhere near that situation,” she said.
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