Infra funding difficult: RBI

Mumbai, Nov. 25: Infrastructure financing and financial inclusion are the two biggest challenges facing banks. The banks will have to bear the entire brunt of providing finance for infrastructure unless the pending legislation (on insurance, pension and provident fund reforms) goes through and opens up new sources of long term funding, said the RBI governor, Dr. D. Subb-arao, inaugurating a banking meet on Wednesday.

Infrastructure financing needs are estimated at Rs 20 trillion, of which 43 per cent is planned to be financed by banks.

He said that the RBI has helped banks to meet mismatch problems of borrowing short-term and lending long term, and said repos in corporate bonds are slated to start soon. “We expect to issue the final guideline by end November 2009.”

He observed that banks need to improve their efficiency as the intermediation costs in India are still high due to high operating costs. He said though the overall efficiency and productivity of banks have improved, resources are still not being used in the most efficient manner.

“There is a degree of stickness and non-transparency in bank lending rates,” he said. The challenge, therefore, is for Indian banks to reduce costs and pass on the benefits to both depositors and lenders.

On financial inclusion, Dr Subbarao said he could “hardly overemphasise how big a challenge financial inclusion is for banks, for the RBI and for the government. He said banks should harness technology and reach out to all the people across the country.