The government may allow banks to raise long-term resources for infrastructure financing through the 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 one trillion dollar 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.