Govt mulls SLR status for infra bonds | india | Hindustan Times
Today in New Delhi, India
Aug 21, 2017-Monday
-°C
New Delhi
  • Humidity
    -
  • Wind
    -

Govt mulls SLR status for infra bonds

The government is planning a raft of measures that seek to make it more attractive for banks to lend to cash-starved infrastructure projects. Mahua Venkatesh reports.

india Updated: Jan 23, 2011 23:48 IST
Mahua Venkatesh

The government is planning a raft of measures that seek to make it more attractive for banks to lend to cash-starved infrastructure projects.

These would include making banks’ infrastructure bonds eligible to be counted as statutory liquidity requirement (SLR) instruments, as mandated by Reserve Bank of India (RBI) norms.

Banks have to maintain a minimum of 24% of their total deposits as cash or in approved government securities and bonds. If infrastructure bonds are granted SLR status, it would effectively mean that money lent out by banks through such bonds can be counted as part of their statutory requirements.

“This will act as an incentive for banks to float dedicated infrastructure bonds,” said a government official who did not wish to be identified.

These proposals, likely to be announced in the budget for 2011-12, are aimed to take investment in infrastructure to about 9% of gross domestic product (GDP) in the next three years. At present, the total investment in infrastructure – government and private sector—is about 4.5 % of GDP.

“The objective is to ensure that banks lend at a stable rate for infrastructure projects,” said the official. The proposal to grant SLR status to infrastructure bonds was discussed by the high-level committee on financing infrastructure headed by former RBI deputy governor Rakesh Mohan.

The committee is drafting interim recommendations on specific instruments bundled with tax incentives.

Banks are increasingly hesitant to lend to infrastructure projects, and this has rung alarm bells in the government as several critical current and planned projects may get delayed for want of funds. An estimated investment of $1 trillion (R45 lakh crore) is required in the next five years to upgrade India’s roads, highways, ports and airports.

Of this, R24 lakh crore would have to be effectively financed through the domestic banking and financial system. The government is also planning a monitoring mechanism with stringent penal and regulatory powers to ensure timely execution of projects.