WLTF Banks

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