Assocham has approached the RBI with a plea that the provisioning criteria for the non-performing assets (NPAs) in the case of proposed Wholesale Long-Term Finance (WLTF) banks should be based on stress tests of each of the funded projects, unlike the present standard provisioning norms due to a different nature of the long term, big ticket industrial or infrastructure projects to be covered by WLTF lenders.
''In the long gestation projects like infrastructure there may be various reasons for which the project may get delayed-governmental policy changes, court orders, land or environmental issues... Monitoring and assessment of such projects would require a structured working; Therefore, provisioning must be based on a stress test for the specific project", the Assocham said, submitting its feedback to a discussion paper of the RBI on the proposed WLTF banks.
It said a stress test- based provisioning would be more prudent way of resolving the NPA issues, than the present standard provisioning norms for other loans. "Therefore, the standard provisioning norms should not be applicable to WLTF banks"
Describing the move to allow WLTF banks as timely and prudent, the chamber's letter to RBI Governor Dr Urjit Patel said the minimum capital requirement be kept at Rs 5 billion and not Rs 10 billion.
As the proposed banks would be focussed on infrastructure projects, their business would be less risky. "Unlike a security-based lending methodology of universal banks, WLTF Bank will be lending against cash-flow of an infrastructure assets for long term, implying more visibility of cash-flow than normal manufacturing projects".
Besides, the proposed lender should be exempt from requirements like SLR, CRR and rural branches and other priority sector norms, the chamber added.
In addition to following the existing rules of 'on-tap' licensing of universal banks, converting existing NBFCs or NBFC held by another NBFC be allowed to be converted into WLTF Bank. This would allow seamless transition of an existing NBFC into a WLTF Bank.
