
Finance Minister Nirmala Sitharaman has stated that scheduled commercial banks should prioritize core banking activities over high-risk, long-term project financing. In an interview with BusinessLine, the Finance Minister clarified that her comments were not directed at any specific policy but rather reflected the general principle that banks should focus on their core functions.
RBI draft framework for project financing
On May 3, the Reserve Bank of India (RBI) issued a draft harmonized prudential framework for lenders’ financing of projects in various sectors, including infrastructure, non-infrastructure, and commercial real estate. Under this framework, lenders would be required to set aside provisions of up to 5% of outstanding exposures in phases by March 2027, compared to the current requirement of 0.4%.
Concerns from project developers
The draft framework has elicited concerns from project developers who fear that it may impact financing and increase borrowing costs. However, the Finance Minister believes that there are dedicated institutions, such as the National Bank for Financing Infrastructure and Development (NaBFID), for long-term financing. She emphasized that public sector banks and scheduled commercial banks should not use short-term borrowed funds for long-term lending to avoid asset-liability mismatch situations.
The role of NaBFID and core banking activities
According to the Finance Minister, NaBFID is functioning effectively and should be the preferred route for funding infrastructure and enabling development finance. She emphasized that banks should focus on their core banking activities and refrain from engaging in high-risk development and infrastructure lending.
Effective utilization of CASA resources and GST reforms
The Finance Minister advised banks to effectively utilize resources obtained through Current Account-Saving Account (CASA) deposits, particularly from eastern states, to improve CASA services. She also discussed the next phase of Goods and Services Tax (GST) reform, stating that rate rationalization needs to occur soon. She mentioned that the process was delayed due to changes in the Group of Ministers and elections in different states. However, once the new government is formed, the GST reform process will be initiated.
Inclusion of Indian bonds in global indices and cryptocurrency regulation
Regarding the expected surge in inflows resulting from the inclusion of Indian bonds in global indices, the Finance Minister expressed that she is not overly concerned. She mentioned the importance of monitoring fluctuations to minimize potential negative impacts.
Regarding cryptocurrency regulation, the Finance Minister stated that the government’s position is clear: without global understanding and cooperation, efforts by individual countries will not be effective. She mentioned that suggestions are being collected, and while there are differing opinions among regulators, the government has not reached a stage where a definitive course of action has been decided.