tag:blogger.com,1999:blog-33693245.post4965803809022694566..comments2024-03-04T23:40:58.133+05:30Comments on The Big Picture: Do we need term finance institutions?The Big Picturehttp://www.blogger.com/profile/06018983225756352176noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-33693245.post-42785492879033434172017-04-18T16:26:16.583+05:302017-04-18T16:26:16.583+05:30Dear Sir
In the 1st instant, thanks for posting yr...Dear Sir<br />In the 1st instant, thanks for posting yr article here as on Biz Std not possible <br /><br />More things changes more they remain the same is applicable to DFIs<br /><br />The agreement is that the close down of DFIs was premature <br /><br />It was done in a haste to , if I can submit get over NPAs issue from whole sale banking <br />The logic being that the millions of retail loans preferable to 10000 loans to 1000 organizations - pull of the lower retail (better spread not to forget) NPAs and push of higher corporate /wholesale NPAs! However or rather howsoever, banking sector could not get rid of the problem wholesale NPAs- in its earlier avtar of DFIs or the new incarnation of commercial banks as commercial banks are now more deeply into corporate loans - ending up with NPAs - the very problem that they (DFIs - financial institutions /banks) were trying to get rid of ! <br /><br />NPAs arose due to variety of the reasons- project related issues and also ALM complusion (let us keep aside other things for the time being)<br />Out of the above 2 , project related issues (clearances, approvals) is beyong the pruview of financial sector leaving ALM to be tackled<br />So based on ALM the old arrangement is good - long term finance, good expertise in project appraisal etc <br />Only the source of long term finance dried up due to liberaliation and deregulation of interest rates <br /><br />NPAs have remained - whether DFIs or banks - financial intermediaries <br /><br />Now structure of the private sector has changes - manufacturing loans, technology sector ,loans to infra , agro , social sector and service So the revamped structure needs to understand all these strctural shifts as term (duration) , underlying asset composition, cash flow etc will vary for all the above sectors<br />Any concept paper should assess and factor those structural changes and not confined to only mnaufacturing and infra <br /><br />DFIs- all india and state level were catalyst for creating industrial (manufacturing base) in India in the 1950s to 1990s - when capital was scarce and venture capital non existent ! <br />The projects were if i may say only in the manufacturing and mining sector ! <br /><br />There is need to separate commercial /retail banking and corporate banking (especially with project requireing 3 5, 5 or long term finance) due to ALM issue <br /><br /><br />Globally DFIs are resurgent In fact you have stolen my thunder as I have been mulling over wirting this since the last 2 years and dawdling on that! <br /><br />One former head of DFIs (now head of an international DFI) is trying very hard to create, nay recreate, DFIs back doors through the old ways - lending through lines of credit - a la KFW, IBRD to DFIs his old DFI now a commercial bank) for onward lending to corporates Also bond issue in India under Masalla bonds is being planned ! <br /><br />The issue of financing is to look at global DFIs and how they are being financed <br /><br />If you recall in those days (1950s through 1990s) DFIs and commercial banks had created inverted yeild curve - long term finance @14% against short term - working capital loans at +19% The govt needs to work on corporate bond market by building mechanisms to wean the corporates from bank finance - cash credit facilities which shifts the onus of credit planning from corporates to commercial banks! <br /><br />There should be some incentive for large and well established corporates to move to commerical papers (there is already due to lower rate than bank finance) and bonds and also diincentive to dssuade them from bank finance<br /><br /><br /><br /><br />Anonymousnoreply@blogger.com