RBI Proposes Wholesale and Long-Term Finance Banks

After having issued licences for new-age payments and small finance banks, the Reserve Bank of India (RBI) has now published a discussion paper on the need for Wholesale and Long-term Finance Bank (WLTFB).

What is a Wholesale & Long-term Finance Bank?

• The wholesale and long-term finance banks will focus primarily on lending to infrastructure sector and small, medium and corporate businesses. They will also mobilise liquidity for banks and financial institutions directly originating priority sector assets, through securitisation of such assets and actively dealing in them as market makers.
• They may also act as market-makers in securities, such as, corporate bonds, credit derivatives, warehouse receipts, and take-out financing, etc.
• These banks will provide refinance to lending institutions and will be present in capital markets in the form of aggregators. They may have negligible retail sector exposure on asset side.
• The bank to fund infrastructure and greenfield projects of industries, with a minimum capital requirement of Rs 1,000 crore.
• These banks will be exempted from opening branches in rural and semi-urban areas and will not be forced to lend to agriculture and weaker sections of the society.
• WLTFBs will also have to maintain the cash reserve ratio (CRR) just like other commercial banks, but not for funds raised through infrastructure bonds.

What will be the Eligibility Criteria?

• Large industrial houses cannot take more than 10% state in these banks.
• Individuals with 10 years of experience in banking and finance at a senior level with a successful track record can also apply for the licence along with business groups, which have total assets of at least Rs 5,000 crore and which do not own more than 40% of their total income from non-financial sources.

How will WLTF Raise Money?

• These banks should not accept savings deposits.
• The primary sources of funds for these banks could be a combination of wholesale and long-term deposits (above a large threshold), debt/equity capital raised from primary market issues or private placement, and term borrowings from banks and other financial institutions.