Indian banking is on the cusp of major changes post the recent budget. A bill setting up a new development finance institution (DFI) has just been cleared by the cabinet. Second, work on a new asset reconstruction company (ARC) or a new version of a bad bank is progressing with the government agreeing to guarantee the security receipts that will be issued by this ARC. Third, the privatization of public sector undertaking (PSU) banks is on the anvil.

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Rajnish Kumar, Former Chairman of SBI, SS Mundra, Former Deputy Governor of RBI, and a commercial banker for 4 decades as well as Anand Sinha who is also a former RBI Deputy Governor discussed how all these issues may pan out.

“They are making a beginning after so many field experiments as far as the DFI is concerned. So I hope that this time the government will get it right and will have the necessary freedom for this institution to tap the best available option. We cannot waste another opportunity and it has to be ensured that this institution which has been set up with a lot of hopes is successful,” Kumar stated.

“I think there are a number of requirements which would be important. Number one – this DFI has to be completely infra-focused on the long gestation period. Second – this institution has to be an anchor lender, they need to have the expertise in house as well as they should also have a say in the policy formulation and should have the connect with the entire ecosystem,” said Mundra.

“The importance of DFI is financing in the construction space, in the project execution space because that is the space where there are a lot of uncertainties and a lot of risks. After the cashflow is stabilised, you can distribute it to various investors or even to the banks. So when you are in the execution phase, certainly regulatory dispensation would be required,” Sinha mentioned.

For the entire discussion, watch the video

(Edited by : Abhishek Jha)

First Published:Mar 18, 2021 2:01 PM IST