India is considering turning to the private sector to help plug a chronic shortage of capital for infrastructure projects. The Reserve Bank of India (RBI) is proposing Asia’s third-largest economy offer licences to private companies to set up infrastructure banks. That could help finance $1.5 trillion in roads, ports, power and other projects over the next 10 years. According to the RBI’s paper, the banks would source their funds from wholesale and long-term deposits, bond issuance, borrowing and asset securitization, rather than retail deposits. The paper doesn’t mention whether the central bank or government would back the new banks. In recent years, the RBI has been letting businesses enter niche banking areas. While large industrial houses wouldn’t be allowed to take more than a 10% stake in these banks, individuals with a decade of experience in banking and finance can tie up with business groups to apply for a license. The infrastructure banks would be exempted from opening branches in rural and semi-urban areas and wouldn’t be forced to lend to the agriculture sector. The idea is to increase vertical depth and specialized institutional capabilities to take informed decisions as and when a particular sector is getting technically complex.

(Live Mint)