Such bonds would provide an opportunity to park their funds for a long term while corporates can manage their funds better
While the banking sector is now largely avoiding giving long-term loans to private sector, finance minister Piyush Goyal is mulling long-term bonds to finance long gestation projects.
"With developmental financial institutions turning to banks and with IFCI under stressed, we are concerned about availability of long-term finance. I have recently suggested bankers to come up with long-term infrastructure financing bonds of, say, 25 years," Goyal, who also holds the portfolio of coal, railways and corporate affairs, told industrialists at an Indian Chamber of Commerce event.
Such bonds would provide an opportunity to park their funds for a long term while corporates can manage their funds better.
"Today people need retail investment avenues for long term in good assets after retirement. Corporate needs long-term funds and if such instruments are available, corporates would be able to plan their long-term cash flows. I am open to suggestion as to how to ignite long-term finance for projects," he said, adding it's still just an idea seeded by him.
"For the past four-five weeks my focus has been to reignite the banking sector's ability to lend and bring credit back into the system," he said.
The minister admitted that there has been some mis-steps in the early days of non performing loans under the Insolvency and Bankruptcy Code referring, without taking names, to the recent arrest of top banking officials.
"We are forcing biggest of the industrialists to pay up by selling off their power plants, their refineries. In the intermediate period there would be some pain points and aberrations could happen like wrongful arrests and there could be some pushback. But we are trying to ensure that while corrupt are punished, the honest are protected," he said.
The recent arrest of Bank of Maharashtra CEO Ravindra Marathe, and others by Economic Offences Wing of Pune Police drew wide protest including Indian Banks Association, which represents all major commercial banks.
The fallout of the NPA crisis has been the denial of credit to the small and medium scale industries.
"As financial institutions went on with evergreening of loans through repeated restructuring thereby postponing the inevitable, the consequence, we realised in 2014 was that 34% of loans given out by the banking sector weren't giving banks any return in terms of interest.
The banks had to earn higher interest from the balance of its loan book.
Since they couldn't ask the corporates to pay more as they would have fled to other credit sources, the MSME sector had to bear the brunt and it had to cough up highest interest on their loans.
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 "Piyush Goyal")
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