In a bid to meet the increasing financing needs of infrastructure development,the Reserve Bank of India on Tuesday tweaked the rules to facilitate adequate flow of bank credit to this crucial sector. As certain safeguards such as escrow accounts are available in respect of infrastructure lending,the RBI has proposed that infrastructure loan accounts classified as sub-standard would attract a provisioning of 15 per cent instead of the current prescription of 20 per cent. To avail of this benefit of lower provisioning,banks should have in place an appropriate mechanism to escrow the cash flows and also have a clear and legal first claim on such cash flows, the RBI said in its Annual Policy Statement. In another sop,the RBI has also decided to treat annuities under build-operate-transfer (BOT) model in respect of road/highway projects and toll collection rights where there are provisions to compensate the project sponsor if a certain level of traffic is not achieved as tangible securities subject to the condition that banks right to receive annuities and toll collection rights is legally enforceable and irrevocable. RBI Governor D Subbarao said,Banks were concerned about their growing exposure to the infrastructure sector. Although they welcomed the measures initiated by the Reserve Bank to promote infrastructure financing by banks,they indicated that there is a need to develop alternative sources for financing to supplement the efforts of the banking sector. FOREIGN BANKS The RBI has proposed to prepare a discussion paper on the mode of presence of foreign banks through branch or wholly-owned subsidiary (WOS) by September 2010. When the revision of presence of foreign banks in India was due in April 2009,the global financial markets were in turmoil and there were uncertainties surrounding the financial strength of banks around the world. While global financial markets have been improving,various international fora have been engaged in setting out policy frameworks incorporating the lessons learnt from the crisis. Some of the lessons from crisis are to avoid organisational structures which become too big to fail and too complex to fail. Furthermore,while there is a realisation that as international agreement on cross-border resolution mechanism for internationally active banks is not likely to be reached in the near future,there is considerable merit in subsidiarisation of significant cross-border presence, the RBI said. HOLDING COMPANY STRUCTURE The Reserve Bank has decided to constitute a Working Group with the representatives from the government,the Reserve Bank,the SEBI,the IRDA and the IBA to recommend a road map for the introduction of a holding company structure together with the required legislative amendment The feedback received on its earlier Discussion Paper underscored the need for introduction of bank holding companies (BHCs)/financial holding companies (FHCs) in India to ensure an orderly growth of financial conglomerates and better insulation of a bank from the reputational and other risks of the subsidiaries/affiliates within the group. The Committee on Financial Sector Assessment (CFSA),in its report issued in March 2009,observed that given the lack of clarity in the existing statutes relating to the regulation and supervision of financial holding companies,the holding company structure as prevalent in the US for financial conglomerates is not currently in use in India,the RBI said. Considering the complexity of the issues involved and implications of the BHC/FHC model for the financial system in general and banking system in particular,it is proposed: MIGRATION TO IFRS In order to facilitate smooth migration to IFRSs,the RBI decided to undertake a study of the implications of the IFRSs convergence process and also to issue operational guidelines as appropriate. Considering the amount of work involved in the convergence process,it is expected that banks and other entities concurrently initiate appropriate measures to upgrade their skills,the RBI said.
