The banking sector has already overstretched itself in lending to infrastructure, Reserve Bank of India Governor Raghuram Rajan said, underscoring the need to tap new sources of funding for this industry.
“Going forward, we need to develop new sources of risk capital so that our infrastructure needs can be financed with moderate amount of debt, even as we help the system deleverage,” Rajan said Thursday in his inaugural address at a conference on financial inclusion, organised as part of the central bank’s 80th anniversary celebrations.
India’s infrastructure funding needs were estimated at more than $1 trillion (Rs 62.60 lakh crore) over the 12th plan period ending March 2017. To meet that, tapping other sources too would be required.
“Our tasks are far from over. The nation has enormous financing needs in infrastructure, and far too many of our banks already have too much exposure,” he said. Moreover, big corporate infrastructure players have also taken too much debt. The government has already allowed mutual funds and non-bank finance companies to float infrastructure debt funds to cater to this sector.
Excessive reliance on the banking sector to fund infrastructure could potentially impact financial stability, Rajan warned. “The required national push to finance infrastructure should not override financial stability, which is key to national security.”