Rajan asks banks to tap casa deposits for project financing

Reserve Bank Governor Raghuram Rajan today voiced concern over banks, especially state-run lenders, shunning project loans, and said they should tap their large low-cost deposits from casa accounts to finance infrastructure projects.

Stating that there is a large room for them to make enough profits from financing infrastructure, Rajan rued that since the crisis in infra space, banks are shunning project loans and are aggressively targeting retail borrowers.

"There are inputs to making profitable project loans such as the availability of casa deposits that will be accrued to the banks that build out their IT to access and serve the broader saver cheaply and effectively," Rajan told the national bankers summit organised by Ficci in association with bankers body IBA here.

He, however, was quick to admit that currently no bank has in-house talent to do all this, and said preparation for this is imperative as he thinks "none of this is really futuristic, but it requires a much stronger marriage between information technology and financial engineering, with an important role for practical industry knowledge and incentive design."

Rajan pointed out that the banks with a large pool of low cost deposits are better placed. He said bank's comparative advantage lies in their access to lower cost deposit financing, the data they've on customers, the reach of their network, their ability to manage and warehouse risks, and their ability to access liquidity from the central bank.

Admitting that the infra space has one of the highest NPA levels, he called for moving the focus to improving the operational efficiency of stressed assets, and creating the right capital structure so that all stakeholders can benefit.

"Where necessary, new project management teams have to be brought in, sometimes as owners, and where this is not possible, as managers. A creative search for new management teams, including the possible use of public sector firms or private sector agents, is necessary, as are well-structured performance incentives for non-owner teams such as bonuses for meeting cash flow/profit benchmarks and stock options," Rajan said.