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The asset-liability mismatch seems to be major challenge for Indian banks lending money for infrastructure projects, said Reserve Bank of India Governor Duvvuri Subba Rao.
He stressed the need to sharpen the risk-management tools of banks to avoid defaults. He was addressing a conference of International Finance and Banking Conference, organized by the Indian Merchants' Chamber on 'Banking - Crisis and Beyond' on Wednesday in Mumbai.
Subba Rao said that the banks should improve efficiency as they were not utilizing the available resources properly. This was resulting in stickiness and non-transparency in lending rates. However, he said, that the overall efficiency and productivity improved.
He said that Indian banks would have to buffer their capital base as it was obviously a standard and the much-needed response to risk-management.
On the migration to more advanced approaches, the RBI chief said the apex bank, in consultation with banks, had finalized a time-frame-- starting next April, and ending with March, 2014, to move towards advanced approaches. However, he the migration should be confined to larger banks initially, as the move was both skill-and-technology intensive.
The RBI would issue final guidelines on repos in corporate bonds by this month-end, he said. The measure could boost liquidity in the corporate debt market. The participant could pledge a corporate paper in exchange of funds for a certain period and at a rate determined by the market.
Currently, repo transactions are allowed only in central government securities, treasury bills and state development loans.
Looking ahead, Indian banks were set to increase their presence abroad, while foreign banks would have a larger presence in India, added Subba Rao.
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