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Why Wholesale Banking Is Needed in India?

Dec 1, 2017 1:02 PM 2 min read

The Reserve Bank of India (RBI) put out a discussion paper on the 7th of April 2017 titled “Wholesale and Long-Term Finance Banks”.


One of the core questions was whether there is a need for wholesale finance banks (WFBs) in India, especially in the face of rising non-performing assets (NPA) of public sector banks (PSBs). My view is yes, there is a need for setting up dedicated banks concentrating on long-term wholesale financing for a variety of reasons:


  • Better matching of assets and liabilities of the dedicated banks leading to a sounder banking system in India
  • Superior expertise of wholesale and long-term financing banks with respect to project identification, project evaluation, capital structure and risk management
  • Dedicated banks will assist regulators in creating a regulatory framework that promotes financial innovation
  • Pooling of infrastructure risk can be achieved through Wholesale and Long-term financing banks. Having a diversified risk portfolio will reduce the risk for the investors through investment across both project types and term structure


Dedicated banks can achieve the above by focusing on the following aspects:


  • Origination of new and innovative products such as covered bonds and project finance
  • Use of new financial structures such as Cross Currency Swaps to use low cost currencies such as Japanese Yen to fund Indian assets
  • Creation of a secondary market for long dated loans/bonds in achieving price transparency of financial securities


In addition to the above there is tremendous public purpose served by setting up of a separate class of Wholesale and Long-Term Financing banks such as:


  • Financing of essential infrastructure projects that enable growth and progress for the Indian economy
  • Demarcation of long dated infrastructure assets and liabilities from the rest of the banking system enabling efficient risk management and creating a resilient financial system
  • Lowering costs of wholesale funding in the market hence enabling cost savings to be passed on to savers down the value chain


To summarize I will reiterate that wholesale finance banks will add value to the financial ecosystem within the Indian economy and policy makers need to pave the way for the creation of such banks.


Originally Published on Medium