SUBMITTED BY:NAVNEET MALHI

MBA 2A

Excessive borrowings beyond the need of production and investment leading to potential asset bubbles and deterioration of credit quality.

NBFCs source their funding from domestic capital markets and money markets as well as offshore, difficult to monitor the end-use of funds extended by non-banking financial firms.

NBFCs stepped up lending to Indian corporates since the RBI launched a new lending rate structure from July 1, known as the base rate, under which banks cannot lend below that reference rate.

Banks ought to be moving to advanced approaches with less reliance on rating agencies.

Agencies in turn have to take a holistic approach while awarding ratings, keeping in regard the tendency for end-use, asset bubbles and possible instability.

The country's largest lender, State Bank of India, expects the RBI to keep its key short-term rates untouched in the mid-quarter review of its monetary policy to be announced on September 16.

The RBI has been tightening key benchmark rates since November last year as the country started recovering from the impact of the global economic slowdown.

In its last policy announcement on July 27, the apex bank raised the repo rate by 0.25 per cent to 5.75 per cent and the reverse repo rate by 0.50 per cent to 4.50 per cent.

A working group soon be set up to examine the possibility of deregulating of interest rates.

Main aim to examine whether the de-regulation can help bring more people into the formal banking system.

For achieving the goal of financial inclusion, there is a need for a higher number of tie-ups between banks and the non-bank finance companies (NBFCs) to have better delivery systems to ensure better last mile connectivity

The finance ministry sought a lower credit rating threshold for investment in infrastructure sector by insurance companies.

Facilitating greater flow of the long-term savings into creation of physical assets.

According to government estimates, infrastructure sector needs over $1 trillion funds in the 12th Five-Year Plan period beginning 2012.

Channeling long-term insurance funds to the infrastructure sector important as banks cannot meet the needs given the asset-liability mismatch such lending causes.

Banks also have restrictions on how much they can lend to an individual project. Pension and insurance funds have no such constraints as their investments are also long-term.