Chennai: The Reserve Bank of India (RBI) will work with the government to create a clear monetary framework during the course of the year, governor Raghuram Rajan said.

“Hopefully, by the end of the year, we think the economy is on course to come down to a consumer price index (CPI) inflation rate of about 8% and by the end of next year, to a level of 6%, and we will be in discussion with the government on monetary framework made in the budget announcement," Rajan said in his keynote address on ‘Financial Sector Reforms’ organized by the Federation of Indian Chambers of Commerce and Industries (Ficci) in Chennai.

Apart from inflation, an immediate problem is stressed assets, Rajan said. In the longer term, building infrastructure and generating infrastructure finance are two major challenges. Some infrastructure projects have failed due to bad luck and some due to poor structuring, Rajan said.

“Largely, it is poor structuring and over optimism, which have led to bad infrastructure assets. Going forward, we have to structure projects in a better way so as to account for risks and have longer repayment," the governor said.

RBI, Rajan said, is working on a proposal to make it easier for banks to borrow from markets and lend for long-term infrastructure and affordable housing. So, “5:25 loans"—banks providing loan for the first five years and the repayment happens across next 25 years—will become much easier.

Long-term infrastructure loans provided by banks may also be exempt from statutory liquidity ratio (SLR), cash reserve ratio (CRR) and priority sector lending.

So, if banks issue bonds for certain years of maturity to finance infrastructure and affordable housing, they will be exempt from requirements of SLR, CRR and also relieve them of priority sector lending obligations.

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