At a time when India is grappling with a rickety infrastructure, and financing such projects is a big challenge, prime minister’s economic adviser C Rangarajan on Monday emphasised that banks need to come up with a new system of financing the sector.

“We need to exactly look at how infrastructure will be financed in (the) long term…. We need to also look at creating niche banking institutions for tackling infrastructure finance,” Rangarajan said while addressing the Assocham conference on banking sector in the national capital.

According to government’s estimate, India needs $1 trillion dollar in investment during the 12th five year plan, though the banks have limitations in financing long-term infrastructure financing.

Stressing that risk during economic upswing and downswing should be managed carefully, Rangarajan said: “They (banks) have to take care of mismatch in liability and asset management. Of course, a vibrant debt market will also help investors' need for long-term funding.”

On the licences of new banks, he said there is a need for the banking sector to cover all the sectors. But he emphasised the need to make “stringent” entry norms for new banks. “The entry norms could be stringent and only well-qualified entities should be encouraged in order to improve the quality of banking and promote competition,” he said.

According to Rangarajan, "Our decision on how many new banks (need) licence must be based on what the economy will need – not today but over the next several decades".

On financial inclusion, the economic adviser to the PM said the government should look at the idea of local area bank. While Rangarajan had given the idea a few years ago, only a few such banks operate now. “There is a need to relook at the idea again,” he emphasised.