FINANCIAL SECTOR DEV PROJ. (FSDP)

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The Financial Sector Development Project aims to foster greater market orientiation, allocative efficiency, technical competence and competition in India's financial system and contribute to meeting the long-term financing needs of its investors as a means of stimulating economic growth. It will assist the Government of India to sustain financial liberalization, institutional development of public sector commercial banks and integration into the global capital markets. It will facilitate expansion of private equity ownership in public sector commercial banks and development of term foreign currency lending. The project comprises the following three components: 1) capital restructuring to support selected nationalized commercial banks which commit to plans for increasing private equity through public offerings and modernization initiatives, this support will be through subordinated loans from the government to strengthen their capital base as required by capital adequacy norms. 2) The project will support a modernization and institutional development program fostering action in strategic planning, automation and computerization of payment and accounting functions, human resource development, organizational improvements, and enhanced capability in the areas of asset-liability credit and treasury management. 3) The backstop facility component will assist eligible Indian banks and financial institutions in India to source private funds to meet rapidly expanding demand for foreign currency term loans. It will assist in meeting such demand from small- and medium-sized companies with foreign exchange earnings and exporters whose direct access to offshore markets is hampered by high issue cost, the facility will provide a medium-term liquidity assurance at a market-related price to financial institutions by offering them the option to borrow funds from the facility at a market-related price representing a market perception of systemic disruption.