Better coordination between the regulator and the government will ensure that the financial sector is well regulated, a report by the Confederation of Indian Industry (CII) said.

The report, which recommended short-term action plan for the financial sector, said the regulator must ensure that the sector is provided with enough liquidity. This will lead to markets becoming normal. Communicating it to the markets and providing comfort is essential at this point in time. “The RBI has a huge role to play in this,” the report said.

Other recommendations include encouraging non-banking financial companies (NBFCs) to securitise the asset, which can be purchased by banks. It also suggested that the RBI must provide backstop facility to the Housing Finance Companies (HFCs) through the National Housing Bank (NHB). The RBI may also revisit the lending restrictions on banks under prompt corrective action and consider allowing them to lend to NHB which, in turn, can use it to finance housing projects. The report also suggested that the RBI must intervene in the rupee market in such a manner that bond yields do not go out of control.

Medium-term measures

Under the medium term measures to be taken, suggestions from the report include revisiting the ownership of public sector banks and relaxing the cap on FDI in in the sector.

The report comes at a time when the financial sector is going through a turmoil.

Chandrajit Banerjee, Director- General, CII, said in a press statement that urgent interventions, which are in the report presented by the CII, are necessary to revive the financial sector that is going through a phase of stress.

Related Topics