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Standing firm, the government will seek immediate relief on liquidity and credit availability at the board meeting of the Reserve Bank of India on November 19.
“Our immediate concern is liquidity, and the RBI should do more,” a senior Finance Ministry official told BusinessLine . Issues such as the Economic Capital Framework can be discussed at a later date, he added, making clear the government’s agenda.
In fact, the liquidity issue is something that Finance Minister Arun Jaitley has been vocal about, as it goes to the core of providing more relief to cash-strapped Non-Banking Financial Companies (NBFC) and Micro Small and Medium Enterprises (MSMEs).
RBI-Govt at loggerheads
The Finance Ministry and the RBI disagree vehemently on over a dozen issues, including liquidity, Prompt Corrective Action (PCA), capital-raising by banks, and norms for surplus reserves.
The tension between the two have now acquired a political hue in the context of next year’s general elections.
In fact, at the FSDC (Financial Stability and Development Council) meeting on October 30, under the chairmanship of Jaitley, the issue of liquidity was discussed with the RBI. The central bank maintained that there is no liquidity crunch in the system – barring certain sectors – and held out the assurance that it was keeping a close watch on the financial sector.
The government, however, feels that liquidity problems can have a ripple effect on the entire system, which is why more measures are required.
The RBI did allow banks to subscribe to bonds issued by NBFCs. But according to the Finance Ministry, this will not help as the banks will be hesitant to invest in instruments of institutions that face possible default.
In fact, the Ministry took it upon itself to do a daily monitoring of liquidity and debt repayments while encouraging banks to provide more funds.
“Now, it is up to the RBI to further relax the norms so that lending can be easier,” said the official, who is closely involved with the developments.
Credit growth
The official took cognisance of the fact that credit growth, as on October 26, has been more than 14 per cent.
This growth was mainly on account of borrowing by NBFCs from banks, but he felt that it is not sufficient as more funds are required to repay debts.
NBFCs and HFCs need immediate financial support to repay maturing debt. As on October 29, these institutions in the private sector have to repay more than ₹1.69-lakh crore by December 31 (The figure may change depending on fresh borrowings and repayments.)
In November alone, outstanding debts of approximately ₹1-lakh crore are coming up for redemption.
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