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25
September 2018
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finance ministry (The Total Investment & Insurance Solutions)
The finance ministry wants the Reserve Bank of India (RBI) to consider more steps to improve liquidity in the system, including reducing the amount of funds banks must set aside with it, a senior ministry official said on Tuesday, amid a bubbling credit crunch in the Indian shadow banking industry.
RBI could also explore buying more bonds from the open market and open a special window for mutual funds to inject liquidity, the official told reporters.
Prime Minister Narendra Modi’s government faces a new challenge that could derail growth at a time when surging fuel costs and a slumping rupee are buffeting the world’s fastest growing major economy.
The RBI did not immediately respond to a request for comment on the proposed ideas. Late on Monday the RBI said it would buy 100 billion rupees ($1.38 billion) of government bonds via an open market operation, in a move to ease liquidity.
The finance ministry, RBI and India’s markets regulator have this week all said they all are closely monitoring the liquidity crunch that has hit non-banking financial companies (NBFC), and they stand ready to intervene.
Investors have been unnerved by credit concerns that have engulfed one of the biggest NBFC names in India – Infrastructure Leasing & Financial Services (IL&FS) – which has this month defaulted on a series of its coupon payments and seen its debt downgraded by big rating agencies to junk from AAA, within a span of less than two months.
That in turn has sparked concerns around the viability of other NBFCs, leading to a sharp sell-off in the sector, higher borrowing costs for NBFCs, and growing fears of contagion.
Finance Minister Arun Jaitley at a press event on Tuesday said the government was watching the IL&FS situation closely.
“As far as the government is concerned, we are closely in touch with the situation and monitoring the situation,” he said, adding banks were confident of maintaining liquidity for various sectors as required.
Earlier in the day, India’s largest state-run insurer, Life Insurance Corp (LIC), which owns some 25 percent of IL&FS, also said it would not allow IL&FS to collapse.
Earlier in the day, India’s largest state-run
insurer, Life Insurance Corp (LIC), which owns some 25 percent of IL&FS,
also said it would not allow IL&FS to collapse.
Speaking
with media on Tuesday, LIC Chairman V.K. Sharma said all options, including
increasing LIC’s stake in IL&FS, are open.The Total Investment & Insurance Solutions
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