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Government and RBI may clash over special liquidity issue for NBFC

Amid liquidity controversy/ Amid controversy over the infliction of special liquidity, Reserve Bank of India (RBI) and the government may clash over the necessity for liquidity window for non-banking finance companies (NBFCs), however, are no likely to step back from the edge of another issue.

Centre feels RBI opening NBFC special liquidity can lead to credit freeze, which can impact the real economy and could cause the credit markets to collapse, ahead of 2019 Lok Sabha election.

As government worries about the NBFC dealing with frozen lending due to fear of liquidity crunch, it determined to break the accumulation causing micro, small and medium enterprises (MSMEs) a credit squeeze, says people.

One of them said, “Housing sales have almost stalled,” adding, “First, bank credit as denied, and now NBFCs have also stopped.” On Monday, RBI Monetary Policy Committee (MPC) meeting is going to be held in Mumbai, an 18-member board headed by Governor Urjit Patel.

Finance minister Arun Jaitely said no need of policy makers to attempt quick fixes to boost growth, hence also clarified that the shortage of liquidity should not trouble the economic expansion. At the Economic Times Awards for Corporate Excellent, Jaitely on Saturday, had said, “If we have to improve on this (growth), we need a certain level of credit flow as far as entrepreneurs are concerned … see that liquidity is maintained.”

Jaitely said, “Therefore it (policy) will have to be done in a manner to restore banks, to restore the discipline as far as the banking system is concerned,” further adding, “At the same time, we don’t end up throttling growth by throttling credit and liquidity in the market — and that is the key issue. Any other issue can be a diversion but unless an adequate answer comes, I think we will be looking for the wrong solutions for a problem where easier solutions are available.’

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