A HDFC Bank Ltd. teller counts Indian 100 rupee banknotes at the company’s bank branch. (Photographer: Dhiraj Singh/Bloomberg)

CII Seeks Urgent Action By RBI Fearing Ripple Effect Of NBFC Crisis

Industry body Confederation of Indian Industry appealed for immediate action from the Reserve Bank of India to maintain stability in the financial sector.

The CII said in a statement today that it feared the liquidity crunch faced by non-banking lenders could spill over to allied sectors like mutual funds, housing finance companies and banks. “A coordinated and consultative approach at this point of time to address the various problems of the sector is critical to national economic health and stability,” said Rakesh Bharti Mittal, president of CII. “It's important for the country and stakeholders globally to see a coordinated front.”

The industry body pointed out that non-banking and housing lenders suffered from asset-liability mismatches as they had borrowed short to lend long. This, according to the statement, could set off a chain of problems as the non-bank lenders have borrowed from mutual funds and banks.

The liquidity stress faced by NBFCs also dominated the Fiscal Development and Stability Council meeting held between regulators and government officials yesterday. The RBI assured it was closely watching the developments in the NBFC sector and promised to maintain adequate liquidity in the system.

Other Highlights Of The Statement

  • Shortage of short-term commercial papers is leading to a contagion effect in the financial sector.
  • Mutual funds may not opt for roll-over of the papers because of perceived risk in the NBFC sector.
  • RBI must encourage non-banking financial companies to securitise their assets that can be purchased by banks.
  • Urged the central bank to provide backstop facility to housing finance companies through the National Housing Bank.
  • RBI must revisit lending restrictions placed on banks under Prompt Corrective Action and consider allowing them lending to NHB.
  • Called for RBI intervention in the rupee market to prevent volatility of bond yields.
  • Appealed for opening of special window for mutual funds to get refinance from RBI against quality collateral.