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Companies Facing Liquidity Shortage Due To Balance Sheet Issues, Says Official

There is enough liquidity in the system, and the central bank is constantly monitoring the situation, an RBI official said.

People queue outside the entrance of the Reserve Bank of India’s headquarters in Mumbai. (Photographer: Prashanth Vishwanathan/Bloomberg)
People queue outside the entrance of the Reserve Bank of India’s headquarters in Mumbai. (Photographer: Prashanth Vishwanathan/Bloomberg)

Some companies facing challenges in raising funds from the market is because of their weak balance sheets, and not due to shortage of liquidity in the system, a Reserve Bank of India official told reporters requesting anonymity.

There is enough liquidity in the system, and the central bank is constantly monitoring the situation, the official cited earlier said.

Defaults by Infrastructure Leasing & Financial Services group last year led to a credit crunch, especially for non-bank lenders. That triggered a slowdown in credit growth of housing finance companies.

The dollar-rupee swap auction announced by the RBI earlier this month will infuse Rs 35,000 crore in domestic liquidity, the official said, adding that the auction of $5 billion for a tenor of three years will be conducted on March 26.

The decision to use a new liquidity management tool comes at the end of a financial year in which the RBI has bought close to Rs 2.8 lakh crore in government bonds via open market operations.

Speaking to reporters earlier today, Department of Economic Affairs Secretary Subhash Chandra Garg said the new tool by the RBI to infuse liquidity is a “sound move”, and that the liquidity situation in the system is comfortable.