An man counts Indian one hundred rupee banknotes. Photographer: Anindito Mukherjee/Bloomberg

Banks Have Enough Liquidity To Support NBFCs, Says Government Official

Public-sector banks have enough liquidity in the system to support non-banking financial companies that are currently facing liquidity concerns, a top government official told reporters today.

Finance Minister Arun Jaitley met bank officials via video-conferencing today to take stock of the liquidity scenario in the financial system, the official said. The bank representatives, the official said, informed Jaitley that the liquidity position is comfortable based on the feedback they have received from the NBFCs.

Defaults by the insolvent infrastructure finance firm IL&FS Ltd. and its subsidiaries led to fears of a contagion in the financial and credit markets. This led to concerns that non-banking lenders would be unable to refinance their market borrowings, impairing growth. The risk stemmed out of tight liquidity conditions followed by a trust deficit due to the defaults. Allaying fears of a liquidity crunch, the official said the concerns are “overstated”.

In the meetings with finance ministry officials over the past week, the bank officials have informed that only a few NBFCs have approached them and banks have supported them by buying their assets, the official cited earlier said. The lenders have also informed the government that there’s enough room to support more NBFCs, the official said.

Earlier this month, State Bank of India increased its planned purchase of portfolios from NBFCs by Rs 20,000 crore-30,000 crore. The nation’s largest lender initially planned additional purchases worth Rs 15,000 crore in the ongoing fiscal.

Also read: IL&FS Crisis Spurs Biggest Monthly Outflow From Liquid Funds In A Decade

The non-banking lenders will face a challenge next month as they rely heavily on the issued to the nation’s money market funds for short-term financing. The financiers must repay about Rs 1.2 lakh crore of commercial paper in October-December, Bloomberg separately reported.

To help housing finance companies that are facing a similar liquidity crisis, the National Housing Bank had increased the refinance limit to Rs 30,000 crore from its original set target of Rs 24,000 crore for 2018-19 beginning July this year, the newswire PTI had reported.

The official said that no housing finance company has, so far, felt the need to avail the facility.

Also read: Why IL&FS Picked This Route To Solvency