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India govt says some shadow lenders face liquidity stress
A TOP Indian government official on Monday said the country's non-banking housing finance companies were facing liquidity stress, in comments that are likely to put more pressure on the Indian central bank to ease its policy towards the sector.
The intervention by Corporate Affairs Secretary Injeti Srinivas came after Finance Minister Arun Jaitley and other government officials raised the issue of a liquidity crunch at a meeting with Reserve Bank of India's (RBI) governor Urjit Patel and other regulators last week.
The government has asked the RBI for a dedicated liquidity window for these lenders similar to one allowed for the entire Indian financial sector during the 2008-2009 global financial crisis. But so far, the central bank has not agreed to the request, as it fears that such an accommodation to those who haven't been prudent with their lending will only encourage reckless behaviour.
Currently, the shadow banking sector, comprising around 11,400 firms with a combined balance sheet worth over 22 trillion rupees (S$414.5 billion), faces central bank restrictions on borrowings from banks, keeping provisions for the safety of depositors.
The government and the RBI are currently at loggerheads over a series of issues, including control of its reserves, its power over the payments system, and monetary policy.
"The segment of housing finance within the NBFC (non-banking finance companies) sector is facing stress of liquidity," Mr Srinivas said on Monday, adding that the government was trying to address the issue.
The sector needs to reassess how it operates, he said, noting there was a need to adopt a sustainable model which could minimise the mismatch between their borrowing and lending.
A string of defaults at one major NBFC, Infrastructure Leasing and Financial Service Ltd (IL&FS), has triggered sharp falls in Indian stock and debt markets in recent weeks amid fears of contagion within the rest of the country's financial sector.
Mr Srinivas' comments triggered falls in housing finance lenders India-bulls Housing Finance, Dewan Housing Finance Corporation and PNB Housing Finance, which were all down between 3 and 8 per cent on Monday. Mr Srinivas declined to comment when specifically asked about these companies. REUTERS