Even as non-banking financial companies (NBFCs) and housing finance companies (HFCs) are finding it tough to raise funds from banks following the liquidity crisis amid a series of debt repayment defaults by Infrastructure Leasing & Financial Services Ltd (IL&FS), there seems to be lack of coordination and concerted effort between the Finance Ministry and the Reserve Bank of India to resolve the crisis, sources said.
While promoters/top officials of seven large financial services companies met senior finance ministry officials on Thursday to raise their concern and seek some resolution, government officials are learned to have categorically told them to suggest solutions that can be taken up by the government on its own.
“We requested the government to ask the banks to re-start their normal lending to NBFCs and HFCs so that the business and consumers don’t get impacted,” said the source. The source, however, told that when the industry representatives suggested certain solutions that can be implemented with the help of RBI, they were not too receptive. “There was a suggestion that the RBI can relax banks’ lending exposure norm for a particular sector for a short period of time,” a source said, adding that the government was not sure whether the RBI would accede to such demand and asked for solutions that the government can suo-motu implement.
Post the IL&FS default and the liquidity crisis in the market, banks have nearly stopped lending to the NBFCs and HFCs, thereby making it tough for them to do normal business. Sources in the financial services industry say that while RBI has yet not called for a meeting on the issue for the past two weeks, they have approached the government.
However, after some prodding by the government, State Bank of India on Tuesday offered to provide some relief to liquidity-starved NBFCs with its proposal to buy good quality assets worth Rs 45,000 crore from NBFCs.
While National Housing Bank on Monday stepped up its refinance facility by Rs 6,000 crore to ease the fund crunch at HFCs and other institutions and has increased its refinance limit to Rs 30,000 crore from Rs 24,000 crore for this year (July 2018 to June 2019), sources say that RBI has not been accepting NBFCs request for a meeting with RBI.
“Every six months, the RBI DG and other officials meet with the NBFC federation. However, while the meeting was to happen in September has not happened. We also sent request for meeting two weeks back but have not heard from the RBI,” said a source. To ease the funds crunch, the RBI on September 28 announced measures to inject liquidity in the market, but industry sources said this is not helping since banks are holding onto government securities and are maintaining high SLR of around 27 per cent against the statutory mandate of 19 per cent. SLR is statutory liquidity ratio is the slice of deposits banks and financial institutions are required to maintain in government securities. “Apart from foreign exchange intervention, the RBI should play a proactive role in protecting the value of the rupee,” said a senior government official.