Why did RBI hesitate to open a special liquidity window for NBFCs, HFCs? Here is the answer


RBI has already taken steps to support capital flows to domestic trust companies, the latest being the easing of lending standards.

The Reserve Bank of India may have been reluctant to open the special refinancing window for non-bank financial corporations (NBFCs) and housing finance companies (HFCs) as this could have been misused. . NBFCs and HFCs are facing severe pressure on their liquidity after failures from the infrastructure and financial services leasing (IT & FS) service, which is a financial problem. The central bank could be forced to provide liquidity to all companies that solicit it for funding if such a special niche is open, Indian Express said, citing sources aware.

The government has lobbied the RBI to open such a window to relieve the NBFCs and HFCs in trouble of the cash-flow problem before the end-of-year holidays. public and private sector having completely stopped lending them after the debt crisis IL & FS. . However, the central bank has already taken steps to support capital flows to NBFCs, the latest of which is easing lending standards.

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According to the newspaper, the Ministry of Finance said: "The available cash for the sector is sufficient by the usual channels. But we will not be able to prevent companies because it is difficult to distinguish between the quality of NBFC assets ". The government has asked the RBI to give its views on the formula for calculating its reserves and on the resulting transfer of surplus. central government to mitigate the liquidity crisis in the financial markets.

The ministry's statement came after the government sent a note to the governor of the central bank, Urjit Patel, in which he invoked special powers over the RBI under section 7. The board of directors of the RBI is scheduled to meet on November 19, 2018.

Previously, the central bank had opened the special cash window after the global financial crisis of 2008, then again in 2013, because of the gradual crisis, a term coined to describe the volatility of the market following the announcement by the Fed to reduce its program of purchase of bonds. .

READ ALSO: Arun Jaitley states that RBI did not look otherwise when banks lent carelessly to the UPA era

It should be noted that the Minister of Finance has asked the central bank to relax the Prompt Corrective Action (PCA) standards that impose certain operational and loan restrictions on troubled banks in order to improve their financial health. Out of a total of 21 state-run banks, 11 fall under the CPA framework. Earlier this month, Viral Acharya, deputy governor of the central bank, protested against any changes to the CPA rules.

The standoff between RBI and the government

On Friday, RBI deputy governor Viral Acharya said in a conference that undermining the independence of the RBI could be "potentially catastrophic" while warning that governments that do not respect independence from the central bank will sooner or later suffer the wrath of financial markets, ignite the economic fire, and come to the streets the day they have undermined an important regulator. "

The statement fueled tension between the central bank and the finance ministry. On Tuesday, Finance Minister Arun Jaitley said the central bank was considering an "alternative" when the country's banks indulged in indiscriminate lending during the 2008-2014 period, leading to a "massive accumulation" of bad debt.

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