India govt says some shadow lenders face liquidity stress

A top Indian government official on Monday said the nation'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 behavior.

Currently, the shadow banking sector comprising around 11,400 firms with a combined balance-sheet worth over 22 trillion rupees ($301.26 billion) face central bank's 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,” Srinivas told reporters on Monday, adding 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 minimize the mismatch between their borrowing and lending.