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FSDC discusses NBFC fund crunch; RBI assures adequate liquidity in system

The meeting assumes significance as the FSDC is meeting for the first time after RBI Deputy Governor Viral Acharya raised issues regarding the independence of the central bank

Topics
Il&fs  |  Il&fs Crisis  |  Liquidity Crunch

Press Trust of India  |  New Delhi 

FSDC meeting
Finance Minister Arun Jaitley chairs the Financial Stability Development Council (FSDC) meeting in New Delhi on Tuesday. Photo: ANI

The high-level FSDC meeting chaired by Finance Minister Arun Jaitley on Tuesday discussed liquidity issues being faced by the non-banking financial companies, sources said.

Headed by the finance minister, the Financial Stability and Development Council (FSDC) includes Reserve Bank Governor, Chairman, and heads of other regulators like PFRDA, IRDAI, and also Chairman of the Insolvency and Bankruptcy Board (IBBI).

Reserve Bank Governor Urjit Patel said the liquidity problem in NBFCs is not as severe as is being projected, but assured the government that it would ensure adequate liquidity in the system, sources said after the meeting.

The meeting assumes significance as the FSDC is meeting for the first time after RBI Deputy Governor Viral Acharya raised the issues regarding the independence of the central bank.

Unlike in the past, all the four RBI deputy governors attended Tuesday's FSDC meeting along with Patel.

ALSO READ: RBI to inject Rs 400 bn liquidity into system via open market operations

Sources said the RBI governor informed the government that there is no in the system, barring certain sectors and assured they are keeping a close watch on the financial sector.

The government, on its part, asked the RBI to prevent spreading of crisis to other sectors of the economy, sources added.

Among other things, the issue concerning cyber-security in financial markets also came up for discussion.

Pension fund regulator PFRDA Chairman Hemant Contractor said there was general discussion on the domestic and global economy.

The FSDC was set up to strengthen and institutionalise the mechanism for maintaining financial stability, enhancing inter-regulatory coordination and promoting financial sector development.


ALSO READ: RBI rejects liquidity window for NBFCs; govt demurs citing cash crunch

In May, the government through a gazette notification, had included Ministry of Electronics and Information Technology (MeitY) Secretary in the FSDC in view of the increased focus of the government on digital economy.

The series of loan defaults by the has resulted in doubts over financial soundness of the non-banking finance companies. The government last month took over the board of and appointed seasoned banker Uday Kotak at the helm to resolve the crisis being faced by the NBFCs.

Acharya in a speech on Friday had said that undermining the central bank's independence could be "potentially catastrophic".

He had also called for greater powers for RBI to regulate public sector banks as it seeks to clean up the banking system, saying that central bank's independence was necessary to secure greater financial and macroeconomic stability.

The government, however, has not responded to the concerns raised by the RBI.

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First Published: Tue, October 30 2018. 15:14 IST
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