Millennium Post

No liquidity shortage now… will take steps if needed: Shaktikanta

New Delhi: Reserve Bank Governor Shaktikanta Das on Monday said the central bank will take steps if there is a shortage of liquidity in the economy though the current cash needs are largely met. The governor also said that he will be meeting with representatives of non-banking finance companies (NBFCs) on Tuesday in Mumbai to understand the liquidity crunch faced by the sector.

Pointing out that liquidity in the system is regularly monitored, Das said the RBI will take steps whenever there is any deficit. "At the same time, I must also add the RBI would not like a situation where liquidity becomes a kind of loose money. Any infusion of liquidity will have to be carefully considered and has to be need-based.

"Therefore, caution and care have to be exercised by the RBI so that excess liquidity, ... sometimes have adverse consequences, that is not created," he told reporters here after meeting representatives of MSMEs. Asked if there are any pressure points as far as liquidity is concerned, he said it would not be right to mention any particular sector.

"It's market-related information, so, anything that I say on this matter during market hours has other implications," he said. Based on several inputs from various stakeholders, the RBI recently announced additional Open Market Operation (OMO) of Rs 60,000 crore spread over December and January, he said.

"We do believe that the liquidity requirement of the economy and financial institutions to a great extent are met," he said. On meeting with the NBFC sector, Das said the RBI will have detailed interaction with stakeholders.

"Over the last several months you would be aware that there has been a lot of views expressed about the issue of liquidity faced by NBFCs. So, tomorrow's meeting will be utilised to get a perspective from the NBFCs ... I am looking forward to our interaction with NBFCs and understand their perspective on various issues. Liquidity issue has been mentioned time and again," he said.

Last month, he had a meeting with public, private cooperative banks. Talking about the meeting with the MSME sector on Monday, Das said the purpose was mainly to interact and to get their views about the current state of functioning of the MSME and the implementation of the restructuring scheme which the RBI has announced earlier.

"It was a good interaction I had. I had a two-hour interaction with the MSMEs. I have noted down the points mentioned by them and we will examine them internally ... I think the mood among MSMEs is certainly quite confident. Many of the points that they have mentioned are in the domain of the government," he said.

While issuing a circular for MSMEs last week, the RBI asked banks to look at the viability of individual entity before restructuring loans. To help the MSME sector facing a cash crunch, the RBI last week permitted one-time restructuring of existing debt up to Rs 25 crore for companies that have defaulted on payment but the loans given to them have continued to be classified as standard assets.

The effort is to see that maximum number of units get the benefit keeping in the mind the viability aspect, Das said. "So, banks have been asked to place the matter before the board and come out with guidelines to examine the viability of individual proposals and also monitoring of the performance of such restructured assets and units. We do hope that banks and MSME units will work together to see that the scheme is implemented in letter and spirit in a way that maximum units benefit," he said.

Among others, industry chamber CII and Assocham participated in the meeting. A centralized loan application portal for all banks needs to be developed and an outside expert should be part of initial discussions with the borrower were among various suggestion made to Assocham in the meeting.

The Turn Around Time (TAT) for requests for sanction or enhancement of limits for working capital or term loans to be fixed basis the product and amount of loans up to a specified amount, CII said.

He added that the RBI will announce a decision on giving interim dividend to the government once such a final view is taken. The government has already said it will seek interim dividend from the RBI in order to maintain its fiscal deficit of 3.3 per cent of the GDP for 2018-19. Last fiscal, the RBI paid an interim dividend of Rs 10,000 crore to the Centre. RBI follows the July-June calendar. "As and when RBI takes any decision on any matter (interim dividend), you will come to know about it," Das said.

Last month, Economic Affairs Secretary Subhash Chandra Garg had said the government will seek interim dividend from the Reserve Bank of India (RBI). As per the Budget Estimate, the government projected to collect Rs 54,817.25 crore as dividend or Surplus of Reserve Bank of India, Nationalised Banks and Financial Institutions in the current financial year (2018-19).

The government received Rs 40,000 crore as dividend for the current fiscal while Rs 10,000 crore was paid as interim dividend in the last financial year (2017-18). In all, the RBI paid a dividend of Rs 50,000 crore to the government in 2017-18.

Das also expressed satisfaction over performance of the banking sector saying bad loans have declined, particulary of state-owned banks. He also said the RBI has also initiated stakeholder consultation on governance reform in the banking sector.

"One issue which engages our attention on almost daily basis is the state of NPAs (non-performing assets) and health of public sector banks. Our both Financial Stability Report (FSR) and Trends & Progress in Indian Banking Report have given out figures and there is definitely an improvement noticed in the reduction of the NPA levels of banks as a whole and public sector in particular," he said.

Various initiatives taken by the government have yielded results, with the bad loans of public sector banks (PSBs) declining by over Rs 23,000 crore from a peak of Rs 9.62 lakh crore in March 2018. "There is considerable amount of improvements which have to be sustained if banks have to fulfil their responsibility and if some of the banks have to become healthy," he said here after meeting representatives of the micro, small and medium enterprises sector here.

The RBI's recent FSR report said stress tests suggest there would be further improvement in banks' asset quality in the new year. In the baseline scenario, the gross NPA ratio might decline from 10.8 per cent in September 2018 to 10.3 per cent in March 2019 and 10.2 per cent in September 2019, it said.

After a prolonged period of stress, the load of impaired assets was receding, with banks reporting their first half-yearly decline in the gross NPA ratio since September 2015, it said. On governance reform in the banking sector, Das said it is an important issue and the RBI has initiated consultation with various stakeholders as to what kind of reforms can be brought in. "We do not want to create a framework which imposes restriction or throttle the functioning of banks," he said.

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