Govt mulling more policy action for NBFCs, regulatory changes for markets

This comes after Finance Minister Nirmala Sitharaman interacted with country's top regulators at FSDX meeting on Thursday

The Narendra Modi government is considering additional policy measures for non-banking financial companies, and regulatory changes to ensure the stability of the financial system, Business Standard has learnt. This comes after Finance Minister Nirmala Sitharaman interacted with the country’s top regulators at a meeting of the Financial Stability and Development Council on Thursday.

Those present at the video-conference meeting included Reserve Bank of India Governor Shaktikanta Das and Securities and Exchange Board of India Chairman Ajay Tyagi.

Informed sources said that a substantial part of the meeting was focussed on the continuing volatility in the securities markets, and the liquidity issues faced by non-banking finance institutions (NBFCs) and housing finance companies (HFCs) amidst the Covid-19 pandemic and the nationwide lockdown, which has affected all sectors.

Over the past few months, the government, RBI and SEBI have already announced a slew of measures aimed at various sectors and financial markets.

 

In Thursday’s meeting, SEBI is learnt to have suggested strategies to increase domestic investment in the financial markets along with the possible ways to enhance capital flow in equity markets. “Increasing participation of domestic investors increases the linkages between the domestic markets and foreign investors, which prevents excessive volatility,” said a person privy to the discussion, adding that a need for additional domestic resource mobilisation was discussed.

Representatives from RBI, meanwhile, raised concerns over liquidity challenges being faced by NBFCs and various state and micro finances. A representation with this regard along with the proposed action has been also shared with the ministry.

The central bank also raised the issue of debt markets particularly, secured and unsecured non-convertible debentures, which assumes significance after several companies have reached out to RBI and SEBI seeking relief as some of them raised significant amount of money through NCDs which are close to maturity. 

RBI also apprised Sitharaman and Finance Ministry officials about the challenges being faced by banks with respect to the special liquidity window to help mutual funds meet redemption pressure.

“The Finance Minister asked regulators to discuss and work together to ensure that their respective regulated entities survive the economic impact of the pandemic and the lockdown,” said a second official.

“The meeting reviewed the current global and domestic macro-economic situation, financial stability and vulnerabilities issues, major issues likely to be faced by banks and other financial institutions as also regulatory and policy responses. Besides, market volatility, domestic resource mobilisation and capital flows issues were also discussed by the Council,” said an official release after the meeting.
 

 

“While, decisive monetary and fiscal policy actions aimed at containing the fallout from the pandemic, have stabilised investor sentiment in the short-run, there is a need to keep a continuous vigil by Government and all regulators on the financial conditions that could expose financial vulnerabilities in the medium and long-term,” it said

Others present at the meeting included Minister of State for Finance Anurag Thakur, Finance Secretary Ajay Bhushan Pandey, Economic Affairs Secretary Tarun Bajaj, senior government officials and chiefs of Insurance Regulatory and Development Authority of India, Pension Fund Regulatory and Development Authority and  Insolvency and Bankruptcy Board of India.

As per of the ‘Aatmanirbhar Bharat package two weeks agi, Sitharaman had announced a Rs 30,000-crore special liquidity scheme for NBFCs, HFCs, and micro-finance institutions. The liquidity will be provided by the Reserve Bank of India and investment will be made in primary and secondary market transactions in investment grade debt paper of NBFCs, HFCs and MFIs. She also expanded the Rs 1 lakh crore partial credit guarantee fund scheme by a further Rs 45,000 crore.