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Shaktikanta Das: RBI monitoring liquidity situation; alert that it does not turn into ‘loose money’

Reserve Bank of India Governor Shaktikanta Das.

The Reserve Bank of India (RBI) is "constantly monitoring" the liquidity situation and will take necessary steps to bridge the gap whenever necessary, but it is also being cautious of liquidity infusion for it to not turn into "loose money", RBI Governor Shaktikanta Das said on Monday.

"This (liquidity issue) is something that RBI is constantly monitoring and take steps whenever there is liquidity deficit if it is noticed. At the same time I must also add 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 has to be exercised by the RBI so that excess liquidity will sometimes have adverse consequences that is not created. I can mention that liquidity needs of the economy are regularly monitored and whatever steps will be required will be taken," Das told reporters after meeting representatives of MSMEs.

The RBI Governor further said that the liquidity requirement of economy and financial institutions are met to a "great extent" and has already announced Open Market operations of Rs 60,000 crore based on inputs from several stakeholders.

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.

On the impending meeting with NBFCs on Tuesday in Mumbai, Das said there will be a "detailed interaction". "Over the last several months you would be aware that there has been lot of views expressed about the issue of liquidity faced by NBFCs. So tomorrow's meeting will utilise to get a perspective from the NBFCs. Earlier I had meeting with private and public sector banks. I also had a meeting with the cooperative banks because their issues are different from commercial banks. I am looking forward to our interaction with NBFCs and understand their perspective on various issues," he said.

On his meeting with the representatives of the MSME (micro, small and medium enterprises) sector, Das said he had a two-hour long interaction to get their viewpoint about the current state of functioning of the MSME and the implementation of the restructuring scheme which the RBI has announced earlier. "MSMEs also have other issues related to their functioning, some of which are in the domain of the RBI, most of which are in domain of the government and in domain of banks so far as their commercial functioning is concerned…I had a two-hour interaction with the MSMEs. I have noted down the points mentioned by them and we will examine them internally."

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 inpidual 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.

In their representation to the RBI Governor, CII suggested that the Turn Around Time for requests for sanction/enhancement of limits for working capital/ term loans to be fixed basis the product and amount of loans up to a specified amount. "For sanctions/ enhancement of limits for working capital / term loans, the time limit for sanction may be fixed at 15 days from the date of application and for disbursement, the time limit may be fixed as 15 days from the date of sanction," the CII said.

The CII also said banning of Letter of Undertakings (LoUs) for Buyer's credit is having a liquidity impact on industry and asked banks to sanction Buyers Credit facility to MSMEs, in cases where import of raw materials or components is done under Letter of Creditestablished by the bank. On the issue of transfer of interim pidend to the government, Das said the central bank will announce a decision on giving interim pidend to the government once such a final view is taken.