New Delhi: The Reserve Bank of India (RBI) will avoid a situation of excess liquidity in the economy and any infusion of liquidity will have to be need-based, RBI governor Shaktikanta Das said on Monday.

“RBI would not like a loose money kind of liquidity situation. Any infusion of liquidity will have to be very carefully considered and has to be need-based. Therefore, caution and care has to be exercised by RBI so that adverse consequences of excess liquidity are not created," Das said after meeting representatives of micro, small and medium enterprises (MSMEs) in New Delhi.

Das said additional open market operation of Rs60,000 crore by RBI after he took over as governor is largely enough to meet the requirements of the economy and financial institutions. “We are constantly monitoring the liquidity situation and will take steps whenever there is a need to deal with the liquidity deficit if it is noticed," he said.

NBFCs in general have seen the cost of borrowing rise after August, though this has not been uniform across categories, said Manisha Sachdeva, associate economist at Care Ratings. “More importantly, bank interest rates have also moved up during this period and, hence, the cycle of interest rates had moved up based on RBI policy actions. Also, non-NBFCs have witnessed such variable trends in rising interest rates and, hence, the post-August scenario was not restricted to just NBFCs," Sachdeva said.

States need to examine whether they have fiscal space to meet the requirement of farm loan waivers announced by many states and release the money to banks immediately, said the RBI governor. “Elected governments have the constitutional mandate to take decisions with regard to their finance. However, any generalized write-off (of loans) has an adverse impact on the credit culture and the future credit behaviour of the borrowers," he said.

The asset quality of commercial banks has improved, but the improvements will have to be sustained if the banks, especially the public sector ones, are to fulfil their responsibilities and become healthy, Das said.

“We are also looking at governance reforms that can be brought about in public sector banks in consultation with various stakeholders. However, we don’t want to create a framework which imposes restrictions that throttle the functioning of banks," he said.

Banks have to look at the viability of individual MSMEs with regard to the one-time restructuring of existing debt up to Rs25 crore, which has been permitted by the central bank. “The effort is of course to see that the maximum number of units get the benefit. However, without looking into the viability aspect, it will not be possible to implement the restructuring scheme," he said.

Banks have been tasked to place the matter before their 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, Das said. “We hope the banks and MSME units will work together to see that the scheme is implemented in letter and spirit," he said.

The RBI last week also set up an expert committee under former Securities and Exchange Bureau of India chairman U.K. Sinha to suggest long-term solutions for the economic and financial sustainability of the MSME sector.

Close