Liquidity to NBFCs & Mutual Funds Needed: Ex-SBI Chairman Arundhati Bhattacharya to RBI
In any kind of crisis, Mrs Bhattacharya noted, the first victim is liquidity and the moment liquidity dries up, it sort of evolves into solvency issues.
Former Chairman of SBI, Arundhati Bhattacharya has called for measures to provide liquidity to mutual funds and Non-Banking Financial Institutions (NBFCs) to mitigate the impact of the countrywide lockdown to check the spread of novel coronavirus, saying they need “backstop.”
In any kind of crisis, Bhattacharya noted, the first victim is liquidity and the moment liquidity dries up, it sort of evolves into solvency issues.
“So, that they have prevented by taking adequate measures and also very clear signals that they will maintain adequate liquidity in the system so that the system does not go into a freeze. Most of the measures are very, very welcome and correctly done,” she said.
One suggestion that she definitely had for RBI was that it still needed to have an arrangement for providing liquidity to mutual funds and “may be” to NBFCs. “That back-stop (for mutual funds and NBFCs) has not yet been looked at.
They (mutual funds and NBFCs) are also part of the financial system. As the markets recover, there will be lot of redemption pressure on the equity funds; today the debt funds are facing that pressure. But subsequently, equity funds will face that pressure. “If it (lockdown) was only for a month or so, I don’t think there will be very big impact.
Even if it’s just three monthsit’s not a very, very long period of time…we can manage that (weather the storm) but if it’s longer, things could be very tough because what happens is just as you have demobilised sites…you have seen the huge hoards of people returning, then coming back again will take time.”