How government is stepping up efforts to ease liquidity

Authorities have been asked to open up special liquidity windows for MFs and HFCs through a repurchase facility.

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Finance ministry officials met representatives from mutual funds, the housing bank, home financiers and NBFCs to seek suggestions on enhancing liquidity.
A dedicated liquidity window is among the suggestions Indian non-banking finance companies (NBFC) have made to the Centre, which is talking to the industry to ensure uninterrupted funds flow to a sector that has helped expand consumption demand beyond the cities.

Officials at the finance ministry met representatives from mutual funds, the housing bank, home financiers and NBFCs, and sought suggestions on measures that would enhance liquidity for the sector, four people with direct knowledge of the matter told ET.

Economic affairs secretary Subhash Chandra Garg chaired the meeting. It was attended by representatives from HDFC, Indiabulls Housing Finance, a South-based non-banking company, the Association of Mutual Funds in India (AMFI), the National Housing Bank (NHB), and principal economic advisor Sanjeev Sanyal.


A government official said that industry executives have given various suggestions on dealing with the current liquidity issues and all options were being weighed.

"We will see which ones are viable and are not just knee-jerk reactions," the person said, on condition of anonymity.

Participants proposed the authorities to open up special liquidity windows, both for mutual funds and housing finance companies, through a repurchase facility, said one of the sources cited above.

Emails/text messages sent to HDFC, Indiabulls Housing, NHB and AMFI remained unanswered until the publication of this report.
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Suggestions were also made to reduce the minimum tenor of external commercial borrowing for housing finance companies to 3 years from five years earlier.

Housing finance companies are billed as key facilitators for the government’s pet projects, such as Housing for All by 2022 or the Pradhan Mantri Awas Yojna.

NBFCs can’t issue secured bonds of less than 12-month maturities as they are permitted to issue commercial papers only in that category.

Some participants suggested a waiver as it would help housing finance companies raise money, widening the investor base.

“The government may soon finalise on those suggestions to help with liquidity enhancement,” said another source, adding that the authorities are in talks with industry stakeholders.
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Earlier, a series of defaults by infrastructure conglomerate IL&FS triggered panic in the debt markets, raising the borrowing costs for NBFCs. But they have been gradually declining in the past few days.

According to an industry estimate, NBFC/HFCs have Rs 2.70 lakh crore of debt market funding that must be repaid in the next three months.

The NHB, which regulates specialised housing finance companies, also sought details on the financials and cash position of the firms. It is also trying to improve liquidity.

The NHB also announced that its refinance target for FY19 has been increased to Rs 30,000 crore this year, from Rs 24,000 crore earlier.

(With inputs from Dhiraj Tiwari)
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