Arun Jaitley holds high-level meeting to discuss liquidity issues; no discussion on RBI-govt differences, says report

Finance Minister Arun Jaitley on Tuesday held a high-level meeting with financial sector regulators and discussed interest rates and liquidity issue faced by the non-banking financial companies (NBFCs). The Financial Stability and Development Council (FSDC) headed by the finance minister decided that the regulators and the government will keep a close watch on the developing situation and take all necessary measures. The FSDC, comprising of Reserve Bank of India governor, SEBI chairman, and heads of other regulators like PFRDA, IRDAI, and also Chairman of the Insolvency and Bankruptcy Board (IBBI), in its 19th meeting reviewed the current global and domestic economic situation and financial sector performance. The council discussed at length the issue of real interest rate, current liquidity situation, including segmental liquidity position in NBFCs and mutual fund space, an official statement said. Reserve Bank Governor Urjit Patel noted the liquidity problem in NBFCs is not as severe as being projected, but assured the government that it would ensure adequate liquidity in the system, sources said after the meeting.

The meet assumes significance as the FSDC is meeting for the first time after RBI Deputy Governor Viral Acharya raised the issues regarding independence of the central bank.

Unlike in the past, all the four RBI deputy governors attended Tuesday’s FSDC meeting along with Patel. [caption id=“attachment_4330567” align=“alignleft” width=“380”]  File image of Arun Jaitley. AFP pic[/caption] Sources said the RBI governor informed the government that there is no liquidity crunch in the system, barring certain sectors and assured they are keeping a close watch on the financial sector. The government, on its part, asked the RBI to prevent spreading of IL&FS crisis to other sectors of the economy, the sources added. Among other things, the issue regarding strengthening cybersecurity in financial markets also came up for discussion. The council also took note of progress made towards setting up of a Computer Emergency Response Team in the Financial Sector (CERT-Fin) under a Statutory Framework. The meeting also deliberated on the need for identifying and securing critical information infrastructure in financial sector, it said. It also discussed the issues and challenges of Crypto Assets/Currency and was briefed about the deliberations in the High-level Committee chaired by the Secretary (Economic Affairs) to devise an appropriate legal framework to ban use of private cryptocurrencies in India and encouraging the use of Distributed Ledger Technology, as announced in the Budget 2018-19, the statement said. “Other issues discussed include market developments and financial stability implications of the use of RegTech and SupTech by Financial Firms and Regulatory and Supervisory Authorities, and implementing the recommendations of the Sumit Bose Committee Report on measures, such as promoting appropriate disclosure regime for financial distribution costs,” it added. The meeting, attended by the top government officials - Secretary Hasmukh Adhia, Economic Affairs Secretary S C Garg, Financial Services Secretary Rajiv Kumar and Corporate Affairs Secretary Injeti Srinivas, took note of the activities undertaken by the FSDC Sub-Committee Chaired by RBI Governor and the action taken by members on the decisions taken in earlier meetings of the council. After the meeting Pension fund regulator PFRDA Chairman Hemant Contractor said there was general discussion on the domestic and global economy. The FSDC was set up to strengthen and institutionalise the mechanism for maintaining financial stability, enhancing inter-regulatory coordination and promoting financial sector development. In May, the government through a gazette notification, had included Ministry of Electronics and Information Technology (MeitY) Secretary in the FSDC in view of the increased focus of the government on digital economy. The series of loan defaults by the IL&FS has resulted in doubts over financial soundness of the non-banking finance companies. The government last month took over the board of IL&FS and appointed seasoned banker Uday Kotak at the helm to resolve the crisis being faced by the NBFCs.

According to the sources, the meeting did not discuss differences between RBI and the Finance Ministry on several counts.

Acharya in a speech on Friday had said that undermining the central bank’s independence could be “potentially catastrophic”. He had also called for greater powers for RBI to regulate public sector banks as it seeks to clean up the banking system, saying that central bank’s independence was necessary to secure greater financial and macroeconomic stability. The council could not take up the NPA issue, which was part of the agenda due to paucity of time, sources added.