Liquidity crunch may continue in Q4: Ficci-IBA survey

New Delhi: Liquidity constraints witnessed in the economy are likely to continue for the remaining part of the financial year, industry chamber Ficci said citing a survey, here on Sunday.

Factors behind the liquidity constraints include some public sector banks (PSBs) being under the Reserve Bank of India’s prompt corrective action (PCA) framework due to high accumulated bad loans, stress among the non-banking finance companies (NBFC), expansion of currency in circulation in the October-December quarter, which was fuelled by the wedding season and festivals, forex interventions due to higher crude oil prices and foreign portfolio investment (FPI) outflows.

Twenty-three banks participated in the eighth round of the Ficci-IBA (Indian Banks’ Association) survey for July-December 2018.

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A majority of respondents mentioned that the liquidity scenario in the third quarter of the current fiscal year has remained in deficit. Though it improved slightly later, liquidity could remain tight even in the fourth quarter due to year-end demands, tax outflows, higher fiscal deficit and the elections, the Federation of Indian Chambers of Commerce and Industry (Ficci) said in a statement.

The banks felt the RBI has taken adequate measures to maintain liquidity by way of open market operations (OMO). “It should continue OMO purchases and cut the cash reserve ratio to bring more liquidity into the market and support growth,” it said.

The survey also found that 54 per cent of the PSU banks cited reduction in non-performing asset (NPAs), with only 38 per cent reporting an increase.

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“Infrastructure continues to remain the key sector with high NPAs,” it said.

Bankers also said recoveries had been positive after implementation of the Insolvency and Bankruptcy Code (IBC).

They felt the government’s recent recapitalisation plan will further help PSU banks in improving balance sheets and writing off some of the bad loans.

According to the survey, share of retail loans increased to 40 per cent from the previous survey level. “In the current round, the ratio changed to 45 per cent for retail and 55 per cent for corporate loans,” Ficci said.


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