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Liquidity constraints continue in the market despite bank recoveries: FICCI-IBA

New Delhi: Considerable liquidity constraints witnessed in the economy during second half of 2018 are likely to continue for the remaining fiscal year (January to March 2019), according to a joint survey by Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Banks’ Association (IBA).

Among the major factors are stress in non-banking financial sector, expansion of currency in circulation during third quarter of fiscal year (October to December 2018-19), forex interventions following higher oil prices, foreign portfolion investment outflows and tax outflows.


The 8th round of Ficci-IBA survey for July to December 2018 had participation of 23 banks representing over 65 per cent of the banking industry as classified by asset size.

Most respondent banks said the liquidity scenario remained in deficit. It could remain tight even in Q4 (January to March 2019) due to year-end liquidity demands, tax outflows, higher fiscal deficit and run-up to elections.

The Reserve Bank of India (RBI) has taken adequate measures by way of open market operations to maintain liquidity. It should continue OMO purchases and cut cash reserve ratio to bring more liquidity into the market and support growth, said both organisations.

The survey highlights a changing trend in non-performing assets (NPAs). In contrast to previous surveys, 54 per cent of reporting PSU banks cited a reduction in NPA levels with only 38 per cent citing an increase.

At the same time, over 90 per cent of respondents said infrastructure continues to remain a key sector with high NPAs. While 37 per cent of them reported a reduction in NPAs of infrastructure sector, 42 per cent of respondents reported an increase. Bankers said there has been positive experience in recoveries since the implementation of Insolvency and Bankruptcy Code (IBC).

The government’s recapitalisation plan will help in improving balance sheets of public sector banks and help them write-off some current bad loans. The capital infusion comes at a time when NPAs are declining and recoveries are improving.

The survey said the share of retail loans is increasing. The previous survey said retail loans comprised 40 per cent and corporate loans 60 per cent. In the current round, the ratio changed to 45 per cent share for retail loans and 55 per cent for corporate loans.