Take measures to provide liquidity to MFs, NBFCs: Former SBI Chairman Arundhati Bhattacharya

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 country-wide lockdown to check the spread of novel coronavirus, saying they need "backstop."

Referring to RBI's measures announced last Friday to fight the effects of the coronavirus on the financial system, she said the central bank has done a great job by ensuring liquidity for banks.

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.

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"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.

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There has to be some kind of backstop for that and also NBFCs being termed as priority sector will definitely help them hugely but you have to wait for the system to get back on its feet before you can start drawing. Some kind of backstop arrangements for them that is something maybe (RBI can look at)," Bhattacharya told PTI in an interview.

On the impact of the country-wide lockdown on the Indian banking sector, she said it all depends on how long it takes to resume normalcy. At this point of time, to make a prediction is very, very tough.

"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," Bhattacharya said.

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"Mobilisation again takes time. Three months is total disruption and you are going back again, so, to remobilise again will take three months. And even if it's an opening, it will only be staggered opening, it won't be all opening on one daytry and restrict the people to the extent. With all that, at this point in time to predict what's going to happen is tough," she added.

The government has done excellently by giving "some kind of insurance" for the healthcare workers. But she noted that sanitation and essential life-lines are getting impacted, because people are scared of infections.

"Obviously, we have to come up with some kind of a way of ensuring people (sanitary workers and those providing essential services) come for these kinds of jobs, they are putting their lives at risks and some insurance for essential services people is also something they should look for so that they have the confidence of come out and work," Bhattacharya added.