Nirmala denies liquidity crisis, hopes festive season will lift economy

Finance Minister Nirmala Sitharaman on Thursday denied that there was any liquidity crisis in the country and hoped the economy will improve in the second half of the current fiscal as consumption rises and banks increase their lending operation.

“I have not heard liquidity as a problem from anybody here today… If there was a problem of liquidity, it was in the wholesale financing, and not in the retail,” she was quoted as saying by news agency ANI, after she held a meeting with heads of private banks on credit disbursal and liquidity.

She further said that demand will get back and motivate the economy to move at a faster rate, and next year, “things will have to look up and pep up every other sector, even if there are one or two sectors in which there may be some stress.”

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Sitharaman added that the heads of the banks, whom she met on Thursday, told her that there is enough demand for loans. “On the whole, it was very tonic-like meeting where I heard good and positive things… The message I got is that consumption is happening,” she was quoted as saying by PTI.

She indicated that economic slowdown seems to have bottomed out and the coming festive season will help the economy start looking up. It must be noted that the GDP growth in the first quarter of this fiscal had slipped to an over six-year low of 5%.

The minister also quoted the private sector banks and financial institutions telling her that the slump in commercial vehicle sales is “cyclical” and that the vehicle segment was driven by “sentiments”. She added that the sales is likely to pick up in the next one or two quarters.

Sitharaman, who had announced the largest ever cut in corporate tax rates last week, also said that micro-finance units at the meeting have vouched for growth and are extending loans.

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“Many of the micro finance institutions (MFIs) and micro-finance units which have come here are in deep country. They said that in those areas there is still demand and they are extending loans. All of them clearly voiced a positive growth which is a good encouraging story,” ANI quoted her as saying.

During the meeting, banks and non-banking financial companies (NBFCs) also suggested the Finance Minister to raise the limit for affordable housing eligibility to ₹50 lakh from the current ₹45 lakh.

Uday Kotak, a noted private banker who attended the meeting, was quoted as saying that private investment will respond to the reduction in corporate tax and that most banks will follow external benchmark-based lending from October 1.

Earlier, Financial Services Secretary Rajiv Kumar said that public sector banks will hold outreach programmes in 400 districts across the country in two phases to enhance credit disbursal. Private sector banks have also been invited to join the outreach programme, reported PTI.

(With inputs from agencies)