* Liquidity in economy, financial institutions largely met
* India cbank to meet with non-banks to review liquidity situation
* RBI looking at governance reforms of state-owned banks
* India cbank will not “throttle” functioning of state-owned banks (Adds quotes, context)
By Aftab Ahmed and Manoj Kumar
NEW DELHI, Jan 7 (Reuters) - India’s central bank is open to infusing “need-based” liquidity into the financial system, Governor Shaktikanta Das said on Monday ahead of a meeting with the shadow banking sector, which has been hit hard by a funding crunch.
Government officials have pressed the Reserve Bank of India (RBI) over the past few months to ease lending and capital rules for banks and provide more liquidity to shadow banks.
They have also urged the RBI to step up lending support for small businesses and allow the government to use more of the central bank’s surplus reserves to boost the economy.
Das said the RBI constantly monitors liquidity conditions and would take steps to address any deficit in the banking system. But he said it was also keen to prevent the creation of excess liquidity.
“The Reserve Bank would not like a situation where liquidity becomes kind of loose money,” he told reporters in New Delhi. “Any infusion of liquidity will have to be very carefully considered and has to be need-based.”
He said the central bank would meet representatives of non-banking financial institutions (NBFCs) in Mumbai on Tuesday.
Defaults by big NBFC Infrastructure Leasing & Financial Services (IL&FS) on some of its debt obligations late last year triggered declines in stock and debt markets, and led to concerns about broader risks in the financial sector.
“There has been a lot of discussion and a lot of views have been expressed about the issue of liquidity faced by the NBFCs,” Das said.
“So in tomorrow’s meeting we will utilize the opportunity to get a perspective from the NBFCs.”
He also said the RBI was considering governance reforms for state-owned banks, which dominate the banking sector with over two-thirds of its assets.
“Governance reforms are an important component of the revival of public sector banks,” he said. “There is definitely improvement noticed in the reduction of the non-performing asset levels of the banks as a whole and the public sectors in particular.”
But he added “improvements will have to be sustained if the banks have to fulfill their responsibilities.” (Writing by Neha Dasgupta; Editing by Krishna N. Das & Kim Coghill)