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India’s Funding Crisis To Worsen

May 17, 2019

India’s Funding Crisis To Worsen

Unwarranted government spending and high election-linked expenditure have created a cash deficit in India’s banking system in the past few months. In order to prevent a worsening of this crisis, India needs to pump more cash into its financial system of shadow banks and the corporate sector. Although Non-banking financial companies (NBFCs) have served as a “surrogate womb” for banks, if they don’t provide liquidity with the system needs soon, this funding crises could morph itself into something beyond NBFCs. Authorities have already started using open-market debt purchase operations and currency swaps as a “potent liquidity tool,” but more is needed to get enough cash into the system.

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