India reassures equity investors as liquidity fears grow

MUMBAI (Reuters): Finance Minister Arun Jaitley said on Monday the government is ready to ensure credit is available to non-banking financial companies (NBFCs), just a day after the market regulator and the central bank sought to calm skittish investors.

Jaitley’s assurances followed panic selling in the equity market on Friday that pushed the benchmark Nifty more than three percent lower in less than 30 minutes.

It later recovered to end the day down 0.81%.

The sell-off was sparked by news that a large fund manager sold short-term bonds issued by Indian NBFC Dewan Housing Finance Corp at a sharp discount, raising fears of wider liquidity problem among NBFCs.

The news came amid soured market sentiment after one of the biggest names in the NBFC sector – Infrastructure Leasing & Financial Services (IL&FS) – defaulted on a series of its coupon payments. In a tweet on Monday Jaitley said, “The Government will take all measures to ensure that adequate liquidity is maintained/provided to the NBFCs.”

Jaitley’s message came on the heels of assurances from both the Reserve Bank of India and market regulator Securities and Exchange Board of India, which sought separately on Sunday to reassure investors they were closely monitoring developments in financial markets and stood ready to act if needed.

Indian equity markets have hit record highs this year despite sell-offs in domestic bonds and weakness in the rupee that has made it Asia’s worst-performing currency this year.

A sharp correction in equity markets could hurt Prime Minister Narendra Modi and the ruling Bharatiya Janata Party as they prepare for a series of key state elections later this year and a general election by May 2019.

Modi and his BJP swept to power in 2014 on the slogan “Achhe din aane waale hain (good days are coming),” but a lack of jobs, falling crop prices and surging fuel costs have sparked discontent and some protests in recent months.

A sell-off in equity markets, which have been one of the few bright spots in the economy, could further dent Modi’s popularity among some of the small business and trading community, a core base of BJP supporters, who were already stung by two of his largest reform moves - demonetisation and a nationwide Goods and Services Tax (GST).

India’s largest bank, the State Bank of India, also sought to calm investors, issuing a statement on Sunday saying fears that banks were wary of lending to NBFCs were baseless.

“SBI lends support to NBFCs in the private and public sector within the regulatory policy framework and will continue to do so,” SBI Chairman Rajnish Kumar said in a statement. “There is no concern on liquidity of NBFCs in view of their liquid cash position and availability of committed lines.”

Despite these assurances, India’s financial markets were all weaker on Monday.

At 0658 GMT, the Nifty was down 1.34% while the benchmark 10-year bond yield was up three basis points at 8.11% as bond prices dipped. The partially convertible rupee was weaker at 72.61 per dollar versus its previous close at 72.1950 and not too far from its record low of 72.99 hit early last week.

RBI and SEBI ready to act to calm markets

NEW DELHI (Reuters): The Reserve Bank of India (RBI) and the market regulator Securities and Exchange Board of India (SEBI) are closely monitoring developments in financial markets and are ready to take appropriate steps if needed, a central bank statement said on Sunday.

The statement comes after the Indian stocks, forex and bonds market turned volatile on Friday on worries over weak balance sheets of India’s non-banking finance companies.

The rupee, Asia’s worst performing currency this year against the US dollar, has lost about 12% of its value against the US currency so far, hitting successive lows in the past few weeks amid a widening current account deficit and a selloff in emerging markets.