Industry body CII Wednesday suggested a host of measures for the revival of the stressed financial sector to prevent any adverse impact on India's growth story.
The financial sector is going through a phase of stress, which needs interventions inappropriate measure to ensure that the sector continues to play the financing role that it has been for the India growth story to remain uninhibited, CII said in a statement.
The industry chamber suggested that the Reserve Bank must encourage NBFCs to securitise their assets which can be purchased by banks.
It further said considering the inherent risk profile of NBFCs and Housing Finance Companies (HFCs), current investment norms are increasing the risk exposure of mutual funds.
Therefore, CII has a recommendation that the RBI and SEBI should come out with a road-map to reduce the exposure of mutual funds to NBFCs and HFCs from 40 per cent to 25 per cent in graded tranches.
It also pointed out that NBFCs and HFCs are suffering from Asset-Liability Mismatches (ALM) as they had borrowed short but are having to lend long.
"This could set off a chain of problems since NBFCs have borrowed from MFs and Banks. In a worst-case scenario, this could lead to a run on mutual funds and defaults in the NBFC sector," it said.
It further said redemption pressure on mutual funds has increased and credit to NBFCs is drying out.
The RBI is required to intervene in the interest of the entire financial sector, CII said.
The chamber further said the Reserve Bank of India (RBI) may also revisit the lending restrictions of public sector banks under prompt corrective action (PCA) framework and consider allowing them lending to National Housing Bank which in turn can use it to finance housing projects.
It also suggested that RBI intervention should be there in the rupee market in such a manner that bond yields do not go out of control.
(With inputs from agencies.)