Finance Minister, Arun Jaitley said on Sunday, that reducing the poor loans can only ensure that small businesses and the NBFCs have enough credit and troubled and also help look after the liquidity concerns in the marketplace, indicating signs in its links with the Reserve Bank.
Interestingly, the latest statement from the finance minister is in line with the RBI's solution that has been pressing for action on non-performing assets (NPA).
The apex bank has also been opposed to calling the government for special leaks for SMEs, NBFCs and the power sector to help boost growth before the April-May payments .
"In order to maintain the strength of our banking system and to enable the economy to grow, we need to reduce our APCs," said Jaitley, speaking during the 100th foundation day of the Indian Bank Union. the state here Sunday night, via a video link.
"There is only a strong banking system that will be able to improve credit in those sectors that really need credit. The MSME sector needs credit (micro, small and medium sized enterprises), many other players in the market need credit. Today's credit on NBFC because they have a large amount of lending, "he added.
It can be noted that the bad loan ratio across the system has corrected by 12 per cent, after the quarter of March, while some state-owned lenders are a IDBI Bank, which have been taken over by LIC, has received almost 28 percent of loans such as the Twenty-quarter assets of June.
Following a massive spike in the poor loans, which accelerated after the busy exclusion and operation of the GST, the RBI in September 2016 had brought as many as 11 banks in the state under the prompt correction action plan framework for bring down NPAs.
This has led to a credit crunch in the economy as these banks control one-fifth of the credit and joint system level deposits, and the biggest crisis was felt by small business units.
The banking system needs to be strengthened so that it can borrow NBFCs, which will ensure "liquidity in the markets is being carried out," said the minister.
NBFCs controlled more than 13 per cent of a total system credit market in March 2018.
"We need to target ourselves and our policies; the whole system must target itself to the address where we improve the ability to borrow our banks and we improve the liquidity available as far as markets, "said Jaitley.
According to reports, the non-official director appointed by the government on the central board of the RBI, S Gurumurthy, had been seeking consent for MSMEs plus increased credit flows to other critical sectors.
Also, other reports said that the government wants the RBI to open a special refinance window for NBFCs, mutual funds and housing finance companies that have been stressful since the shortcomings of the IL & FS lending lender.
However, Jaitley did not touch other controversial points such as passing the RBI's excess capital to the government or weakening the prompt remedial action (PCA) framework for some power as a sector partially associated with NPAs or lowering bank capital buffet.
According to the sources, the three letters that the government sent to the RBI on 10 October, under Section 7 of the RBI Act that were never used before, the finance ministry had listed as many as a dozen calls. Some other requirements include a more active board by breaking the powers of a management committee and a central board, which is bullying by the governor and four deputy and some EDs.
Jaitley restricted his comments on the NPA and the role he can play in securing a credit flow.
"The future of our economy and its growth depends on this lending capacity," he said, adding the "direct target" should be to strengthen the banking system that is being mitigated with over 10.5 lak skins in an NPA that accounts for almost 12 percent of the general banking assets.
Jaitley said many options have been exercised, many of the results have not come to an end and the "experiments" that are now running are now presenting results.
The IBC's "early harvest" also shows positive results, he says.
The minister reiterated his comments on the excessive lending between 2008 and 2014 as the reason for the high NPAs now and said they were hiding as a "fatal" error, but talked about direct mention of the RBI this time.
Prior to the FSDC meeting last month, Jaitley had blamed the RBI for "look the other way" when banks were adverse during 2008-14.
On Sunday, Jaitley also complemented the Financial Policy Committee (MPC) for the good work he does and hopes that he will continue to improve better in the future.
The relationship between the RBI and the Ministry of Finance has been in the last month, after the North Block has carried out consultations under Section 7 of the RBI Act that has never been used which provides for the government that directs the central bank to take specific measures in the public interest.
According to sources, the government has sent three letters to the RBI with almost a dozen calls, answered in a week.
The government is primarily keen for the RBI to help non-bank borrowers difficult to obtain liquidity support, liberalize PCA norms and undertake other measures which will help increase growth, while the RBI is considered conservatively looking and avoiding any poor premise.
The perceived excessive capital of the RBI has also become a controversial issue, with one report saying that the government looks at a third of 3.6 trillion its-Rs.
S C Garg's economic affairs secretary had denied the amount last week, but said that there was a debate on the "appropriate economic capital framework" for RBI in progress.
The central bank took its suspicions on various issues in public in a speech by the Deputy governor of Firaol Acharya on October 26, where he warned him of the anger of investors if the RBI's autonomy was compromised.
After submitting reports under Section 7, the government had tried to facilitate tensions by saying that autonomy was "essential" and an acceptable governance requirement.
However, Garg had also mocked the "wrath of markets" by Acharya, paying attention to an improvement in financial markets since the speech.
It is intended that the RBI board will meet again on November 19, in what is expected earlier is a stormy meeting.