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- RBI Deputy Governor has expressed the possibility that the rise in government borrowings might have led to the asset-liability mismatch in the non-banking financial companies(NBFC) sector.
- In the case of NBFCs,the ability to borrow long-term comes down when government borrowing rises increasing the risk of financial stability.
- This has led to the crisis in finance companies DHFL and IL&FS where the companies depended on short-term commercial paper to fund long-term loans.
- He has also warned on the consequences of elevated government borrowings which are (a)lesser availability of resources for private sector, (b)poor transmission of lower policy rates into market rates and (c)pressure on non-banking financial companies.
- The deputy governor has said that the borrowing could be reduced by government increasing its share of capital expenditure which stands at a low rate of 14% and divesting stake in public sector enterprises to bring in efficiencies and reduce debt.
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