The Reserve Bank of India last year bought record amount of bonds leaving cash in the system. Not just that, but it walked an extra mile with its USD–INR swaps , though some criticised unjustifiably.Despite all these, the noise about liquidity shortage is getting louder again. Mutual funds are hoarding cash. Now that the liquidity tide has turned – with a system deficit of Rs 40,000 crore – some are getting exposed.What started as a liquidity issue has the potential to transform into solvency crisis for some. It is the corporates and NBFCs are who are clamouring for liquidity when banks are relatively quiet.Slowing of inflows into mutual funds could worsen the situation.

Source: Economic Times May 16, 2019 02:37 UTC