By Manoj Kumar

The intervention by Corporate Affairs Secretary Injeti Srinivas came after Finance Minister Arun Jaitley and other government officials raised the issue of a liquidity crunch at a meeting with Reserve Bank of India's (RBI) Governor Urjit Patel and other regulators last week.

The government has asked the RBI for a dedicated liquidity window for these lenders similar to one allowed for the entire Indian financial sector during the 2008-2009 global financial crisis.

But so far, the central bank has not agreed to the request, as it fears that such an accommodation to those who haven't been prudent with their lending will only encourage reckless behaviour.

Currently, the shadow banking sector comprising around 11,400 firms with a combined balance-sheet worth over 22 trillion rupees ($301.26 billion) face central bank's restrictions on borrowings from banks, keeping provisions for the safety of depositors.

The government and the RBI are currently at loggerheads over a series of issues, including control of its reserves, its power over the payments system, and monetary policy.

"The segment of housing finance within the NBFC (Non banking finance companies) sector is facing stress of liquidity," Srinivas told reporters on Monday, adding the government was trying to address the issue.

The sector needs to reassess how it operates, he said noting there was a need to adopt a sustainable model which could minimize the mismatch between their borrowing and lending. A string of defaults at one major NBFC, Infrastructure Leasing and Financial Service Ltd (IL&FS), have triggered sharp falls in Indian stock and debt markets in recent weeks amid fears of contagion within the rest of the country's financial sector.

Srinivas' comments triggered falls in housing finance lenders Indiabulls Housing Finance, Dewan Housing Finance Corporation and PNB Housing Finance, which were all down between 3 percent and 8 percent on Monday.

Srinivas declined to comment when specifically asked about these companies.

Securities analysts and economists said while the central bank was looking for an improvement in governance of lenders through various restrictions, the government was working on a piece meal approach to address short term liquidity needs.

"There seems to be a difference of opinion between the RBI and the government about the solution strategy," said N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a Delhi-based think-tank.

($1 = 73.0275 Indian rupees)

(Additional reporting by Manoj Aditi Shah and Krishna Das; Editing by Martin Howell & Shri Navaratnam)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)