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Sparks are set to fly at the Reserve Bank of India board meeting on Monday as the government and the regulator may clash over necessity for a special liquidity window for non-banking finance companies (NBFCs), although the two are likely to step back from the brink on other issues, said three people familiar with the matter.  Worried about NBFCs having frozen lending due to fears of a liquidity crunch, the government is determined to break the logjam that’s causing a credit squeeze for micro, small and medium enterprises (MSMEs), which employ millions, said the people. “Housing sales have almost stalled,” said one of them. “First, bank credit was denied, and now NBFCs have also stopped.” The 18-member board headed by governor Urjit Patel will meet in Mumbai to debate numerous issues, including the current liquidity position, easing of lending norms for banks under the Reserve Bank’s prompt corrective action, and the transfer of excess reserves to the government.  Relations...

RBI and government representatives are therefore likely to make presentations on some of these issues, highlighting the impact of these changes on the banking sector,” said one of the board members on condition of anonymity.  RBI’s central board currently has 18 members, including five full-time directors from the central bank. It has two government representatives, which include secretaries from the departments of economic affairs and financial services.  Lending hope to the idea of a deal are the comments made last week by Rashtriya Swayamsevak Sangh ideologue and RBI central board director S. Gurumurthy. “As my understanding goes, the government is only asking for a formulation of a policy as to how much reserve the central bank must have. Most central banks don’t have reserves of this kind at all, only RBI has these kinds of reserves,” he said on 15 November in an address at the Vivekananda International Foundation.  However, another person familiar with the devel...