Edelweiss Financial Services on Monday said market needs more liquidity post Infrastructure Leasing & Financial Services (IL&FS) shock.

In an interview to CNBC-TV18, Rashesh Shah, chairman and chief executive officer, said the challenge in the market is a crisis of confidence, "If that confidence is restored, then the flows into mutual funds will again start giving credit to non-banking financial companies (NBFCs) and the cycle will start."

Shah said, "The underlying economy is doing well and the demand for credit is as good. The non-banking financial company (NBFC) portfolios asset quality is also good."

Talking on Dewan Housing Finance Corporation's (DHFL) comment on State Bank of India's (SBI) move to to triple their loan assets is not enough, Shah said, "I think the fact that biggest lender in India expanded the amount is a good move. Even other banks are also open to buying out assets and all. So, I think in a short-term, it will give some liquidity."

"The SBI announcement by portfolios and all is very positive. But I think other banks are also looking at the same thing, so they will also step in. So the portfolio buys will help definitely in the short-term. We need other avenues of some kind of liquidity window so that the short-term needs are met against assets,” he added.

"Non-convertible debentures (NCD) and bonds are being issued, but I think the volumes are about 20-25 percent of what they used to be earlier. So, we need to get to at least about 50-60 percent of the normal volumes, so that the cycle keeps on flowing. Currently, it's happening. They are not completely frozen, but they are operating at about 20-25 percent of the normal,” he further mentioned.

"I think the next two quarters, there might not be growth (loan growth) at all. So overall, you should expect a much muted growth. It's hard to give an exact figure. I think you should expect the next two quarters much more muted growth as people manage liquidity instead of trying to manage growth and profitability,” Shah said.