Larsen and Toubro Financial Services has called for changes in requirements governing the non-bank lending segment and asked the sector regulator not to give step-motherly treatment to it.

“I think they (NBFCs) have played an extremely important role. However, the regulator perhaps considers them as a step-child. I think there are very serious issues when it comes to regulation,” L&T Financial Services Chairman and Managing Director Y. M. Deosthalee said here at an event over the weekend.

He gave a list of changes that the sector expects from the Reserve Bank of India, including bank finance being classified under priority sector lending (PSL) and easy access to other fund raising instruments such as external borrowings.

“I don’t know why achieving PSL targets through non-banking financial companies (NBFCs) is a problem? Ultimately reach is important,” he said, stressing that NBFCs are playing an important role in distribution.

There are many issues which a NBFC faces on the liability side, he said and asked for steps such as liberalising the External Commercial Borrowings window in order to reduce NBFCs’ dependence on bank lending.

The ex-chief financial officer of engineering and construction major L&T also sought to dispel notions on the safety of the sector, stating, “The NBFC model is safer because they have larger capital adequacy. Their net worth is higher. From the depositor perspective, they are safe.”

“Regulation should be pro-development of a sector, rather than killing the sector,” he said.

With over 12,000 NBFCs, the role of the regulator does tend to get difficult, but Deosthalee stressed on the need to look at well established large NBFCs in a different way, without going into the specifics.

(This article was published on August 19, 2012)
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