Money & Banking

‘Open refinancing window for crisis-hit non-banking financial companies sector’

Our Bureau Mumbai | Updated on July 02, 2019 Published on July 02, 2019

Growth and not solvency is the issue, says FIDC

Calling for a reality check on the continuing crisis in the non-banking financial companies (NBFC) sector, the Finance Industry Development Council (FIDC) has sought intervention from the government and the Reserve Bank for India for improved funding to meet the requirement of growth capital.

The measures suggested by the FIDC include a dedicated liquidity window for NBFCs through banking channels, categorising bank lending to NBFCs for on-lending [to the priority sector] as priority sector lending and permitting small- and medium-sized NBFCs to avail refinancing under the Pradhan Mantri Mudra Yojana (Mudra scheme). “A dedicated liquidity window for NBFCs can be provided for a one-year period on the lines of a special repo window created by the RBI in 2008 for banks under the liquidity adjustment facility (LAF) for on lending to NBFCs,” said Raman Aggarwal, Chairman, FIDC.

FIDC suggestions

It has also called for setting up a permanent refinance window for NBFCs akin to that provided by the National Housing Bank to housing finance companies. Further, it has suggested setting up an alternative investment fund (AIF) to channelise institutional funds to the NBFCs. The AIF could subscribe to non-convertible debentures for onward lending by NBFCs.

The Council has also suggested that NBFCs be allowed an on-tap facility for issuance of NCDs to the retail market by offering these instruments through an easy and cheaper procedure. It is hopeful of some intervention after putting forward these suggestions at the pre-Budget meeting with the Finance Minister as well as in discussions with the RBI.

Aggarwal noted that asset-liability mismatch is largely an issue only for long-term lenders such as HFCs and infra financing NBFCs. However, even smaller NBFCs that cater to retail segments or MSMEs are being painted with the same brush and are consequently finding it difficult to raise funds. “As such, the current crisis is more a growth related issue and not a solvency issue,” he said, pointing out that total disbursement by NBFCs during the fourth quarter of last fiscal fell by 31 per cent.

Ramesh Iyer, Vice-Chairman and Managing Director, Mahindra Finance, noted that retail NBFCs bring a lot of customers to the formal banking channel and none of these companies has till now defaulted on payments.

George Alexander Muthoot, Managing Director, The Muthoot Group, said that banks have been reluctant to fund NBFCs and have also increased their lending rate. “The RBI has reduced the repo rate, but banks are still lending at about 9.5-10 per cent,” he noted.

 

 

Published on July 02, 2019
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