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Finance Industry Development Council (FIDC) has sought a refinancing mechanism for non-banking finance companies and other measures to further credit flow to MSMEs through these shadow banks.
In a letter to SIDBI Chairman and Managing Director S Ramann, FIDC has said there is a dire need for an effective refinance mechanism on similar lines as the NHB refinance to ensure diversity and greater regularity in sources of funds to NBFCs.
“We believe that SIDBI is most suited as an institution to provide such a facility to NBFCs for onward lending to MSMEs and other appropriate sectors,” FIDC said, adding that it has also discussed the issue with the Reserve Bank of India and Finance Ministry.
It has also called for changes in the eligibility criteria used by SIDBI for funding NBFCs, apart from rating.
“While rating should be an important consideration for SIDBI to assess its credit risk, we submit that this may be seen as only one of the criteria, which could be counter-balanced with vintage of NBFC, the track record and experience of the key personnel, financial parameters, credit quality and capital adequacy,” it said, adding that rating should not be used as a qualifying criterion for a “go-no go” decision for lending to NBFCs.
FIDC is a representative body of asset and loan financing of RBI registered NBFCs.
It has sought extension of CGTMSE coverage to loans given to educational institutions. Currently, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) coverage is not available for loans provided by NBFCs to educational institutions.
FIDC pointed out that many educational institutions are now being opened, and there is a need to provide adequate financing for restoring normalcy and enabling their growth.
“Covering these loans under the CGTMSE scheme would facilitate greater flow of funds to this critical sector,” it said.
It also asked that CGTMSE coverage should be restored to 75 per cent of the non-performing asset. Further, FIDC has suggested that arbitration should be considered a valid legal step taken for debt recovery under the ECLGS scheme.
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