The Centre has “comprehensively” dealt with the NBFC crisis, Finance Minister Nirmala Sitharaman said soon after presenting her maiden Budget.
Also, in a well thought out approach through the Finance Bill, the government has strengthened the regulatory authority of RBI over NBFCs, she said. Sitharaman earlier announced a slew of measures to help NBFCs come out of the current morass.
NBFCs that are fundamentally sound should continue to get funding from public sector banks (PSBs) and mutual funds without being unduly risk averse, she said.
“For the purchase of high-rated pooled assets of financially sound NBFCs amounting to a total of ₹1-lakh crore during the current financial year, the government will provide a one-time six months’ partial credit guarantee to public sector banks for a first loss of up to 10 per cent,” she added.
Also, the RBI gets more regulatory powers over NBFCs.
NBFCs raising debt through public issues will now not be required to create or maintain a debenture redemption reserve (DRR). At present, DRRs are required for public issues, with private placements being exempt. Now, DRRs need not be created for public issues of debt by NBFCs, too.
Besides requiring NBFCs to pay taxes on incomes received from NPAs only on receipt basis (and not on accrual basis), the Budget has also proposed to allow all NBFCs to directly participate on the TreDs platform. Hitherto, only those NBFCs whose main business activity was factoring, were allowed to participate on TreDs. For this, the government has to amend the Factoring Regulation Act.
The Budget proposals around NBFCs are “quite welcome”, said Raman Aggarwal, Chairman, Finance Industry Development Council (FIDC).
“ “Measures like one-time, partial six-month guarantee to PSBs to buy sound NBFCs’ loans and higher recapitalisation of PSBs require a special mention,” remarked Dinanath Dubhashi, MD & CEO, L&T Finance Holdings.
Positive for housing
Srinath Sridharan, Member, Group Management Council, WGC, said the Budget is a positive for the housing sector. The government rightly acknowledges the importance of the growth of housing finance companies/ NBFC industry as integral to the growth of the Indian economy, he said.
Jiger Saiya, Partner-Tax and Regulatory Services, BDO India, was appreciative of the move to provide credit guarantee to PSBs for the purchase of high-rated pooled assets of financially-sound NBFCs.
The move will improve the “trust” factor, concurred Sunil Mehta, Chairman, Indian Banks’ Association.