Money & Banking

NBFCS: Budget annouces more steps to boosts liquidity

Mumbai | Updated on February 01, 2020 Published on February 01, 2020

In a boost to the struggling non-banking finance companies, the Union Budget 2020-21 has announced a number of measures to help improve their liquidity and make recoveries easier. Finance Minister Nirmala Sitharaman has proposed including more NBFCs for recovering debt under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002 by reducing the asset size and loan size.

“The limit for NBFCs to be eligible for debt recovery under the SARFAESI Act is proposed to be reduced from ₹500 crore to asset size of ₹100 crore or loan size from existing ₹1 crore to ₹50 lakh,” she announced.

Continuing with the Partial Credit Guarantee scheme for NBFCs, which was announced in the last Budget, the Finance Minister also promised a mechanism to further this support of providing liquidity. “The government will offer support by guaranteeing securities so floated,” she said.

Move hailed

The NBFC sector, which has been struggling for funds for over a year now, welcomed the measures, but said it would not fully help meet their liquidity challenges. “These are positive announcements for the sector. They have relaxed the constitutionalities for debt recovery under SARFAESI Act, so even medium-sized companies are eligible. We had wanted the entire limit of ₹1 crore to be withdrawn,” said Mahesh Thakkar, Director General, Finance Industry Development Council, adding that the body had also sought more liquidity window for NBFCs by way of easing norms for banks and MUDRA, which has not been addressed.

Experts said that the Budget proposal to further expand the NABARD refinance scheme for agricultural credit will also boost liquidity available for NBFCs.

“NBFC liquidity is one of the key reasons for the economic slowdown in the country. The Budget proposal of NABARD refinancing scheme for rural finance will ease liquidity concerns for NBFCs. This will help NBFC sector engaged in tractor and other equipment financing,” said Sunil Gidwani, Partner, Nangia Andersen.

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Published on February 01, 2020
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