Non-banking finance companies (NBFCs) have proposed a radical step to the prime minister of allowing select systematically important companies in the sector to either get converted into banks or to be able to raise public deposits.
This was the key suggestion given at a recent meeting between representatives of the NBFC sector and PM Narendra Modi.
"NBFCs should be able to raise resources on a continuous basis, which would act as an engine for their growth at a time when there are restrictions on the liability side. Sources of funds on a continuous basis could be public deposits. The government should either allow the large and important NBFCs to raise such deposits or convert them into banks so that they would be able to access public deposits in the form of current and savings accounts.
This is the request made to the prime minister," Hemant Kanoria, chairman and managing director of Srei Infrastructure Finance told DNA Money.
Srei's vice chairman Sunil Kanoria along with L&T Finance managing director Dinanath Dubhashi, Sriram Transport and Finance MD Umesh Revankar, Aditya Birla Capital CEO Ajay Srinivasan among others recently met Modi, seeking his intervention to ease the current liquidity crisis faced by the sector.
"All major governance parameters and also RBI supervision and inspections which are there for a bank are also there for systematically important NBFCs as well. So, if the level of regulations is similar to banks, then why not allow such NBFCs get converted into banks?" Kanoria said.
Apparently triggered by default by IL&FS, the financing market for all but the bluest of chip housing finance companies and NBFCs dried up severely since September with banks and mutual funds turning away from funding such companies.
"2018 has seen headwinds for the asset finance NBFCs in the form of higher cost of funds on account of liquidity issues and reluctance on the part of banks to lend to this sector. The year 2019 will require a fresh approach to manage liquidity, with special emphasis on matching the assets and liabilities, under the far stricter watch of the regulators," said Kailash Baheti, chief financial officer of Magma Fincorp.
To ease the liquidity crisis for the NBFC sector, several steps have been taken collectively, including partial credit enhancement, increased portfolio buyouts of NBFCs by PSU banks, increase in refinance limit by National Housing Bank and RBI's open market operations, among others.