The representatives of finance companies have flagged issue of banks increasing interest rates on loans to Non-Banking Finance Companies who are in need of funds.
In meeting with RBI governor Shaktikant Das, NBFCs also sought revision in rules to access funds from MUDRA, refinancing agency which is subsidiary of SIDBI. They also sought a structured arrangement for interaction with the Reserve Bank of India.
RBI governor has been holding consultations with various stakeholders in the financial sector after taking charge in December 2018. He has already met chief executives of public sector banks and cooperative banks.
Finance Industry Development Council, lobby group of finance companies, presented state-of affairs before the Governor at RBI headquarters in Mumbai. The representatives of Microfinance bodies – Sadhan and MFIN – also participated in deliberations with RBI governor.
On the issue of liquidity, finance companies pointed out that there is and perhaps never was any solvency issue. Post IL&FS default it is the aftermath which did the damage. Banks have suddenly jacked up interest rates by 100-150 basis points and are more inclined to buying out loan portfolios from finance companies. This is a temporary solution and not a permanent one. This needs to be corrected, they said.
There is a large number of small and medium NBFCs who are majorly dependent on banks for refinancing. They don’t access capital markets or External Commercial Borrowings (ECBs). For them the situation is really bad. For this MUDRA is the solution.
Prevailing norms prescribed by MUDRA for refinancing NBFCs are such that hardly any NBFC has availed refinance. The minimum size, minimum credit rating and a cap on lending rates are the key requirements which need to be done away with, FIDC said.
Finance companies also sought a platform for them to interact with sector regulator, RBI. Currently, there is no structured mechanism or platform available for NBFCs to have interaction with RBI. Its more of a fire fighting exercise where NBFCs, under aegis of FIDC, rush to RBI whenever an issue crops up. In the past FIDC as the umbrella body was invited to meet the Governor twice a year - April and October i.e. just before Annual Credit Policy and the Mid-term review.
Further, there were quarterly meetings with RBI at the departmental level where all regulatory and policy matters were discussed prior to any change being made. This ensured a smooth working of any changes made. It also enabled RBI to have a first-hand feedback on the market scenario. All this was abruptly stopped about 10 years ago.