Calling for a reality check on the continued crisis in the non-banking financial companies (NBFC) sector, the Finance Industry Development Council (FIDC) on Tuesday has sought intervention from the government and the Reserve Bank for India for improved funding to meet requirements of growth capital.
The measures suggested by the FIDC include both short-term and long-term actions including a dedicated liquidity window for NBFCs through banking channels, categorising bank lending to NBFCs for on-lending to priority , to be treated as priority sector lending and permitting small and medium sized NBFCs to avail refinancing from MUDRA. “A dedicated liquidity window for NBFCs can be provided for a one year period on the lines of a special repo window created by RBI in 2008 for banks under the liquidity adjustment facility (LAF) for on lending to NBFCs,” said Raman Aggarwal, Chairman, FIDC.
FIDC suggestions
It has also called for setting up a permanent re-finance window for NBFCs akin to that provided by National Housing Bank to housing finance companies. Further, it has suggested setting up an alternate investment fund to channelise institutional funds to NBFCs and non-convertible debentures could be subscribed to by the AIF for onward lending by NBFCs.
FIDC has also suggested that NBFCs should be allowed an on-tap facility for issuance of NCDs to the retail market by making the offering of these instruments through an easy and cheaper procedure. It is hopeful of some intervention after putting forward these suggestions at the pre-Budget meeting with the Finance Minister as well as in discussions with the Reserve Bank of India.
Aggarwal noted that Asset Liability Mismatch is largely an issue only for long term lenders such as HFCs and Infra Financing NBFCs but even smaller NBFCs that cater to retail segments or MSMEs are being painted with the same brush and are consequently finding it difficult to raise funds. “As such current crisis is more a growth related issue and not a solvency issue,” he said, pointing out that total disbursement by NBFCs during the fourth quarter of last fiscal fell by 31 per cent.
Ramesh Iyer, vice-chairman and managing director, Mahindra Finance noted that retail NBFCs bring a lot of customers to the formal banking channel and none of these companies have till now defaulted on payments. “All of us have chosen repayment as our priority,” he told reporters, noting that there has to be a stable liquidity supply for these companies.
Meanwhile, George Alexander Muthoot, Managing Director, The Muthoot Group noted that banks have been reluctant to fund to NBFCs and have also increased their lending rate. “The RBI has reduced the repo rate but banks are still lending at about 9.5 per cent to 10 per cent,” he noted.
KV Srinivasan, Director and CEO, Profectus Capital attributed the slowdown in sectors like SME and auto sales partly the liquidity squeeze for NBFCs. “Each of these sectors are very important from the perspective of employment generation. NBFCs are an ideal vehicle to take credit to them,” he noted.