Finance Minister Nirmala Sitharaman provided some relief to non-banking finance companies that are facing a crisis of confidence after banks turned reluctant to lend to the sector.
The Union Budget has proposed that foreign institutional investors and foreign portfolio investors will be allowed to invest in debt securities by the shadow banks. This will allow the NBFC sector, facing a liquidity crunch, to raise more funds.
“The proposal to let FIIs and FPIs to invest in debt securities issued by NBFC would provide a much-needed boost of capital to a sector now starving of capital; an important prop to several sectors, particularly, real estate and automobile, which are reeling for lack of finance to purchasers/buyers,” said Milind Kothari, managing partner, BDO India, partner & head, tax & regulatory services.
NBFCs, particularly housing finance companies, are facing a cash crunch since the IL&FS debt crisis in September 2019, which has impacted their business growth.