Now that the Budget has sent a strong signal in support of NBFCs, banks should come out of their shell and start lending to the sector to help stimulate economic growth, Finance Industry Development Council (FIDC) said on Thursday.
“Banks had become risk-averse after the IL&FS incident. With the Finance Minister herself giving a clear nudge to banks in her Budget speech to not get risk-averse towards NBFCs, the time has come for banks to increase fund flows to the NBFC sector,” Raman Aggarwal, Chairman, FIDC, told a press conference in New Delhi.
FIDC has spelt out the ‘unfinished agenda – way forward’ for the NBFC sector, and measures that could be taken by policymakers beyond the Budget announcements.
FIDC has now suggested several more measures, including the need for a ‘refinance mechanism’, on the lines that NHB does for housing finance companies, to help minimise the possibility of a recurrence of the liquidity crisis that NBFCs have had to face since September 2018.
Priority sector lending
Also, FIDC now wants restoration of the earlier arrangement of bank lending to NBFCs for on-lending to the priority sector to be treated as priority sector lending by banks.
Besides recommending Mudra to take up the role of refinancing of small and medium NBFCs, FIDC also now wants NBFCs to be allowed an on-tap facility for issuance of non-convertible debentures to the retail market.
FIDC has also now written to the RBI to hold a joint meeting of NBFCs and bank representatives to take forward the Budget announcements. The Budget had provided that the government would provide the first loss guarantee to banks, on NBFCs’ pool of assets up to total value of ₹1 lakh crore, thereby reposing immense confidence in the strength of the sector.
NBFC honchos said that the current problem faced by the sector was not that of ‘solvency’ as made out in certain quarters, but more about lack of ‘growth capital’. There is a clear need for increased fund flow (growth capital in the form of debt) into NBFCs from the banking sector, said KV Srinivasan, Co-Chairman, FIDC.
TT Srinivasaraghavan, Managing Director, Sundaram Finance, felt that banks should not paint the entire NBFC sector with the same brush and get entirely risk-averse just because two (IL&FS and DHFL) defaulted out of the thousands of registered NBFCs.
“One swallow does not make a summer. One default by an NBFC does not damn the whole sector to hell,” said Srinivasaraghavan.