Govt might seek extension of ECB to boost NBFC credit in economy

May ask RBI for relaxed co-origination norms

The government may ask the Reserve Bank of India (RBI) to allow co-origination of loans for deposit-taking non-banking

finance companies (NBFCs) as well in a bid to boost credit in economy.

Currently, the RBI has in place guidelines on co-orgination of loans by banks and non-deposit-taking NBFCs in the priority sector.

Further, the government may also put forward demand by lenders to allow external commercial borrowing (ECB) for all housing projects. At a meeting with Finance Minister (FM) Nirmala Sitharaman on Thursday, lenders raised concerns about some of the regulatory restrictions hampering the growth of the housing finance sector. One of them was the RBI’s move to allow ECB window only for low-cost affordable housing projects.

“Currently, lenders are allowed to do ECB only for low-cost affordable housing projects. One of the demands was to allow ECB for other projects as well,” said a top executive of a housing finance company, who was a part of the meeting.

Sitharaman held a meeting with the management of private banks, non-banking financial companies (NBFCs), small finance banks, and housing finance companies on Thursday.

The banks apprised the FM that they were reaching their lending limits to NBFCs and asked the government if the same could go up. The single borrower limit for NBFCs for banks is at 10 per cent. 

The RBI had given a window of six months to banks, from October 2018-March 2019, to increase the single borrower limit for NBFCs (not financing infrastructure) from 10 per cent to 15 per cent of capital funds.

Small finance banks raised some operational issues with the FM, Equitas Small Finance Bank Senior President (retail assets and outreach banking) Raghavan HKN told Business Standard. “Lending to NBFCs is not considered as a priority sector lending. We demanded if this could be looked into. Rest, from our side, we told the FM that liquidity is not a problem and the festive season will pent up growth,” Raghavan said.

Lenders further flagged the need for self-declaration of present address in respect of borrowers who are eKYC-authenticated to enable hassle-free lending and improve the co-origination of loans by banks and NBFCs.

“The minister gave a patient hearing of two hours to listen to our demands. We raised issues related to KYC (know your customers), migration of population, and the government said they would work with concerned departments to resolve these issues,” V Vaidyanathan, CEO of IDFC First Bank said.

Concerns were also raised on credit outflow to smaller NBFCs, according to a person who was a part of this meeting.