Bring NBFCs under SARFAESI Act: study

The study was conducted jointly by business chamber Assocham and consultancy firm Resurgent India

Non-banking finance companies should be brought under the ambit of the SARFAESI Act to enhance investor confidence and ensure robust growth of the financial services sector, a study has said.

Currently, non-banking finance companies (NBFC) have been kept outside the purview of the SARFAESI Act.

The study, conducted jointly by business chamber Assocham and consultancy firm Resurgent India, said a reform in this area is critical since the Act empowers banks and financial institutions to recover their non-performing assets (NPAs) without courts' intervention.

"A suitable legislative change to bring NBFCs under the purview of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) would go a long way in fortifying the faith of investors which in turn would greatly contribute to their growth," it said.

NBFCs play a complementary role in the banking system by broadening access to financial services, enhancing competition and diversification of the sector.

These have the potential to emerge as a one-stop shop for all financial services. These institutions will go a long way through financial product innovation and swift services such as speed of credit delivery and the zeal to expand their reach across India, mainly to the unbanked areas, it added.

In India, NBFCs finance over 80 per cent of equipment leasing and hire purchase activities and have been pioneering at retail asset backed lending, lending against securities, micro-finance and have been extending credit to retail customers in under-served areas and to unbanked customers.

NBFCs in India accounted for 11.2 per cent of assets of the total financial system, according to the Economic Survey of 2010-11.

About 12,385 NBFCs with total assets at USD 26 billion were registered in India in FY 2012.