Govt looks to ease lending rules for NBFCs to lift cash-starved financiers

Prime Minister Narendra Modi’s government is considering easing lending rules for shadow banks, according to people familiar with the matter, a move that would give the cash-starved financiers access to funds.

The cabinet is likely to discuss allowing state banks to provide so-called credit enhancement against securities rated BBB+ to non bank financiers, the people said, asking not to be identified before a public announcement. That’s the fifth level below what’s permitted under the current plan.

The government is keen to revive credit growth and spur Asia’s third-largest economy, which expanded at the slowest pace in six years in the quarter to Sept. 30. More than a year after the collapse of Infrastructure Leasing & Financial Services Ltd., shadow lenders have been reeling from a cash shortage that’s hurt expansion plans and stalled trade finance at small to medium-sized companies.

The current plan allows state banks to buy as much as Rs 1 trillion ($14 billion) of performing assets from AA rated pools of non-bank companies and any default up to 24 months from the date of purchase of the asset will be made good by the government.