NBFCs seek special fund from govt for providing 3-5 yrs term loans

Industry body says funding is currently available only for 6-18 months under various schemes

With constraints faced in getting funds, non-banking finance companies (NBFCs) want government to set up dedicated fund to provide them with three-five years’ term loans which will help manage asset liability match effectively. 

Finance Industry Development Council (FIDC) said the average tenure of loans extended majority of customers (individuals and MSMEs) is 24-48 months. However, funding under the partial credit guarantee scheme, special liquidity scheme, and refinancing by SIDBI are for a short tenure of 6-18 months only.

Hence, it is imperative that NBFCs need to borrow for a commensurate period in order to maintain a healthy asset liability match. The tenure of refinancing should be increased to at least 36 months for a healthy liability profile, FIDC, lobby group for NBFCs said in a representation to Union Finance Minister.

All-India Financial Institutions such as Sidbi and Nabard may be assigned the role of refinancing. The money dedicated to funding Small & Medium NBFCs may be allocated to these two entities.

All NBFCs, irrespective of their size and credit rating (even unrated), should be eligible to get funds, FIDC said.

The key Balance Sheet parameters such as Capital Adequacy Ratio, Non-Performing Assets (NPAs), Track Record along with Promoters experience and understanding of the market, should be the important consideration for extending financial support to NBFCs.

The lobby group of NBFCs said Bank Lending to NBFCs for On-Lending to Priority Sector to be Treated as Priority Sector Lending for banks.

There is need for a carve Out for Small and Mid-Sized NBFCs within the sectoral Cap in bank lending. While NBFCs account for 20 per cent of total credit in the economy, most banks have capped the exposure to the sector (NBFCs) at 8-9 per cent.

Banks are the only source of borrowing for most NBFCS due to drying up of other avenues post IL&FS and DHFL crisis. This is certainly the case with small and medium ones and they get crowded out by the large ones, FIDC added.