Budget 2020: NBFCs seek setting up of permanent refinance window for sector

Non-banking finance companies (NBFCs) have sought setting up of a permanent refinance window for the sector in the Union Budget, which they say will help them diversify their funding sources. The shadow banking players have also asked for allowing NBFCs with strong support from their parents to access public deposits.

Finance Minister Nirmala Sitharaman is scheduled to present the Budget for financial year 2020-21 on February 1. Banks have been reluctant to lend to the NBFC sector after a series of default by Infrastructure Leasing and Financial Services (IL&FS) in September 2018.

This risk averse approach of banks created a liquidity crunch for the entire NBFC sector which in turn had a multiplier effect on the important sector like automobiles, micro, small and medium enterprises (MSMEs) and consumer goods.

"The need of the hour is to develop funding sources for NBFCs outside the banking system. A dedicated refinance window for NBFCs, has been a long-standing demand of the NBFC sector," Finance Industry Development Council (FIDC) chairman Ramesh Iyer said in a pre-budget memorandum submitted to Sitharaman.

FIDC is a representative body of asset and loan financing NBFCs.

It also proposed that NBFCs should be allowed an on-tap facility for issuance of non-convertible debentures (NCDs) to the retail market. The offering of these bonds should be through an easy- to-operate and less costly procedure, but with proper governance to provide investor protection and comfort, it said.

According to Tata Capital's managing director and CEO Rajiv Sabharwal, "NBFCs with a strong parentage should be allowed to access public deposits as it will help credit growth and diversify the borrowing profile of NBFCs."

He said reviving stalled projects, regulating consultative mechanism of the RBI and treating NBFCs at par with banks with respect to Sarfaesi and amendments to rules relating to external commercial borrowings are some other reforms that the government can bring in to accelerate the growth of the sector.

Muthoot Finance's managing director George A Muthoot said banks are currently extending credit to top-rated NBFCs only, and medium-rated are finding it difficult to get funds.

"To spur the economy, the government should announce some measures for banks to be liberal with lending to NBFCs," Muthoot said.

Shriram Transport Finance managing director Umesh Revankar said he expects the government to announce more prudent policies which are customer centric to revive the consumer demand in the economy.

"There should be special tax incentives for homebuyers to revive the real estate demand," he said.

Revankar said the NBFC players who are predominantly into financing priority sector should be given more scope in priority sector lending target of banks.

Talking about the scrappage policy to revive the auto sector, Revankar said people who voluntarily scrap their vehicle should be given a credit note which is transferable/exchangeable so that any customer can use the same while buying the new vehicle.

Aadhar Housing Finance's managing director and CEO, Deo Shankar Tripathi, said the budget is expected to consider few more measures for quick revival of overall sector and restoration of confidence in NBFC/ housing finance companies.

"In the last fiscal budget, tax exemption on home loan interest was increased from Rs 2 lakh to Rs 3.50 lakh for loans up to Rs 45 lakh availed by March 2020. This may be extended for next 5 years without ceiling of Rs 45 lakh," Tripathi said.