NBFCs ask Sitharaman for liquidity window, tax sops in Union Budget

Financial sector players, in the pre-Budget meeting with Finance Minister Nirmala Sitharaman on Thursday, asked for a dedicated liquidity window for non-banking financial companies (NBFCs), and tax incentives.

Liquidity and solvency issues of NBFCs need to be handled separately case by case, IDBI Bank Managing Director Rakesh Sharma told reporters after the meeting.

NBFCs sought exemption from having to deduct tax at source for interest payments. At present, banks and insurance companies have this exemption. 

The tax deducted at source (TDS) on interest paid to NBFCs is 10 per cent.

The Finance Industry Developm­­ent Council (FIDC), a lobby group for finance companies, in a pre-budget memorandum said the TDS obligation created cash flow con­s­t­r­a­i­nts because NBFCs operated on a thin spread/margin on interest, which at times was less than the TDS on gross interest. 

Further, due to the high number of transactions, NBFCs have to face the problem of collecting TDS certificates from customers.

Also, NBFCs have sought a higher rate of depreciation of 30 per cent for leasing construction equipment and plant and machinery as against the present 15 per cent.

Insurance Regulatory and Development Authority of India (Irdai) Chairman Subhash Chandra Khuntia said he suggested additional tax incentives for term plans to encourage investments as in the case of the National Pension Scheme (NPS).

Representatives of the financial and capital markets suggested reviewing interest rates on the government's small savings schemes, reviewing banks’ non-performing asset provisions by setting up a committee, setting up an exchange-traded fund (ETF) for debt, domestic capability building in audit and credit rating, and rationalising taxes like the securities transaction tax (STT).

They also urged setting up a separate bond exchange, allowing banks to invest in InvITs to access the broader market, and making the corporate tax progressive to incentivise micro, small and medium enterprises (MSMEs), among others.

SBI Chairman Rajnish Kumar said, “A lot of suggestions have come regarding infrastructure financing, reviving the economy and what tax benefits can be given for encouraging investments in MSMEs and exports.”

Punjab National Bank Managing Director and Chief Executive Sunil Mehta said, “Liquidity is not a major challenge right now.”