The apex NBFC body Finance Industry Development Council (FIDC) Tuesday said they should be allowed to avail of refinance facility under the Mudra scheme and also setting up of a permanent refinance window at RBI similar to the one that National Housing Bank (NHB) offers them to help meet their liquidity needs.
Following the IL&FS bankruptcy last September, the entire shadow banking sector has been under severe liquidity stress with many leading players like DHFL reporting defaults.
Though the Reserve Bank has promised them all the help, nothing concrete has come up yet, while the industry has been losing market share on one hand and their stocks plunging on the other.
The liquidity crisis has seen a massive 19 percentage points drop in disbursement by NBFCs in the fourth quarter of FY19, according to industry data. The sector used to witness a 15 per cent growth in loan disbursement earlier.
In the fiscal stability report released by the RBI last week, it warned that a large home finance player going down would have the same impact on the systemic stability as a large bank going belly up but assured that as of now there is no risk to financial stability from the NBFC crisis.
All RBI registered NBFCs should be allowed to avail of a refinance under the Mudra scheme. The cap of 6 percent on the maximum spreads allowed should be done away with, since market forces ensure that the rates are within acceptable limits, the FIDC said in a statement and urged the regulator to make the necessary changes to the scheme to enable them, especially the small players, this facility.
He also said systemically important NBFCs be allowed to act as aggregators by availing refinance from Mudra for lending to small and medium-sized NBFCs.
FIDC chairman Raman Agarwal also sought to allay fears about their solvency saying there is no solvency issue with NBFCs but only that their growth has slowed.
Even some sectors, which we cater to like automobiles, MSMEs, are facing slow down and it is impacting us. There is a need to find an alternative source of funding for us outside the banking channel and a dedicated refinance window can be helpful, Agarwal said.
He also suggested that an alternate investment fund can be established to channelise institutional funds to NBFCs. Non-convertible debentures could also be subscribed by such an AIF for onward lending by NBFCs.
Further, he called upon the RBI to reintroduce the earlier provision that allowed all bank lending to NBFCs for on-lending to be treated like priority sector. The provision was withdrawn in 2011.
While the step ensured sufficient bank funding to NBFCs at a reasonable cost, it also facilitated banks to meet their PSL targets. However, this was abruptly withdrawn in 2011. The same arrangement may be restored urgently, Agarwal said.
The council also demanded that NBFCs have access to NCDs having flexible tenure and rates, both through the private placement and public issue.
NBFCs can be allowed an on-tap facility for issuance of NCDs to the retail market by making the issue through an easy to operate and less costly procedure, Agarwal said.
The parallel banking sector has also requested the government and the Reserve Bank for not categorising the current liquidity crisis as a sectoral issue as the only a few players are facing a cash crunch.
The NBFC players have submitted their requests to finance minister Nirmala Sitharaman in a pre-budget meeting held on June 13.
NBFCs are playing an important role in the economy. We have requested to create a refinance body in line to NHB, which will help in providing long term liquidity and stability to the sector, Mahindra Finance vice-chairman and managing director Ramesh Iyer said in the statement.
It could be noted that the Parliamentary standing committee on finance in its 45th report in June 2003 (relating to the Financial Companies Regulation Bill, 2000) had recommended setting up of a new refinance institution for NBFCs.
Iyer said till the time a refinance window is set up, a dedicated liquidity window for NBFCs through the banking channels should be created.
Shriram Transport Finance managing director Umesh Revankar said such a refinance window will give comfort to NBFCs that there is some option available to get liquidity. It will also give confidence to banks to lend to the sector.