Finance Minister Nirmala Sitharaman Saturday said the NBFC crisis seems to have bottomed out and the government along with the RBI will closely monitor the situation to ensure that the sector comes out of the wood.
She further said that the government takes all the steps to keep inflation under check while dismissing the contention that hike in duty on petrol and diesel will impact prices situation.
Sitharaman in her Budget on Friday announced a series of steps to give relief to non-banking financial companies facing cash crunch following the collapse of IL&FS last year.
"Largely it (NBFC crisis) has reached a peak in terms of challenges that they are facing. The problem probably is not over yet but it can only plateau rather than worsen ... the deteriorating situation is reached its bottom ... now it has bottomed out," she said.
Observing that the comprehensive solutions in the Budget have been announced, the Finance Minister said, "We shall be closely monitoring with RBI to see how it's moving. So strictly speaking, I feel the NBFC issue has been addressed." In a bid to address the stress in the sector, the government proposed that public sector banks would purchase high-rated pooled assets of financially sound NBFCs, amounting to a total of Rs 1 trillion during the current financial year.
For this, the government will provide one time six months' partial credit guarantee to PSBs for first loss of up to 10 per cent.
Among others, Sitharaman had said the government will allow NBFCs to raise funds in public issues, and the requirement of creating a debenture redemption reserve (DRR), which is currently applicable for only public issues as private placements are exempt, will be done away with.
As of now, NBFCs that do public placement of debt have to maintain a DRR and in addition, a special reserve as required by the RBI has also to be maintained.
In a bid to improve regulatory oversight, the government also proposed to bring housing finance companies under the RBI from the fold of National Housing Bank.
Sitharaman further said that these steps are aimed at improving the condition of the NBFC sector as a whole.
"If anything, it can only now improve or it can be going on plateau for some time and then probably improve...I cannot say it has come to a closure. I cannot say it has ended. I cannot say the problem is over...We will still be careful about watching it," she said.
With regard to the reaction of the market on raising minimum public float to 35 per cent from existing 25 per cent, the finance minister said, "I am yet to hear response … Parliament debating about it." When asked if the hike in petrol and diesel prices will stoke inflation, Sitharaman said this government had walked the talk and kept inflation under check in the last five years and continue to do so in the future.
Post the rise in fuel taxes announced by the government in Budget 2019-20, petrol and diesel prices rose by at least Rs 2.4 and Rs 2.36 a litre respectively across metro cities.
The prices increased after Finance Minister Nirmala Sitharaman raised excise duty and road and infrastructure cess by Re 1 per litre each.In 2014 when this government took over, the inflation was in double digit, she said, adding it was brought down to a comfortable level of 4 per cent.
On the issue of bringing down government stake to below 51 per cent in PSUs, Sitharaman said the move will help increase retail participation and deepen the market.
It will be designed in such a fashion that government directly or indirectly through its state-owned entities will hold 51 per cent stake and the public characteristic is maintained, she said.
The government has decided to modify the present policy of retaining 51 per cent, she said, adding that the government's 51 per cent shareholding would include stakes held by state-owned institutions.
Giving example, she said, if the government stake in A company is 51 per cent and another state-owned entity has 10 per cent stake in that, there is headroom to dilute 10 per cent stake but still retaining 51 per cent stake.
"So we are saying to that extent 10 (total 51 per cent government and government-run institutions together) the extra that is there can be released for employees, retail who want to possess by which the government control is not being diluted below 51 per cent," she added.