In order to tide over the ongoing liquidity crisis, an industry body has sought a dedicated liquidity window for non-banking finance companies (NBFCs) through the banking channel, classification of bank loans to NBFCs as priority sector lending (PSL) and access to refinance under the Micro Units Development and Refinance Agency (Mudra) scheme.
At an event organised by the Finance Industry Development Council, an association of registered NBFCs, non-bank lenders also asked for the setting up of a permanent refinance window and an alternate investment fund (AIF) as well as a facility for on-tap issuance of non-convertible debentures (NCDs) to retail investors.
The association sought to distinguish NBFCs from housing finance companies (HFCs), whose practice of borrowing short-term funds to originate long-term mortgage loans is believed to be one of the reasons behind the drying up of liquidity in the system and increased risk aversion on the part of banks. The immediate trigger behind the crisis was a series of defaults by entities from the Infrastructure Leasing & Financial Services (IL&FS) group in mid-2018.
Raman Aggarwal, chairman, FIDC, said that in the nine months since IL&FS defaulted, no NBFC has defaulted, even as they had to restrict lending. “As such, the current crisis is more a growth-related issue and not a solvency issue,” he observed.
In its representations to the government and the Reserve Bank of India (RBI), FIDC has asked for all registered NBFCs to be allowed to avail refinancing under the Mudra scheme. They have asked for the external credit rating criteria to be replaced by other stipulated financial parameters, which may be “more realistic and doable”. The cap of 6% on the maximum spreads allowed should be done away with, FIDC said, and systemically important NBFCs should be allowed to act as aggregators by availing refinance from Mudra for on-lending to small- and medium-sized NBFCs.
As a long-term measure to tackle liquidity deficit, the industry has asked for a dedicated refinance window for NBFCs along the lines of the National Housing Bank, which provides refinance to HFCs. An AIF would help channelise the flow of institutional funds to NBFCs, while the on-tap mechanism for raising retail money would offer a cost-effective fund-raising mechanism, FIDC said.