New Delhi: For enhancing the much required liquidity to Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs), the Confederation of Indian Industry (CII) has given a four-point memorandum to the Reserve Bank Of India (RBI) which will bring about a greta multiplier effect to the economy.
These four measures include defining of a framework by RBI for ‘lender of last resort’ for NBFCs and HFCs having an asset book size of more than INR 25,000 crore. Unlike banks, NBFCs and HFCs do not have the repo window facility to borrow in times of need.
The chamber has also recommended that RBI should look at creating a separate classification within the systemically important NBFCs based on asset book size. These NBFCs and HFCs could have more stringent ALM requirement but could be supported by providing more funding options like additional eligibility for ECB, temporary back stop funding like repo facility.
The third suggestion by CII is to ease ECB norms with a higher limit for investment grade rated companies equivalent to sovereign rating up to maybe USD 1,500 million from the current uniform limit of USD 750 million for all NBFCs.
The fourth recommendation by CII is relaxation of end use norms of ECBs for HFCs to facilitate credit flow to the entire housing finance sector. Currently end use is limited to affordable housing.
CII says that NBFCs and HFCs have played a complementary role to banks in supplying credit to the underserved segments of the economy. RBI data suggests that for Fiscal 2019-20, the share of credit from banks and NBFCs and HFCs was in the 70:30 ratio. NBFCs have a share of 15 percent in personal loans, 30 percent in auto loans, while HFCs have a share of 42 percent in housing loans.
Elaborating on the importance of the suggested measures, CII further stated that NBFCs and HFCs are an important source of financing and will play a key role in taking Indian Economy to USD 5 trillion.
In the last many decades, NBFCs have mastered the art of banking the unbanked segment of the society in both urban and rural areas. A deep-rooted understanding of the customer, the local geography and prevailing market dynamics across various regions; coupled with the flexibility in operations, based on the borrower’s needs, have been the key elements of their success.
Policy-makers have been taking steps to alleviate the problems in the NBFC sector, and rightly so. CII’s suggestions to improve liquidity to the sector will provide the much-needed boost to demand in the immediate term.