Kolkata: The Finance Industry Development Council, the representative body of non-banking finance companies (NBFCs), has made a pitch for creation of a dedicated refinance window for its members so that their “over dependence” on bank funding and their liquidity mismatches be addressed.
FIDC has suggested that Small Industries Development Bank of India (Sidbi) may act as the refinance bank for NBFCs in line with what the National Housing Bank does for housing finance companies.
In a pre-budget memorandum submitted to the finance minister Nirmala Sitaraman on Thursday, the industry body has also sought harmonization of regulation with banks in the areas of taxation and recovery, which would allow NBFCs to get the benefits that are being enjoyed by banks at present.
“Over the years liquidity has been a recurring challenge for NBFCs, especially, for a large number of small and medium sized NBFCs. Sources of funding like public deposits and external commercial borrowings have been restricted. The recent concerns on the over dependence on banks for funding have further added to the liquidity concerns,” FIDC director Raman Aggarwal said in the note to the finance minister.
“There is therefore an urgent need to create a dedicated refinance window for NBFCs to ensure a smooth and sustainable flow of funds that would also help address the concerns relating to asset liability mismatch,” he said.
ET has reviewed the note submitted to the finance minister.
FIDC also said that Sidbi is open to take up the role of a refinance bank for NBFCs for on-lending to the micro small and medium enterprises and the priority sector, if the government allocates funds for it.
“During our interaction, the management at Sidbi have conveyed their willingness to take up this role,” Aggarwal said.
The RBI has several times in the recent past voiced concerns over NBFCs’ “over-dependence” on banks for funding. As per the RBI’s report on Trends and Progress in Banking, borrowings from banks constituted 37.8% of the total borrowings of NBFCs as on September 30, last year, while borrowings by issuance of debentures accounted for 36.1% and the balance 26.1% were from other sources.
On regulation and creating a level playing field with banks, FIDC said the harmonisation of regulation only in terms of the prudential norms on income recognition, asset classification and provisioning can be considered as “tightening” of rules.
“This harmonisation has only resulted in making the regulations “more stringent”. Commensurate harmonization in provisions relating to recovery and taxation are still pending for long,” the FIDC note said, demanding exemption for NBFCs from TDS deduction in order to ensure harmonisation and removal of the ambiguity in co-lending with banks.
RBI is promoting co-lending of banks and NBFCs to address the growing credit demands in sectors like agriculture, MSME and housing as the central bank aims to ensure easy access of loans at an affordable rate to the end-borrower.
FIDC also said that NBFCs should be allowed to offer credit on United Payments Interface (UPI) and to avail overdraft facilities from UPI.
At present, credit on UPI both through credit cards and pre-approved credit lines have been reserved for banks and NBFCs have not been allowed to access the UPI payments platform to provide the same facility to its customers.
