Assocham offers a permanent refinancing window for the NBFC sector

Financial support to non-bank financial corporations (NBFCs) will ensure the liquidity of the sector, as they play a key role in financial inclusion and the provision of affordable financial services to the underbanked, Assocham said in his recommendations to the government by through pre-financing. budget budget note.

The government will present the budget for the 2022-2023 fiscal year on February 1.

The industry body said that in recent years the NBFC sector has witnessed a tightening of liquidity in the market due to external factors.

During these times, the ability to borrow funds at rational prices became difficult, he added.

“A dedicated NBFC refinancing window directly from the central bank, modeled on the National Housing Bank (which provides refinancing to housing finance companies or HFCs) has been a long-standing demand for the NBFC sector,” he said. assocham said.

The Parliamentary Standing Committee on Finance in June 2003 recommended the creation of a new refinancing institution for NBFCs.

Following the COVID-19 pandemic which negatively impacted rural underbanked, the RBI mandated banks for loans to NBFCs for on-lending to agriculture, MSMEs and housing to qualify as priority sector loans. The window was available until September 30, 2021.

Bank loans to the NBFC in the priority sector should be made permanent, the industry body suggested.

“As NBFCs play a key role in financial inclusion and providing affordable financial services to the underbanked, we suggest that this window can be made available on an ongoing basis subject to certain limits such as 10% of the total. loans to priority sectors of banks. This will increase the reach of PSL initiatives and add depth to them, ”he said in the memorandum.

Among other things, he also recommended that the government establish an alternative investment fund for NBFCs; immediate issue of covered bonds; establishment of a refinancing mechanism with financial institutions to reduce excessive dependence on banks.

NBFCs are permitted to raise funds by issuing non-convertible debentures (NCDs / bonds) with flexible terms and rates, through private placements as well as public issues.

“While private placements are subject to severe restrictions on the number of investors, frequency of issuance, etc., public issuance of bonds tends to be very expensive, laborious and rigid.

“It is proposed that NBFCs be allowed to have a facility for issuing CRS in the retail market by offering CRS through an easy-to-use and less costly procedure,” he asked.

However, this should be allowed with good governance to ensure investor protection and comfort, the industry body said.

He also urged the government to expand the role of the National Housing Bank to refinance all NBFCs and not just HFCs. Also allow NBFC subsidiaries to promote the insurance industry.

Assocham also recommended amending the Insurance Act to allow a subsidiary to promote the insurance industry.

“When a financial services company is a subsidiary of another company, it is not possible to diversify into the insurance industry because the subsidiaries are not allowed to promote an insurance company. As a result, the financial services company is unable to meet the insurance needs of its customers. “, according to Assocham.

The industry body has also urged the government to launch a special purpose vehicle (SPV) with an initial injection of capital by the government, which can then raise funds by issuing bonds.

This SPV may use the funds exclusively for the financing of small and medium NBFCs. It should be allowed to take advantage about 4 times, thus providing ??5,000 crore in fresh funds for NBFCs, the organization said.

In addition, he also suggested allowing deposit-taking NBFCs to accept recurring deposits to facilitate financial inclusion and instill the culture of savings in rural India.

It will also prevent gullible small investors from falling prey to the unregulated and unorganized sector, Assocham said.