KOLKATA: Cash-starved Non Banking Finance Companies (NBFCs) which lend to micro, small and medium companies have written to Finance Minister, Nirmala Sitharaman, seeking funding support. In a mail, the Finance Industry Development Council (FIDC) has asked for a refinance window which might reduce their over dependence on the banking sector. Moreover, it could potentially help them set up a dedicated non-bank channel for long-term financing options.
These non-bank lenders have suggested that this window be established through MUDRA, Rural Development and National Housing Bank, Small Industries Development Bank of India and National Bank for Agriculture. Additionally, The industry body suggested establishing a special purpose vehicle (SPV) with initial capital infused by government. They outlined that it can be used 4 times to provide a funding of ₹50,000 Crore to small and medium-scale NBFCs.
In its letter, FIDC requested a sovereign credit guarantee to the banks which provide funding to these NBFCs. The industry body said,”The Govt. of India may provide sovereign guarantee to the banks for their additional exposure on NBFCs, so long as it is lent to the deserving segments comprising MSMEs/farmers/affordable housing segment etc., so that the banks feel comfortable and confident to lend.”
The self-regulated industry body also suggested that banks should consider extending credit at cheaper interest rates to NBFCs that lend to MSMEs, agriculture and housing segments.
“Our customers are seeking more than three months’ relief and lower EMIs, so a moratorium is not enough. We would need a variety of tools at our disposal to tide over this crisis,” said Raman Agarwal, co-chairman of Finance Industry Development Council. “Apart from a refinance window and a credit guarantee scheme, we have also requested the RBI governor to allow a one-time restructuring of all loans.”
The four page letter addressed to FM Sitharaman has also stated that despite their dependence for funding, the banking sector’s support has been inconsistent. “Banks have complete risk aversion towards small and medium-sized NBFCs which do not have AAA rating, despite various measures announced by the government and RBI, banks have not been lending to them,” the letter stated. While most NBFCs have allowed a moratorium to their borrowers, they have not received the same from their lender, the banking sector.
The Reserve Bank of India had pumped the banking system with liquidity of over ₹7.5 lakh Crore under ’s reverse repo window, last month. To ease the flow of credit into the NBFC sector that had been refused a three-month moratorium by most banks, the central bank had also announced ₹50,000-crore of TLTRO 2.0 in tranches. But, banks bid for only 50% of the refinancing options provided in the 1st tranch.
“The banks have neither adequately availed the above facilities from RBI or the Government of India nor used their own liquidity to lend to their existing long standing NBFC customers and have cited number of reasons such as reaching sectoral caps, defaults by IL&FS and DHFL or their internal board policies,” lamented FIDC in its letter.
An April 17 report from Care Rating has stated that the outlook for NBFCs and housing finance companies (HFCs) has turned negative because of the coronavirus pandemic. “The sector, which grappled with liability side disruptions, could see another wave of challenges, this time in the form of asset quality. Amid these, funding challenges could mount again as banks become more selective in extending credit,” the report said.
As a matter of fact, even developmental financing institution SIBDI, which was granted a ₹15,000 Crore window to be used to lend to these non-banks, capped the tenor of these loans to 90 days, making it a complete dud.
Recently, the Ministry of Home Affair had listed out the sectors and establishments, it deems, essential. MFIs and NBFCs have been allowed to operate in zones, relatively safer from coronavirus, during the lockdown.