Announcements for non-banking finance sector fail to lift spirits

  • FM announces the expansion of the partial credit guarantee scheme to cover securities issued by NBFCs, HFCs
  • The budget proposes an expansion of the Nabard refinancing scheme to include NBFCs and cooperatives

MUMBAI : Budget proposals for ailing non-banking financial companies (NBFCs) have failed to enthuse the industry. The finance minister has proposed an expansion of the existing partial credit guarantee scheme, first announced last year, to cover securities issued by NBFCs and housing finance companies (HFCs).

Last year’s budget said the government will provide a one-time partial credit guarantee scheme to public sector banks for their first loss of up to 10% for purchase of pooled assets of crisis hit NBFCs, amounting to a total of 1 trillion.

The definition of assets has now been expanded to include securities of all NBFCs and HFCs, which could benefit NBFCs, according to industry experts.

The FM also relaxed the eligibility of NBFCs for debt recovery under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 from 500 crore to 100 crore for asset size and from 1 crore to 50 lakh for loan size.

According to Ajay Manglunia, managing director and head, institutional fixed income, at JM Financial, this will speed up the recovery process and widen the pool of eligible stressed assets in NBFC books that can be recovered.

“This will improve the NBFCs/HFCs ability to enforce securities even for small ticket size loans, thereby considerably reducing the timelines associated with it," he said.

Also proposed is an expansion of the National Bank for Agriculture and Rural Development (Nabard) refinancing scheme to include NBFCs and cooperatives that on-lend toagriculture. The government has set a target of 15 lakh crore for agriculture credit for FY21.

“The finance minister has announced some measures for NBFCs, but more was expected, especially on the funding part. The Finance Industry Development Council (FIDC) had asked for a refinance mechanism but that has only been provided for agri credit (from Nabard).

The announcement on partial credit guarantee scheme remains unclear and needs more clarification," said Raman Aggarwal, co-chairman, Finance Industry Development Council (FIDC). FIDC is an industry body for NBFCs.

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