Finance Industry Development Council (FIDC), the industry body for non-banking financial companies (NBFCs), said the current liquidity crisis is not a solvency issue, but is more of a growth-related problem.
At a press conference held on Tuesday, FIDC said that while funds were available at a higher cost, there was a need for a special liquidity window through banking channels, which will provide growth capital for NBFCs on a sustainable basis.
“As a short-term measure, there is an immediate need for the regulator to put in place and create a dedicated window for NBFCs. We are not asking for any bailout. This was done in 2009 and 2013. What we are saying is a message from the regulator or government would really do the trick," said Raman Aggarwal, chairman, Finance Industry Development Council.
The industry body has also sought other short-term measures such as allowing refinance for all small and medium NBFCs from the Pradhan Mantri Mudra Yojana.
This is not the first time that the industry body has raised the demand for a special liquidity window to help NBFCs tide over the crisis following the default by IL&FS. The government, too, had requested the Reserve Bank of India to provide a window for NBFCs to keep the economy chugging along. However, the central bank shot down the proposal, saying system-wide liquidity is in surplus and it remains committed to infusing liquidity when required.
Among long-term measures, FIDC has called for a permanent window for NBFCs along the lines of the National Housing Bank, which provided refinance to housing finance companies (HFCs). It also sought setting up an alternative investment fund (AIF) to channelize institutional funds to NBFCs and allowing non-convertible debentures (NCDs) to be subscribed to by the AIF for onward lending to NBFCs.
“We are not seeking liquidity support for the survival of the industry. We are talking about growth capital. All we are saying is there has to be steady, committed and sustainable flow of money to ensure that growth capital is provided to NBFCs. I don’t think after nine months of the crisis, anybody is questioning the survival of the sector," said K.V. Srinivasan, director and chief executive officer Profectus Capital.
Aggarwal also said that the asset-liability mismatch is largely an issue for long-term lenders like HFCs and infrastructure NBFCs, but the entire NBFC sector is being painted with the same brush and are finding it difficult to raise funds.
Bank borrowings, debentures and commercial papers are the major sources of funding for NBFCs.
The Reserve Bank of India’s recent financial stability report says bank borrowings as a share of total borrowings increased from 21.2% in March 2017 to 29.2% in March 2019.
During the same period, dependence on debentures declined from 50.2% to 41.5%.