Budget 2023-24 Expectations: FM should stimulate growth for NBFCs through pivotal transformation

As India strategizes post-pandemic economic recovery through fiscal measures and businesses aim to expand capacities, Non-Banking Financial Company (NBFC) have an enormous opportunity to assist in achieving the noble goal of Aatmanirbhar Bharat through the fast-tracked flow of credit to businesses and households. As the latest data on Udyam Portal shows, a significant proportion of registered businesses are micro businesses, Union Budget 2023-24 offers an opportunity to bring in a targeted scheme for expanding credit to micro businesses. Priority sector lending status for gold loans The concept of pledging gold for emergency funds has been around for centuries. It is one of the easiest and fastest ways to access funds when it matters the most. It is widely popular in rural markets and is used as an effective tool to avail short-term credit to meet the capital requirements for business, agri-production needs, or personal commitments. Gold loan-focused NBFCs have been fulfilling the credit demand of under-penetrated markets with typically small ticket sizes ranging between Rs 50,000 to Rs 1 lakh. Offering Priority Sector Lending status to the gold loan in the upcoming Budget will pave the way for the banks to participate with more potency and fund gold loan NBFCs at a subsidized rate. The lower cost of funds will ultimately benefit the borrowers with lower borrowing costs. It will aid in greater institutionalization of gold collateralized credit. Special budgetary assistance for MSME women entrepreneurs Despite having limited resources and lesser opportunities, women entrepreneurs from rural areas have shown immense potential to add value to the Indian economy by entering the Micro, small, and medium enterprises (MSME) sector. The finance scheme targeted towards women MSME entrepreneurs like PMAY for ticket sizes above Rs 1 million, will encourage inclusivity and accelerate their entrepreneurial journey. Increasing MUDRA limit and streamlining criteria Currently, Micro Units Development & Refinance Agency Ltd (MUDRA) refinance is available only up to Rs 1 million. The government could investigate increasing the limit and give broad contours for eligibility – age, ticket size, end-use, cost of funds to intermediating NBFC, etc. The policymakers could set guidelines for the intermediating NBFCs to define underwriting criteria such as classification norms for secured and unsecured loans, disbursement timeline, documentation requirement, and loan amount. It will boost the fiscal growth of entrepreneurs in the micro category between Rs 1 to 5 million. Support towards home loans Taking cognizance of the need to provide houses, the Housing for All scheme has been among the most remarkable initiatives taken by the government. In the previous Budget, policymakers allocated Rs 48,000 crore under Pradhan Mantri Awas Yojana (Urban) Mission (PMAY.) The government should continue promoting affordable housing through the PMAY Credit-Linked Subsidy Scheme with increased funding. Also, an increase in the deduction limit for interest payments from the existing Rs 2 lakh and principal amount on home loans especially to spur demand in a rising interest rates scenario will add momentum to housing demand, particularly in the affordable segment. Amending SARFAESI Applicability Budget 2021-22 lowered the minimum loan size eligible for debt recovery under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) from Rs 5 million ticket to Rs 2 million. However, the same is available to HFCs for lower ticket sizes. The ceiling should be amended to bring smaller ticket NBFC loans under the SARFAESI ambit. The ceiling could be lowered further to Rs 1 million or below. The writer is Managing Director, Capri Global Capital Ltd (@CapriGlobalCap), an NBFC. Views expressed are personal Read all the Latest News, Trending News, Cricket News, Bollywood News, India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.