Budget 2023-24 Expectation: Five-point demand of NBFC sector

Non Bank Finance Companies (NBFCs) provide key liquidity in the financial system. While banks cover 14 per cent of the financial demand, NBFC’s and other private lenders cover 80% of the financial demand. NBFC covers the segment of society not easily covered by banks. NBFCs do so by direct contact with clients, thus reducing the role of intermediaries, red tape and sourcing costs. Given the banking crisis of the last decade - Banks have become extra cautious; Covid-19 and the Ukraine-Russia war has further worsened the situation. Many businesses - not covered under the interest moratorium period defaulted on their loans during the lockdown. This led to the dynamic growth of poor credit scores - further making it difficult for such businesses to raise debt from banks. To help the NBFC’s – that have stepped in and become the “knights in shining armour”. To help these “knights” help the economy grow faster. The government should consider the following initiatives: Increase limits on credit guarantee schemes It is crucial for capital requirements in the NBFC segment to ensure people and businesses across all demographics get access to cheaper credit. Currently, the government established a Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which framed a Scheme for the purpose of providing guarantees in respect of credit facilities extended by eligible NBFCs to borrowers in Micro and Small Enterprises (MSEs). The current limit is ₹1 crore for any facility to retail trading MSEs and ₹ 2 crores for other MSEs. An increase in this limit would encourage NBFCs to offer higher ticket size facilities and raise more funds against them. Tax incentives to encourage co-lending Any tax incentive to encourage co-lending, would see many banks team up with NBFCs to share risk and lend to a wider range of borrowers. This would be significantly beneficial to all. Active market for securitization An active market for securitization instruments will not help improve flow of funds from banks to the borrowers who could not obtain loan facilities directly from banks. As securitization is generally allowed only after the NBFC has an exposure for six months to a year, the loan performance is already available and is a less risky option from the other. An active market can be obtained by easing regulations, provision of tax incentives and appointing a body to establish a framework encouraging securitization. Incentives to encourage more players on the account aggregator platform Once the facility is disbursed, the major challenge is monitoring the use of funds and ensuring the business is able to generate enough cash flows to pay their instalments. In 2021, the government launched an “account aggregator’’ platform. There are a very limited number of players sharing their data through this platform. Loan monitoring will be easier once more banks are onboarded on this platform. Moreover, we can only monitor savings/current bank accounts through this. More products should be available on this platform - like loan, CC etc which will help monitoring the borrower. Reduce limit for eligibility of SARFAESI act Currently SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act) is not applicable for NBFCs with AUMs (assets under management) less than 100 crore. They are forced to take the cumbersome and lengthy legal proceedings to enforce the collateral. A reduction in this limit will make it easier for them to mitigate losses quickly in case of defaults. The author is the Founder & CEO Red Fort Capital. Views 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.