Budget 2022: Assocham suggests setting up of a permanent refinance window for the NBFC sector

Assocham said, there has been a long-standing demand for refinancing arrangements for NBFCs directly from the central bank on the lines of National Housing Bank.

ASSOCHAM advocated a permanent repayment arrangement for the NBFC sector.

Industry Chamber ASSOCHAM (Assocham) the upcoming general budget (Union Budget) has suggested to create a refinance system for the NBFC sector and provide them loans from banks under priority sector. Assocham, in its recommendations before the budget, told the government that non-banking financial companies (NBFCs)NBFC) to ensure liquidity in the sector. This sector plays an important role in financial inclusion and providing convenient financial services. The government will present the budget for the financial year 2022-23 on February 1. The industry body said that in the last few years, the NBFC sector has seen liquidity crunch due to external factors. In such a situation, their ability to borrow money at a reasonable cost has been affected.

Assocham said, there has been a long-standing demand for direct central bank refinancing arrangements for NBFCs on the lines of National Housing Bank (which refinances home finance companies or HFCs). The Parliamentary Standing Committee on Finance had in June 2003 recommended the formation of a new refinance institution for NBFCs.

Priority sector loans from banks

The industry body suggested that NBFCs should get priority sector loans from banks. “Since NBFCs play an important role in financial inclusion and provide convenient financial services to the unbanked, we suggest that the priority sector lending by banks under this arrangement should be limited,” the memorandum said. 10 per cent can be provided.

The COVID-19 pandemic has adversely affected rural banks. In view of this, RBI had made it mandatory for banks to give priority sector loans to NBFCs for on-lending to agriculture, MSMEs and housing. The industry body suggested that banks’ loans to NBFCs should be made permanent under the priority sector.

In addition, it has also recommended the government to set up an alternate investment fund for NBFCs. Issuance of Secure Bonds is to establish a remittance mechanism with financial institutions to reduce over-dependence on banks.

NBFCs are allowed to raise funds by issuing non-convertible debentures (NCDs/bonds), through private placement as well as public issues, with flexible tenures and rates. Whereas in private placements, there are big restrictions on the number of investors, frequency of issue etc. Public issue of bonds is very costly, laborious and inflexible.

with PTI input

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