NBFC lobby group demands dedicated refinance bank, more level playing field with banks (2024)

The Finance Industry Development Council (FIDC), the representative body of non-banking finance companies, has made a pitch for the creation of a dedicated refinance window for its members so that their "over dependence" on bank funding and their liquidity mismatches can be addressed.

FIDC said the Small Industries Development Bank of India (Sidbi) may act as the refinance bank for NBFCs in line with what the National Housing Bank does for housing finance companies.

In a pre-budget memorandum submitted to finance minister Nirmala Sitaraman on Thursday, the industry body also sought harmonisation of regulation with banks in the areas of taxation and recovery, which would allow NBFCs to get the benefits that are being enjoyed by banks at present.

"Over the years, liquidity has been a recurring challenge for NBFCs, especially for a large number of small and medium-sized NBFCs. Sources of funding like public deposits and external commercial borrowings have been restricted. The recent concerns on the over dependence on banks for funding have further added to the liquidity concerns," FIDC director Raman Aggarwal said in the memorandum to the finance minister.

"There is therefore an urgent need to create a dedicated refinance window for NBFCs to ensure a smooth and sustainable flow of funds that would also help address the concerns relating to asset liability mismatch," he said.

ET has reviewed the suggestions submitted to the finance minister.

According to FIDC, Sidbi is open to take up the role of a refinance bank for NBFCs for on-lending to the micro, small and medium enterprises and the priority sector, if the government allocates funds for it.

"During our interaction, the management at Sidbi has conveyed their willingness to take up this role," Aggarwal said.

The Reserve Bank of India has several times in the recent past voiced concerns over NBFCs' "over-dependence" on banks for funding. As per an RBI report on Trends and Progress in Banking, borrowings from banks constituted 37.8% of the total borrowings of NBFCs as on September 30, last year, while borrowings by issuance of debentures accounted for 36.1%; the balance 26.1% was from other sources.

On regulation and creating a level playing field with banks, FIDC said harmonisation of regulatnions only in terms of the prudential norms on income recognition, asset classification and provisioning can be considered as "tightening" of rules.

"This harmonisation has only resulted in making the regulations ‘more stringent’. Commensurate harmonisation in provisions relating to recovery and taxation is still pending for long," the FIDC note said, demanding exemption for NBFCs from tax deducted at source in order to ensure harmonisation and removal of the ambiguity in co-lending with banks.

The RBI is promoting co-lending of banks and NBFCs to address the growing credit demands in sectors like agriculture, MSME and housing as the central bank aims to ensure easy access of loans at an affordable rate to the end-borrower.

FIDC also said NBFCs should be allowed to offer credit on United Payments Interface (UPI) and to avail of overdraft facilities from UPI.

At present, credit on UPI, both through credit cards and pre-approved credit lines, have been reserved for banks.

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