The Hindu Business Line : NBFCs may get easier access to funds

Non-banking financial companies (NBFCs) may get some policy support from the Government and the Reserve Bank of India as part of the economic stimulus package slated to be unveiled on Saturday.

Allowing such companies to access external commercial borrowings (ECBs) window was among the several measures that figured in the discussions of the Prime Minister’s apex panel that finalised the stimulus package, highly placed sources in the Government told Business Line.

It has been recognised by policy makers that NBFCs, unlike banks, do not have access to low-cost deposits and are all “choked” on account of the growth seen in recent years. Also banks’ ability to lend to these entities is restricted as there are limits to banks’ exposure to NBFCs.

With the Indian economy witnessing a slowdown, banks are curtailing the flow of funds to the NBFCs, leading to difficulties in accessing funds. “With the RBI also clamping on the flow of funds to NBFCs, many of them look stressed and over exposed. Either banks may now be nudged to lend more to NBFCs by opening more lines of credit or they may be allowed to borrow through ECBs”, sources said.

While it was not clear as to what the scope of measures would be, indications are that the exposure limits of banks to such entities may also get tweaked to enable flow of more funds to NBFCs. The absence of an active corporate debt market and the steps needed on this front were also under consideration of the policy makers so as to address the funding requirements of NBFCs.

In India, there are two broad categories of NBFCs, NBFCs-D (deposit taking) and NBFCs-ND (non-deposit taking). There has been a significant decline in the deposit base of NBFCs-D.

An advisory group appointed by the committee on financial sector assessment had concluded that both categories showed an increased dependence on borrowings as a funding source. It was being felt that their growth should not be stifled through excessive regulations even while ensuring that these entities do not pose any risk to the system.

Besides the issue of access of low-cost funds, the NBFCs-D also bear high regulatory costs, and in the medium term, it may be difficult for these entities to compete with banks, according to the advisory group.

Meanwhile, in the interest of better market discipline and in the context of increasing complexities of holding structures and multi-layering, the advisory group is set to recommend that the RBI could consider increased disclosure by NBFCs such as ownership structure, significant holdings and nature and type of activities and products.

The central bank should also explore the option of examining the suitability of the major shareholders and senior management of NBFCs, according to the advisory group.

Related Stories:
Strapped for cash, NBFCs ask Govt for more
New window for NBFCs

More Stories on : Economy | NBFCs

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page