FIDC seeks dedicated fund for small, medium NBFCs

MUMBAI: The Finance Industry Development Council (FIDC), a representative body of non-banking finance companies, has written to Finance Minister Nirmala Sitharaman for allocation of a dedicated fund to Nabard or Sidbi for on-lending to small and medium sized NBFCs that are facing liquidity challenges.

The industry body has also requested that the funds should be given in the form of term loans with a tenure of three-five years. It said though the government has announced various measures to provide liquidity support to the non-banking sector, the situation for small and medium sized NBFCs has not changed significantly and they continue to face difficulties in raising funds.

The small and medium NBFCs account for more than 90 per cent of the total number of non-banking finance companies registered with the Reserve Bank of India (RBI).

“A fund dedicated to funding small and medium NBFCs may be allocated to financial institutions (FIs) like Sidbi, Nabard (along with NABKISAN and NABSAMRUDDHI). These FIs should fund by way of ‘term loans’ for a tenure of 3-5 years,” FIDC wrote in the letter. It said the recent measures announced by the government and RBI for NBFCs are aimed at routing funds to shadow banks through the banking channels.

However, the last two years have clearly shown the risk-averse approach of banks when it comes to funding NBFCs, the letter said.

“The partial credit guarantee scheme 1.0, TLTRO 1.0 and 2.0 could not yield desired results simply due to the risk aversion on part of banks. Thus, it is important to provide funding from sources other than banks also,” the industry body said.

Small and medium sized NBFCs do not access the capital market and thus do not issue bonds or commercial papers (CPs). They raise funds simply through term loans from banks and FIs.

FIDC seeks dedicated fund for small, medium NBFCs FIDC seeks dedicated fund for small, medium NBFCs Reviewed by TechCO on 7/18/2020 Rating: 5

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