Govt, RBI need to ensure that cash-flushed banks lend to NBFCs

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New Delhi: NBFCs have been going through a liquidity crisis over the past two years and the COVID-19 pandemic has only worsened the situation.

Mahesh Thakkar, Director General of Finance Industry Development Council (FIDC) is of the view that Centre and the RBI should intervene and ensure that well-capitalised banks lend towards the small and medium NBFCs which largely cater to MSMEs and small businesses.

FIDC is the representative body of assets and loan financing non-banking financial companies (FIDC).

Thakkar said that although noting that skepticism towards lending to NBFCs still exists among the banks, it has, somewhat eased in the past few months since the government’s liquidity measures and sovereign guarantee schemes.

“Problem is that the banks are sitting with huge funds… and where to lend is the problem,” he said.

Talking about the demand-supply mismatch, Thakkar said that there is a gap between “where the money is lying” and “where it is required” and “the Government of India and the RBI and the banks need to see that it is fluid now”.

The FIDC DG also mentioned that getting loans from banks for NBFCs also depends on the relationship of the NBFC with the concerned bank and its past record.

Talking on the outlook for the small and medium NBFCs with businesses of around Rs 50-100 crore, he said that growth of these businesses may suffer in the next few months.

He expected that as the sources of funds open up by September-October which would help the sector. As a fallout of the current situation, he said that there may be consolidation in the segment.

On the requirement of change in business strategies by these financial institutions, he said that they may have to rework their strategies, cut costs, bring in technological enhancement, and strengthen corporate governance among others.

Thakkar said that demand is gradually reviving for automobiles, commercial vehicles among others and as various sectors open up including hospitality and other services demand for loans from NBFCs will grow further.

He said that demand should increase to satisfactory levels by the festival season in November. However, full recovery of credit demand from NBFCs would only happen in the next financial year, he said.

On the recent liquidity measures including the Emergency Credit Line Guarantee Scheme (ECLGS), he said that the progress of its implementation would be known in days ahead.

In a recent letter to Finance Minister Nirmala Sitharaman, FIDC had sought inclusion of all loans given to individuals for purchase of commercial vehicles under the ECLGS announced as the ‘Aatmanirbhar Bharat’ economic package.

FIDC noted that more than 75 per cent of the customers take loans for buying vehicles for commercial purposes in their individual names as they don’t have any business establishment in the name of firm or partnerships and they conduct their business in individual names.

Under ECLGS, 100 per cent sovereign guarantee is provided to all lenders to help them give additional funding to MSMEs and other eligible businesses to the total extent of Rs 3 lakh crore.