MUMBAI: If there is one industry that must be heaving a sigh of relief in getting a direct benefit from the budget measures, it must be the non-banking finance companies (NBFC). Finance Minister Nirmala Sitharaman announced partial credit guarantee to give the much-needed liquidity support in the Union Budget.
In the current financial year, government will provide one time six months’ partial credit guarantee to public sector banks (PSB) Rs 1 lakh crore for first loss of up to 10 per cent for purchase of high-rated pooled assets of financially sound NBFCs.
Reserve Bank of India immediately announced that it will provide required liquidity backstop to banks against their G-Sec (government securities) holdings to buy assets from NBFCs up to Rs 1 lakh crore as announced.
In addition, RBI also announced that it will frontload FALLCR (Facility to Avail Liquidity for Liquidity Coverage Ratio) to the extent of incremental outstanding credit to NBFCs and housing finance companies (HFC) that would release additional liquidity of Rs 1.34 lakh crores.
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“Non-Banking Financial Companies (NBFCs) are playing an extremely important role in sustaining consumption demand as well as capital formation in the small and medium industrial segment. NBFCs that are fundamentally sound should continue to get funding from banks and mutual funds without being unduly risk-averse,” Sitharaman said.
“In line with our expectations, the Debt Redemption Reserve for public issues has been exempted. The credit guarantee provided by the government will open up the liquidity line for fundamentally sound NBFCs,” said George Alexander Muthoot, MD, Muthoot Finance.
While the NBFC sector welcomed the much-needed support, there is still a feeling that instead of routing the liquidity support through banks, a direct liquidity window would have been better.
FPI investment
The Budget has proposed to allow FII/FPI investment in debt securities issued by Infrastructure Debt Fund — Non-Bank Finance Companies to be transferred or sold to any domestic investor within the specified lock-in period.