NEW DELHI: The Centre may dole out a special relief package for Non-Banking Finance Companies (NBFC) struggling to recover from the aftermath of a liquidity crisis post the defaults by Infrastructure Leasing & Financial Services Ltd (IL&FS).“The last budget had put a lot of emphasis on the NBFC sector. The situation has certainly improved in last six months, but the sector is still not out of danger, given the crisis in the housing sector. The NBFCs are still gripped by fear of defaults. So, the upcoming budget is likely to provide a special package dedicated for the stressed sector. This will give an immediate relief to NBFCs,” a senior finance ministry official said.
The NBFCs have sought setting up of a permanent refinance window for the sector in the Union Budget FY 2020-21, which they say will help them diversify their funding sources.The sector has been under pressure since September 2018, after the collapse of infrastructure lender IL&FS, and it spilled over to many other companies including Dewan Housing Finance Corporation Ltd (DHFL), Indiabulls and several small firms. Post the IL&FS fiasco, banks stopped lending to the NBFC sector fearing high risk, which created liquidity crisis.In her last budget, Union Finance Minister Nirmala Sitharaman announced slew of schemes for the banks to help the NBFC sector. However, the crisis is yet to subside completely.
In November 2019,
the government notified Section 227 of the Insolvency and Bankruptcy Code, empowering the Reserve Bank of India (RBI) to refer financial sector players such as NBFCs and Housing Finance Companies with assets worth at least `500 crore to insolvency courts (the banks were excluded from this). The RBI on Friday constituted a three-member panel to advise its administrator to help recover nearly `84,000 crore bad loans.While top NBFCs continue to receive funding, those with poor asset quality have to suffer higher borrowing cost, further putting them under strain. “Recent developments in the NBFC sector have brought it under greater market discipline as the better performing companies continued to raise funds while those with asset liability management and/or asset quality concerns were subjected to higher borrowing costs,” RBI said in its latest Financial Stability Report.The RBI is very closely monitoring the top 50 NBFCs, which represent roughly 75 per cent of the asset size of the sector.
