Small non-banking finance companies (NBFCs) have reached out to the Reserve Bank of India (RBI) seeking liquidity support amid the second wave of coronavirus infections threatening to worsen their business.
In a letter to RBI, the representative body for NBFCs- Finance Industry Development Council (FIDC)- has sought various support measures for the smaller players with asset size of under Rs 500 crore.
"Liquidity for small NBFCs has continued to be a challenge, despite various measures taken by RBI in the past. The announcements made on 5th May have addressed the liquidity needs of small MFIs, but NBFCs have been missed out," it said.
The small NBFCs believe that their liquidity situation would be further aggravated since they have to restructure loans given by them, without any support on their liability side.
"It is an established fact that the only mode and source of borrowing for these small NBFCs are term loans from banks and FIs like SIDBI, NABARD. They do not access capital market, nor do they issue bonds/debentures," it said.
"We urge the RBI to increase the overall support outlay to AIFIs from Rs 50,000 crore to at least Rs 75,000 crore and the additional Rs 25,000 crore may be made available exclusively to medium and small NBFCs, through SIDBI for a period of 3 years. This increase will help smaller NBFCs in maintaining their asset-liability match as their assets typically are for a period of 3 – 5 years," FIDC requested RBI in its letter.
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It also requested the benefit of priority sector lending (PSL) classification for on-lending by banks to NBFCs to be regularised as part of overall PSL policy, and the limit of Rs 20 lakh per borrower done away with.
Besides outright buy-out, small NBFCs also want RBI to allow banks to finance against the existing unencumbered MSME pool originated by NBFCs, within the overall limit of 5 percent of individual bank’s PSL lending.
They’ve additionally asked RBI to expand the scope of the May 5 circular on small finance banks’ lending to MFIs under PSL so as to cover small NBFCs also.
Lastly, FIDC also requested RBI to consider NABARD extending the Refinance Policy for Schematic Lending under Special Liquidity Facility for all small NBFCs for their agri-loans.
Some NBFCs that have reported earnings so far have indicated a 5-10 percent hit in April collections due to the second wave of infections, that may impact their profitability.
On May 5, RBI reopened the one-time debt restructuring scheme amid a surge in COVID-19 cases. Retail borrowers and small businesses will be permitted to recast their loans, without being downgraded to a non-performing category, under the scheme.
(Edited by : Jomy)