Industry body Assocham: Industry body Assocham has recommended the creation of a refinance window for the NBFC sector in the upcoming budget and bringing banks’ lending to non-banking financial companies in the priority sector permanently.
Assocham, in its recommendations sent to the government through a pre-budget memorandum, said that funding support to non-banking finance companies (NBFCs) will ensure liquidity for the sector, as they play a key role in financial inclusion and help the underprivileged. Provides affordable financial services.
Capacity hit due to lack of liquidity
The industry body said that over the years, the NBFC sector has faced liquidity crunch due to external factors. As such, their ability to take affordable loans has been affected.
Assocham said, “There has been a long standing demand for direct central bank refinance arrangements for NBFCs on the lines of National Housing Bank (which refinances home finance companies or HFCs). The Parliamentary Standing Committee on Finance had in June 2003 recommended the formation of a new refinance institution for NBFCs.
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Priority lending to NBFCs should be permanent
With the COVID-19 pandemic adversely impacting sectors that lack rural banking facilities, the RBI made it mandatory for banks to give priority sector loans to NBFCs for on-lending to agriculture, MSMEs and housing. This window was open till September 30, 2021. The industry body suggested that lending to NBFCs should be made permanent under the priority sector of banks.
Role of NBFCs in Financial Inclusion
The memorandum said that since NBFCs play a vital role in financial inclusion and providing affordable services to the underprivileged, we have suggested providing this window with a limit of 10 per cent of total priority sector lending of banks. The industry body said this would increase the reach of the PSL initiative.
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Assocham also made this recommendation
In addition, ASSOCHAM has also recommended the government to set up an alternate investment fund for NBFCs, issue secured bonds, and establish a remittance mechanism with financial institutions to reduce over-dependence on banks.
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