Smaller NBFCs seek liquidity support from Reserve Bank

Mumbai: Smaller non-banking finance companies (NBFCs) have written to the Reserve Bank requesting liquidity support as they continue to face challenges in raising funds.

In a letter addressed to RBI Governor Shaktikanta Das, Finance Industry Development Council (FIDC), a representative body of NBFCs, said the announcements made on May 5 by the central bank have addressed liquidity needs of small microfinance institutions MFIs, but NBFCs have missed out. "Liquidity for smaller NBFCs (asset size up to Rs 500 crore) has continued to be a challenge, despite various measures taken by RBI in the past," the letter dated May 18 said.

The industry body said the liquidity situation for these NBFCs would be further aggravated since they have to restructure loans given by them, without any support on their liability side.

It said the only source of borrowing for small NBFCs is term loans from banks and financial institutions like SIDBI and NABARD. These players do not access the capital market or issue bonds/debentures.

The letter said the RBI had announced several rounds of targeted long-term repo operations (TLTRO) with the view to increasing credit flow from banks to NBFCs. However, TLTRO has not proved successful in providing adequate bank credit to small and medium NBFCs and there is a need for a specialised window to be created for them, 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 smaller NBFCs, through SIDBI for three years," the industry body said. This will help smaller NBFCs in maintaining their asset-liability match as their assets typically are for three-five years.

The FIDC said the benefit of priority sector lending (PSL) classification for lending by banks to NBFCs for on-lending to be regularized as part of the overall PSL policy, and the limit of Rs 20 lakh per borrower be done away with.

It requested that besides outright buy-out, banks may be allowed to also finance against the existing unencumbered MSME pool originated by NBFCs. However, it should be within the overall limit of 5 per cent of an individual bank's PSL lending. The letter urged that the scope of RBI's May 5, 2021, circular on small finance banks' lending to MFIs be extended for on-lending to be treated as PSL, to cover small NBFCs.

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