In a country like India, where retail and MSME lending still remains largely under-penetrated, the NBFCs have been playing a critical role in the country’s effort to achieve financial inclusion.
The growth story of NBFCs has been driven by their ability to become financiers to the unbanked and making formal credit accessible for the unserved and underserved sections of India. If you count in the boost provided by this sector to infrastructure development and wealth creation in the unorganized sector, its well-being becomes extremely important for the inclusive growth of the whole economy. This is why tomorrow’s budget means so much to this sector. Let’s first take a look at 2018.
Analyzing the year 2018
2018 has been a challenging year for the NBFCs. The sector spread itself to thin, lending recklessly and failing to take stock of the asset-liability mismatch in its operations.. Several NBFCs went bust and the ones that remained struggled to find funds as regulators tightened the screw, banks refused to lend and investors developed cold feet. Even though the government and the RBI has been taking several measures to stabilise the situation, problems still exist.
What the NBFCs can expect from Union Budget 2019-20
As Finance Minister Ms. Nirmala Sitharaman presents her budget tomorrow, the NBFCs are expecting the roll out of short-term and long-term measures that will ease the liquidity crunch and help the sector get back on the track.
Here is what the NBFCs are expecting –
1. A liquidity window to ease the crisis :
Recently, a delegation of NBFCs and PSBs met the finance minister apprising her of the problem and offering solutions for increasing liquidity in the system. The delegation sought a clear liquidity window for NBFCs, which will enable the sector to get continuous credit supply.
2. Measures to ensure benefits of rate cuts to end users :
There have been a few policy rate cuts by the RBI in the past few months. But in order to pass on these benefits to end-customers, it is important for the government to come up with adequate policy measures on this front.
3. Tax exemptions :
The sector is expecting the finance minister to announce favorable amendments to Section 43D and Section 194A of the Income Tax Act. This way, the taxable income of NBFC on NPA will be computed on what has been actually realised and the TDS will not be deducted on the interest received. NBFCs are also looking for simplification of the GST, which will lead to ease of doing business.
4. Priority Sector Lending Tag :
The sector is also looking for measures that will help in increasing the fund flow from banks. One of them is a granting priority sector tags to those NBFCs whose 60% of the income comes from lending to the priority sectors like infrastructure, farm, housing and MSME. Such a move will encourage banks to lend more money to the NBFCs since they need to meet their target of lending to the priority sectors. This will also reduce the cost of funds for the NBFCs and increase profitability.
5. Incentivization and sustainability support
The sector is also expecting the government to consider effective policies that focus on incentivization and sustainability of companies in this sector. Such measures would not only help the NBFCs in difficult times, but also give impetus to spending in domestic economy.
As major enablers of credit inclusion, the NBFCs, often referred to as the shadow banks, have played a crucial role in taking credit to unbanked sections of the market. Reviving the health of this sector is important for overall growth of the economy. With Budget 2019-20, the sector is hoping to get back on its feet.
