NBFC Seek and Expect Revival after Finance Minister's Plan to Bring Back Economy on Growth Track

The NBFC sector in India is struggling to deliver and sustain but after the most recent announcements made by the Finance Minister Nirmala Sitharaman the Indian NBFCs are expecting a greater flow of funds from banks following the measures announced to revive a slowing economy.

With this announcement, it is also expected to get the credit availability and affordability for MSMEs through NBFCs will benefit from the move allowing them to use bank KYCs of their customers as this will speed up loan sanctions.

As part of the measures to boost growth, the government has said it will release upfront Rs 70,000 crore as capital support to banks, which is expected to generate additional lending and liquidity in the system of around Rs 5 lakh crore.

Besides, housing finance companies (HFCs) will get additional liquidity of Rs 20,000 crore from the National Housing Bank (NHB).

The sector has been suffering from a liquidity squeeze after the IL&FS scam broke out almost a year ago.

Sources said that though funding from banks had improved in recent times, the lenders continued to be selective, opting for the better-rated entities and those with a good loan portfolio.

RBI data for June show bank credit growth to the sector has fallen on a year-on-year basis compared with April.

“The initiatives to provide additional liquidity support to NHB for housing loans and the ease in corporate finance accessibility for housing projects will help the NBFC sector tide itself over the liquidity stress to a greater extent,” Vishal Kampani, managing director of JM Financial Group, said.

Mahesh Thakkar, director-general of the Finance Industry Development Council (FIDC), welcomed the use of Aadhaar-authenticated bank KYCs.

The FIDC, a body which represents the interests of NBFCs, in its meetings with government officials had pointed out that the KYC process was a problematic one as many of the borrowers were truck drivers, small contractors, MSMEs and others from the economically weaker sections.

The absence of a common KYC repository meant not only duplication but also higher cost and harassment.

The FIDC, therefore, had proposed that NBFCs be allowed to utilise the KYC checks carried out by the banks where the customers had accounts.

The industry body said the government had accepted its argument that getting the details and evidence of such bank accounts and maintaining a record of such accounts should be sufficient for KYC requirements under the government’s Prevention of Money Laundering Act.

Realty upbeat

The real estate sector feels they will benefit from the government’s decision to provide additional liquidity support of Rs 20,000 crore to the the NHB for lending to housing finance companies..

“The move to give a major liquidity support of an additional Rs 20,000 crore to HFCs will significantly improve the momentum of lending to cash-strapped developers,” said Anuj Puri, chairman of Anarock Property Consultants.

He said many developers would now be able to complete their projects which were languishing because of the lack of funds. Sources said unsold housing units in the affordable segment had touched 4 lakhs.