Published: Sun, July 07, 2019
Markets | By Otis Pena

Budget provides relief for NBFCs

Budget provides relief for NBFCs

I can not say it has ended.

Unveiling the Budget for 2019-20, the finance minister said non-performing assets of PSBs have come down by Rs 1 lakh crore.

A year after a series of defaults by Infrastructure Leasing & Financial Services that exposed the weakness in India's shadow banks, the problem is deepening with other NBFCs such as Dewan Housing Finance Corp. and Anil Ambani's Reliance Capital Ltd. struggling to find new money. Sitharaman said the government will bring out a remedy against cash being deposited without knowledge of bank account holders. But state-owned NBFCs would be beyond the RBI's pale. In order to treat systemically important NBFCs on par with banks, the government allowed interest on certain bad or doubtful debts to be offered to tax in the year in which the interest is actually received. The National Housing Bank (NHB), besides being the refinancer and lender to mortgage companies, is also the regulator of the sector. Many housing finance firms have been under severe stress facing an asset liability mismatch pushing the need for tighter regulations for the sector.

"Necessary proposals have been placed in the Finance Bill", she said. "We shall be closely monitoring with the RBI to see how it (the situation) is moving so strictly speaking, I feel the NBFC issue has been addressed", she said, while asserting that it should not be seen as being ended.

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India has almost 10,000 registered NBFCs lending to millions of households who might not be able to borrow directly from a commercial bank.

She asserted that financially sound NBFCs should continue to get funds from banks and mutual funds.

Former finance minister Arun Jaitley wrote in a blog, "The budget contains concrete proposals about support to the NBFCs whose liquidity, for the last several months, was under strain and had reduced the purchasing power of consumer". NBFCs play a critical role in providing credit of around Rs 8.5 trillion to the marginalised and economically backward, which is the backbone of the Indian economy.

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