Ahead of the presentation of the interim budget for FY25, senior executives of non-banking finance companies (NBFCs) said they are hopeful that the government will take steps to support growth and widen financial inclusion.
The demands of NBFCs from the interim budget to be presented on February 1 include a special liquidity window for microfinance and MSME (micro, small and medium enterprises) finance companies, refinance facilities, measures to enhance financial inclusion, and exemption on tax deduction at source. These measures will improve credit flow to needy segments at a reasonable rate, experts added.
“Microfinance companies and MSME finance NBFCs are two such segments. If the government can create a special liquidity window for these two kinds of NBFCs, it would do a world of good to millions of borrowers and help in both job creation as well as poverty elimination,” said Kishore Lodha, chief financial officer at U GRO Capital.
Umesh Revankar, executive vice chairman at Shriram Finance, said he hopes there will be continued focus on infrastructure development and logistics and more liquidity support for small businesses.
This year, the government will present an interim budget ahead of the Lok Sabha elections due by May. Finance minister Nirmala Sitharaman has said there are unlikely to be any "spectacular announcements" in the interim budget.
Also read: Budget 2024: Focus on growth to protect against global headwinds
In an election year, the government presents only an interim budget or seeks a vote on account, and leaves it to the next government to present the full budget.
Refinance facility
NBFC companies have been pitching for refinance facilities after the Reserve Bank of India asked them to reduce dependence on banks. Raman Agarwal, director of Finance Industry Development Council (FIDC), said NBFCs are over-dependent on banks for funding and once the banks turn risk-averse, NBFCs may face a liquidity issue.
“The remedy for this is not restriction, but to diversify funding sources available to NBFCs. So, that is why we are talking about a dedicated refinance window,” Agarwal said.
He said if some of the larger NBFCs, which are regulated like banks, are allowed to accept deposits, their reliance on banks will reduce and more funds will be available for smaller NBFCs.
Banks accounted for 37.8 percent of borrowings by NBFCs at the end of September, as compared with 37.7 percent in March 2023 and 35.6 percent in March 2022, according to the RBI Trend and Progress of Banking in India 2022-23 report.
Money market experts attributed this to the variable rates offered by banks as against market borrowings, which have a fixed rate of interest to be paid.
Special liquidity window
Experts said banks and housing finance companies have liquidity support from the RBI and National Housing Bank and therefore NBFCs too seek a special liquidity window for microfinance and MSME finance companies. This is because NBFCs provide support to MSMEs and a special liquidity window would help this sector with more funds available at a lower cost.
Manish Lunia, co-founder Flexiloans.com, said addressing liquidity concerns is paramount for the NBFC sector. Initiatives that facilitate easier access to funding such as refinancing mechanisms or collaboration with financial institutions, will greatly contribute to the sector's vitality.
Tashwinder Singh, MD of Niyogin Fintech, said the MSME sector, alongside agriculture, plays a pivotal role, contributing about 30 percent to the country's GDP and offering gainful employment to 111 million individuals. There is a pressing need for the government to expand formal and affordable credit facilities through NBFCs.
Also read: Budget 2024-25: Meet the team behind the interim Budget FY25
Enhance financial inclusion
Experts are also looking to the interim budget for measures to widen financial inclusion. According to Dilip Modi, founder of Spice Money, financial inclusion stands out as a critical aspect likely to be addressed in the budget.
The RBI’s announcement of a streamlined credit platform underscores its commitment to facilitating easy access to credit for small businesses and individuals. Singh also said provisions promoting technological innovation and digitalisation within the NBFC sector could contribute to improved efficiency and customer experience.
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