India's NBFC body urges government to create liquidity facility for priority sector lending

The FIDC also asked the government to reconsider limits imposed on all NBFCs borrowings to finance key sectors.

An industry body for India’s non-banking finance companies (NBFCs) has asked the government to create a refinance or liquidity facility to boost lending to priority sectors such as agriculture, medium and small enterprises, and renewable energy.

Development-focused financial institutions like SIDBI can provide such an option to NBFCs, the Finance Industry Development Council (FIDC) said in a letter to Finance Minister Nirmala Sitharaman as part of a pre-budget memorandum.

The FIDC highlighted that funds provided to NBFCs have not increased commensurately over the years, resulting in liquidity being ”a recurring challenge” for the sector.

While the sector has reduced its reliance on bank borrowings following the RBI’s nudge, a large number of small- and mid-sized NBFCs have to borrow from their larger peers at a higher cost, it said.

The industry body also requested the government to create a mechanism of market-making to be able to access funds in an organised manner.

The FIDC also asked the government to reconsider limits imposed on all NBFCs borrowings to finance key sectors.

The current cap of 5% should be increased to at least 10% of the total priority sector lending done by banks in order to ensure a better flow of credit to the priority sector, the FIDC said.