NBFC industry lobby pitches for rule relaxations by finance minister

Sitharaman

Finance Industry Development Council, a representative body for non-banking finance companies (NBFCs) urged the finance minister on June 2o to relax norms in certain areas, director Raman Aggarwal told Moneycontrol.

The relaxation is sought in SARFAESI Act, dual registration process of NBFC factoring with the RBI, TDS deduction for non-individual borrowers, and allocation of funds through SIDBI, he said.

Aggarwal proposed this during a pre-budget consultation with Finance Minister Nirmala Sitharaman.

The meeting was also attended by Union Minister of State for Finance Pankaj Chaudhary, finance secretary and secretary to the department of expenditure, secretaries from the departments of economic affairs, DIPAM, revenue, Financial Services and corporate affairs, and the chief economic advisor to the Government of India.

As of March 2023, the NBFCs credit to GDP ratio stood at 12.6 percent. Aggregate lending by NBFCs rose by 20.8 percent in September 2023 from 10.8 percent a year ago.

“There is therefore an urgent need to create a dedicated refinance window for NBFCs to ensure a smooth and sustainable flow of funds that would also help address the concerns relating to asset liability mismatch. Funds raised through this mechanism may be exclusively used to finance MSMEs and the priority sector,” he said.

NBFCs being financial intermediaries need funds to lend on an ongoing basis.

"We have suggested if the government could make a specific allocation of funds to SIDBI, which can do refinancing to small and medium NBFCs, which will reduce overdependence on banks," Aggarwal said.

When a non-individual borrower borrows from NBFCs, in every EMI he has to deduct a TDS of 10 percent, which is exempted for banks and other institutions. “We seek removal of this from regulations.”

In the NBFC factoring regulations, Aggarwal said there is a technical requirement of dual registering with the RBI. For NBFC factor, there is separate registration, in addition to NBFC registration. “There is a dual registration happening there, if that can be removed that we have proposed,” Aggarwal told Finance Minister.