Government will provide credit guarantee to PSB to buy NBFC assets

New Delhi, July 5 () Non-bank financial companies (NBFC) play an important role in capital formation and the government will provide a partial partial credit guarantee to PSBs to purchase financially sound NBFC-rated combined assets, Finance Minister Nirmala Sitharaman said in the 2019-20 Union budget on Friday.

The NBFCs are playing an important role in maintaining consumer demand, as well as capital formation in the small and medium-sized industrial segment, he said in his inaugural speech Budget in Parliament.

For the purchase of financially sound NBFC high-rated combined assets, for a total of Rs 1 lakh crore during the current fiscal year, the government will provide a six-month partial credit guarantee to public sector banks (PSB) for the first loss of up to 10 percent, said Sitharaman.

Furthermore, even while the NBFCs are regulated by the RBI, it has limited authority over the sector, therefore, appropriate proposals to strengthen the regulatory authority of the RBI over the NBFCs are being placed in the Finance Bill, the minister said. .

However, he said that NBFCs that are fundamentally sound should continue to obtain funds from banks and mutual funds without being excessively risk adverse.

The NBFC sector is currently in a liquidity hurdle with a series of defaults by companies such as ILu0026FS along with the companies of its group and DHFL that began to develop since September 2018.

Among others, Sitharaman said that the government will allow NBFCs to raise funds on public issues, and will eliminate the requirement to create a reserve of obligations reserve (DRR), which is currently applicable only for public matters, since private locations are exempt.

From now on, NBFCs that make public debt placements must maintain a DRR and, in addition, a special reserve must be maintained as required by the RBI.

To bring more participants, especially NBFCs, not registered as NBFCs-Factor, on the TReDS platform, an amendment to the Factoring Regulation Act, 2011 is necessary and measures will be taken to allow all NBFCs to participate directly in the TReDS platform, he added. He said.

Sitharaman also said that efficient and propitious regulation of the housing sector is important in the context of India.

Currently, the National Housing Bank (NHB), in addition to being a refinancing and lender, is also a regulator of the housing finance sector. This gives NHB a somewhat conflicting and difficult mandate. I propose to return the regulatory authority over the housing finance sector from NHB to RBI. The necessary proposals have been included in the Finance Bill, said the minister. KPM HRS