CII suggests action plan for revival of NBFCs

Industry body CII has suggested a five-point agenda to breathe life into the country's NBFCs, which are grappling with a steep rise in NPAs, slow loan growth and elevated funding costs amidst a stringent regulatory environment.

New Delhi: Industry body CII has suggested a five-point agenda to breathe life into the country's NBFCs, which are grappling with a steep rise in NPAs, slow loan growth and elevated funding costs amidst a stringent regulatory environment.

The action plan focuses upon meeting funding requirements of the sector, maintaining the existing NPA classification norms, bringing NBFCs under the ambit of the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, addressing concerns on capital adequacy requirements and resolving tax-related issues.

"The non-banking financial company (NBFC) sector needs to be integrated to the core of Indian financial system with adequate policy support to help meet the financing needs of the economy and achieve financial inclusion," CII Director General Chandrajit Banerjee said.

Clarity on the policy road-map for the NBFC sector for the next 10 years would promote systematic and organised development of the sector, he added.

While NBFCs assets as a percentage to the GDP have risen from 8.4 percent in 2006 to 12.5 percent in 2013, the NBFC sector has a share of just 8 percent in the total financial sector assets of the Indian economy, Banerjee said.

To give a boost to the NBFC sector, there is a need for a robust framework for safeguarding depositors' interest and strengthening customer protection, CII said.

Extension of the SARFAESI Act to the NBFC sector will go a long way towards the orderly growth and development of the sector, the industry chamber suggested.

This much needed reform will be a level playing field for NBFCs vis-a-vis banks and empower them to recover their NPAs without court's intervention, it said.

CII said that a robust NBFC sector is critical for the banking sector to meet the funding needs of the economy.

"To help meet the funding requirement of the NBFC sector adequately, there is a need to support financing from major sources, including banks and mutual funds, as also to promote access of funds through other routes like corporate bond market and external commercial borrowings," it added.

At present, NBFCs need to classify a loan as NPA if the borrower defaults for 180 days as against 90 days for banks.

The RBI has suggested the 90 day rule to apply for NBFCs too. Since NBFCs cater to unbanked customer segment with no collaterals and irregular cash flows, there is a need for maintaining the existing norms, CII suggested.

Over the last five years, RBI has increased the total capital adequacy ratio floor from 10 to 15 percent due to which NBFCs have been consistently raising capital.

In the current scenario, there is a strong case for maintaining the existing tier-I capital ratio, given the difficulties faced by NBFCs in raising equity, it said.

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