2/3/2020 Budget 2020: Lack of effective liquidity measures may delay revival of weaker NBFCs - Moneycontrol.com

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After the slew of measures announced in September 2019, marketswere anticipating a second wave of supportive policy actions thatwould ensure quicker revival of the shadow banking sector.

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2/3/2020 Budget 2020: Lack of effective liquidity measures may delay revival of weaker NBFCs - Moneycontrol.com

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any new measures to boost liquidity and credit flow to the troubled non-

banking finance companies (NBFCs) and housing finance companies (HFCs).

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After the slew of measures announced in September 2019, markets were

anticipating a second wave of supportive policy actions that would ensure

quicker revival of the shadow banking sector.

However, apart from increased access to debt recovery system and access to

online bill discounting platform, there wasn't much to cheer for NBFCs in the

budget for next financial year.

"I think the NBFCs are going through the toughest time I have seen in 40

years," said Deepak Parekh, Chairman, Housing Development Finance

Corporation (HDFC) told CNBC-TV18. He added that benefits to the sector were

marginal.

To decode what the Finance Minister announced

for NBFCs in the budget announcement on

February 1, we take a look at all the measures in

detail.

Partial Credit Guarantee Scheme

In last year's Budget, the government had

proposed a partial credit guarantee (PCG)

scheme to help cash-strapped NBFCs tide over

liquidity crisis. However, the scheme that was

launched in August 2019 failed to take off due to

a number of roadblocks.

The scheme was later modified to accommodate

feedback from the industry. In December 2019,

the cabinet approved extension of the PCG

scheme to 30 June 2020, with an option to extend

it by another three months depending upon the progress.

Also, banks were permitted to purchase from pool of 'BBB+' rated assets of

NBFCs, lower than the earlier stipulation of 'AA' rated assets that limited its

scope. NBFCs that slipped into SMA-0 category in one year prior to IL&FS crisis

would also be eligible for the scheme.

Budget 2020: Lack of effective liquiditymeasures may delay revival of...

Budget 2020 | What about coastaleconomic zones, waterways and coastal...

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2/3/2020 Budget 2020: Lack of effective liquidity measures may delay revival of weaker NBFCs - Moneycontrol.com

https://www.moneycontrol.com/news/economy/policy/budget-2020-lack-of-effective-liquidity-measures-may-delay-revival-of-weaker-nbfcs-489422… 4/6

On February 1, Sitharaman said that a mechanism would be devised for the

scheme without divulging any more details.

"This step would boost liquidity for NBFCs. However, clarity would

be required on the mechanism which is scheduled to be announced later. This

shows continued GOI intent to support well run NBFCs," said Care Ratings in a

report.

Debt recovery under SARFAESI

To ensure recovery of smaller accounts by NBFCs, the government reduced the

eligibility requirement for enforcement of Securitization and Reconstruction

of Financial Assets and Enforcement of Security Interest (SARFAESI) Act.

Accordingly, the eligible asset size was reduced from Rs 500 crore to Rs 100

crore or the loan size from Rs 1 crore to Rs 50 lakh.

"Under the SARFAESI Act, the debt recovery has reduced from Rs 1 crore to Rs

50 lakh is one step ahead. We would still expect it to be on par with banks

which currently stand at Rs 1 lakh," said Umesh Revankar, MD and CEO,

Shriram Transport Finance.

Access to TReDs

Sitharaman proposed amendments to the Factor Regulation Act 2011, enabling

NBFCs to extend invoice financing to MSMEs through TReDs which is an online

bill discounting platform. The move is aimed at enhancing economic and

financial sustainability of MSMEs.

NABARD refinance scheme

As part of its efforts to increase credit availability for women Self Help Groups

through NABARD or Mudra, the refinance scheme would be extended to

NBFCs that are into agri-related lending.

Jaspal Bindra, Executive Chairman, Centrum Group and Former Standard

Chartered Bank Asia chief said that all these measures are helpful and

positive.

"However, the mega challenge is around credit growth and the resultant

liquidity crisis, which has not been addressed," Bindra added.

In its Trends and Progress report released in December, the Reserve Bank of

India (RBI) noted that challenges faced by some of the NBFCs were reflective of

inherent fragilities rather than merely a liquidity crunch.

"Consequently, financial markets have been discriminating between strong

NBFCs and those having perceptible weaknesses," it added.

The regulator said that NBFCs with asset-liability mismatchesor asset quality

concerns are facing constraints on market access and/ or higher borrowing

costs.

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