Non-bank lenders’ association Finance Industry Development Council (FIDC) has sought government intervention to ensure that smaller NBFCs get access to funds.

In a letter addressed to the Finance Minister, FIDC said that despite various government and regulatory measures, small and medium NBFCs continued to face difficulties in raising funds.

“The interventions by the Government through TLTRO 2.0, PCG 2.0, Special Liquidity Scheme etc. targeted to infuse liquidity has provided only limited relief to small and medium-sized NBFCs as most of the money has flowed into a small number of large NBFCs, which are highly rated,” it said in its letter.

FIDC also claimed that that the lower translation of benefits to mid and small-sized NBFCs through TLTRO, PCG and other similar interventions seemed to be stemming from “tighter evaluation criteria adopted by the banks related to the profit and loss account,” which remain under stress.

The letter said that with mutual funds and insurance companies reluctant to fund NBFCs, even large companies have been borrowing mainly from banks.

This, FIDC said, left hardly any space for small and medium NBFCs which have been crowded out and banks are citing sectoral exposure caps to deny the credit facilities to these NBFCs.

Also, recent liquidity relief measures for NBFCs are aimed at routing funds to NBFCs through the banking channels. Under stress themselves, banks have been risk-averse in funding NBFCs.

Therefore, FIDC said that the government must encourage non-banks, other financial institutions and special purpose vehicles instead to lend to NBFCs.

Highlighting the difficulties for small and medium-sized NBFCs, FIDC said these entities do not access capital market, but simply raise money through term loans from banks and FIs. “Almost all the measures announced – TLTRO 1.0 & 2.0, Partial Credit Guarantee Scheme 2.0 and Special Liquidity Scheme, entail funding of NBFCs by investment in their bonds / NCDs / CPs only. Thus, these measures have not provided the desired result,” the FIDC letter said.

Also, all the measures announced till date have a minimum prescribed credit rating as an eligibility criteria, FIDC said. It claimed that credit rating agencies use ‘size’ as an important parameter, because of which smaller NBFCs often miss out on getting the requisite rating to claim benefits.

• Other Suggestions:

- A fund dedicated to Funding Small & Medium NBFCs may be allocated to financial institutions like SIDBI, NABARD

- These FIs should fund by way of “Term Loans” for a tenure of 3-5 years

- All NBFCs, irrespective of their size and credit rating (even unrated), should be eligible

- Regulatory forbearance and advice to banks/FIs to show leniency towards the financial covenants related to Profit and Loss account for the financial years 2019-20 & 2020-21, along with a carve-out for small and medium NBFCs in the sectoral caps prescribed for NBFC

- Key balance sheet parameters such as CRAR, NPAs, track record along with promoters experience and understanding of the market, should be the important consideration