Pre-Budget meeting: NBFCs seek easier credit flow, TLTRO benefits

Financial sector and capital market players on Tuesday appealed to finance minister Nirmala Sitharaman to allow non-banking financial companies (NBFCs) to issue “on-tap” secured bonds and also requested greater liquidity flow to small NBFCs be ensured. At the pre-Budget consultation meeting, the Finance Industry Development Council (FIDC), a body of shadow banks, said NBFCs should be included in the list of eligible sectors under the central bank’s on-tap TLTRO (targetted long-term repo operation) scheme. Top executives of LIC, Axis Bank, Citi Bank (India), UTI Asset Management, Muthoot Group were among those who participated in the meeting.

Earlier in the day, the Financial Stability and Development Council (FSDC), headed by Sitharaman, decided to “keep a continuous vigil” on the financial conditions that could “expose financial vulnerabilities in the medium and long-term”. The Council’s meeting was also attended by heads of regulators, including RBI, Sebi, Irdai, IBBI and PFRDA, as well as top finance ministry officials.

At the same time, the Council acknowledged that government and the financial sector regulators have ensured faster economic recovery in India as reflected in the reduced contraction of real GDP in the second quarter (7.5% vs 23.9% in Q1).

The Reserve Bank of India (RBI) had in October announced an on-tap window for banks to borrow up to `1 lakh crore and invest in corporate bonds and other debt instruments of companies in certain sectors. While the central bank has conducted targeted long-term repo operations (TLTROs) in the past, but this time banks were allowed to use the money not just for debt investments, but also for corporate loans.

Raman Aggarwal, co-chairman of FIDC, said the Partial Credit Guarantee Scheme 2.0 should also include bank lending to NBFCs by way of term loans, as small players do not issue bonds or non-convertible debetures. “The arrangement of treating bank lending to NBFCs for on-lending to priority sector to be treated as PSL (priority sector lending) for banks, should be made permanent and the limit needs to be increased to at least 10% of total priority sector lending by banks,” Aggarwal said.