NBFC Sector Seeks More Funds To Improve Liquidity, Regulatory Reforms From Budget

Ahead of the upcoming Union Budget scheduled to be presented on July 23, the Non-Banking Financial Company (NBFC) sector is expecting enhanced financial inclusion and reinforcing digitisation efforts to sustain the sector's growth.

The Finance Industry Development Council (FIDC), which represents the industry, has suggested establishing a special refinancing body, just as the government has created National Housing Bank (NHB) for housing finance companies.

On the other hand, the sector this year has seen stringent regulatory action from the Reserve Bank of India (RBI). In addition, speaking at an event in May this year, RBI Deputy Governor Swaminathan J cautioned the NBFCs not to be overly reliant on algo-based credit models.

However, the apex bank, in its 29th Financial Stability Report (FSR) said that the NBFCs are well capitalised, giving an edge to the financial sector in the country. As of the end of March 2024, NBFCs had a CRAR of 26.6 per cent, a GNPA ratio of 4.0 per cent, and a return on assets (RoA) of 3.3 percent.

"The growth of the Indian NBFC industry is significantly influenced by robust financial inclusion, consumer demand, and improving trade balances. The upcoming Union Budget should emphasise enhancing financial inclusion across the country, implementing policy reforms, and reinforcing digitisation efforts to sustain the sector's growth. Financial and digital inclusion will enhance credit access by increasing convenience and reducing turnaround times," said Rakesh Kaul, CEO, Clix Capital.

"The government must consider incentivizing and promoting such measures so that NBFCs can carefully take advantage of global integration, ensuring sustainable growth and financial inclusion across India's diverse economic landscape," said Jitendra Tanwar, Managing Director and CEO of Namdev Finvest.

He further added that the government must consider incentivizing and promoting such measures so that NBFCs can carefully take advantage of global integration, ensuring sustainable growth and financial inclusion across India's diverse economic landscape.

Expressing his confidence in the budget this year, Krishan Gopal, CFO, Aye Finance, said,I believe this budget will lay the groundwork for India's vision of development by 2047. We expect the Government to recognize the efforts of NBFC lenders that are transforming micro-enterprise lending in India by providing customised credit lines, announcing schemes and subsidies and even considering classifying them as Priority Sector Lenders."

"Despite strong competition from banks, NBFCs have shown remarkable resilience in retaining a significant market share. To drive further growth, we seek policies that promote responsible credit utilisation, enhance access to credit for underserved communities, and foster financial literacy among customers," said Mathew Muthoottu, MD Muthoottu Mini Financiers.

"NBFCs are expecting the budget to carry provisions that spur consumption, such as via tax relief etc.; implement initiatives that enable growth of NBFCs serving priority sector clients; and undertake widespread campaigns aimed at inculcating good credit behaviour amongst the country's growing borrower base," opined Neha Juneja, Co-founder and CEO, IndiaP2P, on her budget expectations.

Anticipating the allocation of additional funds for the sector, Pavitra Walvekar, the CEO of Kudos Finance, which is based out of Pune, said, "Key initiatives should include the allocation of additional funds to improve liquidity for NBFCs and the introduction of regulatory reforms to streamline operations and enhance transparency. These steps will bolster credit availability, particularly for underserved segments like MSMEs, and promote financial stability in the long run." (ANI)