Non-Banking Financial Company (NBFC) is a company that operates under the company law of 1956, engaged in loans and advances, the purchase of equity/stock/bonds/debentures/securities, issued by the government, by the local authority or other marketable securities. The NBFCs have requested the Reserve Bank, because they are unable to revive their business to increase MSME advances’ one-time restructuring scheme until March 31, 2022. The Reserve Bank allowed the restructuring of current MSME advances in February of last year, without declining the classification of assets, subject to specific supplementary provisions and other compliance without deducting them. The deadline was 31 December 2020 for implementing the scheme. In a recent letter to RBI Governor Shaktikanta Das of the FIDC, an NBFC industrial body said that the micro, small and medium enterprises (MSMEs) were unable to revive economic activities due to the severe second wave of COVID-19 and urgently need lender support. “It will be helpful if the restructuring system extends to at least 31 March 2022 by RBI, considering the challenging environment for MSMEs and lenders,” wrote the Finance Industry Development Council (FIDC).
The NBFCs mainly address the financing needs of micro, small and medium enterprises (MSME), including retailers and wholesale traders. The industry body urged the RBI to reshape certain MSME loans which, in the first wave of COVID-19 had already received the same relief, but now facing challenges. The FIDC also requested that the central bank permanently grant classification benefits to the NBFCs for the classification of priority status lending (PSL). The RBI extended the PSL benefit by six months till 30 September 2021 earlier this month. According to the letter, only fresh loan granted by NBFCs is allowed PSL benefits, and there is no PSL classification benefit to existing unencumbered pools of eligible PSLs. The RBI has been urged by the industry to permit bank refinancing for NBFCs’ current unembedded MSME pool.
The RBI has been urged by the industry to permit bank refinancing for NBFCs’ current unembedded MSME pool. FIDC requested the reinstatement of the guarantee cover for NBFCs, under the loan guarantee fund scheme (CGS-II) to 75 % in a separate letter to MSME Minister Nitin Gadkari, which was recently revised to 50 %. The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) had created CGS II to provide guarantees on loans to micro- and small enterprises (MSE) borrowers from eligible NBFCs. “We urge the guarantee cover to be restored at an earlier level of 75%, particularly in times of uncertainty and stress.” the letter said. According to the scheme amendment, NBFCs are allowed to charge interest rates of up to 18 % per year on CGTMSE loans. The FIDC called on the government to avoid limiting the lending rate, because it would defeat the CGTMSE scheme for NBFCs to a maximum loan ratio of 18 %. The industry body has requested that the interest subsidy scheme can be resumed and extended to both MSME and retail & wholesale traders as a result of a COVID-19 pandemic as well as current MSME and other smaller borrowers.
