New Delhi, July 25 : The Finance Industry Development Council (FIDC) said that banks are increasingly hesitant to lend to NBFCs since the IL&FS crisis unfolded in September 2018.
While the council hailed the Budget for acknowledging the role of NBFCs in growth of the economy, it also stated that this is an indication for banks to lend to NBFCs.
The council, which represents asset and loan financing NBFCs, also claimed that the two defaulters ( IL&FS and Dewan Housing) were not representative of the typical structure of NBFCs as IL&FS was in project funding and core sector financing, while DHFL is only among seven NBFCs of its kind that accept desposits.
Recently, the Automative Components Manufacturing Association said that more than 10 lakh jobs may be affected due to the slowdown in the automobile sector.
According to its members, slowdown in several sectors such as automobile may be due to the absence of liquidity in NBFCs. “Traditionally, high purchase companies funded the growth of the automative sector. NBFCs are a vital wheel of sales of all class of vehicles,’ said TT Srinivasaraghavan, MD of Sundaram Finance.
He further added that the asset tenure does not exceed five years in NBFCs financing the automobile sector and there is no asset liability mismatch.
As per the Economic Survey 2019, there is a huge gap in the funding of micro, small and medium enterprises (MSMEs). The council warns that impact on NBFCs may in turn affect these MSMEs.
“MSMEs are where employment generation occurs. While banks lend to corporates, NBFCs lend to the retail and MSME sector. Employment and GDP will be affected as a result.,” said KV Srinivasan, CEO, Profectus Capital.
In the aftermath of the IL&FS crisis, very little additional funds have flown to NBFCs. According to the council, the growth capital required is roughly Rs 6 lakh crore, while the flow has only been limited to Rs 2-3 lakh crore.
