“There is a dire need for an effective refinancing mechanism to ensure greater regularity and diversification of sources of funding to NBFCs,” FIDC said in its letter. “We believe that SIDBI is best suited as an institution to provide such facility to NBFCs for on-lending to MSMEs and other suitable sectors.”
Non-bank lenders believe that since most of them are dependent on banks for their financing needs, this has resulted in inadequate and uncertain flow of funds and increased concentration risk at the systemic level.
At present, the Reserve Bank of India prescribes special liquidity facility to SIDBI for on-lending and refinancing through new models and structures. These funds are used to support the financing needs of Micro, Small and Medium Enterprises (MSMEs), especially small MSMEs and other businesses, including those in credit deficient and aspirational districts.
FIDC has also proposed relaxation of norms used by SIDBI for providing financial assistance to non-bank financial institutions. These lenders have submitted that the size and scale of a particular NBFC should not be considered
A qualifying criterion for a “go-no-go” decision to lend.
Non-bank lenders argue that given the standardized templates employed by rating agencies, the size of the NBFC becomes an important input for credit ratings, leading to lower ratings for smaller NBFCs, even though vintage and other financial parameters are certain. Be too.
“While rating should be an important consideration for SIDBI to assess its credit risk, we submit that it can only be viewed as a criterion, which should be taken into account with the vintage, track record and experience of key personnel of the NBFC. , financial norms, credit quality and capital adequacy,” the letter said.
NBFCs have also sought enhancement of credit guarantee cover to 75% of non-performing loans as reduction in cover has led to such lenders insisting on secondary collateral to manage their MSME credit risks.
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) operates a credit guarantee scheme for small and medium-sized firms and is operated by the government and SIDBI.
According to FIDC, “The recent reduction in the admissible claim amount under the CGTMSE scheme has severely reduced the risk appetite of NBFCs in financing MSMEs.”
“With CGTMSE cover being less and costlier, NBFCs have no option but to avert the risk or insist on secondary collateral to manage their risks. This can severely restrict the flow of funds from NBFCs to MSMEs. We request to restore the earlier limit for admission of claims under the scheme.