NBFC sector seeks dedicated funds from Centre for funding MSMEs

New Delhi [India], January 2 (ANI): Raman Aggarwal, Director of Finance Industry Development Council, sought a few interventions for the growth of the NBFCs at a meeting with Finance Minister Nirmala Sitharaman.
FIDC is an industry body of non-banking finance companies in India.
Speaking to ANI after the meeting, Aggarwal apprised that the NBFC sector in India has become the third largest in the world, and called for more funds.
Citing RBI's latest data, which showed credit to GDP ratio at about 13.6 per cent, Aggarwal said, "We are almost one-fourth of the total bank credit, meaning the sector is growing, that means there is a lot of credit which the sector is dispersing. So it directly means we need more funds so that we can all lend more."
Secondly, he also noted that NBFCs increased overseas borrowings.
"...there is another data reported by RBI that by in October month itself, some of the large NBFCs have borrowed overseas to the tune of USD 5.5 billion, which has been a tremendous increase."
"So the idea here is why this has happened is because bank lending to NBFCs has come down significantly. This is a fallout of the RBI circular issued November last year where RBI had increased risk weight on bank lending to NBFCs," he said.
"So what we are saying is that large NBFCs are now borrowing largely from overseas also and a large number of small and mid-sized NBFCs who are dependent on bank borrowings are now borrowing from large NBFCs, which is increasing their cost of borrowing."
Against that context, he made a strong case for a direct refinance window provided to NBFCs.
"So a specific fund allocation, funds which are meant for MSMEs, for small borrowers and for environment-friendly assets like electric vehicles, all that funds can be dedicated and given to organizations like SIDBI and NABARD," he suggested.
On the taxation front, he sought exemption of TDS which borrows from NBFCs. Every non-individual borrower who borrows from NBFCs needs to deduct TDS.
"It is becoming an operational nightmare. There is no benefit to the government. There is no extra revenue coming to the government. There is no benefit to the borrower or the lender. It is causing an operational nightmare," he argued.
"And NBFCs are the only class of financial institutions that are not exempted. So we have requested for exemption," he concluded.
Finance Minister Nirmala Sitharaman on Thursday met stakeholders from the financial sector and capital markets as part of her series of pre-budget consultations.
This was her seventh pre-budget meeting.
The Finance Ministry conducts several pre-budget consultation meetings annually with experts, industry leaders, economists, and state officials. The formal exercise to prepare the annual Budget for the next financial year has already begun.
As is the convention, the Budget for 2025-26 will be tabled on February 1, 2025.
The 2025-26 Budget will mark Finance Minister Nirmala Sitharaman's eighth. All eyes will be on the key announcements and the government's forward-looking economic guidance for the remainder of the Modi 3.0 tenure. (ANI)