FIDC Pushes for Direct Refinance Window to Boost NBFC Growth

New Delhi, Jan 3 (KNN) In a pivotal meeting with Finance Minister Nirmala Sitharaman during pre-budget consultations, Raman Aggarwal, Director of the Finance Industry Development Council (FIDC), outlined critical interventions needed for the growth of non-banking finance companies (NBFCs). 

Representing the third-largest NBFC sector globally, Aggarwal underscored the sector's growing significance and pressing needs.

Aggarwal highlighted the sector's robust contribution, citing Reserve Bank of India (RBI) data showing a credit-to-GDP ratio of 13.6 per cent, nearly a quarter of total bank credit. 

"This reflects the sector’s potential, but also its urgent requirement for more funds to meet increasing credit demands," he told ANI.

Raising concerns over domestic funding challenges, Aggarwal noted that NBFCs had significantly increased overseas borrowings, with large firms securing USD 5.5 billion in October alone. 

He attributed this shift to reduced bank lending following an RBI circular last November that raised the risk weight on bank loans to NBFCs. "Small and mid-sized NBFCs now depend on larger peers for borrowing, increasing their costs," he explained.

To address this, Aggarwal proposed establishing a direct refinance window for NBFCs, emphasising allocations for sectors like MSMEs, small borrowers, and green assets. 

He suggested routing these funds through institutions such as SIDBI and NABARD to ensure effective deployment.

On taxation, Aggarwal called for the removal of TDS on borrowings from NBFCs, arguing that the requirement offers no fiscal benefit while creating operational complexities for lenders and borrowers. "NBFCs remain the only financial institutions not exempt from this, which is inequitable," he said.

The meeting marked Sitharaman’s seventh pre-budget consultation as preparations for the 2025-26 Budget gain momentum. 

With the Budget slated for February 1, 2025, industry stakeholders are keenly awaiting measures that will shape the financial ecosystem and bolster economic growth during the final phase of the Modi government’s third term.

(KNN Bureau)