Lending to NBFCs for onward lending to MSMEs create multiplier effect: FIDC

New Delhi, June 25 (KNN) Active bank lending to NBFCs for onward lending to MSMEs can be a win-win situation for all the stakeholders as it would have a multiplier effect, Finance Industry Development Council (FIDC) has suggested.

In a letter to Finance Minister Piyush Goyal, FIDC said that besides the banks being able to lend to the desired segment (MSMEs), this would ensure a steady fund flow to small and medium NBFCs that are facing a funding crunch.

The Finance Industry Development Council (FIDC) is a representative body of asset-financing Non-Banking Finance Companies (NBFCs).

The letter comes immediately following the Goyal’s remark last week that the public sector banks (PSBs) will identify and speed up lending to genuine and good performance companies whose total borrowings are less than Rs 2,000 crore.

The letter has been written to route the money through NBFCs channel that will in turn help in funding the targeted MSMEs in a coordinated manner and also the recovery from the ultimate borrower would be the responsibility of the NBFCs who have a proven track record in this regard, FIDC Chairman Raman Aggarwal said in the letter.

The letter of suggestion was made to Finance Minister when already the state-run banks are facing huge NP mess that has weekend their balance sheets and put 11 of the 21 banks under prompt corrective action of the RBI.

Talking about the NBFCs, Aggarwal said that the NBFCs understand the local market dynamics relating to various assets, geographies and class of borrowers, coupled with the flexibility of their operations, have mastered the art of funding MSMEs who may not have any track record to prove their credit worthiness.

This has been further boosted by adoption of latest technological advances, the FIDC has said.

FIDC is of the view that bank lending to NBFCs for onward lending to MSMEs is an ideal model that would have a multiplier effect.

Explaining why bank lending to NBFCs, FIDC has said as compared to a bank lending to one company, if a bank lends to one NBFC, the NBFC then lends to a number of entities, thereby creating a multiplier effect.

It further explained that this would expand the reach to a larger section of the MSMEs spread across the country which will significantly reduce the operating costs for banks also.