Business

Restore priority sector status for bank loans to NBFC’s

Industry body ASSOCHAM today called for restoring priority sector status for bank loans to non-banking finance companies (NBFCs) and said core investment companies (CICs) should be permitted to invest ten per cent of the corpus in any scheme, including mutual funds.

The Reserve Bank of India’s move to disallowed banks from classifying loans given to NBFCs as priority sector loans will significantly curtail credit flow and in turn curtail growth, it said.

NBFC priority sector

A fine line needs to be drawn between genuine NBFCs involved in asset financing business and those specialising in other high-risk segments, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

NBFC Lending

“A substantial part of incremental NBFC lending has flowed to entities like IDFC, PFC, REC, IRFC and IIFCL which are also classified as NBFCs, while the balance has gone to other NBFCs which has perhaps weighed in favour of such a move by the RBI,” said secretary general D.S. Rawat.

All asset finance companies in the country have a wider reach and are best placed to lend to unorganised sectors, he said in communication to the Reserve Bank of India.

Under existing norms, NBFC-CICs are required to invest at least ten per cent of their investments in money market instruments. However, such CICs which do not have any deposits from the public or loans from banks may be permitted to invest in any scheme of mutual fund, including money market instruments.

ASSOCHAM also called for clarity on definition of public funds and sought exemption from registration of their group CIC with the RBI where the group lending as well as borrowing companies have not raised or hold public funds.

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