The sector has been struggling with liquidity crunch since the collapse of IL&FS in late 2018.

Govt may soon announce relief measures for NBFC sectorPic courtesy: IL&FS headquarters/ by Sumedh Kadoo /CC BY-SA 3.0 / Via wikimedia
Money Finance Friday, August 09, 2019 - 17:21

The Central government is reportedly toying with ideas on measures that could lift the non-banking finance companies (NBFCs) out of the morass the segment finds itself in, as per an ET Now report.

The trouble in India’s second-line banking sector began with the collapse of IL&FS, which made life difficult for the other NBFCs in raising funds and disbursing loans. This led to a situation where those depending on the NBFCs to fund their activities including at the consumer level, like buying automobiles etc., suffered. Real estate is another sector that found itself deprived of funding following NBFCs running out of funds.

There was an indirect hint by the FM in her Budget speech last month when she said the public sector banks will be encouraged to back the NBFC and there will be partial support from the government if they incurred losses in doing so.

The Reserve Bank of India on the other hand has been much more proactive on the NBFC issue with the Governor Shaktikanta Das directly addressing the crisis. In his interaction with the media the Governor had made it clear that the RBI wouldn’t be directly involved in any funding of the NBFCs. He however said the regulator is watching the sector very closely and that the RBI will ensure not even one more large NBFC will be allowed to fold down the way IL&FS went down. The regulator has increased the supervision of the sector. According to the RBI Governor around 50 NBFCs have been identified for such supervision. These include some housing finance companies too.

The problem with most companies has been they have not been very scrupulous in the deployment of the funds they have borrowed. Many like IL&FS have not been very careful in their lending process either. The RBI has now set new limits for lending and specified the norms as well.

With this in the background what kind of a measure the government can come up with to bail the sector out is anybody’s guess.

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