Non-banking finance companies (NBFCs) are banking on the budget to ameliorate their liquidity stress through easier funding measures such as a much awaited refinance window and an on-tap issue of bonds.

While India’s shadow banks have been going through a challenging phase since the IL&FS crisis, there has been some respite in recent times as better rated firms were able to raise funds. However, this continues to be difficult for several others.

According to an RBI report, though the NBFC sector grew in size to Rs 30.9 lakh crore in 2018-19 from Rs 26.2 lakh crore in 2017-18, the pace of expansion was lower than 2017-18 because of rating downgrades and liquidity stress in a few large NBFCs after the IL&FS crisis.

During 2018-19 as investor confidence in the sector took a hit and raising money through debentures became costlier, the reliance of NBFCs on bank borrowings increased. However, in 2019-20 (till September), bank lending to NBFCs decelerated because of defaults and the rating downgrades of Dewan Housing and IL&FS.

Data from FIDC-CRIF show that NBFCs sanctioned Rs 1,95,205 crore in the second quarter of the current fiscal, which is a decline of 34 per cent over the same period last year. The FIDC is the representative body of asset and loan financing NBFCs.

According to the FIDC, the two major instances of default by NBFCs in the last one year related to firms who are long term financers and, therefore, were perhaps faced by an asset liability mismatch. However, the entire NBFC sector was projected to have an asset-liability mismatch which resulted in banks and mutual funds becoming risk averse.

The federation has suggested that short-term retail financing NBFCs should be differentiated from the long-term players and funding sources outside the banking system developed.

The FIDC has proposed the NHB take over the role of the apex refinancing body, following the RBI taking up its regulatory function. It has also suggested that Micro Units Development and Refinance Agency (Mudra) be the refinancer of small and medium NBFCs.

NBFCs also want the budget to allow on-tap facility to issue non-convertible debentures in the retail market which will be easy to operate.