NBFCs ask RBI for refinance facility to reduce dependence on banks

by Jeremy

The industry has requested the RBI to articulate a road map for NBFCs in the upper layer (NBFC-UL) to convert themselves into banks. An association of non-banking financial companies (NBFCs) has sought a “harmonized” regulatory framework with that of banks in response to the discussion paper issued by the Reserve Bank of India (RBI) on January 22. Among the requests made by the Finance Industry Development Council (FIDC) is that of a refinancing arrangement to reduce the dependence of small and medium NBFCs on the banking system and differential risk weights for different loan categories.

 

“An alternative mechanism for rating these entities may also be considered to ensure that all NBFCs do not get rated on the same parameters irrespective of size, complexity of business and the niches in which they operate. The NBFCs in the proposed BL (base layer) and ML (middle layer) suffer at present due to this rigidity of credit rating templates followed by the rating agencies,” the FIDC conveyed to the RBI in a letter dated February 12, a copy of which FE has seen.

The industry has requested the RBI to articulate a road map for NBFCs in the upper layer (NBFC-UL) to convert themselves into banks. It has sought greater flexibility on deposit acceptance, raising funds through external commercial borrowings (ECBs), and setting up subsidiaries overseas. For NBFCs in the middle layer, FIDC has sought “a special focus on funding availability”. The letter said that these companies would fall primarily in the BBB to AA- a category in terms of their external credit rating, and they continue to face fundraising challenges.

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