India should grant “Deposit Acceptance Licenses” to all non-bank lenders who are rated “A” and above by at least two credit rating agencies and whose capital / equity is greater than 1000 crores, according to a joint EY-FICCI report. advised.
This recommendation is one of a series of suggested measures to provide a level playing field for non-bank lenders (NBFC and HFC).
The EY-FICCI report, “Non Banking Finance Sector in India – Building Resiliency”, calls for a level playing field for all non-bank lenders while ensuring that the interests of depositors, especially small depositors, are not not compromised.
It should be remembered that the RBI stopped granting deposit acceptance licenses to NBFCs in 1997, and there were still around 82 NBFCs accepting deposits as of September 2019.
The report pointed out that there does not appear to be any objective criteria including asset quality, credit rating and capitalization that determine the continuation of the license to accept deposits, nor any sunset provisions for those licenses of deposits. deposit. Thus, some former non-bank lenders, including those belonging to industrial houses, continue to have access to public deposits solely because of their registration date. “This creates an uneven playing field in the market,” the report says.
The National Housing Bank (NHB) recently released a draft discussion paper, in which it proposes to gradually reduce the maximum leverage to 12 and the minimum capital adequacy to 15%. This revised limit also applies to housing finance companies (HFCs) accepting deposits and not accepting deposits.
The EY-FICCI report called for several relaxations in raising funds via external commercial borrowing (ECB). While the ECB eases in July 2019 were headed in the right direction, some changes are needed, given the existing scenario where, due to Covid-19, fundraising has become difficult for the July 2019 eases to be workforce.
In order to make the ECB window a real source of funding, ECBs with a maturity of 3/5 years should also be allowed to be on-lent or refinanced, the report recommended.
Alternatively, a sub-limit of, say 25 percent, within the overall ECB lifted, should be allowed for the refinancing of existing rupee debt for non-bank lenders.
The report pointed out that there is a very limited non-existent market for non-bank lenders (indeed any Indian borrower) to raise 7/10 year ECBs to lend or refinance.
In July 2019, the RBI had, among other measures, authorized the NBFC to raise ECBs with a minimum maturity of 7 years for the repayment of rupee loans used nationally for capital expenditure.
In addition, NBFCs were authorized to raise BCEs with a minimum duration of 10 years for working capital, for general corporate purposes.
At the same time, the report also called for housing finance companies (HFCs) to raise BCEs for all types of home loans and not just to finance the purchase of affordable housing.
The withholding tax exemption for ECBs is expected to be extended in the long term, according to the report.