Pre-Budget Consultation Highlights: Reforms for NBFCs

During a pre-Budget consultation, the Finance Industry Development Council (FIDC) emphasized the need for reforms to alleviate operational challenges and improve liquidity for Non-Banking Financial Companies (NBFCs).

Key Reform Proposals

• Reduction in SARFAESI Act Threshold:
  • Proposal to lower the loan amount threshold for enforcing security interest under the SARFAESI Act from Rs 20 lakh to Rs 1 lakh.
  • The current high threshold leads to resolution delays of up to five years, increasing non-performing assets (NPAs) and legal costs.
• Regulatory Norm Relaxation:
  • Facilitate easier fund-raising from banks to ease financial pressures on NBFCs.
• Creation of Dedicated Funds:
  • Proposed for supporting sectors like MSMEs, electric vehicles, infrastructure, and green energy.
  • Aim to boost NBFCs' lending capacity to emerging industries.
• TDS Exemption:
  • Request for exemption from the 10% Tax Deduction at Source (TDS) on interest payments.
  • The current TDS system creates cash flow constraints and operational complexities for NBFCs.
• Co-lending Arrangements:
  • Need for harmonization of TDS provisions between banks and NBFCs to simplify operations.
• Refinance Options:
  • Development financial institutions like SIDBI should provide refinance options to NBFCs for on-lending to MSMEs and priority sectors.

Attendees

The meeting included Union Finance Minister Nirmala Sitharaman and officials from major financial institutions, showcasing the significance of the discussion.

Summary of Key Recommendations

• Establishment of a dedicated fund for MSMEs, EVs, infrastructure, and green energy.
• Reduction of SARFAESI Act threshold to Rs 1 lakh to expedite case resolutions.
• Treating NBFCs at par with banks in terms of regulations and exemptions.
• Exemption of 10% TDS on interest income for NBFCs.