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NBFCs should also lend to lower rated corporates: Principal economic advisor Sanjeev Sanyal

Even as capital may constraints for many NBFCs to expand their balance sheet, there is a need to enhance lending to the sub triple AAA borrowers. The government has been taking policy initiatives and also the Reserve Bank is working in tandem to facilitate lending by NBFCs, according to principal economic advisor Sanjeev Sanyal.

“The good things is that the financial system (including NBFCs) is better capitalised now than before, which equips them to expand lending,” said Sanyal, addressing the annual meet of industry body Finance Industry Development Council. “We are keen to expand the NBFCs. There is a big role for them”.

He cited the recent policy initiatives by the government which includes the recent clearing of the Factoring Regulation Amendment Bill in the recent monsoon session of the Parliament. ” With this reform, a potentially large financial segment will be opened up to NBFCs that can now finance MSMEs based on the receivables” he said. Factoring services help a company to use its receivable invoices to get finance from a third party. Globally it is an important source of working capital for both medium-sized and large firms.

Besides the government has also allowed bilateral netting which facilitates capital saving and development of a responsible credit default swap markets that protects risks, he said underscoring the need for policy makers and market player to work closely.

He highlighted a need to facilitate more funds flow to the lower corporates as most lending is to the top-rated borrowers. A recent study by ratings firm indicated NBFC lending to top-rated borrowers rose by close to 10 per cent over the last five years, but remained at sub-zero levels for lower rated corporates.

“There is a below corporate bond market for triple A rated companies” we need to be able to lend to riskier segments” he said interacting with the NBFC players. Most of the funding to this segment is from risking taking equity like investors and seldom receive adequate debt funding.

Sanyal also said that there needs to be a refinancing body to fund such NBFCs among others to enhance lending resources for the NBFCs.

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