As NBFCs battle liquidity crunch amid slowdown, these 4 measures could help

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With the financial sector seeing stress amid a slowdown, liquidity in the non-banking finance companies (NBFCs) and housing finance companies (HFCs) needs to be revived to give an immediate boost to the economy, an industry body said. A framework should be defined for NBFCs and HFCs having an asset book size of more than Rs 25,000 crore being the lenders of last resort. The measure is needed as these companies don't have the repo window facility to borrow in times of need, Confederation of Indian Industry (CII) said in a statement on Tuesday. A separate classification should be done within the systemically important NBFCs based on asset book size by the RBI. "These NBFCs and HFCs could have more stringent ALM requirements but could be supported by providing more funding options like additional eligibility for ECB, temporary back stop funding like repo facility," CII added.

There is also a need to ease ECB norms with a higher limit for investment-grade rated companies equivalent to sovereign rating up to maybe $1,500 million from the current uniform limit of $ 750 million for all NBFCs. CII also suggested "relaxation of end-use norms of ECBs for HFCs to facilitate credit flow to the entire housing finance sector. Currently, end-use is limited to affordable housing."

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According to the RBI data for FY19, the share of credit from Banks and NBFCs & HFCs was in the 70:30 ratio. NBFCs have a share of 15 per cent in personal loans, 30 per cent in auto loans, while HFCs have a share of 42 per cent in housing loans. Meanwhile, the Indian economy is undergoing a slowdown on account of both domestic and global factors. Finance Minister Nirmala Sitharaman took a slew of measures in the past few months ranging from bank recapitalisation to removing the rich tax.