During a pre-Budget consultation with financial sector and capital market stakeholders, the Finance Industry Development Council (FIDC), a key representative body of Non-Banking Financial Companies (NBFCs), advocated for significant reforms to reduce operational burdens and improve NBFC liquidity.
One of their suggestions was to reduce the loan amount threshold for collecting security interests under the SARFAESI Act from Rs 20 lakh to Rs 1 lakh.
The council stated that the present threshold causes considerable delays in the resolution of stressed accounts, up to five years, increasing the number of non-performing assets (NPAs) on NBFC balance sheets and their legal costs.
Raman Aggarwal, director of FIDC, stated that the absence of SARFAESI Act remedies for debts under Rs 20 lakh impedes the resolution of distressed accounts.
"This delay not only increases stressed accounts but also inflates litigation costs for NBFCs," he explained.
Furthermore, FIDC advocated for regulatory reform to allow for more efficient fund-raising from banks, easing financial strains on NBFCs.
Aggarwal also proposed the establishment of a specific fund to help MSMEs, electric vehicles, infrastructure, and green energy.
He emphasized that this will address the expanding financial demands of emerging sectors and strengthen NBFCs' ability to lend to these critical businesses.
Radhika Gupta, CEO and managing director of Edelweiss Asset Management, advocated for more streamlined corporate processes and legislation to improve capital market efficiency and attract more investment.
Another significant recommendation focused on tax regulations governing interest payments. The FIDC sought an exemption from Tax Deduction at Source (TDS) under Section 194A of the Income Tax Act.
NBFCs are currently liable to TDS on interest payments, despite equivalent exemptions for banks, insurance companies, and other financial organizations. FIDC contended that the 10% TDS deduction creates cash flow restrictions for NBFCs, which operate on tighter margins.
The administrative difficulty of managing TDS deductions, particularly for large-scale transactions, complicates NBFC operations.
The FIDC raised concerns about TDS deductions in co-lending arrangements between banks and NBFCs, in which both institutions contribute to a single loan. Because the borrower pays a blended EMI, it is impractical to calculate and deduct the precise TDS for the NBFC portion of the loan.
The council advocated for the harmonization of TDS provisions between banks and NBFCs, which would streamline operations and eliminate ambiguities in co-lending agreements.
It urged development financial institutions such as SIDBI to offer refinance alternatives to NBFCs for on-lending to MSMEs and priority sectors, with special government funds allocated to expand the reach of these programs.
Union Finance Minister Nirmala Sitharaman attended the meeting, which also included key financial sector officials such as the finance secretary, secretaries from the departments of economic affairs and financial services, the chief economic adviser, and prominent figures from major financial institutions such as Ashishkumar Chauhan (MD & CEO, National Stock Exchange), Hitendra Dave (CEO, HSBC Bank), and Rahul Bajoria (MD, Bank of America).
