Budget 2019: Recapitalising Banks is a welcome step

Banks should be asked to carve out separate internal limits for wholesale NBFCs v overall NBFC limits: Mr. Sanjay Grewal

RBI to provide liquidity window for NBFCs will also promote investment in these critical sectors. (File Image)

By Mr. Sanjay Grewal

Honourable Minister announced that Banks would be recapitalised by Rs. 70,000crs. Welcome step as several banks were sitting on liquidity but lacked capital. This will encourage them to supply further credit and kick start much-needed growth.

Minister also announced that banks and MFs would be encouraged to lend to NBFCs with strong fundamentals. We would encourage swift implementation of these measures to NBFCs with good governance, strong capital positions and good asset quality besides healthy ALM. We believe this will also strongly reinforce the theme of greater governance and better management of business.

HFCs to be regulated by RBI instead of NHB. Another welcome step as there will be uniformity in the regulation and supervision of NBFCs focused on the housing sector as well as HFC’s. This makes compliance seamless and standards consistent.

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Given the importance placed by the Government on Infrastructure and Housing sectors in the budget, we would encourage the government and RBI to closely look into further policies and reforms.

1. Consider relatively lower risk weightage for longer debt (say a 5-7 yr lending to NBFCs to attract lower RWA than a paper<5yrs). This is to make long term funding attractive.

2. Banks should be asked to carve out separate internal limits for wholesale NBFCs v overall NBFC limits.

3. RBI to provide liquidity window for NBFCs. Especially NBFCs which cater to broader economic development initiatives of the Government I.e. affordable housing, Infrastructure. This will also promote investment in these critical sectors.

(The author of this article is the Chief Executive Officer of Altico Capital India Ltd.)

 

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