FINANCE THE NATION

Need of the hour: a framework for financial services

FOR SOME YEARS, the Union Budget has been building a new substructure for the financial services industry. Be it a Bad Bank or return to a development financial institution model, the new institutional framework is aimed at supporting banks and non-banks to push safe consumer lending, focus on less risky project loans, and hand over bad loans to a specialised institution to free up capital. Experts say the Budget will create an enabling environment for these new institutions. “Infra financing needs tax-free bonds with a government guarantee, first loss provisioning and also attracting retail investors to widen the investors’ base,” says Abizer Diwanji, Head (Financial Services) at EY India. In the public banking space, the government has consolidated some 10 public sector banks (PSBs) into four large banks. The Budget is likely to name the two PSBs and a general insurance company that will see privatisation this year. Non-banking finance companies (NBFCs) have gone through a lot of distress despite surplus liquidity in the market. Banks didn’t support NBFCs post-Covid-19 because of high risk perception. “NBFCs play a crucial role in serving the under-served in smaller geographies. They need continuous support,” says Vimal Bhandari, Executive Vice Chairman and CEO, Arka Fincap. Industry association ASSOCHAM has asked for a permanent refinance window for raising funds. FICCI, another industry body, has suggested creating a direct line of credit for non-bank lenders at a pre-fixed rate. Sanjiv Chadha, MD & CEO, Bank of Baroda, says interventions like the ECLGS for MSMEs may be needed to support smaller units. “We may also expect some more supportive action by the government to create market makers in the corporate debt market,” he says.