In­dia’s NBFCs need funds

The Asian Age - - Edit -

It is dis­con­cert­ing that the new year, ac­cord­ing to the Hindu cal­en­dar, has be­gun on a cri­sis note for the small and medium in­dus­tries. The SME sec­tor is the back­bone of the econ­omy, ac­count­ing for 30 per cent of the GDP, em­ploy­ing around 11 crore peo­ple through a lit­tle over 6 crore units.

Their main source of funds are the non- bank­ing fi­nance com­pa­nies ( NBFCs) that pro­vided for 12- 15 per cent of the to­tal credit gen­er­ated in the last two years.

Most NBFCs are fac­ing a drought- like sit­u­a­tion as far as fund­ing is con­cerned. In fact the spar­ing wit­nessed re­cently be­tween the govern­ment and the Re­serve Bank of In­dia was over the need for banks to re­lease more funds to NBFCs.

There are about 11,000 NBFCs op­er­at­ing in the coun­try and the play a ma­jor role in lend­ing to mil­lions at the bot­tom of the pyra­mid, those who rarely get loans as they can­not af­ford the col­lat­eral.

Ad­mit­tedly, in the case of the troubled NBFCs it is the fact that their chick­ens are com­ing home to roost. They have been reck­less in their ef­forts to grab mar­ket share and had been bor­row­ing for short- term and lend­ing long- term in sec­tors like in­fra­struc­ture, some­thing that even a novice in the money game would know is a dis­as­ter wait­ing to hap­pen.

Granted that they have been reck­less, but the so­lu­tion is not to throw the baby and the bath­tub out of the win­dow. There is need for the govern­ment to sit with the RBI and find a way out.

At stake are sev­eral is­sues like the em­ploy­ment and liveli­hood of mil­lions of peo­ple who keep the wheels of the econ­omy turn­ing and also the Prime Min­is­ter’s vision of Hous­ing for All.

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