Budget 2019: NBFC crisis is bottoming out, says finance minister Nirmala Sitharaman

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New Delhi | Published: July 7, 2019 6:07:21 AM

Finance minister Nirmala Sitharaman says budget announcements will not just offer relief to NBFCs but also help stimulate consumption, as they extend credit to critical segments

Budget 2019, Union Budget 2019 India, Nirmala sitharaman Union Budget 2019 India: FM justifies customs duty hikes; says imports being discouraged where there is enough domestic capacity

Budget 2019: The crisis in the shadow-banking sector seems to have bottomed out, although woes of some players still persist, finance minister Nirmala Sitharaman said on Saturday, a day after the Budget announced a raft of measures to fix issues faced by non-banking financial companies (NBFCs).

She said the Budget equipped the Reserve Bank of India (RBI) with adequate power to both regulate and supervise all NBFCs, as part of the government’s efforts to ensure that a broad range of issues faced by them — relating to solvency or governance or liquidity — were addressed swiftly and any potential sign of stress anywhere is detected at the earliest.

The central bank also gets to regulate the housing finance companies (HFCs), replacing National Housing Bank, which will remain
only a re-financier to the HFCs. “We shall be closely monitoring with RBI to see how it’s moving. So strictly speaking, I feel the NBFC issue has been addressed,” she said.

Perhaps responding to perceptions that the Budget could have been bolder, Sitharaman said she was conscious of the fact that it came after an interim budget (by the same government) and coincided with the last year of the 15th Finance Commission (2019-20).

She asserted that all the targets laid out in the Budget, including the ambitious 18.3% year-on-year rise in projected tax revenue for FY20, will be realised, saying the aims were fixed after several rounds of discussion. As for the reduction in the FY20 fiscal deficit target to 3.3% from 3.4% in the interim budget, the minister says it showed the government’s commitment to fiscal discipline.

READ ALSO | Income Tax Calculator: Know post-Budget 2019 Income Tax out go here

The steps announced in the Budget, including a one-time partial credit guarantee to state-run banks to buy assets of NBFCs, will not just address immediate concerns of the shadow lenders, but also enable them to enhance credit flows to vital segments to spur consumption, she added.

Under this plan, the government will offer a one-time, six-month partial guarantee of Rs 1 lakh crore to public sector banks (PSBs) for purchasing consolidated high-rated pooled assets of financially-sound NBFCs. This will cover their first loss of up to 10%.

Among other steps, the government will permit NBFCs to raise funds in public issues, and the requirement of creating a debenture redemption reserve will be done away with. At present, NBFCs that resort to public placement of debt have to maintain a DRR and a special reserve.

Justifying the move to raise the customs duty on scores of products, including books, newsprint, cashew kernels, metal fittings, auto parts, certain kinds of synthetic rubbers, CCTV camera, digital and network video recorders, the minister said the idea was to discourage imports where there is adequate domestic capacity. “We have to support domestic industry and Make in India,” she said, rejecting suggestions that the government was turning protectionist.

She said the hike in the import duty on gold from 10% to 12.5% is aimed at discouraging imports that impacts trade balance and that customs official have been asked to be extra vigilant to tackle any potential rise in smuggling.

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