Budget 2020-21: Even as the Budget turned out to be a letdown for non-bank lenders, the FM’s comments on reworking the partial credit enhancement (PCE) scheme for the sector kept expectations of a bailout alive. “To address the liquidity constraints of the NBFCs/HFCs (housing finance companies), post the Union Budget 2019-20, the government formulated a partial credit guarantee scheme for the NBFCs. To further this support of providing liquidity, a mechanism would be devised. The government will offer support by guaranteeing securities so floated,” Nirmala Sitharaman said in her Budget speech.

“The tweaked mechanism will possibly take the form of a separate body into which the NBFCs’ stressed assets will be moved and the government will issue bonds against these. So, it might be like how the US did TARP,” said an industry executive who did not want to be named. As the assets of the troubled NBFCs and HFCs get government backing, banks will become less risk-averse towards lending to them.

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FE had reported last month that the Centre was mulling a TARP-like programme to invest in equity of the top 20 NBFCs to boost their lending capacity. A few other measures were also announced to ease life for NBFCs. The limit for them to be eligible for debt recovery under the SARFAESI Act, 2002, will be reduced to asset size of Rs 100 crore from Rs 500 crore or loan size to Rs 50 lakh from the existing Rs 1 crore. Further, the FM proposed to make necessary amendments to the Factor Regulation Act, 2011, to enable NBFCs to extend invoice financing to small enterprises through the TReDS platform. Experts say that the measures do not address the issue of poor sentiment in the NBFC segment. Abizer Diwanji, partner & leader, financial services, EY India, said: “It (the Budget) seems to be reiterating the same message around enhancing financing to NBFCs.

Frankly, there is a sentiment issue which is more systemic and a one-time allowance of transfer of project loans at cost to special purpose vehicles like alternative investment funds would have been a better move.”