DNA Money Edit: NBFCs' demand – To be or not to be

Non-banking finance companies (NBFCs) are meeting the Reserve Bank of India (RBI) governor today. Two weeks ago, some of them had approached Prime Minister Narendra Modi with a long list of demands. Obviously, the liquidity crisis facing the sector, now being widely described as shadow bankers, is yet to blow over.

The general impression is that things are back to normal with the IL&FS crisis being largely contained, while the reality is quite different. Usual sources of funds for NBFCs like bank credit or loans from mutual funds have virtually dried up. Despite being acknowledged as a provider of last-mile connectivity reaching out to the last bankable person standing, the sector is not being allowed to grow and prosper, heads of several large and respectable NBFCs have now complained.

They have demanded that systemically important NBFCs should be allowed to accept low-cost public deposits and the central bank should open a special liquidity window for them and housing finance companies (HFCs). They also sought access for HFCs to refinancing facility of National Housing Bank (NHB). The most radical suggestion was to turn some of them into banks. While chances of allowing regulatory relaxations as a response to liquidity crisis appear to be remote, RBI is even wary of opening any more sector-specific liquidity tap as steps are being planned to ease liquidity for the medium and small scale sector.