‘Govt May Allow Resolution Of NBFC Issues Under Insolvency Law’

Even as fresh instances of trouble continue to be unveiled in the sector, the centre, says a government official, is considering establishing a special window under the insolvency law to address non-banking finance companies’ (NBFCs) woes.  As it stands now, resolution of stressed financial institutions is now allowed under the Insolvency and Bankruptcy Code (IBC). Soon, the government may notify Section 227 of the IBC to allow inclusion of financial service providers under the law.

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NHB Infuses Rs 10,000 Crores In NBFCs, Experts Say Not Enough

August 5, 2019: In order to address the liquidity crisis in the market, the union Finance Ministry has announced that the National Housing Bank (NHB) will infuse an additional Rs 10,000 crores in non-banking financing companies, to improve the flow of funds for housing loans. The NHB is responsible for providing loans to finance companies at cheaper interest rates and the move will increase the availability of funds for housing finance companies. However, according to the market experts, the liquidity infusion by the NHB would not be of much help to sustain small housing finance companies (HFCs) and in order to boost the affordable housing sector, the government should support small HFCs, which have been facing a liquidity crunch.

Aadhar Housing Finance MD and CEO, Deo Shankar Tripathi said, "Based on the 15 per cent of net owned fund (NOF) criterion, the amount available to HFCs having NOF of Rs 50 crores or Rs 200 crores, will be inadequate. NHB may consider increasing the NOF criterion to at least 40-50 per cent, keeping the other criteria same or even reduce the upper limit of Rs 500 crores to Rs 400 crores.”

At present, the benefit of the additional infusion will go to the bigger HFCs, which are less affected by the liquidity crunch. In 2018, the NHB had increased the refinancing limit to Rs 30,000 crores, from Rs 24,000 crores, for non-banking financial companies (NBFC) for the financial year 2018-19 (FY'19).

Earlier, it was reported that the NBFCs were cutting down disbursement targets, due to lack of funds, which triggered a panic situation in the market as the stock prices of NBFCs fell amid loan defaults by infrastructure company IL&FS on its debt obligation. As a result, mutual funds, as well as banks, were shying away from smaller NBFCs. The increased limit benefitted such enterprises, who could leverage the additional credit line extended by the NHB. These finance companies give out a fair share of the housing loans in the affordable segment.

With additional inputs from Housing.com News