The guarantee from the government will make banks more comfortable and confident to lend to NBFCs that have been facing liquidity issues, the Finance Industry Development Council (FIDC), a representative body of assets and loan financing NBFCs, said.
In a letter addressed to Union MSME Minister Nitin Gadkari, the FIDC has also requested for setting up a refinance mechanism, credit guarantee scheme for the micro, small and medium enterprises (MSMEs) and on-lending for priority sector assets.
"The government may provide sovereign guarantee to banks for their additional exposure on NBFCs, as long as it is lent to the deserving segments comprising MSMEs/farmers," the letter said.
This guarantee, the FIDC said, should be for both term loans and asset pool purchase and should be valid for four years or the full tenure, whichever is less.
"All the new facilities sanctioned by banks may be eligible for the credit guarantee from the government so that there is a widespread utilisation of all the schemes," it said.
The guarantee commission may be charged from the respective NBFCs and be recovered by banks and remitted to the government, the FIDC suggested.
The industry players have also demanded establishing a refinance mechanism to reduce overdependence on banks for their funding needs.
"This will establish a dedicated non-bank channel for NBFCs to avail of long-term finance for on-lending to the under-served sectors of the economy," they said adding that Sidbi can be made as the nodal agency to refinance NBFCs for on-lending to MSMEs.
Last month, the Reserve Bank of India (RBI) provided Rs 15,000 crore to the Small Industrial Development Bank of India (Sidbi) for financing MSMEs out of which Rs 6,000 crore is earmarked for providing finance to NBFCs.
"Additional capital may be provided to Sidbi so that their ability to finance NBFCS, especially the small and medium NBFCs, is enhanced significantly," the sector requested.
Such refinance may be provided for a period of at least 3-5 years so that they can on-lend to MSMEs for purchase of machinery/equipment/vehicles for growth, they said.
NBFCs said the credit guarantee fund trust for micro and small enterprises (CGTMSE) scheme can play a vital role in enhancing credit flow to MSMEs but a very few NBFCs have availed this facility.
The factors that are affecting NBFCs from utilising the scheme include delay in reimbursement of the guaranteed amount to NBFCs, only 75 per cent of the loss amount is reimbursed and strict guidelines on NBFCs having a high credit rating.
The sector has requested to release 60-70 per cent of the claim amount under the CGTMSE to be released on a quarterly or semi-annual basis, and also asked to enhance the rate of reimbursement of loss to at least 90 per cent.
NBFCs said the RBI has permitted recognition of bank lending to NBFCs for on-lending to MSMEs as priority sector lending (PSL) till December 31, 2020.
"We request that this arrangement be made permanent and not time bound and the current limit of 5 per cent of PSL be enhanced to 10 per cent," they said.
The industry has also urged to increase the interest subsidy scheme currently being offered to MSMEs on loans taken by them from banks and NBFCs to 3 per cent from 2 per cent. HV MKJ