Over the course of 2020, all the major reforms were aimed at easing the Covid-19 induced stress of financial institutions by injecting liquidity and providing moratorium benefits. At a time when India is recovering from the Covid-19 crisis, the budget focuses on revival rather than survival, accelerating growth, amplifying the digital rush by bringing in stability in business operations. The government is optimistic about a revival post witnessing a huge slump induced by the pandemic and subsequent lockdown in the country. The government has prioritised funding the unfunded in the non-bank financial company (NBFC) sector in the budget.
Measures such as the introduction of tax-efficient zero-coupon bonds for infra debt funds, setup of a professionally managed ‘Development Finance Institution’ with a strong lending portfolio, statutory backing, and Rs 27,000 crore capital infusion as well as the development of a world-class Fintech hub will act as a catalyst in the growth of the NBFC sector and likely unplug potential for last-mile lenders. The setup of an Asset Reconstruction and Management Company for stressed assets to take over bad loans will significantly bring down NPAs, easing the woes of the BFSI sector. The strengthening of the NCLT framework will ensure the resolution of bad loans where the clients can avoid losing their business while continuing to pay the debt.
The e-court system will be set up and an alternate mechanism of debt resolution will follow. With the ease of defaults, financial institutions can then focus on new and productive lending, which will give an impetus to the system. Tightening the grip on bad loans will further credit advancement, helping financial institutions navigate and overcome the prevailing liquidity crunch.
Financial institutions have shifted their focus to digital collections in the wake of the lockdown. To support NBFCs, the government has proposed to lower the minimum ticket size of Rs 50 lakh for loan eligibility to be recovered under SARFAESI Act to Rs 20 lakhs. The move will particularly improve collections from the MSME segment. Technology-driven services combined with thoughtful reforms will help improve customer sentiment.
The proposed extension of Rs 1.5 lakh benefit on interest paid on affordable housing loans by one year to March 31, 2022, combined with tax exemption for affordable rental housing projects will give a boost to the housing sector and homebuyers as well. These provisions will act as a provider, enabler, and catalyst for the overall financing sector.
The author of the article is Chairman and Managing Director of Satin Creditcare Network Limited