NBFCs demand for more concessions

NEW DELHI, Dec 26: Close on the heels of major concessions from Reserve Bank of India on NBFC regulations, Assocaition of Leasing and Fin...

NEW DELHI, Dec 26: Close on the heels of major concessions from Reserve Bank of India on NBFC regulations, Assocaition of Leasing and Finance Services Cos ALFS has taken up delinking of leasing and hire-purchase companies from other NBFCs.

quot;We would like to add that the leasing and hire-purchase companies should be delinked from the definition of NBFC and should be termed as Asset Financing Companies8217; as the first step of implementation of Vasudev Committee recommendation,quot; said an ALFS memorandum to the finance minister, Yashwant Sinha.

The Association has also asked for fixing a specific time frame of three years for enabling the leasing/hire purchase companies to bring down their aggregate public deposits within the applicable norms in case of a slide from investment grade rating to below investment grade rating.

Regarding financing of leasing companies by banks and financial institutions, ALFS has asked the finance ministry to issue specific guidelines to them for making a policy declarations bythem for increasing the flow of credit to leasing and hire purchase companies. quot;However, such policy declarations will take realistic shape only if a definite system for monitoring implementation of such policies on a continuous basis is introduced as has been made for uplifting of priority sector credit, tea industries, housing sector etc.quot;

The funds should also be ensured to come at reasonable cost, otherwise the entire move would fail as only inferior assets can be financed using high cost funds, says the memorandum. Regarding the Vasudev committee recommendation for the setting up of a specialised agency for NBFC funding, the memorandum says that, while the move will definitely be beneficial, quot;a few suggestions does indicate that implementation of the same would adversely affect the development of such an important sector which, presently are reeling under the trouble created due to multi-ferrous divergent regulations irrespective of the appropriatenss of the samequot;.

The memorandum identifies thesuggestions on increase in SLR from 12.5 to 25, deposit insurance and increase in the entry barrier from Rs 25 lakhs as detrimental to the growth of the sector.

quot;The increase in SLR from the present level of 12.5 per cent to 25 per cent in a phased manner in line with that applicable for the banks will positively put death knell on this ailing sector. The leasing and hire purchase companies widely accepted financial structure in India indicates the cost of fund at around 17 per cent to 19 per cent in view of the rate of interest presently charged by the lending agency as well as the cost of fund involved in raising public depositsquot;. quot;The banks, on the other hand, being in an advantageous position by virtue of banking regulations act in mobilising fund at an average cost of fund 7 per cent to 8 per cent,quot; the memorandum said.