Govt explores steps to boost affordable NBFC loans
NEW DELHI : The Centre is exploring options such as increasing the deposit acceptance limit for eligible non-banking finance companies (NBFCs), introducing deposit insurance and creating a specific liquidity window for NBFCs, according to two officials. The goal is to lower funding costs, enabling NBFCs to offer loans to crucial sectors such as agriculture and micro, small, and medium enterprises, at more affordable interest rates, they added. Besides agriculture, MSMEs are a cornerstone of the Indian economy, contributing 30% to gross domestic product, 45% to manufacturing output, and 48% to exports.
But agriculture and MSME sectors are facing huge credit gaps. Notably, 39% of the 63.4 million small businesses have not availed loans through any formal channel. Consequently, the government feels there is urgent need to expand formal and affordable credit facilities via NBFCs if India has to become the third-largest economy by 2030, one of the two officials said, seeking anonymity.
“Interest rates charged by NBFCs, however, are high, and may go up to 26%, depending on the nature of loans. Interest rates are high because the cost of funds for NBFCs are high compared with commercial banks. So, various proposals are under consideration to reduce costs," he said.
The FY25 Union budget might enhance MSMEs, aligning them with global markets, offering digital support for competitiveness, simplifying goods and services tax compliance, and ensuring access to low-cost credit, HT reported on 14 November. Unlike commercial banks, many NBFCs can not accept low-cost deposit from the general public. Their funding sources are relatively expensive, as they typically lend after securing funds from banks and markets, or external commercial
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