Banks in India are looking for ways to gently persuade the government of India to boost the funding of shadow banks. For more than a year, even with the support of the government for banks to lend non- banking financiers, the banks are still hesitant to loan non-banking finance companies due to the growing defaults caused by the Infrastructure Leasing and Financing services ltd (IL &FS). Although, the center has been pushing the banks to pay out money in the form of loans to fund these NBFC’s companies. There have been several meetings held to discuss this issue with the banking sectors in India. The Finance Minister Nirmala Sitharaman recently met with the banking sector chiefs to urge the disbursement of funds into the banking sectors. The Minister stated that the banking sectors should without fail start providing more loans to boost the Non-banking finance sectors (NBFC’s).
Banks in India are expressing their concerns when it comes to funding these sectors. Most of the banks have stated their point of view to the government. They expect the government to understand that they are protecting their interest first which is the priority. Although, they have started providing loans to only those non-banking finance companies that are state-owned as a way to manage their self- interest. The sector which has slowly deteriorated has been observed to be recovering due to the credit cash flow that is being deposited into the sector, according to the Reserve Bank of India (RBI). But, the banks are trying to differentiate between the good and not so good non-banking finance sectors in India. Since it is hard to differentiate banks have decided the loans would be granted only to non-banking finance companies that are supported either by the government and the state.
The banks expect that the sectors start making the repayment of loans with the servicing interest in the place. There can’t be a continued lending process if there is no reimbursement of interest and repayment done. This is to safeguard the interest of banks. For receiving cash credit or working capital limits from banks, the borrower needs to repay the interest, but once it is converted to a term loan, the borrower would be required to start repaying the entire loan in installments. According to reports, the repayments made by non- banking finance companies accounted for Rs. 2,399 crore of the overall total repayments worth Rs. 9,945 crore.
In order for the government to observe changes, there needs to be a formal arrangement that is made with the government of India to adjust the process of transfer of dividends. The reason the repayment has increased from these sectors is due to the policy declared by the banking sectors in India of converting credit limits into term loans. Also, banks such as Bank of Baroda (BOB) have gone against renewing the existing credit lines for several non-banking finance companies. They are now converting them to term loans to reap a higher repayment at intervals. There should also be several measures taken by the government to ensure the repayment of existing credit loans before lending to these sectors.
Banks in India are expressing their concerns when it comes to funding these sectors. Most of the banks have stated their point of view to the government. They expect the government to understand that they are protecting their interest first which is the priority. Although, they have started providing loans to only those non-banking finance companies that are state-owned as a way to manage their self- interest. The sector which has slowly deteriorated has been observed to be recovering due to the credit cash flow that is being deposited into the sector, according to the Reserve Bank of India (RBI). But, the banks are trying to differentiate between the good and not so good non-banking finance sectors in India. Since it is hard to differentiate banks have decided the loans would be granted only to non-banking finance companies that are supported either by the government and the state.
The banks expect that the sectors start making the repayment of loans with the servicing interest in the place. There can’t be a continued lending process if there is no reimbursement of interest and repayment done. This is to safeguard the interest of banks. For receiving cash credit or working capital limits from banks, the borrower needs to repay the interest, but once it is converted to a term loan, the borrower would be required to start repaying the entire loan in installments. According to reports, the repayments made by non- banking finance companies accounted for Rs. 2,399 crore of the overall total repayments worth Rs. 9,945 crore.
In order for the government to observe changes, there needs to be a formal arrangement that is made with the government of India to adjust the process of transfer of dividends. The reason the repayment has increased from these sectors is due to the policy declared by the banking sectors in India of converting credit limits into term loans. Also, banks such as Bank of Baroda (BOB) have gone against renewing the existing credit lines for several non-banking finance companies. They are now converting them to term loans to reap a higher repayment at intervals. There should also be several measures taken by the government to ensure the repayment of existing credit loans before lending to these sectors.
Mohit Kamboj is the author of this article. Find more information about Mohit Kamboj.
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