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FM Sitharaman pushes for banks to buy out assets from NBFCs

Regulation of HFCs will be shifted from the National Housing Board to RBI.

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Last Updated: Jul 05, 2019, 02.26 PM IST
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The Finance Minister on Friday tried to encourage PSU banks to buy out assets from NBFC players to address the credit crisis in this space.

In her Budget speech, the Finance Minister said "for the purchase of high-rated pooled assets of financially sound NBFCs, the government will provide one-time six-month partial credit guarantee to PSU banks for first loss up to 10 per cent."

She also said the DRR mechanism applicable to NBFCs for public issuances will be do away with to help them raise resources.

"Proposals for strengthening regulatory authority of RBI over NBFCs have been made," Sitharaman said.

Besides the FM said FPIs will be allowed to invest in debt securities offered by NBFCs.

She said the regulation of housing finance companies will be shifted from the National Housing Board of NHB to the Reserve Bank of India.

Partial credit guarantee for buying pool of financially-sound NBFCs for first loss up to 10% and excellent move to help NBFCs, said Lakshmi Iyer of Kotak Mutual Fund.

This will offer the much-needed respite to NBFCs and help the ailing segment recover, Iyer said.

NBFC regulations to be strengthened with greater authority to RBI. Even housing sector regulatory authority shifts back to RBI. This means more streamlined regulations and implementation, said Franc D'Sourza, partner at PwC.

At present, interest income on bad or doubtful debts made by NBFCs is charged to tax on accrual basis.

However, in cases of scheduled banks, public financial institutions, state financial corporations, state industrial investment corporations, cooperative banks and certain public companies like housing finance companies, interest on bad or doubtful debts is charged to tax on receipt basis.

“To provide a level playing field, it is proposed that interest on bad or doubtful debts in the case of deposit-taking NBFC and systemically important non deposit-taking NBFC shall be charged to tax on receipt basis. It is also proposed to provide that deduction of such interest shall be allowed to the payer on actual payment,” the Budget note read.

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