Budget 2019: Govt to strengthen RBI as regulator of NBFCs, HFCs

The NBFC sector received its fair share of attention in the Union Budget 2019. The government has relieved non-banking finance companies (NBFCs) from creating debt redemption reserves (DRR) to raise fund from public issues.

Also on the regulation front, government plans to expand Reserve Bank of India's authority over the NBFC sector. On the other hand, housing finance companies (NFCs) which are regulated by the National Housing Bank will also be regulated by Reserve Bank of India (RBI).

The Non-Banks that engage in public placement of debt will maintain a debenture redemption reserve (DRR) in additional to maintaining a special reserve as required by the RBI. While to help NBFCs raise funds in public issues, the Finance Minister said, “the requirement of creating a DRR, which is currently applicable for only public issues, will be done away with.”

So that fundamentally strong NBFCs continue to have access to capital the government is providing one-time six months' partial credit guarantee for first loss of up to 10 per cent to public sector banks (PSBs) that purchase of high-rated pooled assets of NBFCs amounting to Rs. 1 lakh crore during the current fiscal, said Sitharaman.

Further more, the FM proposed that foreign institutional investors (FIIs) and foreign portfolio investors (FPIs) will be allowed to invest in debt securities of NBFCs, giving the sector ample liquidity and help other sectors which depend on these non-banks including auto and real estate.

Also, the government is planning to allow all NBFCs direct access to the TReDS platform, an electronic platform for financing trade receivables and facilitates settlement of invoices and bills of exchange.

Reacting to these budgetary announcements, the stock of top NBFCs were buzzing including Indiabulls Housing was trading at 729.40 per share, up by 3.63 per cent, GIC Housing was trading at Rs. 265.00, up by 3.54 per cent, DHFL was at Rs. 82.70 per share, down by 0.60 per cent, CanFin was at Rs. 366.50 per share, up by 2.33 per cent, PNB Housing was at Rs. 793.30, up by 1.74 and Edelweiss was at Rs. 173.05 per share, up by 0.52 per cent in the post lunch session on Friday.