Govt may tweak NBFC norms to extend cheap loans to key sectors

CRUCIAL SECTORS LIKE AGRICULTURE AND MSME ARE FACING HUGE CREDIT GAPS, AND INTEREST RATES CHARGED BY NBFCS ARE HIGH

- Saubhadra Chatterji and Rajeev Jayaswal

The government is considering measures such as raising the deposit acceptance limit of eligible non-banking finance companies (NBFCs), introducing deposit insurance, and providing a dedicated liquidity window for NBFCs to reduce their cost of funds so that they can extend loans to key sectors such as agriculture and micro, small and medium enterprises (MSME) at cheaper interest rates, two officials said.

Next to agriculture, the MSME sector is the backbone of the Indian economy, with about 30% share in its GDP, 45% of manufacturing output and 48% of exports, while providing 111 million people with employment. Both agriculture and MSME sectors are facing huge credit gaps. About 39% of 63.4 million MSMEs have not yet accessed loans through any formal channel.

Hence, there is an urgent need to expand formal but affordable credit facilities through NBFCs if India has to become the world's third-largest economy by 2030, the officials said, requesting anonymity.