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Budget 2019: NBFCs seek special liquidity window, tax sops for retail investors in corporate bonds

FE Bureau
Union Budget 2019 India: Union Finance Minister Nirmala Sitharaman will present the Budget for 2019-20 on July 5 (PTI Photo)

Union Budget 2019 India: From a dedicated liquidity window for cash-strapped non-banking financial companies (NBFCs) to tax sops for retail investors in corporate bonds and additional incentives to draw more investors to term-insurance plans, financial-sector players on Thursday presented a raft of demands before finance minister Nirmala Sitharaman, as she rustled up inputs for the upcoming Budget.

In the pre-Budget consultation meeting, the finance industry development council (FIDC) a body of NBFCs said the current crisis in the shadow-banking sector is not about the solvency (of a few players) but liquidity. The defaults by IL&FS and one housing finance company, it insisted, don t represent the true picture of the NBFC sector .

The crying need of the hour is to create a dedicated liquidity window for NBFCs through the banking channels. The same may be provided for a period of one year, said Raman Aggarwal, chairman of FIDC.

Precedence may be drawn from a special repo window created by RBI in 2008 for banks under the liquidity adjustment facility (LAF) for on-lending to NBFCs, he suggested.

Also, the government must seriously consider setting up a dedicated refinance window for all NBFCs , along the lines of National Housing Bank (which offers such a facility to only housing finance companies) to ensure that any such liquidity crisis doesn t recur, FIDC has suggested.

In October last year, just after the IL&FS crisis flared up and concerns about the repayment ability of some HFCs, including DHFL and Indiabulls, started to depress market sentiments, the NHB had raised its refinancing target for 2018-19 by 25% to `30,000 crore from the initial aim of `24,000 crore. Later, the target was again raised to `50,000 crore.

Sitharaman will present the Budget for 2019-20 on July 5. The minister met financial sector and capital market executives on Thursday morning and held another meeting with experts on infrastructure and climate change in the evening. She is scheduled to meet economists and social sector experts on Friday.

After the meeting, IDBI Bank chief executive and managing director Rakesh Sharma said: Discussed how to deepen the corporate bond market. At present, retail investors invest through mutual funds. If some tax benefits can be extended to retail investors also, just like those extended to mutual funds, they would benefit, and so would the corporate bond market.

Insurance Regulatory and Development Authority of India (Irdai) chairman Subhash Chandra Khuntia said he had favoured additional tax incentives for term-plans to encourage investments.

The financial and capital market representatives suggested that interest rates on various small savings schemes of the government be reviewed. Similarly, the NPA provisions of banks be re-examined through a committee. They recommeneded that a debt exchange-traded fund be set up and domestic capability in audit and credit rating be scaled up. The government should also rationalise various taxes like Security Transaction Tax in the capital market. Currently, the STT on the delivery-based purchase of equity share is fixed at 0.1%.

They also urged the government to set up a separate bond exchange, allow banks to invest in InvITs to access the broader market and make corporate tax progressive to incentivise MSMEs, among others.

SBI chairman Rajnish Kumar said, lot of suggestions have come regarding infrastructure financing, reviving the economy and what tax benefits can be given for encouraging investments in MSME, exports .

The meeting was also attended by minister of state for finance Anurag Thakur, finance secretary Subhash Chandra Garg, financial services secretary Rajiv Kumar, expenditure secretary Girish Chandra Murmu, revenue secretary AB Pandey, DIPAM secretary Atanu Chakraborty, and other senior officials of the finance ministry. RBI deputy governor NS Vishwanathan, Sebi whole-time member G Mahalingam, Punjab National Bank MD Sunil Mehta and Kotak Mahindra Bank MD & CEO Uday Kotak and other stakeholders were also present in the meeting.