Experts talked of the synergies between NBFCs and the role they play in developing SMEs in India
Keeping the economy in mind and the changes that have arisen since the novel coronavirus pandemic that has changed the way we look at the world, IMC Chamber of Commerce and Industry, in association with Finance Industry Development Council on October 09, 2020 organised an online seminar titled Online Seminar on 'Rebooting Economy Role of NBFC's.
Mr. Rajiv Podar, President of IMC Chamber of Commerce and Industry opened the event by welcoming the speakers. 'NBFC has played a key role by catering to diverse financial leads. NBFCs play a role in helping MSMEs and SMEs build in India. They supplement the role of the banking sector by delivering credit to the unorganised sector. They will play a significant role in helping a company's growth story.
Mr. Mahesh Thakkar, Chairman, NBFC Committee, IMC and Director General, Finance Industry Development Council, said NBFCs can help meet the financial goals, along with banks. 'They have a key role in solving the problems and developing and partnering SMEs and MSMEs,he said.
The seminar was divided into two sessions. The first session, titled Liquidity Concerns for NBFCs was chaired by Mr. Ramesh Iyer, Co-Chairman, IMC NBFC Committee and Vice Chairman & Managing Director, President“ Financial Services Sector & Member of the Group Executive Board, Mahindra & Mahindra Financial Services Ltd. and Chairman, FIDC.
Panellists for this session included Mr. Raman Aggarwal, Independent Director, Paisalo Digital Ltd, Mr. T T Srinivasraghavan, Managing Director, Sundaram Finance Ltd, and Dr. M. Narendra, Former Chairman & Mg. Director, Indian Overseas Bank.
Mr. Ramesh Iyer highlighted the role of NBFCs in India for the past five decades. 'NBFCs look at the borrower, not the current financial status, and more their future earnings. They are there during good times and difficult times more so in difficult times to partner with individuals or companies, he said, adding that it is a misnomer that NBFCs compete with banks.' If you look at the data for the past 15 years, you will see the role of NBFCs in helping India's economy.
Mr. T T Srinivasraghavan, while speaking to the panel said that NBFCs are heterogenous and it was a fallacy that they were considered homogenous. 'Unfortunately, there is no granularity when it comes to NBFCs, which shows the challenges they face. If you look at higher rated companies i.e. There are supposedly 12,000 NBFCs registered with the Reserve Bank of India, but this information hides a lot. Around 100 NBFCs manage the 90 per cent of the businesses.
The remaining cater to businesses that large players won't reach out to, he said, adding that there are 3-4 NBFCs that are part of the PSU. Once you realise this, funding and liquidity challenges vary across the system. In the past 75 years, you can count the number of defaults on your fingers, which is the same with banks. However, nobody will ask you to shut down banks. You have to hand it to the government and the RBI for taking the necessary steps to bolster NBFCs since the pandemic broke out. This is good, as NBFCs have the ability to reach the underserved and promote financial inclusion,he said.
Mr. Raman Aggarwal, while speaking on small NBFCs, said the sector has harmonised, irrespective of whether the NBFC is large or small. He also addressed the role that NBFCs played. It is the clear recognition of the strength of NBFCs. Let banks and NBFCs work in tandem. It is a golden opportunity, and with the push the government and RBI is giving, it will be a great opportunity for banks and NBFCs, he said.
Dr. M. Narendra, a renowned Banker and who has been associated with NBFCs for several years now, said, NBFCs have been important institutions that has given credit to MSMEs and even the unserved sector. As of March 31, 2020, banks have lent Rs 8 trillion to NBFCs, with a 26 per cent growth. There have been substantial contribution by banks in the growth of NBFCs. Furthermore, the mutual fund industry supported NBFCs with the Funding of Rs 1.29 lakh crore. Although this has come down to Rs 49,000 crore, I donat see it as a negative reason, he said, adding that lending through NBFCs in terms of priority sector lending. However, he said that the NBFCs will have to increase their capital base to meet the increasing demand that has resulted due to pandemic.
The session summarised that it was a good time for NBFCs despite the difficult times. The panellists requested transparency and discipline to ensure a better future for NBFCs in India.
The second session, titled NBFCs Funding for MSMEs/Traders/Entrepreneurs, was chaired by Mr. K V Srinivasan, Co-Chairman, IMC NBFC Committee and FIDC and Director & CEO, Profectus Capital Pvt Ltd. The panellists included Mr. Shachindra Nath, Executive Chairman & Managing Director, U Gro Capital Ltd, Mr. Umesh Revankar, Managing Director & CEO, Shriram Transport Finance Co. Ltd, and Mr. Shailesh Haribhakti, Chairman, Shailesh Haribhakti & Associates.
Mr. K V Srinivasan, while addressing the seminar, said, The announcements made by the government and the RBI since the start the pandemic have been very encouraging and supportive. India's economy has largely been dependent on MSMEs and without them, larger companies would not thrive. MSMEs become critical for the future stability and growth of the nation. NBFCs role towards contributing to MSMEs is well-recognised and widely appreciated, he said.
Mr. Shachindra Nath said that when it comes to MSMEs, each is different from another. It' difficult to build a credit model. All credit and innovation are done through NBFCs, and this has been seen not only in India, but across the world. he opined.
While speaking about the NBFCs loaning money to MSMEs, he added that the role of NBFCs is to look at the income profile of the MSME. There are factors such as GST Returns and data that will enable NBFCs to check turnover and cashflow. Furthermore, lenders need to go beyond cashflow-based financing, and rely on technology, he said.
Mr. Shailesh Haribhakti added that the rural sector was thriving. The rural sector has delivered the highest performance in the month of September 2020. There is healthy competition and this is example of what innovation can do in the rural sector. It's important that all lending is digitalized and have a database. We need to create smart villages, not just smart cities he said, adding that it only leaves us to imagine the potential that India's rural economy has.
Mr. Umesh Revankar, while speaking about the demand for vehicles said that that they are run by small operators or individuals. We have around 1 crore vehicles registered in India, and 4-5 crore people are directly or indirectly engaged in vehicles. The pandemic has seen a dip in vehicle, but I see the demand go up, which is a cycle that has been seen in the past. Lending to these people requires knowledge, and companies like ours can help several operators, he said.
The event concluded with remarks by - Mr. Atul Joshi Founder and CEO, Oyster Capital Management. Calling the session insightful, he said that the pandemic has opened up a pandora's box, adding that the opportunities are plenty.
-MAHESH THAKKAR