New NBFC Category Can Propel MSME Growth in Upcoming Union Budget

Business leaders are urging the government to create a new category of Non-Banking Financial Companies (NBFCs) focused on priority sector lending (PSL) to support MSMEs in the upcoming Union Budget. Key proposals include NBFC-PSL establishment, reintroduction of the Partial Credit Guarantee Scheme, and harmonizing the SARFAESI Act limit.

Business leaders have put forth key demands ahead of the forthcoming Union Budget, including the creation of a new category of Non-Banking Financial Companies (NBFCs) dedicated to priority sector lending (PSL) to bolster MSME growth.

Finance Minister Nirmala Sitharaman is set to present the Union Budget in Parliament on Tuesday. Shachindra Nath, Founder & MD of UGRO Capital Ltd, emphasized the need for specific measures to support NBFCs catering to Micro, Small, and Medium Enterprises (MSMEs).

Nath advocated for establishing the NBFC-PSL category to focus at least 85 per cent of their assets under management (AUM) on the priority sector. He also suggested that loans from banks to NBFCs for onward lending to MSMEs should be classified as 'PSL loans,' with existing caps removed.

Nath further proposed reintroducing the Partial Credit Guarantee Scheme to include term loans, providing a portfolio guarantee for bonds or commercial papers rated 'AA' or lower issued by NBFCs-MSMEs. This move would facilitate greater funding for small and medium NBFCs.

To enhance recovery processes for smaller loan defaults, Nath called for harmonizing the SARFAESI Act limit by reducing the credit eligibility cap from Rs 20 lakh to Rs 1 lakh for NBFCs, similar to banks.

Meanwhile, Umesh Revankar, Executive Vice Chairman at Shriram Finance Ltd, highlighted the Union government's expected focus on infrastructure development and MSME sector in the budget. He stated that improvements in logistics would provide India a competitive edge globally in manufacturing.

In a separate recommendation, the Engineering Export Promotion Council (EEPC India) urged the government to revive the interest subvention scheme for exporters. EEPC India Chairman Arun Kumar Garodia recommended restoring the 3 per cent subvention rate for specific tariff lines and a 5 per cent rate for MSME exporters across all product categories, citing its importance in the context of rising interest rates.

The EEPC represents around 9,500 member companies, over 60 per cent of which are MSMEs, accounting for 25 per cent of total exports.

(With inputs from agencies.)