Page 101 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services

Notes
"As it is, very few lending agencies are willing to invest in the infrastructure sector in
emerging economies. Even if they do, they have their unique set of problems such as
lengthy appraisal process, pre-condition like sourcing of inputs from lending countries,
etc. This reduces the number of viable sourcing options for NBFCs," said a senior official
with a leading NBFC.
NBFCs want the twin conditions whereby overseas lenders, at all times, are required to
maintain the ratio of their direct lending to the infrastructure sector in India to their total
ECB lending to NBFCs at 3:1 and that Authorised Dealer Category - I banks should obtain
a certificate lenders to this effect, completely eliminated.
Smaller Players
"There are smaller regional/bilateral financial institutions which do not have the
wherewithal to lend directly to infrastructure projects. They depend on domestic financial
intermediaries (FIs) who have the expertise in financing such projects. Hence, they prefer
to route their funds through local FIs for on-lending to small and medium infrastructure
projects. Such overseas lenders will not be able to comply with the 3:1 ratio," the official
explained.
The non-banking financiers want a level playing field vis-À-vis infrastructure companies
when it comes to tapping ECB under the 'automatic route' so that the credit needs of the
smaller infrastructure developers can be met without much ado.
While larger infrastructure players are able to source ECBs on their own, the smaller
players are not in a position to tap the overseas market. Hence, the smaller project
developers' bank on NBFCs for financing and the approval route causes unnecessary
delays.
Question
Discuss the role of NBFCs in infrastructure development in India.

Source: http://www.thehindubusinessline.in

7.7 Summary

A Non-banking Financial Company (NBFC) is a company registered under the Companies
Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/
stock/bonds/debentures/securities issued by government or local authority or other
securities of like marketable nature, leasing, hire-purchase, insurance business, chit
business, but does not include any institution whose principal business is that of agriculture
activity, industrial activity, sale/purchase/construction of immovable property.
An NBFC cannot accept demand deposits.
It is not a part of the payment and settlement system and as such cannot issue cheques to
its customers.
Deposit insurance facility of DICGC is not available for NBFC depositors unlike in case of
banks.

The Industrial Finance Corporation of India (IFCI) was established on July 1, 1948, as the
first Development Financial Institution in the country to cater to the long-term finance
needs of the industrial sector.

Several state level SFCs were established to foresee the demand for investment and help
various centralized institutions in making the credit available to the people needed.

96 LOVELY PROFESSIONAL UNIVERSITY