'Govt should extend additional funding sources to NBFCs'

The government should extend additional funding sources to NBFCs to reduce over-dependence on banks and address the current liquidity crunch, experts have said.

"Various ambiguities and practical challenges (including lack of clarity on accounting issues) have thus far restricted banks to extend credit to NBFCs under the recently announced partial credit guarantee scheme," Deloitte India said.

Experts said that with zero disbursements from the sanctioned limit of Rs 40,000 crore, the government should address the issues and provide requisite clarifications to make this scheme a workable proposition for banks and NBFCs.

Considering the special nature of businesses undertaken by NBFCs and keeping in mind the important role played by them in the financial services space, all categories of NBFCs should be exempted from thin capitalisation, and brought on par with banks and insurance companies, they said.

"This is particularly important to foreign-owned NBFCs, because they rely on their parents for funding," Deloitte India added.

NBFCs following IND-AS accounting policies are required to recognise interest income on NPAs in their profit and loss account. Hence, to enable them to claim benefits of section 43D of the IT Act, these companies should be allowed to offer interest income on NPAs on a receipt basis, the experts said.

The government also should extend exemption provided in section 194A of the IT Act to NBFCs and HFCs, they said. At present, interest payments by domestic borrowers to NBFCs and HFCs face a 10 percent withholding tax.

( With inputs from IANS )