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Srei Infra Chairman Hemant Kanoria Writes To PM Modi, Suggests Immediate & Effective Steps

In a letter written to the Prime Minister Narendra Modi, Srei has asked government to direct banks to allow NBFCs to use funds received towards fresh lending and activity, rather than pressurize them to clear previous loans.

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SREI Chairman Hemant Kanoria wrote to Prime Minister Naredra Modi suggesting some immediate and effective steps  so as to infuse liquidity in the Indian economy.

In a letter written to the Prime Minister Narendra Modi, Srei has asked government to direct banks to allow NBFCs to use funds received towards fresh lending and activity, rather than pressurize them to clear previous loans.

In order to solve the liquidity issue, chairman has asked to clear all outstanding payments to contractors and businesses.

Read full text from the letter below: 

Emergency measures to provide liquidity to businesses

We would first like to thank you for the decisive actions taken by your government to contain COVID-19 in India. The countrywide lock-down,a much needed stimulus package for the economically weaker segments and a series of announcements by RBI aimed at bolstering the financial sector are some very timely initiatives that will help the economy to cope with the pandemic, at least in the short term.

Sir, at the same time, businesses need your continued support. While we appreciate the regulatory relaxations that have been extended, there is a critical need at this hour to provide furtherliquidity support to the businesses, so that they may continue to contribute towards employment generation, taxation and creation of national assets.

Sir, we take this opportunity to suggest some urgent measures which can improve the liquidity situation for business: large, medium and small, across all sectors. These are:

1. Government related dues to be released to help businesses to tide over the present crisis
Advise all central and state government agencies to expeditiously clear all outstanding payments to contractors and businesses.
All outstanding tax refunds and tax-related disputes must be resolved at the earliest to release payments.

Huge sums of money are stuck in arbitration awards given for several projects against NHAI and other agencies which have been dragged into the higher courts, leading to inordinate delays. Government should honour the arbitration awards and instead of further litigation, release the payments against the awards.

2. Relaxation of Loan Norms to prevent Loan Impairment
For all present corporate loans that have been impaired or run the risk of impairment  during the lockdown period, or in the  90-day period to normalization, relax  the norms and allow lending institutions and borrowers, a one-time loan restructuring window instead of categorizing those as NPAs. Post the lockdown and moratorium period, lending institutions should be allowed to make their own credit assessment of such accounts based on the future cash flows and the value of underlying assets (and not on the basis of ‘dues unpaid’ for a certain number of days as is the norm currently), and accordingly decide on the loan structure. The restructured loan accounts should be classified as ‘standard’ so that no provisioning is needed for the same.

This is will help stem the tide of NPLs and prevent businesses from tipping over into default. In our capital scarce economy, this  restructuring route will be the more pragmatic approach, as it will allow available capital to be put to productive use for  fresh financing  and infrastructure creation.
3. Providing immediate liquidity to NBFCs
Loan/Bonds - Systemically important NBFCs be provided 7-year term loans from banks (in addition to whatever limits they have now) up to three times (3x) of their net worth OR banks can subscribeto bonds worth equivalent amount issued by these NBFCs.

Quasi-Equity - Life Insurance Corporation of India or any other government development financial institution to subscribe to 10-year Redeemable or Convertible Preference Shares of up to one time (1x) of net worth of systemically important NBFCs.

Partial Credit Guarantee Scheme to:

Include within the scheme assets originated up to 30 September 2020 instead of the present deadline of 31 March 2019, so that more assets can be brought under its purview.

Increase the individual asset size cap to Rs. 50 crore from the existing Rs. 5 crore cap keeping in mind that NBFCs lend to big ticket infrastructure equipment.

Direct banks to allow NBFCs to usefunds received towards fresh lending and activity, rather than pressurize them to clear previous loans.

Align Securitization of loans - The pre-condition of a Minimum Holding Period (MHP) of 6 months is not in sync with a typical Asset Financing NBFC’s lending pattern,as it shrinks the period of liquidity availability:

Banks should be asked to withdraw the MHP pre-condition.

Once the assets are securitized, banks should not ask NBFCs to pay the unrealized amount.
Make securitization‘on-tap’,so that NBFCs can deploy funds for fresh business.

Allow full GST credit to NBFCs
NBFCs be allowed to avail 100% input tax credit instead of the present limit of 50%. This will help NBFCs offer leasing as a cost-effective instrument to their customers, thus providing a fillip to infrastructure creation & rural development.

Sir, governments, globally, is taking some dramatic measures to shore up their economies at this time, with liberal packages to mitigate some of the effects of COVID-19. From the announcements of March 26 and 27, 2020, we know that respective authorities are making an all out effort to curtail the negative effects of the pandemic and help Indian businesses and the people of India alike.

As joint stakeholders in this nation's recovery, we sincerely believe that the above-mentioned suggested measures will help our economy to deal with the present crisis and recover faster. We therefore pray, that we act together at this time of crisis, and find ways to set the platform for achieving your grand vision of a strong economy.  

Thanking you,
Yours sincerely,

Hemant Kanoria
Chairman, SREI

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hemant kanoria Naredra Modi