While the government is considering to extend a credit line to asset financing companies (AFCs), the sector is seeking more measures to improve their liquidity. The AFCs are demanding access to external commercial borrowings (ECB) under the automatic route. The Reserve Bank of India (RBI) is understood to be considering the proposal.

AFCs are non-banking finance companies (NBFCs) engaged in financing real and physical assets supporting economic activity such as automobiles and general purpose industrial machinery. There are also two other types of NBFCs, which are basically loan and investment companies.

Finance ministry and the RBI are in talks to treat AFCs differently from other NBFCs and provide them a credit line through banks and financial institutions.

Hemant Kanoria, chairman and managing director of Srei Infrastructure, said: “This alone will not help much, and that an automatic approval for raising funds abroad was essential as AFCs were lending for long-term needs.”

“We have urged the government to allow infrastructure equipment and project financing NBFCs access to ECBs under the ‘automatic route’, not only for the purpose of importing infrastructure equipment but also for financing indigenous equipment and utilising the funds for rupee expenditure in infrastructure projects,” he said.

The AFCs have suggested that mutual funds should be encouraged to invest in their debentures and bonds. They have also requested the government to allow the use of foreign exchange reserves to the infrastructure financing institutions, which have overseas operations, through their subsidiaries or branches. The government is already planning to provide financial assistance to banks with overseas branches/subsidiaries from forex reserves. An official in the finance ministry, however, ruled out investments by mutual funds in AFCs as “mutual funds themselves have been facing heavy redemption pressure.”

The financial help to AFCs with overseas operations is also not on the agenda. “But the RBI is considering their demand to let them access ECB under the automatic route,” he said.