India’s current regulatory environment for NBFCs

1. Can we begin with the regulatory environment, and how it has changed over time? e.g. tighter prudential norms for NBFCs-ND-SI/-D, T1s, SLRs, asset clarification, provisioning, etc.

Regulatory Environment – recent developments

Late ‘nineties, regulations were loose- no need for registration – large number of Finance companies (30,000 or so).

January 1997, sweeping changes were made to the RBI Act, 1934, particularly Chapters III-B, III-C, and V of the Act

Salient features of the amendments made to Chapter IIIB of the RBI Act in 1997 include,

(a) making it mandatory for NBFCs to obtain a Certificate of Registration (CoR) from RBI and to maintain a minimum level of Net-Owned Funds (NOF);

(b) requiring deposit taking NBFCs to maintain a certain percentage of assets in unencumbered approved securities;

(c) requiring all NBFCs to create a reserve fund and to transfer a sum which is not less than 20 per cent of their profits every year;

(d) empowering RBI to determine policy and issue directions with respect to income recognition, accounting standards etc.;

(e) empowering RBI to issue directions to NBFCs or their auditors with respect to their balance sheets, profit and loss account, disclosure of liabilities, etc.;

(f) empowering RBI to order a special audit of NBFCs;

(g) empowering RBI to prohibit NBFCs from alienating assets and

(h) empowering RBI to file winding up petitions against NBFCs.

January 02, 1998 – Revised Regulatory Framework for NBFCs

• • NBFCs were classified into 3 categories for purposes of regulation, viz,

(i) those accepting public deposits;
(ii) those which do not accept public deposits but are engaged in the financial business, and
(iii) core investment companies which hold at least 90 per cent of their assets as investments in the securities of their group/holding/subsidiary companies.

• New entry point norm of Rs. 2.5 mill.
• While NBFCs accepting public deposits were to be subjected to the entire gamut of regulations, those not accepting public deposits would be regulated in a limited manner.

Registration of NBFCs

April 1993 – System of registration for NBFCs was introduced.
Janu 1998 – New entry point norm of Rs. 2. 5 million
April 1999 – NBFCs registered after this date required minimum NOF of Rs. 20 million.

From March 2017, all NBFCs to have minimum Rs 20 mill NOF.

2. Regulation – What does RBI care about ? – New Regulatory Framework

Having cleaned out the system since 1998, the large number of deposit taking companies reduced considerably. Now there are around 150, most of whom are paying back deposits on maturity and not mobilising fresh deposits.

10 large NBFCs account for over 90 % of public deposits.

From April 1, 2007 framework of classifying NBFCs into Systemically Important (SI) or otherwise was first made applicable – now around 250

From Nov 2014 – New Regulatory Framework

Systemically Important – TA of Rs 5000 mill (5 Bill)
Regulations for NBFC-SI
a. Prudential Norms –

2. 90 day income recognition norm as per banks.
i. Accounting for investments – classify into Current and Long Term. Should have Board policy.
ii. NPAs – Non-Performing Asset (referred to in these Directions as “NPA”) shall mean an asset, in respect of which, interest has remained overdue for a period of six months or more.

Capital Requirements

NOF – minimum Rs 20 million

NOF defined as – investment in shares of subsidiaries, companies in the same group and other NBFCs and book value of debentures, bonds, loans and advances, bills purchased/discounted, and deposits with subsidiaries and companies in the same group, exceeding 10% of Owned Fund has to be deducted from the Owned Fund to arrive at the NOF.

Capital Adequacy 15%. Higher capital adequacy and lighter touch regulation.
Tier I Capital of 10%.

Credit Concentration Norms

1. Single borrower exposure norm – 15% of owned funds
2. Group of borrowers – 25% of owned funds.

Non Systemically Important, ie TA less than Rs 5 billion

Non SIs basically NEED To be registered with RBI, Leverage <=7, IRAC, KYC norms

Corporate Governance
Should Have Audit Committee, Nomination Committee – to ensure ‘fit and proper’ status of proposed/ existing directors.

To furnish to the Bank a quarterly statement on change of directors, and a certificate from the Managing Director of the applicable NBFC that fit and proper criteria in selection of the directors has been followed.

Risk management Committee

– How the RBI, Sebi views / approaches regulation on NBFCs; what do they care about?

SEBI – Clause 49 of Listing Agreement. clause 49 shall apply to all the listed companies.

The Company should ensure prompt and accurate disclosure of all material matters incl financial situation, performance , ownership and governance of the company.

Board Of Directors

Should have at least 50% Independent Directors
What levels of NPLs does RBI want the NBFCs to stay around / get to? Do you agree that NBFC asset quality (norms) are on par with banks / that they don’t require tightening?

GNPAs of the NBFC sector as a percentage of total advances decreased from 6.1 percent in 2016-17 to 5.8 percent in 2017-18.

Levels of NPLs are acceptable – process of recognition needs tweaking – Charging and recovery of interest on monthly basis. – long moratorium periods – bullet payments of interest and principal – rollover with enhancement without actual payment.

Part II –

3. Is structural reform needed for NBFCs? What are the effects of greater supervision on NBFCs?

New Framework – less regulation for NBFCs who do not access public funds. Those who access public funds are subject to full gamut of regulations. Howver there is a risk – NBFCs without public funds are largely into Real state/developer financing – the same borrowers also avail funds from banks/other NBFCs. There could be problems if there are multiple cascading defaults.

NBFCs are more dynamic, innovative, nimble on their feet – provide last mile connectivity for meeting the credit needs of the productive sectors. Provide credit to borrowers without a credit record – once credit record is built up – these borrowers can obtain credit ratings and migrate to banking system. Excessive regulation would curb the dynamism.

4. Can you summarize the situation right now, and share your main takeaways?

A series of circumstances led to NBFC asset growth and potential risks:

i. High NPAs and capital constraints in PSUs – the found it easier to lend in bulk to NBFCs and sit back. This was fuelled by the lower risk weight on exposures to NBFC with high ratings.

ii. Demonetisation in November 2016- (thru the law of unintended consequences) – public invested their cash balances majorly in MFs/Insurance. These entities being flush with funds deployed them enthusiastically on NBFC paper.

Problem more of ALM and liquidity mismatch – in a scenario of low interest rates and surplus liquidity in the system esp from MFs and Insurance Cos after demon. Inability of banks to lend on account of high NPLs and capital constraints, coupled with lower Risk Weights for NBFCs with high credit ratings, has created an incentive for banks to lend in bulk to NBFCs NBFCs were growing by borrowing short term at low interest rates and rolling over these liabilities.

A report by Credit Suisse had said that mutual fund exposure to NBFC debt at 30% of their debt AUM is outsized and unlikely to sustain. And, 55% of this is short tenor.

SEBI Exposure limits for MFs (from Jan 2016)

1. Exposure limit for an MF scheme across a single sector to 25% of the fund’s NAV from 30%
2. To curb the further credit risks MFs take in the housing and realty sector, Sebi reduced the additional exposure limit provided for housing finance companies in the finance sector from 10% of NAV to 5% of NAV.
3. Sebi reduced the single issuer limit (limit of investment in securities sold by a single company) from 15% to 10% of the net asset value, or NAV, of the scheme. This investment limit can be extended to 12% of the scheme’s NAV with the approval of the trustee of the fund house
4. Ceiling on fixed income investments at the group level of the issuer companies will be fixed at 20% of the NAV, which is extendable to 25% after trustee approval. An issuer company’s subsidiaries, fellow subsidiaries, its holding company and associates will together be considered a group

Indian economy – growth has come from the service sector. NBFCs have been catering to the growing demand for retail credit and residential and commercial real estate.

Environment changed this year with rising interest rates:
Adverse signals were building up over August-September 2018:

• • Oil prices were rising o Indian Rupee was depreciating against USD.
  • Agitations by farmers, poor growth in jobs. o At the same time stock market was rising.
  • Fed Reserve action – in tightening mode.
  • US sanctions on China.
  • Merger of Bank of Baroda – Vijaya and Dena bank.

Supervisory action on CEOs of three important private banks.

Mutual Funds – reaching their prudential limits on exposure to NBFCs and at the same time not rolling over their investments in NBFC paper. Increasing redemptions – so AMCs need to sell papers to build liquidity. This further impacts exposure limits.

System was poised for correction.
Problem created by default by ILFS

• Started Default on Commercial paper Obligations from September 14, 2018.
• Abrupt downgrade in the ratings of bonds sold by IL&FS and related entities after they defaulted on payment obligations in September. Credit rating agencies (CRAs) had downgraded the bonds from high investment grade (AA+ in some cases) to default or junk.

NBFCs with exposure to assets with longer gestation are facing liquidity problems. Could lead to a downward spiral – NBFCs do not make available fresh loan tranches when demand comes up form borrowers – borrowers delaying project execution because of funds constraints – in turn leading to borrowers defaulting in payments – leading to assets turning NPLs.

NBFCs have witnessed higher cost of borrowing in general post August 2018. However, this has not been uniform across the three categories i.e. NBFC, HFC and AIFI. Interest rates moved up till October; for NBFCs rates softened in November but not for HFCs. More importantly bank interest rates have also moved up during this period and hence the cycle of interest rates had moved up based on RBI policy actions. Interest rates in corporate bond market were still more competitive than bank loans for most months. Non-NBFCs have also witnessed such variable trends in rising interest rates and hence the post August scenario was not restricted to just NBFCs.

Lower NPAs for NBFCs – however, rather than solvency, liquidity is a bigger risk. I always felt that if a large NBFC has a blip in inflows and in turn defaults on its obligations, it would have a ripple effect. This has come true and all NBFCs get maligned!

5. Way forward

Credit access in our country is vastly under-penetrated, and businesses need constant capital to grow. NBFCs with use of technology and innovation, wide reach, customised products, smart credit underwriting and strong risk management capabilities have been able to control bad debts. With better understanding of clients, they have created clusters and niches which would be impossible for the banks to replicate or cater to.

Though their cost of funding is higher than that of banks, a decent spread and lower cost of operations can do the job for them. With low bases, many of them could grow 30-40 per cent CAGR in the coming 5-7 years. NBFCs have, so far, achieved a tremendous feat by meeting their massive short-term /commercial paper obligations in this quarter Oct to Dec 2018). They have weathered many storms in the past (since the 2008 global financial crisis to demonetisation in late 2016) and seems to have almost overcome the current liquidity crisis as well.

Tools used earlier
During 2008 crisis, RBI had made a liquidity window available through a Development Finance Institution IDBI Ltd.

During the Global financial crisis, the RBI had opened its repo window to money market funds for a short time.

RBI – Immediate measures to ease flow of liquidity to the system (Oct to Dec 2018):

i) SBI and three other PSBs have announced intention to buy up portfolios from NBFCs. SBI has in fact stated its intention to buy up loans to the extent of Rs 450 bn.

ii) Oct 19, 2018

a. RBI has permitted banks to treat incremental lending to NBFCs (from Oct 19 to Dec 31, 2019) as part of Liquidity Coverage Ratio (for Basle III). G-Secs give returns of, say, 7.5% to 8%. NBFCs will easily offer 9.5%+ right now.
b. Granted relaxation for single borrower exposure norms from 10% to 15%- upto Dec 2018.

iii) Nov 2, 2018- Announced a Partial Credit Enhancement Facility to banks – shall only be utilized for refinancing the existing debt of the NBFC-ND-SIs/HFCs. Tenor 3 years or more.
( in the form of an irrevocable contingent line of credit which will be drawn in case of shortfall in cash flows for servicing the bonds and thereby improve the credit rating of the bond issue.)
iv) Nov 29, 2018 – Relaxation on the guidelines to NBFCs on securitisation transactions – In order to encourage NBFCs to securitise/assign their eligible assets, it has been decided to relax the Minimum Holding Period (MHP) requirement for originating NBFCs, in respect of loans of original maturity above 5 years, six months (earlier 12 months), subject to the following prudential requirement:

Minimum Retention Requirement (MRR) for such securitisation/assignment transactions shall be 20% of the book value of the loans being securitised/20% of the cash flows from the assets assigned.

v) Dec 18, 2018 – The RBI announced it will purchase more government securities under open market operations for a total amount of Rs 50,000 crore in January 2019, which also improved sentiment. (Oct – 36 K cr, Sept – 20K cr, Aug and July – Nil).

Medium Term

1. Liquidity backstop – a facility should be available for liquidity facilities collateralised thru G Secs. Could be offered on a commercial basis by SIDBI as a business proposition. It would dent NIMs of NBFCs if they kept aside some buffer as G Secs but would act as a confidence builder – which could have spin off benefits by way of better Ratings, better terms on borrowings etc.
2. Debt mutual funds that are invested in illiquid bonds but promise their investors redemption in a day or two, need access to a liquidity window on the lines of the Liquidity Adjustment Facility that the RBI offers to banks.
3. Since the size of debt funds has grown significantly, we need a more formal, institutionalised liquidity support for them so that they can withstand sudden redemption pressures that may arise from time to time.
4. Securitisation is dead (except for PSL purposes) – need to think of reviving this market to improve liquidity. Need to encourage large scale securitisation of NBFC assets so that the resulting asset-backed securities can be traded imparting liquidity to otherwise illiquid balance sheets. This is especially critical for housing finance companies.
5. Credibility of Rating Agencies – Regulators need to take a hard look at the functioning of the rating agencies. In India, even banks use ratings provided by rating agencies for loans. So, the issue of credibility of ratings impact both banks and bond markets.
   • On Nov 14, 2018 – India’s markets regulator has tightened disclosure norms for credit rating agencies after they failed to warn investors in time about the deteriorating credit profile of Infrastructure Leasing and Financial Services Ltd (IL&FS). The rating agencies will now need to disclose the liquidity position of the company being rated, Securities and Exchange Board of India (Sebi) said in a circular on Tuesday.
     A company’s liquidity position would include parameters such as liquid investments or cash balances, access to unutilized credit lines, liquidity coverage ratio, and adequacy of cash flows for servicing maturing debt obligation, the Sebi circular said.
   • Credit rating agencies would also need to disclose if the company is expecting additional funds to pare its debt along with the name of the entity that will provide the money. Credit rating firms will also have to analyse the deterioration of liquidity and also check for asset-liability mismatch.
6. NBFCs have developed a momentum of their own, lending to MSMEs is growing, lending for the critical ‘housing for all’ program is an imperative and they are critical to the Economy. Some bolstering and confidence building measures are required.
7. NBFCs need an industry association for themselves. So far they are part of CII or ASSOCHAM, which dilutes their lobbying power, There is an FIDC but its a small coterie not well regarded by the big guys.

6. Regulatory pressure on NBFCs; How you think the RBI will react to the IL&FS defaults?

a. NBFCs are subject to concentration risk – need regulations to mitigate.
b. Regulations on Asset Liability Management and Risk Management.
c. Macro prudential regulations – more granular and frequent data collection from NBFCs. Coordination with SEBI wrt to exposure of MFs to NBFCs.
d. Counter cyclical Capital Buffer for larger entities.
e. Financial Stability Report needs to improve its systemic studies. No risk was reported in the systemic interconnectedness in the June 2018 Report.

7. How do you think the RBI will regulate holding companies like IL&FS (which do both fin services and RE)? What a ‘rethink’ on regulations concerning core investment companies (CICs) could look like?

i. Core Investment Companies – holding companies – 90% of exposure should be to group entities of which at least 60% should be equity exposure. Leverage capped at 1:2. – Not subject to supervision hitherto as these were basically non-operational – only exposure to group permitted.
j. More focus on risk based supervision – forward looking. Focus on management – Role of Board and Independent Directors – Risk Management Committee – Whether any analyses in different scenarios of interest rates/liquidity.
k. Stronger measures to ensure compliance with inspection findings.
l. NBFCs – can do lending and investment. Probable regulations –
a) ALM for CICs could be introduced.
b) Consolidated supervision of CIC and group company. At present no Corporate Governance norms for CICs. Regn for CICs are light.
c) Would prefer CIC – to be holding company only for financial entities which are regulated. Not for manufacturing or service entities.
d) Liquidity stress testing.

8. What criteria / sources (e.g. rating agencies) does the RBI use to assess NBFC liquidity/asset quality?

There is a system of Quarterly Reporting of regulatory data by NBFCs- SI. This is analysed and submitted to Management. More critical inputs required – esp liquidity and liability raising practices. Probable Risks emerging. Stress testing – impact of problems with a few large NBFCs should be analysed. Issues have been flagged – Loan against Property, Funding of IPOs through CPs, reliance on short term funding vis a vis exposure to Real Estate. No controls prescribed, because extent was not substantial – aggregates covered the risks developing in critical entities.

Were blindsided by healthy financial indicators and low NPAs. Also NBFCs subject to light touch supervision – did not want to comment on business issues. Rating agencies – need to be more critical. Depend mainly on Company inputs. Need to analyse liquidity profile. It would be a good measure to consult the regulator periodically.

6. Do you think this will change? Does its methodology need a shakeup? Need a balanced approach – should not act on the basis of market panic. Periodic data analysis – with more granular data – collect date of large exposures of Mutual funds and banks.

9. What are the potential next steps for the RBI? How do we think about timelines? What does a worst or best-case scenario look like for the NBFCs? 2018-19 outlook for NBFCs; Views on the NBFC consolidation that could come as a result of regulatory change – How do you see this impacting (1) NBFC loan growth, and (2) funding costs?

NBFCs have been on a roll for three years and now the music seems to have stopped. Growth rates of 35% for financial sector entities are not sustainable – something had to give. And that has happened. MFs have reached their limits on lending to NBFCs plus are facing redemption pressures and reduced inflows – that source would not grow much in the near future. Roll overs would be for select NBFcs and at higher interest rates. So reliance on CPs and also Debentures would need to be reduced.

Banks – have become wary of lending – fears of exposure to Real estate which is showing signs of downturn. Banks could recover NPLs form Insolvency Board cases, Govt is capitalising PSBs, many PSBs/ pvt banks are moving towards retail. So bank funding of NBFcs would slow down.

Raising NCDs from Public/public deposits – with share markets down, this could be a source of funds. However, interest rates would be higher.

Overall – Growth rates of NBFCs would reduce, cost of funds would increase and NIMs would get squeezed – some analysts have put it at around 150 basis points. However, NBFCs have increased their market share of Personal Loans, Mortgage Loans, Vehicle Loans/Loans against Property/SME loans. Have built up a dedicated clientele – lending processes are smoother, hassle free and quick TAT. Banks are yet to find themselves back on their feet. There would probably be some blips for 2 to three months after which things should settle down. However, days of super-normal growth seem to be over.

Worst case – If one or two NBFCs/HFCs face defaults by large developers – it would have a domino effect. Liquidity, funding for NBFCs would dry up. Would have consequences for banks also. NBFCs with diversified portfolios, those with large retail portfolios, those with Group backing would pull through. Could be problems with NBFCs promoted by first generation entrepreneurs which have exposure to Real estate, long gestation asset portfolios.

But final outcome depends on performance of broad economy. Eg there was a clampdown on Gold Loan Cos during 2012, but these survived and are flourishing now.

1. Estimated (ICRA in Dec 2018) that Overall credit growth of NBFCs in 2017-18 would be 16-18% and HFCs 14-16%.
   • Slowdown in credit to LAP, SMEs, Commercial Vehicles.
   • Contraction in Operating Profits and increase in Credit Costs – impact net profitability by 1.6 to 1.8%.
   • NIMs would be impacted by 5 to 15 bps.
2. Alternate invcestment Funds (AIFs) – PEs, VC, Hedge Funds, etc are stepping in to fill the Realty Funding gap

10. Which types of NBFCs (Construction finance? Housing?) do you think are most exposed to RBI reg?
Regulations for all NBFCs are uniform – actually regulation of real estate financing is quite liberal. No restriction on financing for land. NPA classification norms are lighter – practice of long moratoriums for interest and principal.

11. Impact of the upcoming elections on how the current situation will play out?

1. Favourable scenario – Present Govt returns.
2. Short term blips – Present Govt does not get majority and needs to form a coalition. Or Coalition of Parties presently in Opposition- Turmoil for 2 to 3 months, then normalcy would return.
3. Fragmented verdict – attempts at coalition – parties not willing to get along – govt collapses in 1 year – problems for 1 to 2 years. However, it has been seen that growth even during coalition governments has been good. So prognosis is generally FAVOURABLE.

Bank lending norms to NBFCs

Exposures to NBFCs

The exposure (both lending and investment, including off balance sheet exposures) of a bank to a single NBFC / NBFC-AFC (Asset Financing Companies) should not exceed 10% / 15% respectively, of the bank’s capital funds as per its last audited balance sheet. Banks may, however, assume exposures on a single NBFC / NBFC-AFC up to 15%/20% respectively, of their capital funds provided the exposure in excess of 10%/15% respectively, is on account of funds on-lent by the NBFC / NBFC-AFC to the infrastructure sector. Exposure of a bank to Infrastructure Finance Companies (IFCs) should not exceed 15% of its capital funds as per its last audited balance sheet, with a provision to increase it to 20% if the same is on account of funds on-lent by the IFCs to the infrastructure sector.

The Non-Banking Financial Companies (NBFC-ND-SI), other than AFCs, NBFC-IFCs and NBFC-IDF, regardless of the amount of claim, shall be uniformly risk weighted at 100%.

The following table indicates the risk weight applicable to claims on AFCs and NBFC-IFCs. Risk Weights
Domestic rating agencies

AAA	AA	A	BBB	BB	Below Unrated
Risk weight (%) 20	30	50	100	150	100

Reasons for current Economic Problems

Demonetisation in Nov 2016 – MSME – Entire sector survives at sustenance levels on cash rotation. Withdrawal of cash was a lethal blow. Moreover, they do not have capital, once capital is wiped out they just have to cease business.

Medium units Depend on migrant labour. With no cash available for wages, these labourers returned to villages. Large nos of these units did not get back to business so these employees continued in their farms – more mouths to feed on the same size farm.

GST – before the effects of Demon abated, GST came in. Complex for small units, cost of compliance went up, many units closed down. Tax credits – delayed. Again labour displacement. Threshold for coming under GST is very low – turnover of Rs 20 lakh. Now its being proposed to increase it to Rs 75 lakh.

Agriculture Sector – Although agriculture accounts for only 15.4% of the GDP, more than half of India’s population is dependent on agriculture for livelihood. It means that more than half of India’s population or nearly 65 crore people are competing for little over 15% the country’s income. Agri is a state subject so political forces at work retraining agri reforms esp. reforming the APMC structure.

Farm distress is a victim of higher production – prices are low. At same time loss of jobs in Industry and Construction sectors have led to inflow of migrant labourers back to their farms. Lower than remunerative price in the absence of marketing infrastructure and profiteering by middlemen adds to the financial distress of farmers.

First, loan waivers can only be a temporary palliative which disproportionately benefits medium and large farmers, leaving out marginal growers who are more exposed to informal loans. Second, it is practically impossible for the government to procure all crops at minimum support prices (MSPs). The way out is a mix of different approaches: support prices, direct income transfers and freeing up agricultural markets from the clutch of the powerful trader lobby.

Measures being planned:

“One Household One Incentive” policy and directly pay Rs 10,000 annually to each deserving household to purchase seeds, fertilizers and agricultural machinery.

Rythu Bandhu scheme, giving all farmers a cash grant of Rs 4,000 per cropping season, or Rs 8,000 a year for double-cropped land. Many politicians now see this as the model to follow for political success. But a better model has now been proposed by Odisha CM Naveen Patnaik.

Swaminomics has long argued that Telangana’s cash grant is better than Modi’s ultra-high minimum support prices for crops, for which state governments have neither the administrative nor financial capacity. Even if good implementation were possible, the scheme would be a disaster. By guaranteeing a 50% return on all crops with no regard to domestic demand or exportability, this scheme encourages the production of unwanted, unexportable surpluses.

Global experience proves that farm distress is best relieved by subsidising farmers through cash transfers, not by subsidising crops. However, this model has many shortcomings. It benefits the biggest landowners the most, including absentee owners who lease out their land. While giving cash to farm owners, it fails to reach tenants or share croppers doing the actual cultivation. It also fails to benefit landless labourers, the most needy.

These shortcomings are overcome by the Odisha proposal called KALIA (Krushak Assistance for Livelihood and Income Assistance). Patnaik rightly pours scorn on loan waivers in states ruled by the BJP and Congress, since the biggest farmers with the biggest loans are the biggest gainers. Small farmers and agricultural workers often have no farm loans and get no benefit.

KALIA will provide a cash grant of Rs 5,000 per cropping season (Rs 10,000 per year for double-cropped land) to 30 lakh small and marginal farmers in the state. This rightly leaves out two lakh large farmers. The scheme also aims to cover all tenants and sharecroppers who do the actual cultivation, and not absentee landowners. In addition, KALIA will give 10 lakh landless households cash grants of Rs 12,500 each. This aims to finance the starting costs of ventures like rearing goats and poultry, and producing mushrooms and honey at home. Fisherfolk will get this grant for fishing nets and allied equipment.