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According to the US rating multinational, however, the budgetary proposal does not address investors' long-term concerns about the sector's exposure to stressed real estate.The initiative was announced in the budget presented earlier this month. It comes amid significant pressure on non-bank financial institutions (NBFIs) wholesale funding due to a lack of appetite in the debt capital markets.Under the proposal, the government will provide a first-loss guarantee of 10 per cent on securitised assets issued by NBFIs to banking entities to increase the flow of funds to NBFIs."The guarantee is more than enough to cover typical losses. The government will cover up to INR 1 trillion ($14.5 billion) of issuance. We estimate that this will cover the NBFI sector's liquidity needs for about six months," a Fitch Ratings statement said."The provision refers only to financially sound issuers, which may suggest that weaker entities in need of funds may still have to fend for themselves. It is not yet clear what will constitute a sound issuer."The funding stress has been most severe for wholesale financiers, and smaller NBFIs and fintechs, which have struggled to get even bank funding, while large NBFIs still have good access to funding, albeit at a rising cost," it added.Besides, the agency pointed out the lack of "clarity about the duration of the guarantee"."The government has referred to a six-month period but it is not clear whether this relates just to how long the scheme is open for (covering transactions that are done within a six-month period) or also to the duration of coverage for each transaction," the statement said."A guarantee for only the first six months following a transaction would do little to encourage buyers and we therefore assume that the guarantee will apply for the full life of the assets purchased."Notwithstanding these uncertainties, the initiative signals the government's intent to support the NBFI sector, which has been struggling for liquidity, Fitch said.The sector has become increasingly important for driving consumption growth and accounts for almost 20 per cent of credit to India's economy, compared with about 15 per cent five years ago.Nonetheless, it has struggled with funding pressure as a result of investors' risk aversion following the default by Infrastructure Leasing & Financial Services last year, a situation exacerbated by Dewan Housing's default this year.( With inputs from IANS )

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