India’s Shadow Banking Sector MORE LIKELY TO Face Shake-up After Default

NEW DELHI, Sept 28 (Reuters) – India’s burgeoning shadow fund sector will probably face a shake-up after defaults at one major lender battered the country’s financial markets in the past week and reinforced concerns about credit risk. The Reserve Bank or investment company of India (RBI), which has been tightening rules for non-banking financial companies (NBFCs), didn’t respond to demands for comment.

Better capitalised and more conservatively run finance firms will probably swallow up a growing number of smaller rivals, professionals said. That could make it problematic for many small debtors to get loans, especially in the countryside where two-thirds of India’s 1.3 billion people live, and put the brakes on a surge in private usage with a knock-on effect on growth.

Infrastructure Financing and Leasing Services Ltd (IL&FS) , a major infrastructure funding and structure company, sent shockwaves through the NBFC sector when it defaulted on a few of its debt obligations in recent weeks. Friday Then last, a large account manager sold short-term bonds issued by mortgage loan provider Dewan Housing Finance at a sharp discount, raising anxieties of wider liquidity problems.

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Harun Rashid Khan, a former deputy governor at the RBI and today a non-executive chairman at Bandhan Bank or investment company Ltd, a microfinance company specialising in small-value loans previously. Khan said in reference to concerns that a few of the firms have borrowed short-term when their revenue streams are longer-term. The limelight has been fired up a large number of “high-risk” small players dominating financing in villages and towns. 304 billion), and is less purely controlled than banking institutions.

150 billion of stressed assets. The NBFC loan books have grown at twice the pace of banks nearly, and the cream of these, including IL&FS, acquired received top credit scores. Rising borrowing costs, exacerbated by the turmoil in marketplaces in recent times, will lead to a credit crunch in the sector and make it problematic for firms that aren’t well capitalised to survive, regarding to top investors in the sector.

172 million) in the last fiscal year. He added that in the absence of any financial motivation for NBFCs from the government, those who “can’t manage their profile performance will perish”. Raman Aggarwal, chairman of Finance Industry Development Council, a business body. At the same time, Aggarwal said the central bank or investment company is “flooded” with hundreds of new applications to create NBFCs. He refused there was any wider asset-liability mismatch in the sector.