Mumbai: Non-banking financial companies in the country have had a tough few months amid the fallout from defaults by one of their own, conglomerate IL&FS group. The next few months also present a challenge to the NBFCs, which rely heavily on debt issued to the nation’s money market funds for short-term financing. The financiers must repay about Rs 1.2 lakh crore ($16.3 billion) of commercial paper in October-December, near a record Rs 1.46 lakh crore in August-October, according to data from Sebi.
The timing isn’t ideal. money-market funds popular over lower-yielding savings accounts suffered the worst withdrawals since at least April 2007 last month, after the IL&FS defaults spooked the market. And generally, financing costs throughout India’s credit markets have ticked higher, meaning that rolling over all this debt will cost more.
NBFCs may be forced to turn to un-utilised bank facilities to pay down some of the maturing CP debt, according to AM Karthik, sector head financial sector ratings at Icra. A crucial thing to watch is whether banks will allow the NBFCs to make timely draw downs on these facilities, as the mutual funds are facing pressure, he said.
There have at least been some encouraging signs of support from policy makers. India’s central bank eased rules last week to help the nation’s non-bank lenders access loans more easily. The support came after Moody’s Investors Service flagged risks to credit profiles of non-banking financial institutions due to prolonged liquidity distress triggered by defaults at IL&FS Group.