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 before week and reinforced worries about credit risk. The Reserve Bank or investment company of India (RBI), which has been tightening guidelines for non-banking financial companies (NBFCs), did not respond to requests for comment.

Better capitalised and more conservatively run finance firms are likely to swallow up a growing quantity of smaller rivals, professionals said. That will make it difficult for many small borrowers to get loans, especially in the countryside where two-thirds of India’s 1.3 billion people live, and put the brakes on the surge in private intake with a knock-on influence on growth.

Infrastructure Financing and Leasing Services Ltd (IL&FS) , a major infrastructure structure and funding 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 fund supervisor sold short-term bonds released by home loan provider Dewan Housing Finance at a sharp discount, raising concerns of wider liquidity problems.

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Harun Rashid Khan, a former deputy governor at the RBI and now a non-executive chairman at Bandhan Bank or investment company Ltd, a microfinance company specialising in small-value loans previously. Khan said in mention of concerns that some of the firms have borrowed short-term when their income streams are longer-term. The limelight has been turned on a large number of “high-risk” small players dominating financing in villages and towns. 304 billion), and is less totally regulated 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 them, including IL&FS, experienced received top credit scores. Rising borrowing costs, exacerbated by the turmoil in markets in recent days, will lead to a credit crunch in the sector and make it difficult for firms that aren’t well capitalised to endure, regarding to top traders in the sector.

172 million) within the last fiscal year. He added that in the lack of any financial motivation for NBFCs from the national federal government, those who “can’t control their collection performance will perish”. Raman Aggarwal, chairman of Finance Industry Development Council, an industry body. At the same time, Aggarwal said the central bank or investment company is “flooded” with a huge selection of new applications to set up NBFCs. He denied there was any wider asset-liability mismatch in the sector.