NBFC crisis: $22 billion already gone, more dark days likely ahead

NBFC crisis: $22 billion already gone, more dark days likely ahead
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New Delhi, Feb 26: As key engines of loan growth in the world’s fastest-expanding major economy, they once were investor favourites. But now traders won’t go near India’s shadow banks.
About $22 billion has evaporated from a group of almost two dozens non-bank financial companies since Aug. 31, before confidence was rocked. And investors aren’t rushing to get back in, according to Citigroup Inc. analyst Manish B Shukla.
“Despite the sharp correction in stock prices of NBFCs, most investors are cautious on these names given near-term uncertainties,” he wrote in a report earlier this month. He notes volatile third-quarter results and potential funding tightness after the recent events may be reasons for the lingering skepticism in the sector.
Until last summer, non-bank financiers were a major part of investment portfolios. But a series of missed payments by one of the biggest firms, Infrastructure Leasing & Financial Services Ltd. — once categorised as “systemically important” by the central bank — then roiled India’s stock market. Now, the nation’s shadow-lending industry, which accounted for nearly four out of every 10 consumer loans in the last three years, has grown more cautious about extending new credit amid a funding crunch of its own.
From small-ticket loans for smartphones to funding large apartment clusters, the firms have a finger in every pie. At some point, the growth in their loan books even rivaled that of the state-run banking giants facing lending restrictions owing to the large burden of bad debt.
“We believe NBFC growth will disappoint and there is a marked slowdown for most, which is now starting to reflect in their valuations,” said Nilesh Shah, who helps oversee $24 billion as chief executive officer of Kotak Mahindra Asset Management Co. He noted that his firm has reduced its exposure on both debt and equity funds, without saying by how much.
In the “race to grabbing opportunity,” the companies ended up creating an asset-liability mismatch, according to Shah, who said the IL&FS default and tight liquidity in the banking system only added to the pain. India’s banking system liquidity is still in a deficit of 1.2 trillion rupees ($16.9 billion), data compiled by Bloomberg show.