NEW DELHI :
The non-banking financial company (NBFC) and housing finance company (HFC) sector is stabilizing post the Infrastructure Leasing and Financial Services (IL&FS) crisis because of steps taken by the government, according to an analysis by the finance ministry released on Saturday.
Banks have continued to support NBFCs and HFCs, while it is the debt market that is distinguishing between good and not-so-good entities, according to the analysis. As a result, the better entities are able to get higher financing from both banks and the market, it said.
The shadow banking system in India has been struggling with liquidity pressures since the IL&FS crisis emerged starting with payment defaults by group companies in June last year, and the subsequent breakdown in September 2018. Some entities found it difficult to meet their funding needs, with banks turning cautious before extending credit and funds not being available from the markets.
Bank borrowings, commercial papers and debentures are the main sources of borrowings for NBFCs.
Post the default at IL&FS, with government support, the assets of NBFCs have grown by 12.83% from ₹2.83 trillion to ₹3.19 trillion, while the assets of 211 larger NBFCs with 81% of market share have grown at an even higher rate of 19.69%, the finance ministry said. “Bank exposure to NBFCs has grown at a much higher rate of 17.46% compared to market financing,” it said.
A senior government official said the exposure of banks to NBFCs have continued to rise. “It is not the banks but the mutual funds that are risk-averse,” the official mentioned above said on condition of anonymity. “The shadow banking sector has also been hit because of the exposure to stress in the real estate sector, as well as governance problems,” the official said.
Between September 2018 and 2019, the exposure of banks to the top 50 NBFCs have grown 23% to ₹4.06 trillion. Similarly, three-fourths of the total number of HFCs with 82% of market share have shown a positive asset growth of 18% post IL&FS crisis from ₹8.45 trillion to ₹10 trillion. There are more than 9,500 NBFCs and 101 HFCs.
“Exposure of banks and NHB (National Housing Bank) to the 76 performing HFCs has grown by 38% post IL&FS default, as compared to 14% growth in market financing to these HFCs,” the ministry said.
Liquidity concerns in the shadow banking system also comes at a time of a slowdown in the broader economy, led by muted private consumption. The Centre has been prodding banks, NBFCs, HFCs, and micro-finance institutions to boost credit disbursal.
The slowdown in credit growth is a result of lower demand and unavailability of market funding, the official said.